1. A is a holding company. B is its subsidiary company. Both the companies carry on their business from same premises. In other words, Place of Business (POB) of both the companies is one and the same. Both the companies are registered under the GST law.

2. Common related expenses such as courier expenses, office rent, telephone expenses, motor car expenses, printing & stationery expenses, royalty expenses, overhead expenses, accounts & admin department expenses etc are borne by company ‘A’.

3. At the end of the year, company ‘A’ shares these expenses with company ‘B’. For this purpose, company ‘A’ issues tax invoices to company ‘B’. Company ‘A’ pays the tax along with returns.

4. Company ‘B’ record these transactions in its books of account as tax paid
purchases and claim ITC (Setoff) in its returns.

5. Querist seeks to know whether this arrangement is in accordance with the law and whether there are any issues which may be raised by Revenue Authorities?

Reply

6. A holding company and a subsidiary are related parties under the Explanation to Section 15 of the GST Act. Therefore, any supply of services by the holding company to the subsidiary company or vice-versa will be taxable under Schedule I Clause 2, even though no consideration passes between the two for the services as such.

7. Both these companies carry on their businesses from the same premises. However, that in itself cannot be determinative of whether any services are provided by the holding company to the subsidiary company or vice-versa.

8. Firstly, it is pertinent to note that simply because a case falls within Schedule I Clause 2, every expenditure involving related persons does not become a supply of services. GST is a tax on supply of goods and services and not tax on expenditure per se. Schedule I, Clause 2 also recognises this and speaks only of supply of goods and services between related persons.

9. Therefore, only those transaction which are capable of being regarded as supplies as per the yardstick of an ordinary commercial reasonable man will come within Schedule I, Clause 2.

10. When two persons jointly acquire the services of a third party, and one of them pays the entire amount while the other reimburses, the one who pays the entire amount acts as a paymaster or an agent of the other. [Durham Aged Mineworkers’ Home Association v. CEC (1994) BVC 145].

11. Therefore, where courier expenses are paid by the holding company for itself as well as its subsidiary and subsequently gets itself reimbursed by the subsidiary company, the holding company merely acts as an agent of the subsidiary company. It does not actually provide any courier services to the subsidiary. The courier services are provided directly by the third-party service provider to the subsidiary company. The real nature of supply in this case is the supply of facilitation or agency services by the holding company to the subsidiary company. The holding company is merely facilitating the supply of courier services by making the payment as an agent of the subsidiary company.

12. It can be no one’s case that the actual reimbursed amount is the value of the facilitation service. There is in fact no commission charged or margin kept by the holding company in this case which can be said to constitute the consideration for the facilitation or agency service. However, such a service will be taxable even without consideration due to the effect of Schedule I, Clause 2. But the value of reimbursement has absolutely no nexus with facilitation or the agency service.

13. Now, if tax is to be paid one must determine the value of the facilitation or agency services. If the subsidiary is eligible for full input tax credit, whatever value is shown in the invoice by the holding company will be accepted without question in revenue due to the provision of the second proviso to Rule 28. Even if the value of the facilitation service is shown as the entire reimbursed amount, the same cannot be questioned.

14. However, where the subsidiary is not eligible for full input tax credit, the second proviso to Rule 28 will not be applicable. In such a case, the other provision of Rule 28 will to have to be applied.

15. It’s is our view that facilitation services involved in this case cannot be valued even under Rule 28. There is no open market value for such services. Similarly, value of supply of services of like kind and quality cannot be determined. The cost-plus methodology is also unworkable. The only remaining rule of valuation is the Rule 31 which states that the value should be computed by using reasonable means consistent with the principles and the general provisions of the valuation rules.

16. The Supreme Court in K. Damodarasamy Naidu v. State of Tamil Nadu [(2000) 117 STC 1] has held that unless a certain and definite mechanism of valuation is laid down in the statute, the levy cannot be enforced. Particularly, where every assessing officer has the discretion to arbitrarily create his own method of valuation, the same offends the Constitution. In my view, Rule 31 cannot be applied at all since it gives each assessing officer intolerable discretion to devise his own mechanism.

17. In such a case, it is better for the invoices from third party service providers to be issued separately in the name of the holding company as well as subsidiary company. The payment for both the invoices may be made by the holding company and the subsidiary company may reimburse the amount relating to itself. However, as long as the invoices are divided at source, the manner of payment will not matter.

Liability upon individual under GST

Query

Whether, receipt towards surrender of tenancy right by the individual is liable under GST?

The facts are that an individual had commercial office in commercial building on tenancy basis. The office came to him by way of ancestral property. The individual has no business activity and also does not hold registration under GST. The said building is under redevelopment and the builder has offered lump sum amount towards vacating the premises and surrender of premises right. This is normally referred to as receipt of money towards tenancy right.

Issue is whether any GST is attracted on the above receipt in the hands of individual?

Reply

Under GST Act, tax is attracted on ‘supply’.

Term ‘supply’ is defined in section 7 of CGST Act as under:

“7.(1) For the purposes of this Act, the expression “supply” includes––

(a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business;

(b) import of services for a consideration whether or not in the course or furtherance of business;

(c) the activities specified in Schedule I, made or agreed to be made without a consideration; and

(d) the activities to be treated as supply of goods or supply of services as referred to in Schedule II.”

It can be seen that as per section 7(1), if the supply is in course or furtherance of business etc., it will be covered under scope of section 7.

Term ‘business’ is defined in section 2(17) of CGST Act as under:

“(17) “business” includes––

(a) any trade, commerce, manufacture, profession, vocation, adventure, wager or any other similar activity, whether or not it is for a pecuniary benefit;

(b) any activity or transaction in connection with or incidental or ancillary to sub-clause (a);

(c) any activity or transaction in the nature of sub-clause (a), whether or not there is volume, frequency, continuity or regularity of such transaction;

(d) supply or acquisition of goods including capital goods and services in connection with commencement or closure of business;

(e) provision by a club, association, society, or any such body (for a subscription or any other consideration) of the facilities or benefits to its members;

(f) admission, for a consideration, of persons to any premises;

(g) services supplied by a person as the holder of an office which has been accepted by him in the course or furtherance of his trade, profession or vocation;

(h) services provided by a race club by way of totalisator or a licence to book maker in such club ; and

(i) any activity or transaction undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities.”

The definition of ‘business’ basically covers activities which are commercial in nature. Though making actual profit or having profit motive is not criteria, still the activity should be in organised manner so as to carry it 
with intention to do business in commercial sense.

On exemplary basis reference can be made to judgment of Hon. Bombay High Court in case of CIT v. Gopal Purohit 228 CTR 582 (Bom.) wherein the issue was about, taxation of profit from dealing in securities under Income-tax Act. The lower authorities tried to tax the profit under “Business Income”. The High Court distinguished the profit from shares business and shares investment. To the extent of shares investment activity, it is held that, it is not business. The relevant observations are as 
under:

“The Tribunal has entered a pure finding of fact that the assessee was engaged in two different types of transactions. The first set of transactions involved investment in shares. The second set of transactions involved dealing in shares for the purpose of business. The Tribunal has correctly applied the principle of law in accepting the position that it is open to an assessee to maintain two separate portfolios, one relating to investment in shares and another relating to business activities involving dealing in shares. The Tribunal held that the delivery based transactions in present case, should be treated as those in nature of investment transactions and the profit received therefrom should be treated as either as short term or, as the case may be, long term capital gain, depending upon the period of holding. The Tribunal has observed in its judgment that the assessee has followed a consistent practice in regard to the nature of the activities, the manner of keeping record and the presentation of shares as investment at the end of the year, in all the years. The Tribunal correctly accepted the position that the principle of res judicata is not attracted since each assessment year is separate in itself. The Tribunal held that there ought to be uniformity in treatment and consistency when the facts and circumstances are identical, particularly in the case of the assessee. The approach of the Tribunal cannot be faulted. The Revenue did not furnish any justification for adopting a divergent approach for the assessment year in question. There cannot be any dispute about the basic proposition that the entries in the books of account alone are not conclusive in determining the income. The Tribunal has applied the correct principle in arriving at the decision in the facts of the present case. The finding of fact does not call for interference in an appeal u/s. 260A. No substantial question of law is raised.”

Thus there is difference between activity as investment and as business. The facts in the query are required to be considered in light of above legal position. Certainly for individual the surrender of tenancy right is disposal of capital asset which can be equated with investment and not a business activity.

Reference can also be made to press note by GST Council about implication of tax on ‘sale of gold’ etc. by individuals. The said press note is as under:

Press Information Bureau

Government of India

Ministry of Finance

13-July-2017 18:57 IST

Further clarification on tax in reverse 
charge on gold ornaments;

Sale of old jewellery by an individual to a jeweller will not make the jeweller liable to pay tax under reverse charge mechanism 
on such purchases

However, if an unregistered supplier of gold ornaments sells it to registered supplier, the tax under RCM will apply

In the GST Ki Master Class held yesterday, in one of the replies given to an on-the-spot-question, it was informed that purchase of old gold jewellery by a jeweller from a consumer will be subject to GST @ 3% under reverse charge mechanism in terms of the provisions contained in Section 9(4) of the CGST Act, 2017.

On further examination, it is felt that the issue needs to be clarified.

Section 9(4) of the said Act mandates that tax on supply of taxable goods (gold in this case) by an unregistered supplier (an individual in this case) to a registered person (the jeweller in this case) will be paid by the registered person (the jeweller in this case) under reverse charge mechanism. This provision, however, has to be read in conjunction with section 2(105) read with section 7 of the said Act. Section 2 (105) defines supplier as a person supplying the goods or services. Section 7 provides that a supply is a transaction for a consideration by a person in the course or furtherance of business.

Even though the sale of old gold by an individual is for a consideration, it cannot be said to be in the course or furtherance of his business (as selling old gold jewellery is not the business of the said individual), and hence does not qualify to be a supply per se. Accordingly, the sale of old jewellery by an individual to a jeweller will not attract the provisions of Section 9(4) and jeweller will not be liable to pay tax under reverse charge mechanism on such purchases. However, if an unregistered supplier of gold ornaments sells it to registered supplier, the tax under RCM will apply.”

It is stated that any individual selling its asset like gold is not in course of business.

The individual in the query is not doing any business activity nor holding registration under GST Act. He is disposing of tenancy right as disposal of ancestral capital asset. It is one off transaction of disposal of asset and not with a view to do business. Therefore, the disposal of tenancy right is outside scope of business in case of Individual. It cannot be liable under GST.

Query No. 1: Effect of Succession (Amendment) Act 2005

What is the effect of Hindu Succession (Amendment) Act, 2005 in respect of right of daughter in HUF property?

Answer

The Hindu Succession Act, 1956 has been amended in the year 2005 with a view to give daughter on birth, her same right as a son on his birth. Consequently, the daughter has the right to be a co-parcener and also right to claim partition or vest her individual property in the HUF. These are important right hitherto denied to daughters, The amendment takes effect from September 9, 2005.

