Assessment is a procedure adopted to determine the correctness of the income disclosed by the assessee and tax payable thereon. Than what is reassessment and why there is need of reassessment? Section 147 and 148 of Income Tax Act is a well designed weapon for the Income Tax Department empowering it to assess, re-assess or re-compute income, turnover etc, which has escaped assessment.
Sec. 147 and Section 148 of the Act contain the per-requisite conditions to be fulfilled for invoking the jurisdiction to reopen the assessment. This article is concentrated on procedure to be followed in case of re-assessment. Below is the section 147 of Income Tax Act, 1961 re-produced for your reference:-
Income escaping assessment.
147. If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year) :
Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year:
Provided further that nothing contained in the first proviso shall apply in a case where any income in relation to any asset (including financial interest in any entity) located outside India, chargeable to tax, has escaped assessment for any assessment year:
Provided also that the Assessing Officer may assess or reassess such income, other than the income involving matters which are the subject matters of any appeal, reference or revision, which is chargeable to tax and has escaped assessment.
Explanation 1.—Production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso.
Explanation 2.—For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely :—
(a) where no return of income has been furnished by the assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax ;
(b) where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return ;
(ba) where the assessee has failed to furnish a report in respect of any international transaction which he was so required under section 92E;
(c) where an assessment has been made, but—
(i) income chargeable to tax has been underassessed ; or
(ii) such income has been assessed at too low a rate ; or
(iii) such income has been made the subject of excessive relief under this Act ; or
(iv) excessive loss or depreciation allowance or any other allowance under this Act has been computed;
(d) where a person is found to have any asset (including financial interest in any entity) located outside India.
Explanation 3.—For the purpose of assessment or reassessment under this section, the Assessing Officer may assess or reassess the income in respect of any issue, which has escaped assessment, and such issue comes to his notice subsequently in the course of the proceedings under this section, notwithstanding that the reasons for such issue have not been included in the reasons recorded under sub-section (2) of section 148.
Explanation 4.—For the removal of doubts, it is hereby clarified that the provisions of this section, as amended by the Finance Act, 2012, shall also be applicable for any assessment year beginning on or before the 1st day of April, 2012.
Powers of the Assessing Officer to re-open a completed assessment are not un-abundant or luxuriant. I will discuss the marked phrase in my next article analyzing the nuts and bolts of section 147 of Income Tax Act, since there are many cases with the help of which we will be able to understand it in detail. The procedure is laid down below:-
i. The AO must have reasons. The existence of reasons is mandatory. On the basis of such reasons, the AO must form a belief that there is a situation of actual or deemed escapement of Income and therefore action is required u/s 147. (If time limit is not passed.) AO must record such reasons in writing. No reassessment notice can be served just to make an enquiry or verification.
ii. AO must obtain sanctions from higher authority u/s 151, wherever necessary. Section 151 put condition on AO to take the prior approval from appropriate authority. If the AO obtain the approval from any other authority, even from higher authority, then also proceeding u/s 148 is invalid.
iii. AO must issue notice u/s 148 within prescribed time limit. A formal notice must be served upon the assessee.
1) Normally time limit for issue of Notice period is 4 or 6 years.
4 years if the escaped Income less than Rs. 1,00,000/-
6 years if the escaped income is Rs. 1,00,000/-
2) This time limit shall be 16 years if it is related to Asset located outside India
3) But, if there is any specific direction contained in an order passed by the authority in any proceeding under act by way of appeal/ revision or by a court, in that situation there shall not be any time limit and the time limit shall be indefinite period. But, if at the time when the order which was subject matter of appeal or revision was passed, the time-limit for issuance of Notice u/s 148 had already expired, the time limit of indefinite period will not apply.
iv. Assessee shall submit return within time period prescribed in the Notice. Assessee may demand reasons of proceeding u/s 147 from AO. If the assessee does not demand reasons, the AO can proceed to complete assessment. If the assessee demands reasons, the AO must provide reasons to the assessee. Assessing officer is duty bound to provide the copy of reason recorded within reasonable time as per guidelines of Hon’ble Supreme Court in case of GKN Driveshafts (India) Ltd. v/s D.C.I.T. (2003) 259 ITR 19 (SC). Reopening u/s 148 can be challenged based on facts.
v. After this the AO shall issue Notice u/s 143(2). Such notice u/s 143(2) is mandatory.
vi. Assessee instead of filing fresh return, can request for considering the return filed u/s 139(1) or 139(1)/(4)/(5) in response to Notice u/s 148. The specimen of the letter to AO is depicted below:
Specimen of letter to AO
Date:-
To,
………………….,
…………………..
SUB: - REPLY TO NOTICE U\S 148 OF INCOME TAX ACT 1961 FOR A.Y. …….. DATED………
PAN:....................
Respected Madam / Sir,
We are in receipt of the above quoted notice dated ……… received on ……….. In connection with the aforesaid subject matter we would like to state that—
We has filed the return of income for the Assessment Year ………. on ………. Vide acknowledgement number ……………. The Original return filed on …………. should be considered as return U\s 148.
We request your good self to kindly provide us the reasons recorded for re-opening the assessment which would enable us to file proper objection/ details in this respect.
Thanking You
......................
......................
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i. Assessee can submit the objections. During the reassessment proceedings the assessee advance all the argument and provide all the details for proving that Income had not escape the assessment.
ii. AO must pass the speaking order on objection raised by assessee. The hon’ble Supreme Court Decided the Ratio of Re-assessment In case of GKN DRIVESHAFT (INDIA) LTD. V/S ITO. AO has under obligation to first dispose of the objections raise by assessee and thereafter frame the reassessment order.
iii. Assessee can file Writ Petition before High Court if aggrieved by the order of objection and re-assessment proceeding. File details and advance all the arguments.
iv. Assessment shall be completed by passing order within prescribed time limit. Assessment order should be passed within the prescribed Time limit of 1 year from the end of the Financial Year in which notice u/s 148 is served upon the assessee.
v. After re-assessment order, if the Assessee is aggrieved by the order of the AO, he can file appeal before CIT(A).
vi. It is the general policy of Income Tax Officers to initiate penalty for every addition made during assessment. Against the initiation of penalty first assessee can request AO to keep penalty proceeding in abeyance u/s 275 till the order of the appellate authorities, if any appeal is filed.
vii. Where the assessee makes a bonafide claim and no malafide intensions can be attributed, then penalty cannot be levied./ Certain amounts claimed by assessee and disallowed does not mean that the assessee is guilty of fraud or willful neglect. Further, the assessee may also challenge the leavy of penalty based on strong grounds. It is well settled law that findings in the assessment proceedings are relevant but not conclusive in penalty proceedings because the considerations that arise in penalty proceedings are different from those that arise in the assessment proceedings.
Disclaimer: This article is compiled to facilitate and understand the procedures. This does not intend to be treated as legal advice. It is mere presentation of standard practices followed in practical life. The compiler/author reserves the right to produce reproduce the article and anyone copying the same and publishing it should possess prior permission of the compiler/author.
Compiled by:-
Pawan Maloo
pawan.maloo25@gmail.com
CAclubindia
