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Gujarat High Court sets aside reassessment notice due to tax authority's non-compliance with pre-reassessment procedures
In the case of Shell Gas BV[1] (Taxpayer), a non-resident in India, the key issue before the Gujarat High Court (HC) pertained to the validity of the tax authority’s order passed pursuant to the pre-reassessment notice procedure and consequential issuance of reassessment notice in a case where the tax authority neither considered the reply of the Taxpayer nor provided reasons for its decision to reopen the proceedings.
In this case, the Taxpayer advanced an interest-free external commercial borrowing to its subsidiary during the tax year and filed its return declaring the income as NIL. In the preliminary show cause notice, the tax authority alleged escapement of income on account of not charging interest. In this regard, the Taxpayer made its detailed submissions. However, the tax authority passed an order reproducing the Taxpayer’s reply but without providing reasons for its non-consideration, concluded that the case was fit for reopening the assessment and issued the reassessment notice thereon.
On Taxpayer challenging such pre-reassessment order and consequential reassessment notice in a writ petition before the Gujarat HC, the HC held that mere replication of Taxpayer’s reply, without dealing with any of the issues raised by the Taxpayer or assigning any reasons therein in the order, indicated that the tax authority had not applied its mind while passing such order. The tax authority, while appears to have ostensibly adhered to the procedural requirements, the same cannot be said to be compliant with the scheme, as the entire purpose of the scheme turns futile when a detailed reasoning is not given[2] . Thus, the HC quashed the pre-reassessment order as well as the reassessment notice.