Thus, after marriage, she remains co-parcener in her father’s HUF and becomes a member in husband’s HUF.

As she is co-parcener in her father’s HUF, she can also will her share in co-parcenery property.

Query No. 2: Computation provisions are not applicable when presumptive income is adopted u/s. 44AE

A is having four tank lorries. He submits his Income-tax Return under presumptive scheme u/s. 44AE. Whether he can pay amount up to rupees two lakh in each for his high speed diesel (HSD) bills?

Answer

Section 44AE reads as under:

(1) Notwithstanding anything to the contrary contained in sections 28 to 43C, in case of an assessee, who owns not more than ten goods carriages at any time during the previous year and which is engaged in the business of plying, hiring or leasing such goods carriages, the income of such business chargeable to tax under the head “Profits and Gains of Business or Profession” shall be deemed to be aggregate of profits and gains from all the goods carriages owned by him in the previous year computed in accordance with the provisions of sub-section (2)

(2) For the purpose of sub-section (1), the profits and gains from each goods carriage shall be an amount equal to seven thousand five hundred rupees for every month or part of a month during which the goods carriage is owned by the assessee in the previous year or an amount claimed to have been actually earned from the vehicle, whichever is higher ………..”

Thus section 44AE with non obstante clause to ensure that computation provisions do not have application. Hence section 40A(3) and (3A) will have no application. Therefore, where presumptive income is adopted, the question of judging the correctness of expenses cannot arise [see Pushpak Auto Centre v. ITO 158 ITD 588 (Del.)]

Query No. 3: Mandatory recording of Partition

A has made full partition of HUF in March 2016. HUF submits ITR for the Assessment year 2017-18. The intimation u/s. 143(1) is received, but no partition u/s. 171 is recorded. What steps the assessee should take?

Answer

As per section 153(1) of the Act, time limit for completion of assessment is December 31, 2019 for assessment year 2017-18. So before this date the Assessing Officer should investigate the claim of partition and give finding.

The result of provisions of section 171 is that though a family has come to an end in law because of a partition in status vis-a-vis all the properties, its disappearance will not be recognised and it will continue to be assessed as a joint family and charged as a single unit of assessment on its income as before as per ITO v. N. K. Sarada Thampathy [187 ITR 696 (SC)].

As per Kalwa Devadattam v. UOI [49 ITR 165 (SC)], even where there is complete partition by metes and bounds the family will be deemed to continue (i) if no claim of partition is made by the members at the time of the assessment; or (ii) if a claim is made but no finding is given by the officer recording the partition.

Hence, where claim is made, it will be duty of the Assessing Officer to investigate the claim and give a finding. Where he makes an assessment on the family without disposing of the claim, the Supreme Court held in Kapurchand Shrimal v. CIT [131 ITR 451], held that the assessment should be set aside in appeal or other appropriate proceedings with a direction to the officer to make a fresh assessment according to law.

Therefore, it is necessary to assessee to pursue the Assessing Officer to record the partition before the assessment is completed.

Query No. 4: Availment of MAT credit u/s. 115AA

Can availment of MAT credit be deferred. In other words, assessee wants to pay regular tax and does not wish to utilise available MAT credit for reducing the current tax liability. Assessee wishes to utilise available MAT credit in future years. Is there any bar in his doing so?

Answer

No, subject to the provisions of sub-sections (3A) to (5) of section 115JAA. The sections read as under:

(3A) The amount of tax credit determined under sub-section (2) shall be carried forward and set-off in accordance with the provisions of sub-section (4) and sub-section (5) but such carry forward shall not be allowed beyond the fifteenth assessment year immediately succeeding the assessment year in which tax credit becomes allowable under sub-section (1A).

(4) Tax credit shall be allowed set-off in a year when tax becomes payable on the total income computed in accordance with the provisions of this Act other than section 115JA or section 115JB as the case may be.

(5) Set-off in respect of brought forward tax credit shall be allowed for any assessment year to the extent of the difference between the tax on his total income and the tax which would have been payable under the provisions of sub-section (1) of section 115JA or section 115JB, as the case may be for the assessment year.

Query No. 5: Remuneration paid to HUF

In case when both the HUF and his Karta is a partner of same partnership firm, remuneration paid to HUF will be allowed or not?

Answer

It depends upon the fact:

In V. D. Dhanwatey v. CIT [68 ITR 365 (SC)], V. D. D. as a member of a bigger HUF was looking after the family business of lithography and printing and was remunerated for the same between 1930 and 1939. After partition the business was converted into partnership but VDD continued to be with one eighth share on behalf of his smaller HUF which had contributed proportionate capital. Under clause 7 of the partnership deed the general management and supervision of the business was to be in the hands of VDD, who under clause 16, was to be paid remuneration.

The Supreme Court, by a majority of four to one, held that salary to VDD was paid due to the contribution made by the joint family and the remuneration paid was directly related to investments from the assets of the HUF. There was a real and sufficient connection between the investment made by the HUF and the remuneration paid to him. It, therefore, followed that remuneration was not earned without detriment to HUF funds, and the case fell directly within the principles laid down by the Court in Kalu Babu Lal Chand [37 ITR 123(SC)] and Mathura Prasad v. CIT [60 ITR 428 (SC).]

The majority, therefore, held that the Karta was partner representing the family and under the partnership agreement, that he was responsible for general management and supervision of the partnership business and that he was to be paid monthly remuneration for the same. The remuneration paid was held to be directly related to the investment in the partnership business from the assets of the family and salary was held to be assessable in the hands of HUF.

The principle laid down in V. D. Dhanwatey [68 ITR 365 (SC)] was applied by the Allahabad High Court in Nagar Das v. CIT [66 ITR 203.]

From the study of the judgments, the guidelines set out by the Supreme Court, it is obvious that the dividing line between the two views is thin and is based –

(A) (i) First on the fundamental principle as to whether the remuneration was earned because of any personal qualification of the members of HUF, and

(ii) Secondly as to whether the remuneration was merely a form of profit sharing and was earned by detriment to HUF funds invested therein.

(B) If there as a clear finding on facts that the remuneration was earned due to personal qualifications of the Karta or member of the HUF and was not earned by detriment to HUF funds, then the remuneration would be taxed in the hands of individual and will be excluded from the income of HUF.

If it is because of detriment to HUF fund it would be taxed in the hands of HUF.

Note: Please send your queries relating to Direct, Indirect & International Taxation, Accounting & Auditing Standards and Company Law, FEMA etc., to AIFTP, having interest to the Members.

Try to be pure and unselfish – that is the whole of religion.

Swami Vivekananda

Dictionary meaning of the word ‘assessment’ is ‘the action of assessing someone or something.’ To assess means, to fix the amount of tax, or to determine such amount and the process of reassessment being for the same purpose is included in the connotation of the term ‘assessment’ vide Income Tax Officer v. K. N. Guruswamy (34 ITR 601– Hon’ble Supreme Court). In the earlier Sales Tax or VAT law, the word ‘assessment’ has not been defined. Section 2 (11) of the CGST Act, 2017 (for short ‘Act’) defines ‘assessment’ as follows:-

“‘Assessment’ means determination of tax liability under this Act and includes self-assessment, re-assessment, provisional assessment, summary assessment and best judgment assessment.”

According to dictionaries, the word ‘determination’ means ‘the process of establishing something exactly by calculation or research.’ Thus the whole process of determination of tax liability under the Act is assessment. Sections 59 to 64 in Chapter XII of the Act deal with ‘assessment’. Sections 73, 74 and 75 in Chapter XV deal with ‘determination of tax’. Different procedures of assessment have been specified for different situations. ‘Proper Officer’ has been defined as follows in Section 2 (91) of the Act:

“(91) “Proper officer” in relation to any function to be performed under this Act, means the Commissioner or the officer of the Central tax who is assigned that function by the Commissioner on the Board.”

ASSESSMENT

Section 59 – Self Assessment

Every registered person shall self-assess the taxes payable under the Act and furnish a return for each tax period as specified under Section 39. Basic idea of having self-assessment procedure is to bring down compliance costs. In this system, tax awareness to the taxable person is important because insufficient tax awareness will certainly result in filing returns with many defects. The burden is on the taxable person to understand, interpret and declare the turnovers and taxes in the returns correctly. Section 122(2) (a) of the Act provides for penalty of ₹ 10,000 or 10% of the tax due, whichever is higher, where tax has not been paid or short-paid or where the ITC has been wrongly availed or utilized. Under clause (b), penalty would be equal to ₹ 10,000 or the tax due, whichever is higher if the above had occurred for reason of fraud or any wilful misstatement or suppression of facts to evade tax.

Section 60 and Rule 98 of the CGST Rules, 2017 (for short ‘Rules’) – Provisional assessment

Provisional assessment is undertaken at the instance of the taxable person. Where the taxable person is unable to determine the value of goods or services or both or determine the rate of tax applicable thereto, he may furnish to the proper officer through an application in FORM GST ASMT-01 on the common portal giving reasons for payment of tax on a provisional basis. Proper Officer may call for additional information in FORM GST ASMT-02. Applicant shall file a reply in FORM GST ASMT-03 and also may appear before the officer, if he so desires. The proper officer shall issue an order in FORM GST ASMT-04 allowing the payment of tax on a provisional basis indicating the value or the rate or both on the basis of which the assessment is to be allowed on a provisional basis and the amount for which the bond is to be executed and security to be furnished not exceeding twenty-five per cent of the amount covered under the bond and such order shall be passed within a period not later than ninety days from the date of receipt of such request. The bond shall be executed in FORM GST ASMT-05. One bond is sufficient for the CGST Act, SGST Act and IGST Act.

The proper officer shall, within a period not exceeding six months from the date of the communication of the order issued under sub-section (1), pass the final assessment order after taking into account such information as may be required for finalising the assessment. Such period can be extended up to six months or up to 4 years by specified higher authorities. The proper officer shall issue a notice in FORM GST ASMT-06, calling for information and records required for finalisation of assessment under sub-section (3) of section 60 and shall issue a final assessment order, specifying the amount payable by the registered person or the amount refundable, if any, in FORM GST ASMT-07. The applicant may file an application in FORM GST ASMT-08 for the release of the security furnished under sub-rule (4) after issue of the order under sub-rule (5). The proper officer shall release the security furnished under sub-rule (4), after ensuring that the applicant has paid the amount specified in sub-rule (5) and issue an order in FORM GST ASMT–09 within a period of seven working days from the date of receipt of the application under sub-rule (6). If the tax becomes payable, interest has to be paid by the registered person. If the registered person is entitled for refund as a consequence of final assessment order, interest shall be paid.

