Bombay High Court remands reassessment objections of Naresh Goyal for de novo consideration

Background and Core Controversy

The writ petition in Naresh Jagdishrai Goyal Vs DCIT came before the Bombay High Court as a challenge to:

  • A notice dated 31.03.2021 issued under Section 148 of the Income Tax Act 1961 for Assessment Year 2014-15, and
  • The order dated 24.01.2022 by which the Assessing Officer (AO) rejected the assessee’s objections to reopening under Section 147.

The reassessment proceedings were triggered on the basis of information shared by the DCIT (International Taxation), Mumbai relating to share transactions of M/s. Tail Winds Ltd., an Isle of Man company, involving sale of shares of Jet Airways (India) Ltd.

The AO formed a belief that the assessee, Mr. Naresh Jagdishrai Goyal, had purchased shares of Jet Airways (India) Ltd. from M/s. Tail Winds Ltd. for approximately ₹3,563.49 crore, and that the nature and source of this acquisition were not discernible from the return of income originally filed. Consequently, he recorded “reason to believe” that income chargeable to tax had escaped assessment within the meaning of Section 147.

The key question before the High Court was not to adjudicate the merits of taxability, but to decide whether the order rejecting the assessee’s objections to reopening should be set aside and reconsidered, especially in light of additional documents later furnished by the assessee under Section 143(2) and Section 142(1).

Material Facts and Transaction Structure

Information from International Taxation Wing

The AO received a communication from the DCIT (International Taxation), Mumbai), who was then conducting proceedings under Section 133(6) in the case of M/s. Tail Winds Ltd. for Financial Year 2013-14 (AY 2014-15), primarily concerning issues of non‑deduction or lower deduction of tax at source.

Based on information and broker notes available with the DCIT:

  • M/s. Tail Winds Ltd., a foreign company incorporated in Isle of Man, had sold 6,90,57,210 shares of Jet Airways (India) Ltd.
  • The aggregate sale consideration for these shares was recorded at ₹3,563.49 crore.
  • Details and summaries of the trades, along with broker notes, were provided to the AO.

Further, the DCIT indicated that from publicly available information:

  • M/s. Tail Winds Ltd. was held by Mr. Naresh Goyal,
  • The assessee was also a director of M/s. Tail Winds Ltd., and
  • The entire shareholding of M/s. Tail Winds Ltd. in Jet Airways (India) Ltd. was ultimately transferred to the assessee through a bulk deal on NSE/BSE.

The DCIT also suggested that this preliminary data be used by the AO to examine the source of funds in the hands of the assessee for acquiring those shares.

AO’s Recorded Reasons for Reopening

Relying on the material received and his own examination of records, the AO recorded in the reasons for reopening that:

  • The assessee had acquired shares of Jet Airways (India) Ltd. from M/s. Tail Winds Ltd. in AY 2014-15 for ₹3,563.49 crore;
  • The nature and source of such funds were not reflected or disclosed in the original return;
  • There was a failure on the part of the assessee to fully and truly disclose all material facts necessary for assessment; and
  • Accordingly, the AO had “reason to believe” that income to the extent of ₹3,563.49 crore had escaped assessment, warranting reopening under Section 147 and notice under Section 148.

The assessee responded by filing detailed objections to the reopening.

Assessee’s Stand on Funding and Number of Shares

Objections to Reason to Believe

In his objections dated 11.01.2022, the assessee contended that:

  • The “belief” recorded by the AO was not an independent satisfaction but only a borrowed belief based entirely on the communication from the DCIT (International Taxation);
  • Proper and full disclosure had been made in the original assessment; and
  • There was no rational basis to conclude that income had escaped assessment.

Explanation of Share Acquisition and Funding

On the merits of the transaction, the assessee explained the funding pattern and quantum of shares as follows: