Guide to the law on reopening of assessments u/s 147 of the Income-tax Act

There is a very interesting article on Guide to the law on reopening of assessments u/s 147 of the Income-tax Act by Advocate Ajay R. Singh

The law on reopening of assessments u/s 147 of the Income-tax Act is a complicated subject with a multitude of propositions and a plethora of judgements. The author has used his rich experience as a practicing advocate to cull out all the core principles of law and to present them in a simple and straight forward manner. The Guide will prove invaluable to all taxpayers and tax professionals

Some excerpts:

The scope and effect of a reopening of assessment is still shrouded in mystery even after various judgments of the Supreme Court and High courts. Reassessment is one of the distinguishing weapons in the armoury of the Department, empowers the Assessing Officer to assess, reassess or recompute income, turnover etc, which has escaped assessment. A number of intricate issues crop up during the reassessment proceedings. Some of the issues are been dealt with here under:



I. Preconditions:


1.1 It is well known that powers of the Assessing Officer to re-open a completed assessment are not unfertile. Sec. 147 and Section 148 of the Act contains the perquisite conditions to be fulfilled for invoking the jurisdiction to reopen the assessment.


1.2 The general principle is that once an assessment is completed it becomes final. Section 147 empowers the Assessing Officer to reopen an assessment if the conditions prescribed therein are satisfied. The conditions are:


i) The Assessing Officer has to record the reason for taking action under section 147. It is on the basis of such reasons recorded in the file that the validity of the order reopening a assessment has to be decided. Recorded reasons must have a live link with the formation of the belief.


ii) The Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year.


iii) The jurisdictional condition under section 147 is the formation of belief by the Assessing Officer that income chargeable to tax has escaped assessment for any assessment year.

iv) No action can be initiated under section 147 after the expiry of 4 years from the end of the relevant assessment year unless the income chargeable to tax has escaped assessment by reason for the failure on the part of the taxpayer to disclose fully and truly all material facts necessary for his assessment..


1.3 The Apex Court in the case of GKN Driveshafts (India) Ltd. v/s D.C.I.T. (2003) 259 ITR 19 (SC) has laid down the procedure to challenge the reassessment proceedings.


When a notice under section 148 of the Income-tax Act, 1961, is issued, the proper course of action is to file the return and, if he so desires, to seek reasons for issuing the notices. The assessing officer is bound to furnish reasons within a reasonable time. On receipt of reasons, the assessee is entitled to file objections to issuance of notice and the assessing officer is bound to dispose of the same by passing a speaking order.


1.4 The courts have consistently held that the pre condition are jurisdiction conferring on the AO to reopen the assessment and their non fulfillment renders the initiation itself ab-initio void. The High Court in appropriate cases has power to issue an order prohibiting the Income-tax Officer from proceeding to reassess the income when the conditions precedent do not exist. It is well-settled however that though the writ of prohibition or certiorari will not issue against an executive authority, the High Courts have power to issue in a fit case an order prohibiting an executive authority from acting without jurisdiction. Where such action of an executive authority acting without jurisdiction subjects or is likely to subject a person to lengthy proceedings and unnecessary harassment, the High Courts, will issue appropriate orders or directions to prevent such consequences.


2. Reasons – Recorded to be supplied and Objections to be disposed off:


2.1 Assessing officer should dispose off the assessee objection and serve the order on assessee. Assessing officer should not proceed with assessment for 4 weeks thereafter.


Asian Paint Ltd. vs. Dy. CIT (2008) 296 ITR 96 (Bom)

2.2 Reassessment framed by the assessing officer without disposing of the primary objection raised by the assessee to the issue of reassessment notice issued by him was liable to be quashed. Bombay High Court set-aside the assessment for fresh hearing in case of IOT Infrastructure and Eng. Services Ltd. vs. ACIT (2010) 329 ITR 547 (Bom)


2.3 Reasons for notice must be given and objections of assessee must be considered.


Allana cold storage vs. ITO (2006) 287 ITR 1 (Bom.) (Asst Yr 2001-2002)


(Followed the order passed by Supreme Court in the case of GKN Driveshaft. ) Matter set-a-side to pass fresh order.

Bhabesh Chandra Panja vs. ITO (2010) 41 SOT 390 (TM) (KOL)


Assessing officer completed the asst without providing the reasons recorded inspite of request – Held Assessment order invalid set aside for fresh orders.


2.4 Assessee is entitled to be supplied with the reasons in the event he challenges the notice for reassessment; assessee is not stopped from challenging the impugned notice after having submitted to the jurisdiction of the officer by filing returns.


Berger Paints India Ltd vs. Asst. Commr. Of income tax and Ors


(2004) 266 ITR 462 (Cal)


Communication of Reasons – Mandatory


2.5 For passing an order under section 147 recording of reasons u/s. 148 and communication thereof to party concern is mandatory.


Gujarat Fluorochemicals Ltd vs. DCIT (2008) 15 DTR (Guj) 1


Nandlal Tejmal Kothari vs. Inspecting ACIT (1998) 230 ITR 943 (SC)


2.6 If assessee does not ask for s. 147 reasons & object to reopening, ITAT cannot remand to AO & give assessee another opportunity:

Full article can be downloaded from here

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