Section 61 and Rule 99 of Rules –Scrutiny of returns

The proper officer may scrutinise the return and related particulars furnished by the registered person to verify the correctness of the return and inform him of the discrepancies noticed through a notice in FORM GST ASMT-10 seeking his explanation thereto within such time, not exceeding thirty days from the date of service of the notice or such further period as may be permitted by him and also, where possible, quantifying the amount of tax, interest and any other amount payable in relation to such discrepancy.

The registered person may accept the discrepancy mentioned in the notice issued under sub-rule (1), and pay the tax, interest and any other amount arising from such discrepancy and inform the same or furnish an explanation for the discrepancy in FORM GST ASMT-11 to the proper officer. Where the explanation furnished by the registered person or the information submitted under sub-rule (2) is found to be acceptable, the proper officer shall inform him accordingly in FORM GST ASMT-12. In case no satisfactory explanation is furnished within a period of thirty days of being informed by the proper officer or such further period as may be permitted by him or where the registered person, after accepting the discrepancies, fails to take the corrective measure in his return for the month in which the discrepancy is accepted, the proper officer may initiate appropriate action including those under section 65 or section 66 or section 67, or proceed to determine the tax and other dues under section 73 or section 74.

Section 62 and Rule 100(1) of Rules – Assessment of non-filers of returns

Notwithstanding anything to the contrary contained in Section 73 or Section 74, where a registered person fails to furnish the return under section 39 (monthly or quarterly return) or Section 45 (final return), even after the service of a notice under Section 46 (provides for issue of notice to registered person who fails to furnish a return u/s 39 or 44 or 45 within 15 days), the proper officer may proceed to assess the tax liability of the said person to the best of his judgment taking into account all the relevant material which is available or which he has gathered and issue an assessment order within a period of five years from the date specified under section 44 (31st December) for furnishing of the annual return for the financial year to which the tax not paid relates. Thus for passing an order under Section 62(1), a notice under Section 46 must be first issued. The order of assessment made under sub-section (1) of section 62 shall be issued in FORM GST ASMT-13.

However where the registered person furnishes a valid return within thirty days of the service of the assessment order under sub-section (1), the said assessment order shall be deemed to have been withdrawn but the liability for payment of interest under sub-section (1) of section 50 or for payment of late fee under section 47 shall continue.

Section 63 and Rule 100(2) – Assessment of unregistered persons

Notwithstanding anything to the contrary contained in section 73 or section 74, where a taxable person fails to obtain registration even though liable to do so or whose registration has been cancelled under sub-section (2) of section 29 but who was liable to pay tax, the proper officer may proceed to assess the tax liability of such taxable person for the relevant tax periods and issue a notice in FORM GST ASMT-14 containing the grounds on which the assessment is proposed to be made on best judgment basis and after allowing a time of fifteen days to such person to furnish his reply, if any, pass an assessment order, in FORM GST ASMT 15 within a period of five years from the date specified under section 44 (31st December) for Furnishing of the annual return for the financial year to which the tax not paid relates. It is mandatory to give an opportunity of being heard.

Section 64 and Rule 100 (3, 4 and 5) –Summary assessment in certain special cases

It is understood from FORM GST ASMT-16 that this summary assessment relates to a situation where it has come to the notice of the proper officer that unaccounted for goods are lying in stock at godown or in a vehicle stationed at the mentioned place and the person is not able to account for the goods or produce any document showing the detail of the goods.

The proper officer may, on any evidence showing a tax liability of a person coming to his notice, with the previous permission of Additional Commissioner or Joint Commissioner, proceed to assess the tax liability of such person to protect the interest of revenue and issue an assessment order in FORM GST ASMT-16, if he has sufficient grounds to believe that any delay in doing so may adversely affect the interest of revenue.

Provided that where the taxable person to whom the liability pertains is not ascertainable and such liability pertains to supply of goods, the person in charge of such goods shall be deemed to be the taxable person liable to be assessed and liable to pay tax and any other amount due under this section.

The person referred to in sub-section (2) of section 64 may file an application for withdrawal of the summary assessment order in FORM GST ASMT–17.

On an application made by the taxable person within thirty days from the date of receipt of order passed under sub-section (1) or on his own motion, if the Additional Commissioner or Joint Commissioner considers that such order is erroneous, he may withdraw such order and follow the procedure laid down in section 73 or section 74. The order of withdrawal or, as the case may be, rejection of the application under sub-section (2) of section 64 shall be issued in FORM GST ASMT-18.

PENALTY

Section 127 – Power to impose penalty in certain cases

Where the proper officer is of the view that a person is liable to a penalty and the same is not covered under any proceedings under section 62 or section 63 or section 64 or section 73 or section 74 or section 129 or section 130, he may issue an order levying such penalty after giving a reasonable opportunity of being heard to such person.”

Section 83 and Rule 159 – Provisional attachment of property

“Section 83(1) Where during the pendency of any proceedings under section 62 or section 63 or section 64 or section 67 or section 73 or section 74, the Commissioner is of the opinion that for the purpose of protecting the interest of the Government revenue, it is necessary so to do, he may, by order in writing attach provisionally any property, including bank account, belonging to the taxable person in such manner as may be prescribed. Every such provisional attachment shall cease to have effect after the expiry of a period of one year from the date of the order made under sub-section (1).

Benami Transactions (Prohibition) Act, 1988 was introduced as an Act of Parliament in 1988 to prohibit certain types of financial transactions. The 1988 Act had come into force on 5th September, 1988. Although benami transactions were declared illegal due to enactment of the said Act, the Act had limited success in curbing them. Updated versions were therefore passed in 2011 and 2016, seeking to more comprehensively and effectively enforce the prohibitions.

One of the leading issue in Indian economy is the effort made by the Government to tackle the problem of black money and related illegal economic activities. Several efforts were made by the Government to fight black money, money laundering etc. One such serious step is enactment of the Benami Transactions (Prohibition) Amendment Act 2016. The amended Act has come into effect on 1st November, 2016. The modified new legislation will be known as Prohibition of Benami Property Transactions Act, 1988 (PBPT Act).

The Act is going to be an ace weapon to track black money supplementing the Income Declaration Scheme 2016 and the demonetisation programme carried out by the Government.

“The Benami Transactions (Prohibition) Amendment Act, 2016” was notified to come into force from 1st November 2016. The 2016 Act also has safeguard mechanisms such as the adjudicating authority and the appellate mechanism for appeals.

Compared to the previous legislation, the modified Act is more clear but stern in terms of its treatment of Benami Property Transactions. The PBPT Act defines benami transactions, prohibits them and further provides that violation of the PBPT Act is punishable with imprisonment and fine. The PBPT Act prohibits recovery of the property held benami from benamidar by the real owner. Properties held benami are liable for confiscation by the Government without payment of compensation. We are analysing in this article salient features relating to Benami Property Transactions law as amended in 2016.

1. What is benami transaction?

The original 1988 Act defined a benami transaction as a transaction where a property is held by or transferred to a person, but the consideration has been provided for or paid by another person/ third party. After amendment in 2016, Prohibition of Benami Property Transactions Act, 1988 (PBPT Act) has widened the definition of benami transaction and added other transactions such as property transactions where:

(i) the transaction is made in a fictitious name,

(ii) the owner is not aware of or denies knowledge of the ownership of the property, or

(iii) the person providing the consideration for the property is not traceable.

As per Clause 2(8) of Benami Transactions (Prohibition) Amendment Act, 2016, “Benami Property” means any Property which is the subject matter of a Benami transaction and also includes the proceeds from such property.

As per clause 2(26) “Property” means assets of any kind, whether – movable or immovable, tangible or intangible,corporeal or incorporeal andincludes any right or interest or legal documents or instruments evidencing title to or interest in the property and where the property is capable of conversion into some other form, then the property in the converted form and also includes the proceeds from the property;

However, property transactions among family members is not benami transaction. Here, the Act clearly sets the limit of relationship. Only lineal ascendants (father, mother, grandparents and great grandparents) and lineal descendants (children, grandchildren and greatgrandchildren) are considered as family members.

Meaning of Benami as per “Merriam Webster” dictionary: made, held, done, or transacted in the name of (another person) used in Hindu law to designate a transaction, contract, or property that is made or held under a name that is fictitious or is that of a third party who holds as ostensible owner for the principal or beneficial owner.

Large scale Benami deals happened when land reforms entailed the abolition of zamindari, giving tillers rights to own the land as well as imposition of agricultural land ceilings. In urban areas, this became quite rampant after the passage of the now-scrapped Urban Land (Ceiling and Regulation) Act, 1976.

2. What is Benami Property?

The word Benami property means the property which has been purchased in the name of some person other than the person who has financed it. The person who has rendered the required money for the said purchase has not purchased it in his name but in the name of some other person. The person who financed the property has not really purchased it to the benefit of the person on whose name he has purchased it.

Simply, benami property is the one whose legal owner is different from the actual owner.Benami Transactions (Prohibition) Act, 1988 is an Act of the Parliament of India that prohibits certain types of financial transactions. The act defines a ‘benami’ transaction as any transaction in which property is transferred to one person for a consideration paid by another person. Such transactions were a feature of the Indian economy, usually relating to the purchase of property (real estate), and were thought to contribute to the Indian black money problem. The Act bans all benami transactions and gives the Government the right to recover property held benami without paying any compensation.

Some features in Benami transactions are :

a) The beneficial ownership vests on the real owner.

b) The Benamidar bears the ostensible title as described in the Transfer of Property Act, 1882.

c) There is no intention to benefit the person in whose name the transaction is made by the person who has financed the purchase of the said Benami property.

d) The name of that person, Benamidar, is an alias for that of the person beneficially interested the real owner.

The amended Act gives a comprehensive definition of benami property. Benami essentially means property without a name. The term “Benami” has its origin from the Persian language. Benami property or assets, therefore, is a reference to property/assets whose actual owner is not the person in whose name it is. Benami deals have been quite common in India; cases date back to the late 19th century.

As per the amendment, Benami property includes: immovable assets such as land, flat or house, movable assets such as gold, stocks, mutual fund holdings, bank deposits etc. If the property is sold, then the proceeds from the sale is also included under Benami property.

3. What transactions are considered as Benami Transactions?

As per Section 2(9) of Benami Transactions (Prohibition) Amendment Act, 2016 Benami Transactions are as per Table A below:

Table-A : Transactions considered as Benami Transactions:

(i) A transaction or an arrangement, where a property is transferred to, or is held by, a person, and the consideration for such property has been provided, or paid by, another person; and

(ii) The property is held for the immediate or future benefit, direct or indirect, of the person who has provided the consideration. (There are some exemptions in point (ii) as given below in Table – B).

(iii) A transaction or an arrangement in respect of a property carried out or made in a fictitious name.

(iv) A transaction or an arrangement in respect of a property where the owner of the property is not aware of, or, denies knowledge of, such ownership;

(v) A transaction or an arrangement in respect of a property where the person providing the consideration is not traceable or is fictitious.

