Delhi High Court has stayed reassessment proceedings against two Singapore-based investors, namely Flipkart Marketplace and FK Myntra Holdings. The two entities invested around ₹3,500 crore in an Indian company going by the name Flipkart Internet Pvt. Ltd. The writ petition was filed after Income Tax Department initiated reassessment proceedings against the assessees for AY 2019-20, alleging income escaping assessment on foreign direct investment.

Submitting before the bench, both the assessees claimed to hold a valid Tax Residency Certificate (TRC) of Singapore and did not file a return of income in India. Kumar Visalaksh, who appears on behalf of the petitioner, said that apart from anything else, “investment in shares of the said company could not be construed as escapement of income, unless the Assessing Officer, based on material available to him, forms a prima facie view that it, at least, is a case of round-tripping.”

Assessees objected to the reassessment proceedings by relying on jurisdictional HC rulings in Nestle and Blackstone Capital and submit that the investment in shares is a capital account transaction and cannot tantamount to income escaping assessment, unless the Revenue has a prima facie view on round tripping based on the material available. The bench noted that same issue is being considered in various matters, including Elara Technologies.

After hearing submissions from both the side, the division bench of Justices Rajiv Shakkdher and Girish Kathpalia, issued notices and directed to file the counter-affidavit within 8 weeks. In the meantime, “there shall be stay on the continuation of the reassessment proceeding, till further directions of the Court,” the bench said in a recent ruling while fixing December 6 as next date for hearing.

Amit Maheshwari, Tax Partner, AKM Global, a tax and consulting firm stated: “Recent crackdown of Income Tax department on FDI investment by foreign investors has the capability of making a potential dent around investment climate in India. In many such cases, foreign investors are being questioned unnecessarily with use of special tools such as income escaping assessment. Income escaping assessment is typically initiated by tax department where it has prima facie opinion that certain income has not been subject to tax.

“Further, latest amendment in Budget 2023 to bring foreign investors under the ambit of Angel tax will create more challenges for such investors going forward. However, Delhi High Court giving stay on Flipkart’s high pitched assessment case is a sigh of relief as paying tax demand may be a huge challenge for companies.”

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