(also see next question)

4. What transactions are NOT considered as Benami Transactions?

As per Clause 2(9) of Benami Transactions (Prohibition) Amendment Act, 2016, the following are NOT considered as Benami Transactions (as per Table B):

i) The property is held for the immediate or future benefit, direct or indirect, of the person who has provided the consideration except when the property is held by –

a) a Karta, or a member of a Hindu undivided family, as the case may be, and the property is held for his benefit or benefit of other members in the family and the consideration for such property has been provided or paid out of the known sources of the Hindu undivided family;

b) a person standing in a fiduciary capacity for the benefit of another person towards whom he stands in such capacity and includes a trustee, executor, partner, director of a company, a depository or a participant as an agent of a depository under the Depositories Act, 1996;

c) any person being an individual in the name of his spouse or in the name of any child of such individual and the consideration for such property has been provided or paid out of the known sources of the individual;

d) any person in the name of his brother or sister or lineal ascendant or descendant, where the names of brother or sister or lineal ascendant or descendant and such individual appear as joint-owners in any document, and the consideration for such property has been provided or paid out of the known sources of the individual.

ii) any transaction involving the allowing of possession of any property to be taken or retained in part performance of a contract referred to in section 53A of the Transfer of Property Act, 1882, if, under any law for the time being in force:

(a) consideration for such property has been provided by the person to whom possession of property has been allowed but the person who has granted possession thereof continues to hold ownership of such property;

(b) stamp duty on such transaction or arrangement has been paid; and

(c) the contract has been registered.

5. What are the consequences if any person is caught with ‘Benami’ Property?

The Act prohibits illegal benami transactions, and provides imprisonment up to seven years and fine for violation of the Act which may extend to 25% of the fair market value of the benami property. If any person is caught with ‘benami’ property, he may be prosecuted and punished. Providing false information about benami transaction may also lead to prosecution.

The Act also provides for confiscation of the property and non-return of the property from the benamidar to the real owner. There is no compensation by the Government if the property is confiscated. The Act has tried to sort out the weaknesses of the existing provisions and is remarkable in terms of its features:

6. What are the Highlights of the amended Act ?

Some of the highlights of the Act are:

a) Up to seven years’ imprisonment and fine for indulging in Benami transactions.

b) Furnishing false information is punishable by imprisonment up to five years and fine.

c) Properties held Benami are liable for Confiscation by Government without compensation, holding the property benami and then refer the case to Adjudicating Authority.

d) Adjudicating Authority will then examine evidence and pass an order.

e) Appellate Tribunal will hear appeals against orders of Adjudicating Authority.

f) High Court to hear appeals against orders of Appellate Tribunal.

7. What is the institutional framework for the implementation of the law?

The main weakness of the earlier Act was that there was lack of an institutional machinery to carry out Benami transaction procedures in an effective manner. The amendments in 2016 have created the required institutional arrangements for implementation of the law. Under the Act, an Authority to acquire benami properties was to be established by the Rules. The Bill seeks to establish four authorities to conduct inquiries or investigations regarding benami transactions:

(i) Initiating Officer,

(ii) Approving Authority,

(iii) Administrator and

(iv) Adjudicating Authority.

The Act gives the Initiating Officer the power to enquire into any person, place, documents or property in the course of investigation into any matter related to a benami property transaction. Interestingly, the Act covers all domestic benami property transactions conducted since 1988.

8. What actions have reportedly been taken after 2016 amend-ments for the implementation of the law?

Several benami transactions have been identified since the coming into effect of the amended law. Show cause notices for provisional attachment of benami properties have been issued in many cases involving properties of the value of considerable amount. Out of these, provisional attachment has already been effected in more than 100 cases. The benami properties attached include deposits in bank accounts and immovable properties. It may be noted that the Income Tax department is the enforcing department to take action in cases of benami properties.

The concern on Benami transaction came into light with full emphasis, in the year 2014 “in the election manifesto of the political party now in power at the Centre.

9. Why some people used to acquire property benami ?

There are numerous purposes. Many of those are illegal ones and only to accomplish the illegal intentions. Some of these are:

a) The Benami transactions were made in order to find a way with the land ceiling laws, so the real owner can have more landed properties than provided in the abovementioned laws.

b) The benami transactions are made to transfer the property in the name of the relatives of the real owner or some other’s name to evade income-tax as well as other taxes.

c) Benami transactions were also used as a way to conceal black money obtained through corrupt practices.

10. What punishment and penalty can be imposed if any person holds a benami property or enters into a Benami transaction?

Anyone entering into a Benami transaction for whatever reason, to defeat the law, avoid payment of statutory dues or creditors or abetting such a transaction is liable for rigorous imprisonment for a period between one and seven years as well as fine up to 25 per cent of the fair market value of the property.

Anyone providing false information or providing false documentation can get rigorous imprisonment of six months to five years and may also have to pay fine up to 10 per cent of the fair market value of the property.

It is submitted that the provision for confiscation of Benami property without consideration, is enough deterrent. However the provision for rigorous imprisonment for a period upto seven years as well as fine up to 25 per cent of the fair market value is quite unfair and stringnent and the Government should urgently review the same to be fair.

11. What steps have been taken by CBDT to catch benami properties?

About 25 special units across India have been formed by the CBDT in 16 regional/zonal offices, to implement its action-plan against benami properties in India. These special units are formed only to investigate and take action against all those individuals and entities related to undisclosed domestic and foreign properties. Each unit will have four to five members including 3 to 4 Income-tax officials, one Additional Commissioner/ Joint Commissioner and one Deputy Commissioner. Each unit would be headed by an Additional Commissioner.

The CBDT has issued Notification No. 36/2017 [S.O. 1621(E)], dated 18-5-2017 in exercise of its powers conferred under sub-section (2) of section 28 read with section 59 of the Prohibition of Benami Property Transactions Act, 1988, and in supersession of earlier Notification No. S.O. 3290(E), dated the 25th October, 2016, and has directed that the Income-tax authorities under section 116 of the Income-tax Act, 1961, having headquarters at the places specified in the said Notification dated 18-5-2017, to exercise the powers and perform the functions of the ‘Authority’, under the Prohibition of Benami Property Transactions Act, 1988, in respect of the territorial areas specified in the said Notification.

The designated authority would be reporting to the respective Director General (DG) in that city, who would be in co-ordination with CBDT Chairperson on real time basis.

The IT department has identified more than 200 benami properties. The main focus would be benami properties that include flats, apartments, bungalows, plots, bank accounts, jewelleries etc.

In the public interest, the department had informed through advertisements in newspapers, warning that benami properties would get attached and confiscated, 
with rigorous imprisonment of up to seven years.

Harsh punitive actions are likely to be taken against the deviant shell companies including freezing of Bank Accounts, striking off the names of dormant companies, invocation of Benami Transactions (Prohibition) Amendment Act, 2016. Action is contemplated against shell companies so as to prevent their misuse for money laundering and tax-evasion, especially in the context of unearthing black money, post demonetisation. In an analysis of such companies, it has been found that large amount of cash had been deposited in these entities during November-December, 2016 period. Serious Fraud Investigation Office (SFIO) has filed criminal prosecution for cheating National Exchequer after investigation of entry operators. This information has been shared with SIT, Income Tax Department, Enforcement Directorate, SEBI and The Institute of Chartered Accountants of India (ICAI). Income Tax Department has reopened completed assessment in these cases and Enforcement Directorate has initiated action under Prevention of Money Laundering Act (PMLA), 2002. It is learnt that ICAI has also initiated disciplinary proceedings against its members. Winding up process 
has been initiated in respect of many shell companies.

In order to create a credible deterrence a “Whole of Government Approach” will be adopted through co-ordinated efforts and by leveraging technology. It has also been decided that appropriate red flag indicators would be used for identifying shell companies, and a database of such companies and their Directors would be built by pulling in information from various agencies. The database will also capture Aadhaar number of individual directors in the companies.

It is learnt that there are about 15 lakh registered companies in India; and only 6 lakh companies file their Annual Return. This means that large number of these companies may be indulging in financial irregularities.

It is learnt that a Task Force has been set-up under the co-chairmanship of the Revenue Secretary and Corporate Affairs Secretary with members from various regulatory Ministries and Enforcement Agencies to monitor the actions taken against deviant shell companies by various agencies.

The department has formed a special unit called Benami Properties Unit (BPU) to identify and probe such assets. Apart from politicians, there are hundreds of such properties belonging to some top businessmen in the country.

12. What impact Benami Transactions (Prohibition) Act is likely to create after amendment in 2016?

The new Benami Transactions (Prohibition) Act, after its amendment in 2016, offers a wider scope. With its wider scope the new Act will be a great help to deal with this social fallacy i.e. Benami properties. Due to the narrow and ambiguous scope of the earlier Act of 1988, many such cases regarding Benami properties could not be effectively solved. But now with the wider and specific scope, the said such cases can be easily proved in the court of law.

The popular perception of “Benami property” has now undergone a sea change and it will include all transactions and arrangements even beyond the transactions in respect of immovable property.

The Benami Transactions (Prohibition) Amendment Act, is certainly a very comprehensive piece of legislation and also very stringent. There could be scope for harassment but how that plays out in practice, remains to be seen.

There is a saying of Justice Holmes “Taxes are what we pay for civilized society. I like to pay taxes, with them I buy civilization .”

12. Is there any reward to the informants of Benami Property?

The CBDT has introduced the Reward Scheme for informants giving information of benami property actionable under Prohibition of Benami Property Transactions Act, 1988 as amended by Benami Transactions (Prohibition) Amendment Act, 2016 vide Letter [F.No.299/31//2017-DIR (INV.III)/22], dated 23-4-2018. The salient features of the said scheme are as under:

(a) A person can get reward up to ₹ One crore for giving specific information of benami property. Identity of the informant shall be kept confidential.

(b) The information given by the informant can be treated as specific information under the scheme only if it includes:

(i) verifiable particulars of the benami property;

(ii) name and address of the person in whose name the property has been acquired (benamidar); and

(iii) credible basis including supporting evidence for the information that the property was actually benami property.

(c) Procedure of furnishing information

(i) A person who wants to give specific information in expectation of reward may contact the Joint Commissioner of Income Tax/Additional Commissioner of Income Tax (Benami Prohibition) [hereinafter referred to as ‘JCIT/Addl. CIT (BP)’] having jurisdiction over the place where the benami property is situated.

(ii) If the JCIT/Addl. CIT (BP) feels that the person has given specific information of benami property, he will give one set of prescribed form as per Annexure-A to such person who shall fill, sign and submit it to the JCIT/Addl. CIT (BP).

(iii) If there are more than one benami properties located at different places, the person may give information to any of the JCsIT/Addl. CsIT (BP) having jurisdiction over any of these properties.

(iv) Where the person gives information about benami properties to any other Income Tax authority, such other authority shall forward such information and guide him to the jurisdictional JCIT/Addl. CIT (BP). Where there are more than one BP (Benami Property) units at a place, such person may be directed to approach the jurisdictional DGIT (Investigation).

(v) If the information is furnished by a group of persons, the prescribed form, statements, etc. shall be filled and signed by all such persons, jointly and informant code will be allotted to each of them separately. The reward payable in such cases, if any, shall be disbursed in equal proportion, unless specified otherwise by such persons at the time of furnishing information in the prescribed format (Annexure –A).

(vi) Where a foreign person wants to give information of benami property actionable under the Act, he may contact the Member (Investigation), CBDT, North Block, New Delhi – 110 001 either in person or by post or by a communication at email ID [email protected] with a copy to [email protected] for further action. He may take assistance of Income Tax Overseas Units (ITOU) working in Indian missions in some foreign countries in this regard.

(vii) The informant shall be liable to render assistance as may be required by the JCIT/Addl. CIT (BP) or any other investigating officer to whom the JCIT/Addl. CIT (BP) concerned may assign the investigation into the information given by the informant.

(viii) The informant will be allotted a code and after the allotment of Informant Code, the person shall be identified with such Informant Code only and his actual identity shall be known to the JCIT/Addl. CIT (BP) only.

(ix) In case of any difficulty, the person desirous of giving specific information of benami property, may contact the PDIT (Inv)/DIT (Inv) of the area. The decision of PDIT (Inv)/DIT (Inv) will be final in the matter of allotment of Informant Code under this scheme.

(d) It should be noted that furnishing false information/evidence is an offence and a person giving false information/evidence/statement will be liable to be prosecuted for such offence.

(e) When reward may be granted:

An informant under the scheme can be granted interim and final reward by the competent authority.

(i) Interim reward can be granted on fulfilment of the following conditions:

(a) the informant has given specific information of benami property in the prescribed format in Annexure-A and obtained informant code under the scheme;

(b) provided assistance required, if any, by the AddL/JCIT (BP) or any other investigating officer to whom the JCIT/Addl. CIT (BP) concerned may assign the investigation into the information given by the informant; and

(c) pursuant to such information, the benami property has actually been provisionally attached under Section 24(4) of the Act.

(ii) Final reward can be granted on fulfilment of the following conditions:

(a) the informant has given specific information of benami property in the prescribed format in Annexure-A and obtained informant code under the scheme;

(b) provided assistance required, if any, by the AddL/JCIT (BP) or any other investigating officer to whom the JCIT/Addl. CIT (BP) concerned may assign the investigation into the information given by the informant;

(c) the benami property has been confiscated under Section 27 of the Act; and

(d) Such confiscation has become final in judicial proceedings after confiscation order is passed. The confiscation shall be deemed to be final if two years have passed from the date of confiscation and there is no litigation pending against such confiscation.

(f) Amount and stage of granting interim and final reward

(i) Interim reward up to 1% (one per cent) of the fair market value, as defined in the Act, of movable property, and circle rate, as defined in this Scheme, of immovable property, provisionally attached under section 24(4) of the Act may be granted by the competent authority on fulfilment of eligibility conditions under the scheme subject to the maximum ceiling of an amount of interim reward of ₹ Ten lakh in respect of information of a single benami property.

(ii) Final reward up to 5% (five per cent) of fair market value, as defined in the Act, of movable property, and circle rate, as defined in this Scheme, of immovable property, confiscated under the Act may be granted by the competent authority on fulfillment of eligibility conditions under the scheme. While granting the final reward, the amount of interim reward paid, if any, shall be reduced from the total final reward granted. However, maximum amount of total reward (interim and final) in respect of a single benami property shall be limited to ₹ One crore.

(iii) If there are more than one benami properties informed in a single Annexure – A form, reward shall be computed on the basis of entitlement applying the above percentage rates and maximum limits individually for each benami property.

 

Have infinite patience and success is yours.

Swami Vivekananda

 

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. Inspite of various guidelines laid down by courts, dept constantly prefer to disobey the same leading to quashing of the notice. It seems dept. claims as a matter of right to reopen the assessments without appreciating the real intent or purpose behind enacting such provision. Assessment orders are not a scrap of paper which can be overturned by reopening the assessment in casual manner. Finality to assessment must be recognised as matter of principle and reopening should be an exception. Similarly we see assessments are completed merely based on information received from various investigation department without application of mind by the Assessing Officer. Some of the issues have been dealt with here under:

1. Preconditions

1.1 It is well known that powers of the Assessing Officer to reopen a completed assessment are not unfertile. Sec. 147 and Section 148 of the Act contains the prerequisite 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:

  1. 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 an assessment has to be decided. Recorded reasons must have a live link with the formation of the belief.

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

  3. 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.

  4. 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.

2. Procedure to challenge the reassessment proceedings

2.1 The Apex Court in the case of GKN Driveshafts (India) Ltd. v. 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

  1. is to file the return

  2. if he so desires, to seek reasons for issuing the notices

  3. the assessing officer is bound to furnish reasons within a reasonable time

  4. on receipt of reasons, the assessee is entitled to file objections to issuance of notice, and

  5. the assessing officer is bound to dispose of the same by passing a speaking order

  6. the assessee if desired can file a writ challenging the order or can proceed with the assessment. However the assessee has still a right to challenge the reopening of assessment after the assessment order is passed, before appellate authority.

2.2 The courts have consistently held that the preconditions are subject to conferring on the AO to reopen the assessment and their non fulfilment 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.

The Courts have consistently warned the department not to harass taxpayers by reopening assessments in a mechanical and casual manner. The Pr. CIT were directed to issue instructions to AO’s to strictly adhere to the law explained in various decisions and make it mandatory for them to ensure that an order for reopening of an assessment clearly records compliance with each of the legal requirements. The AO’s were also directed to strictly comply with the law laid down in GKN Driveshafts (supra) as regards disposal of objections to reopening assessment:

Pr. CIT v. Samcor Glass Ltd. Delhi High Court www.itatonline.org

CIT v. Trend Electronics (2015) 379 ITR 456 (Bom.)(HC).

Bayer Material Science Pvt. Ltd. v. DCIT(2016) 382 ITR 333 (Bom.)(HC)

3. Alternative remedy not a bar to entertain a writ

3.1 The Income-tax Act provides a complete machinery for the assessment/re-assessment of tax, imposition of penalty and for obtaining relief in respect of any improper orders passed by the Revenue Authorities. The assessee cannot be permitted to abandon that machinery and to invoke the jurisdiction of the High Court under Article 226 of the Constitution when he has adequate remedy open to him by an appeal to the Commissioner of Income-tax (Appeals). As the said statutory remedy is an effective and efficacious one, the Writ Court should not entertain the Writ Petition.

However this principle of alternate remedy ought not to apply to a case where the Assessing Officer passes a reassessment order without following the GKN Driveshafts (India) Ltd. v. ITO (2003) 259 ITR 19 (SC) procedure of passing an order on objections and waiting 4 weeks thereafter as held in Allana Cold Storage Ltd v. ITO (2006) 287 ITR 1 (Bom.)(HC), Kamlesh Sharma (Smt.) v. B. L. Meena, ITO (2006)287 ITR 337 (Delhi)(HC).

3.2 In the case of CIT v. Chhabil Das Agarwal. (2013) 357 ITR 357 (SC) the Assessing Officer issued a notice u/s. 148 reopening the assessment and pursuant thereto passed a re-assessment order u/s. 147. The assessee filed a Writ Petition in the High Court to challenge the said notice and reassessment order. The High Court entertained the Writ Petition and quashed the reassessment order. On appeal by the department the Supreme Court HELD reversing the High Court:

The assessee cannot be permitted to abandon that machinery and to invoke the jurisdiction of the High Court under Article 226 of the Constitution when he has adequate remedy open to him by an appeal to the CIT (Appeals). As the said statutory remedy is an effectual and efficacious one, the Writ Court ought not to have entertained the Writ Petition filed by the assessee.

Similarly in the case of Annamalai University v. ITO (2018) 401 ITR 80 (Mad.) (HC) the assessee had applied for exemption under section 10(23C)(vi) and final orders were awaited. The assessee was issued notices under section 148 for reopening of the assessments for the assessment years 1999-2000 to 2004-05. On writ petitions, the Court held that the assessee was entitled to seek reasons for reopening of the assessment, under section 147 and on receipt of the reasons, the assessee was entitled to file its objections.

3.3 The Hon Bombay High Court in the case of Aroni Commercials Ltd. vs. ACIT [2017] 393 ITR 637 observed that the argument, based on JCIT v. Kalanithi Maran, [2014] 366 ITR 453(Mad.) (HC) that this Court should not exercise its writ jurisdiction under Article 226 of the Constitution of India and the petitioner should be left to avail of the statutory remedies available under the Act is not acceptable. Writ Petition challenging lack of jurisdiction to issue s. 148 notice on the ground that it is based on ‘change of opinion’ & preconditions of s. 147 are not satisfied is maintainable.

3.4 A similar view has been taken in yet another case by the Hon. Bombay High Court in case of Crompton Greaves Ltd. v. ACIT (2015) 275 CTR 49 / 229 Taxman 545 (Bom).

Thus the facts in the case of Chhabil Das Agarwal (Supra) were different and distinguishable namely that the reassessment order was passed and thereafter the notice and the said order was challenged by way of writ. Similarly in Annamalai University (supra) the assessee had not followed the procedure to challenge the reopening notice, therefore distinguishable.

Thus an assessee is entitled to writ remedy under Article 226 of the Constitution, if the action of the authorities in reopening the assessment was beyond their jurisdiction. Cedric De Souza Faria. v. DCIT (2018) 400 ITR 30 (Bom.) (HC)

4. Reasons – Recorded to be supplied – Communication of reasons – Mandatory

4.1 Recording of reasons before issue of notice is mandatory hence reassessment was held to be bad in law [CIT v. Blue Star Ltd. (2018) 162 DTR 302 / 301 CTR 38 (Bom.)

It is now a settled position of law that for passing an order under section 147 recording of reasons u/s. 148 and communication thereof to party concern is mandatory.

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

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

4.2 However if assessee does not ask for s. 147 reasons & object to reopening, ITAT cannot remand to AO & give assessee another opportunity.

CIT vs. Safetag International India Pvt. Ltd. [2012] 332 ITR 622 (Delhi High Court)

4.3 In the case of CIT v. Videsh Sanchar Nigam Ltd. (2012) 340 ITR 66 (Bom.) the Tribunal following the judgment of Bombay High Court in CIT v. Fomento Resorts and Hotels Ltd. ITA No. 71 of 2006 dated 27th November, 2006, has held that though the reopening of assessment was within three years from the end of relevant assessment year, since the reasons recorded for reopening of the assessment were not furnished to the assessee till date the completion of assessment, the reassessment order cannot be upheld, moreover, Special Leave Petition filed by revenue against the decision of this Court in the case of CIT v. Fomento Resorts and Hotels Ltd., has been dismissed by Apex Court, vide order dated July 16, 2007. The Court dismissed the appeal of the revenue.

  • The Hon. ITAT followed the above decision and quashed the reassessment proceedings in the following cases :

  • Tata International Ltd. v. Dy. CIT (2012) 52 SOT 465 (Mum.)

  • DCIT v. Telco Dadajee Dhakjee Ltd. [2012] 49 SOT 549 (Mum) (TM)

  • Muller & Philpps (India) Ltd. v. ITO (Mum.)(Trib.); (2016) 47 ITR 69 (Mum.) (Trib.)

  • Jeevanlal Jain ITA No. 910/M/2014 dt. 13/01/2016, Bench J; (Mum.) (Trib.)

  • Inderjeet Singh Sachdeva v. DCIT [2017] 49 ITR(T) 1(Delhi)(Trib.),

  • Ujagar Holding Pvt. Ltd. v. ITO[2017] 51 ITR(T) 343 (Delhi)(Trib)

  • M/s. Synopsys International Ltd (Bang.) ITA no. 549/Bang/2011.

  • In absence of recorded reasons for reopening the assessment, the notice issued under section 148(2) of the Act would be bad-in-law.

Prashanth Projects Ltd. v. CIT,[2011] 333 ITR 368, (Bom.) (HC)

4.4 Not giving copy of recorded reasons – Assessment records not traceable

Before the Tribunal the question of supply of reasons recorded by the AO was raised by the assessee and it went to the root of the matter, the Bench directed the Departmental Representative to produce the records to verify as to whether the reasons were recorded by the AO and whether same were supplied to the assessee. The AO appeared with the assessment records but the relevant records were not traceable or were not available.

It was found that even after completion of the assessment/appellate proceedings the assessee was requesting the AO to supply him the copy of the reasons. But, till the date of hearing i.e., on 19-9-2014 i.e., even after 18 years of the issuance of notice u/s. 148 of the Act, the AO is not been able to prove that the assessee was supplied copy of the reasons recorded. Hence, the assessment was quashed.

Vinoda B. Jain v. JCIT, ITA No. 676/M/2014 dt. 24-9-2014, AY 1991-92, (Mumbai ITAT) (www.ctconline.org)

5. Dispose off the assessee objection and serve the order on assessee

5.1 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. Reference can be made to decision of Hon. Bombay High Court Asian Paint Ltd. v. Dy. CIT [2009] 308 ITR 195 (Bom)(HC).

Order passed before expiry of four weeks of passing the orders of objection was held to be void. Meta Plast Engineering P. Ltd. v. ITO, ITA NO. 5780/Del/2014, dtd: 6-4-2018 (Delhi)(Trib.), www.itatonline.org.

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

5.3 Similar view was taken in the case of Allana Cold Storage v. ITO (2006) 287 ITR 1 (Bom.) wherein following the order passed by Supreme Court in the case of GKN Driveshaft matter was set a side to pass fresh order holding that the Reasons for notice must be given and objections of assessee must be considered.

5.4 Where the Order passed within four weeks from date of rejection of assessee’s objections. Reassessment was held to be bad in law in the case of Bharat Jayantilal Patel v. UOI (2015) 378 ITR 596 (Bom.)(HC)

In the case of Bayer Material Science Pvt. Ltd. v. DCIT(2016) 382 ITR 333 (Bom.)(HC) observed that providing the assessee with the recorded reasons towards the end of the limitation period and passing a reassessment order without dealing with the objections results in gross harassment to the assessee which the Pr. CIT should note & remedy.

5.5 Similarly the Madras High Court observed that the order passed without disposing of objections raised by assessee for reopening was improper and null and void. The law laid down by the Supreme Court is of binding nature and is a source of law unto itself, which would bind on all the authorities. GKN Driveshafts (India) Ltd. v. ITO lays down a law and failure to comply would render the assessment order without jurisdiction Jayanthi Natarajan (Ms.) v. ACIT (2018) 401 ITR 215 (Mad.) (HC)

5.6 However now the Apex Court in the case of Home Finders Housing Ltd. v. ITO (2018) 256 Taxman 59(SC) held that Reassessment Order passed without following the procedure, said Order passed before disposal of objections raised by assessee on reasons recorded for reopening is curable irregularity does not vitiate the proceedings. Matter can be remitted for compliance with procedure.

In my view remitting the matter for compliance with procedure will lead only to harassment and delay.

6. Disposal of objections – To be linked with recorded reasons.

6.1 In the case of Pransukhlal Bros. v. ITO (2015) 229 Taxman 444 (Bom.)(HC) wherein assessment of the assessee was reopened. The recorded reasons stated that the assessee had taken accommodation entries from a Surat based diamond concern and this information (according to the recorded reasons) was obtained by the Department from search and survey action on the said diamond concern. The assessee objected to the recorded reasons which were disposed off the by AO referring to investigation carried out by Sales Tax authorities, display of names of parties on the website of Sales Tax department. Held, since these facts were even remotely adverted to in the recorded reasons, and hence, the order disposing off objections was held unsustainable in law with fresh opportunity to AO to dispose off the objections keeping in mind the recorded reasons.

Rejection of objection without assigning reasons

6.2 In case of Scan Holding P. Ltd. v. ACIT (2018) 402 ITR 290 (Delhi) (HC) held allowing the appeal that the Assessing Officer had merely observed and recorded that the objections raised by the assessee were untenable and wrong, without elucidating and dealing with the contentions and issues raised in the objection. The Assessing Officer had not applied his mind to the assertions and contentions raised by the assessee and the core issue to be examined and considered. The reassessment proceedings were not valid.

6.3 Similarly in case of Karti P. Chidambaram v. ACIT (2018) 402 ITR 488 (Mad.)(HC) the Court observed that since reassessment order was passed without disposing of assessee’s objections to reopening of assessment and without passing a speaking order, same was unjustified. Court also held that where claim of assessee of exemption of income under section 10(1) on proceeds from sale of coffee subjected to only pulping and drying was accepted for several years and there were hundreds of coffee growers whose income were also exempted, reopening notice issued only against assessee during relevant assessment year was unjustified.

6.4 In the case of Venkatesan Raghuram Prasad v. ITO (2018) 94 taxmann.com 249 (Madras), Where A.O. reopened assessment of assessee and assessee participated in assessment proceeding without raising any objection before A.O. to effect that there was no valid issuance or service of reassessment notice upon assessee, such an objection could not be raised before First Appellate Authority.

7. New reasons cannot be allowed to be introduced or supplied

7.1 New reasons cannot be allowed to be introduced or supplied by way of affidavit. Validity of an order must be judged by the reasons so mentioned therein. Reasons recorded cannot be supplemented by filing affidavit or making oral submission.

Hindustan Lever Ltd. v. R. B. Wadkar [2004] 268 ITR 332 (Bom.)

Mohinder Singh Gill v. Chief Election AIR 1978 SC 851

Mrs. Usha A Kalwani v. S. N. Soni [2004] 272 ITR 67 (Bom)

Godrej Industries Ltd. v. B. S. Singh, Dy. CIT (2015) 377 ITR 1 (Bom.)

Aroni Commercial Ltd. v. DCIT (2014) 362 ITR 403 (Bom.)

Northem Exim Pvt. Ltd. v. Dy. CIT (2013) 362 ITR 586 (Del.)

7.2 Reasons must be based on the relevant material on record at the time of recording reasons. 3i Infotech Ltd. v. ACIT (2010) 329 ITR 257 (Bom.)

7.3 If the recorded reasons show contradiction and inconsistency it means necessary satisfaction in terms of the statutory provision has not been recorded at all. The Court cannot be called upon to indulge in guess work or speculate as to which reason has enabled the AO to act. On said issue reassessment was quashed:

Plus Paper Food Pac Ltd. v. ITO (2015) 374 ITR 485 (Bom.)(HC)

7.4 Proper reasons to believe is must, even if there is no assessment u/s. 143(3) – Only reasons recorded by Assessing Officer must be considered.

Prashant s. Joshi v. ITO[2010]324 ITR 154 (Bom.)

7.5 It is well-settled that the reasons recorded for reopening the assessment have to speak for themselves. The reasons must provide a live link to the formation of the belief that income had escaped assessment. These reasons cannot be supplied subsequent to the recording of such reasons either in the form of an order rejecting the objections or an affidavit filed by the Revenue.

Sabharwal Properties Industries Pvt. Ltd. v. ITO (2016) 382 ITR 547 (Delhi)(HC)

7.6 Once a query has been raised during the assessment proceedings and the assessee has responded to the query to the satisfaction of AO, it must apply that there is due application of mind by the AO to the issue raised. It is not open to the AO to improve upon the reasons recorded at the time of issuing the notice either by adding and/or substituting the reasons by affidavit or otherwise. Reassessment was quashed.

GKN Sinter Metals Ltd. v. Ramapriya Raghavan (Ms.), ACIT (2015) 371 ITR 225 (Bom.)(HC)

If the reopening is based on some information or material, the same should have a reference in the reasons recorded which will have to be the basis for reopening. The AO is expected to deal with the assessee’s objection vis-a-vis the reasons recorded and not to any source.

7.7 In the case of Pransukhlal Bros. v. ITO (2015) 229 Taxman 444 (Bom.)(HC) wherein Assessment of the assessee was reopened. The recorded reasons stated that the assessee had taken accommodation entries from a Surat based diamond concern and this information (according to the recorded reasons) was obtained by the Department from search and survey action on the said diamond concern. The assessee objected to the recorded reasons which were disposed off the by AO referring to investigation carried out by Sales Tax authorities, display of names of parties on the website of Sales Tax department. Held, since these facts were even remotely adverted to in the recorded reasons, and hence, the order disposing off objections was held unsustainable in law with fresh opportunity to AO to dispose off the objections keeping in mind the recorded reasons.

7.8 Similarly in the case of Varshaben Sanatbhai Patel v. ITO (2016) 282 CTR 75 (Guj.)(HC) it was observed that since the belief of the AO was not based upon the material on record, but on some other material from an external source which did not find reference in the reasons recorded by him, it was held that the basic requirement of section 147 was not satisfied.

8. Succeeding Assessing Officer cannot improve upon the reasons which were originally communicated to the assessee

8.1 In the case of Indivest PTE Ltd v. ADDIT (2012) 250 CTR 15 / 206 Taxman 351 (Bom.)

The assessee company filed its return of income for the A.Y. 2006-07 on 31st October, 2006 declaring nil income. The assessee claimed that profits earned from the transactions in Indian securities are not liable to tax in India in view of Article 7 of the India-Singapore treaty because the assessee company did not have PE in India. The assessment was reopened on the ground that no foreign companies are allowed to invest through stock exchange in India unless it is approved as FII by the regulatory authorities viz. RBI, SEBI. etc. According to the Assessing Officer the gain earned on investment as FII is liable to be taxed under section 115AD. The reassessment notice was challenged before the Court, the Court held that the attention was drawn to the notice of Assessing Officer that the assessee is not an FII and that provisions of section 115AD would not be attracted. The Assessing Officer attempted to improve upon the reasons which were originally communicated to the assessee. Those reasons constitute the foundation of action initiated by the Assessing Officer for reopening of assessment. Those reasons cannot be supplemented or improved upon subsequently. The Court held that in the absence of any tangible material assessment could not be reopened under section 147, further succeeding Assessing Officer has clearly attempted to improve upon the reasons which were originally communicated to the assessee which was not permissible.

9. Reopening is not permissible on borrowed satisfaction of another Assessing Officer

9.1 Assessing Officer recording reasons for assessment and Assessing Officer issuing notice under section 148 must be the same person. Success or Assessing Officer cannot issue notice under section 148 on the basis of reasons recorded by predecessor Assessing Officer. 
Notice issued invalid and deserves to be quashed.

Hyoup Food and Oil Industries Ltd. v. ACIT (2008) 307 ITR 115 (Guj.)

Charanjiv Lal Aggarwal v. ITO (2017) 54 ITR 349 (Amritsar) (Trib.)

CIT & Anr v. Aslam Ullakhan (2010) 321 ITR 150 (Kar.)

Notice u/s. 148 invalid as it was issued on direction of CIT.

REASONS TO BE FORMED ONLY BY JURISDICTIONAL ASSESSING OFFICER AND NOT ANY OTHER ASSESSING OFFICER AND ISSUANCE OF NOTICE IS MANDATORY

9.2 The basic requirement of section 147 is that the Assessing Officer must have a reason to believe that any income chargeable to tax has escaped assessment and such belief must be belief of jurisdictional Assessing Officer and not any other Assessing Officer or authority or department. Therefore the jurisdiction of AO to reopen an assessment under section 147 depends upon issuance of a valid notice and in absence of the same entire proceedings taken by him would become void for want of jurisdiction. (A.Y. 2006-07)

ACIT v. Resham Petrotech Ltd. (2012) 136 ITD 185 (Ahd.)(Trib.)

9.3 Assessment in Kolkata – Reassessment notice in Delhi, such reassessment is held to be without jurisdiction (S. 127 )

Assessment having been made by AO in Kolkata, in the absence of any order under section 127 transferring the case, reassessment notice issued by AO at Delhi and all subsequent proceedings based on said notice are without jurisdiction.

Smriti Kedia (Smt.) v. UOI (2012) 71 DTR 245 / 250 CTR 221 (Cal.)

9.4 Similarly in the case of ITO v. Rajender Prasad Gupta (2010) 48 DTR 489 (JD)(Trib.)

Assessee was assessed at Suratgarh, Notice issued by ITO at Delhi, matter later transferred to ITO Suratgarph, however AO did not issue fresh notice or recorded reasons – Held ITO did not have jurisdiction notice invalid.

10. Reasons – Reassessment merely on the basis of investigation wing

10.1 Notice issued after the expiry of four years from the end of the relevant assessment year by the Assessing Officer merely acting mechanically on the information supplied by the investigation wing about the accommodation entries provided by the assessee to certain entities without applying his own mind was held to be not justified. (A.Ys. 2004-05, 2006-07)

CIT v. Kamdhenu Steel & Alloys Ltd. (2012) 248 CTR 33 (Delhi)(High Court)

CIT v. Multiplex Trading & Industrial Co. Ltd. (2015) 128 DTR 217 (Delhi)(HC)

Pr. CIT v. G. Pharma India Ltd. [2017] 384 ITR 147 (Delhi) (HC)

CIT v. Insecticides (India) Ltd. (2013) 357 ITR 300 (Del.)(HC)

CIT v. Meenakshi Overseas Pvt. Ltd. (2017) 395 ITR 677(Del) (HC)

CIT v. Fair Invest Ltd. (2013) 357 ITR 146 (Del.)(HC)

Sarthak Securities Co. (P.) Ltd. v. ITO (2010) 329 ITR 110

10.2 In the case of ACIT v. Dhariya Construction Co. (2010) 328 ITR 515 (SC) wherein it was held that the opinion of DVO per se is not an information for the purpose of reopening assessment under section 147 of the Act

10.3 Similarly in the case of CIT v. Indo Arab Air Services (2016) 130 DTR 78/ 283 CTR 92 (Delhi)(HC) it was held that mere information that huge cash deposits were made in the bank accounts could not give the AO prima facie belief that income has escaped assessment. The AO is required to form prima facieopinion based on tangible material which provides the nexus or the link having reason to believe that income has escaped assessment. The AO was also required to examine whether the cash deposits were disclosed in the return of income to form an opinion that income has escaped assessment.

10.4 The power to reopen an assessment is conditional on the formation of a reason to believe that income chargeable to tax has escaped assessment. The power is not akin to a review. The existence of tangible material is necessary to ensure against an arbitrary exercise of power.

Aventis Pharma Ltd. v. ACIT (2010) 323 ITR 570 (Bom.)

INFORMATION RECEIVED FROM INVESTIGATION WING : BOGUS PURCHASES : ACCOMMODATION ENTRIES: PENNY STOCKS:

10.5 In the case of PCIT v. Manzil Dineshkumar Shah [2018] 95 taxmann.com 46 (Guj.) HC), the Court held that even the assessment which is completed u/s. 143(1) cannot be reopened without proper ‘reason to believe’. If the reasons state that the information received from the VAT Dept that the assessee entered into bogus purchases “needed deep verification”, it means the AO is reopening for doing a ‘fishing or roving inquiry’ without proper reason to believe, which is not permissible. Court also observed that, before closing, we can only lament at the possible revenue loss. The law and the principles noted above are far too well-settled to have escaped the notice of the Assessing Officer despite which if the reasons recorded fail the test of validity on account of a sentence contained, it would be for the Revenue to examine reasons behind it (Tax A No. 541 of 2018, dt. 7-5-2018).

10.6 In case of Amar Jewellers Ltd. v. Dy. CIT (2018) 254 Taxman 384 (Guj.)(HC) the Court held that on verifying the record it was found that there was no nexus with reasons recorded for initiating reassessment proceedings and the information received by the AO from the investigation wing, accordingly, reassessment was held to be bad in law.

10.7 In case of Deepraj Hospital (P) Ltd. v. ITO, 41/AGRA/2017, AY: 2010-11 Dtd. 1-6-2018 (Agra)(Trib.), www.itatonline.org the Tribunal held that, if the reopening is based on information received from the investigation dept., the reasons must show that the AO independently applied his mind to the information and formed his own opinion. If the reopening is done mechanically, it is void. Also, if the reasons refer to any document, a copy should be provided to the assessee. Failure to do so results in breach of natural justice and renders the reopening void.

10.8 Reassessment solely made on the basis of information received from investigation wing as assessee was beneficiary of accommodation entries was held to be not valid when no cross examination allowed to the assessee. ITO v. Reliance Corporation (2017) 55 ITR 69 (SN) (Mum.) (Trib.)

10.9 Share application money. Reopening of assessment to make roving inquiry is impermissible and negative burden that purchasers not relatives cannot be put to assessee-Reasons of reopening recorded by Assessing Officer not sustainable. (AY. 2009-10) Laxmiraj Distributors Pvt. Ltd. v. ACIT (2017) 53 ITR 376 (Ahd.) (Trib.)

DCIT v. VSB Investment Pvt. Ltd. (2018) 61 ITR 16 (Delhi) (Trib.)

10.10 Against Decisions

However in the case of Jayant Security & Finance Ltd. v. ACIT (2018) 254 Taxman 81 (Guj.)(HC) the court held that information from investigation wing stating that loan from company working as an entry operator and earning bogus funds to provide advances to various persons. Reassessment was held to be valid.

Similarly in the case of Ankit Agrochem (P.) Ltd. v. JCIT (2018) 253 Taxman 141 (Raj.)(HC) the Court held that reassessment on the basis of information for DIT stating that the assessee had received share application money from several entities which were only engaged in business of providing bogus accommodation entries to beneficiary concerns, reassessment on basis of said information was justified.

Similarly where unsecured loans are there – on subsequent information discovered as bogus- Reassessment was held to be justified. Virbhadra Singh v. Dy. CIT (2017) 291 CTR 439/ 146 DTR 65 (HP)(HC)

Also refer other cases where reopening has been held to be justified:

PCIT v. Paramount Communication P. Ltd. (2017) 392 ITR 444 (Delhi)(HC)

Aravali Infrapower Ltd. v. DCIT (2017) 390 ITR 456 (Delhi)(HC)

Aradhna Estate Pvt. Ltd. v. DCIT (2018) 404 ITR 105 (Guj.) (HC)

Rajnish Jain. v. CIT (2018) 402 ITR 12 (All.) (HC)

Amendments made by Finance Act 2016

• Pr. DGIT / DGIT has power to collect information as per section 133C. Now provided that Pr. DGIT / DGIT may process such information or document and make available the outcome to the AO

• Expln. 2 to 147 : Additional clause (ca) inserted

10.11 Reopening – Client code modification

On the basis of information from investigation wing, in order to verify the genuineness of transaction in modification of client’s code, reassessment was held to be bad in law.

Sunita Jain (Smt.) v. ITO, ITA No. 502/Ahd/2016, AY 2008-09 dtd: 9-3-2017 (Ahd.)(Trib.); www.itatonline.org

Rachna Sachin Jain (Smt.) v. ITO (Ahd.)(Trib.); www.itatonline.org

Statement of third / unconnected person

10.12 In the absence of any material before the AO a statement by an unconnected person did not constitute reason to believe that assessee income had escaped assessment especially when the assessee had produced all the material and relevant facts and therefore the reassessment proceedings could not be sustained.

Praful Chunilal Patel v. M. J. Makwana, ACIT (1999) 236 ITR 832 (Guj.)

(A.Y. 1991-92)

JCIT & Ors v. George Williamson (Assam) Ltd. (2002) 258 ITR 126 (Guj.)

Reassessment based on statement of third party – Assessee not given opportunity to be heard –Reassessment not valid.

Kothari Metals v. ITO (2015) 377 ITR 581 (Karn.)(HC)

Share premium amount-No lack of disclosure or suppression of any material facts – No tangible reasons in notice – Notice not valid.

Alliance Space P. Ltd. v. ITO (2015) 375 ITR 473 (Bom.)(HC)

In the case of Subhash Chander Goel v. ITO (2016) 156 ITD 808 (Chd.)(Trib.) it was observed that Statement recorded by Police Officer under section 161 of Code of Criminal Procedure, 1973, is neither given ‘on oath’ nor it is tested by cross examination. Therefore, such a statement cannot be treated as substantive evidence to reopen assessment proceedings.

In the case of AMSA India P. Ltd. v. CIT (2017) 393 ITR 157/ 82 taxmann.com 29 (Delhi)( HC) the Court held that the statement of third person not having live link with assessee’s suspected income, the reassessment was held to be bad in law. The material should have a live link with the assessee’s suspected income or non-disclosure of a material fact. That kind of live link was absent. Therefore the notice under section 148 read with section 147 of the Act was to be quashed.

In case of Kamla Devi S. Doshi v. ITO (2017) 57 ITR 1 (Mum.) (Trib.) the tribunal observed that the Statement of third party cannot be the sole basis for disallowing the claim of the assessee in respect of capital gains. The s. 131 statement implicating the assessee is not sufficient to draw an adverse inference against the assessee when the documentary evidence in the form of contract notes, bank statements, STT payments etc. prove genuine purchase and sale of penny stocks. Failure to provide cross-examination is a fatal error. Additions made by the AO was deleted. Reassessment was held to be invalid.

11. Incriminating material found in search of third party : 153C vis-a- vis 148

11.1 In the case of Rajat Saurabh Chatterji v. ACIT ITA NO. 2430/Del/2015, AY 2007-08 dtd: 20-5-2016 (Delhi)(Trib) www.itatonline.org. the Tribunal observed that where the AO detects incriminating material in search, he has to be processed only u/s. 153C and not u/s. 147. A notice u/s.148 to assess such undisclosed income is void ab initio.

11.2 We have a contrary view. Search operations in premises of third person – Documents found belonging to third person and not to assessee. Reassessment was held to be justified Yamuna Estate P.Ltd. v. ITO (2016) 45 ITR 517 (Mum.)(Trib.)

11.3 The Tribunal held that when the AO had issued a notice u/s. 153C to which the assessee had complied with. Thereafter the AO did not continue with the proceedings u/s. 153C. Subsequently the AO issued a notice u/s. 148, which was held to be bad in law. (ITA No. 3275/Mum/2015 & 3276/Mum/2015) (A.Ys. 2003-04, 2005-06) Rayoman Carriers Pvt. Ltd. v. ACIT (Mum.) (Trib.)

12. Information from U.K. Tax Authority

In the case of CIT v. Late K. M. Bijli (2017) 390 ITR 402 (Delhi) (HC), the Court held that; the exclusive reliance placed upon the U. K. revenue authorities’ information was not sufficient to conclude that the amount which was attributed to the deceased assessee belonged to him. The materials showed that the amounts were brought to tax in the hands of the assessee’s relative. There were pointers to omissions, leads that could have been developed by the Assessing Officer, such as queries to the bank for foreign inward remittances and their source. Having received information the Department could have proceeded through reassessment proceedings at the earliest opportunity. However, the Department chose to wait for three years and sought to reopen a decade late completed assessment and by then the assessee had died. The order of the Appellate Tribunal deleting the additions was not perverse.

13. Reason to believe of the AO

13.1 The Apex Court in the case of Calcutta Discount Co. Ltd. (1961) 41 ITR 191 (SC) analysed the Phrase “reason to believe” and observed that “It is for him to decide what inferences of facts can be reasonably drawn and what legal inferences have ultimately to be drawn.”

It is not for somebody else to tell the assessing authority what inferences, whether of facts or law, should be drawn.

In the case of CIT v. Greenworld Corporation (2009) 314 ITR 81 (SC) it was held that the assessment order passed on the dictates of the higher authority being wholly without jurisdiction, was a nullity.

13.2 Reopening of assessment on basis of letter of Commissioner (Appeals) containing identical facts stated by assessee was held not valid. [United Shippers Ltd. v. ACIT (2015) 371 ITR 441 (Bom.)]

13.3 Similarly in case of Sun Pharmaceutical Industries Ltd. v. Dy.CIT (2016) 381 ITR 387 (Delhi)(HC). The notice under section 148 was issued as a result of Instruction No. 9 of 2006 dated November 7, 2006 issued by the Central Board of Direct Taxes. These audit objections were not accepted by the Assessing Officer. CBDT instruction directing remedial action in case of audit objections – Notice based solely on such instruction not valid.

Information received from another AO

13.4 Similarly where Notice is issued in a mechanical manner, based on information received from another AO, and sanction is accorded by the CIT in a mechanical, reopening is bad in law. [Banke Bihar Properties Pvt. Ltd. v. ITO (Delhi)(Trib.)(supra) www.itatonline.org] Also see [Sunil Agarwal v. ITO ITA No. 988/Del/2018, AY. 2008-09 dtd: 24-5-2018 (Delhi)(Trib), www.itatonline.org]

13.5 Where AO accepted loss declared by the assessee on sale of immovable property in which she was one of co-owners, he could not reopen assessment subsequently on ground that in case of another co-sharer of same property, Assessing Officer had disputed value and referred question to DVO and, on basis of valuation so presented, he had computed certain capital gain and, on basis of valuation so presented, he had computed certain capital gain.

Kalpana Chimanlal Shah v. ITO,[2018] 94 taxmann.com 252 (Guj) (HC)

Reasons to Believe – Survey

13.6 Detection of excess stock or unaccounted expenditure on renovation of business premises at the time of survey u/s. 133A in a subsequent year, could not constitute reason to believe that such discrepancies existed in earlier years also and, therefore, reopening of assessments for those years on the basis of aforesaid reason to believe was not valid.

CIT v. Gupta Abhushan (P) Ltd. (2008) 16 DTR (Del) 76

13.7 Reasons recorded prior and subsequent to survey not satisfying requirement of law – Nothing before Assessing Officer to record belief that escapement has taken place -Notice is not valid

Hemant Traders v. ITO (2015) 375 ITR 167 (Bom.)(HC)

13.8 AO can assume jurisdiction under this provision only if he has sufficient material before him; he cannot form belief on the basis of his whim and fancy and the existence of material must be real. Further, there must be nexus between the material and escapement of income. Statement recorded at the time of survey does not have evidentiary value, therefore, cannot be the basis for reopening. Reassessment proceedings initiated u/s. 148 by AO based on survey statement was held to be invalid and thereby were quashed.

Alfa Radiological Centre Pvt. Ltd. v. ITO (2015) 44 ITR 184 (Chandigarh)(Trib.)

13.9 Reassessment not resulting in assessment of higher income – Reassessment notice not valid. [Ss. 115JB, 147, 148]

Held that having regard to the fact that even if the entire amount which was proposed to be added by the AO were sustained, there would be no addition to the tax liability of the assessee and the assessee would still be governed by the provisions of section 115JB of the Act and assessed on the same book profits, it could not be said that there was sufficient material before the AO to form the belief that income chargeable to tax has escaped assessment. The notice issued under section 148 of the Act, therefore, could not be sustained by virtue of section 152(2): (AY. 2011-12 )

Motto Tiles P. Ltd. v. ACIT (2016) 386 ITR 280 (Guj.)(HC)

14. Irrelevant and non existing reasons : Vague and General reasons not permissible

Balakrishna H. Wani v. ITO 321 ITR 519 (Bom.)

Notice based on suspicion and surmise – Notice is not valid. The requirement of law is “reason to believe” and not reason to “suspect”.

Krown Agro Foods P. Ltd. v. ACIT (2015) 375 ITR 460 (Delhi) (HC)

DCIT v. Dr. M. J. Naidu (2017) 59 ITR 13 (SN) (Vishakha) (Trib)

Suresh M. Bajaj v. ITO ITA NO. 7/Del/2013, AY 2005-06, dtd: 19-2-2016 (Delhi)(Trib.) www.itatonline.org

15. Reasons recorded for reopening of the assessment based on factual error

15.1 Sagar Enterprises v. ACIT (2002) 257 ITR 335 (Guj) – Notice u/s. 148 issued on the ground of factually incorrect basis that the assessee had not filed its return could not be sustained even on the basis of alternative reason since it could not be said with certainty as to which factor weighed with the concerned officer when he issued the impugned notice and when the respondent authority was himself unsure as to the year of taxability of the income which is stated to be undisclosed income.

Also See:

Shri Harakchand K. Gada (HUF) v. ITO ITA No.2800/Mum/2014, dtd. 09/12/2015 (Mum.) (Trib.)

KMV Collegiate Sr. Sec. School v. ITO (2017) 163 ITD 653 (Asr.) (Trib.)

Baba Kartar Singh Dukki Educational Trust v. ITO (2016) 158 ITD 965 (Chd.)(Trib.)

Van Oord Dredging and Marine Contractors BV vs. ADIT – ITA No. 495, 496/Mum/2016 (Mum)(Trib.) dtd. February 28, 2018.

16. No reassessment just to make an enquiry or verification

No reopening to make fishing inquiries.

  1. Bhor Industries Ltd. v. ACIT – [(2004) 267 ITR 161 (Bom)]

  2. Hindusthan Lever Ltd. v. R. B. Wadkar, ACIT – [(2004) 268 ITR 332 (Bom)]

  3. Bhogwati Sahakari Sakhar Karkhana Ltd. v. Dy. CIT [(2004) 269 ITR 186 (Bom.)]

  4. Ajanta Pharma Ltd. v. ACIT – [(2004) 267 ITR 200 (Bom.)]

  5. Pr. CIT v. G & G Pharma India Ltd. [2017] 383 ITR 147 (Delhi)(HC)

  6. Reassessment – Distinction between reason to believe and reason to suspect.

    Universal Power Systems (P) Ltd. v. Asst. CIT [2017][48 ITR (Tribunal) 191 (Chennai)]

    The Assessment re-opened merely to verify discrepancy- i.e. variation between Income declared by assessee and Income shown in TDS Certificate i.e., case reopened on reasons to suspect is not valid.

  7. No reason to believe that income has escaped assessment – Assessing Officer wanted to inquire about source of funds of an immovable property purchased by assessee – No reason to issue notice for reassessment.

    CIT v. Maniben Velji Shah (2006) 283 ITR 453 (Bom.)(High Court)

  8. The AO has mechanically issued notice u/s. 148 of the Act, on the basis of information allegedly received by him from the Directorate of Income-tax (Investigation), New Delhi. AO has not applied his mind so as to come to an independent conclusion that he has reason to believe that income has escaped during the year. Banke Bihar Properties Pvt. Ltd. v. ITO ITA NO. 5128/M/2015 dt. 22-4-2016 (A.Y. 2006-07) (Delhi)(Trib.) I

  9. Merely because the assessee’s income is “shockingly low” and others in the same line of business are returning a higher income. The invocation of the jurisdiction on the basis of suspicions and presumptions cannot be sustained though Explanation 2 of s. 147 authorises the AO to reopen an assessment wherever there is an “understatement of income”, the AO is not entitled to assume that there is “understatement of income” merely because the assessee’s income is “shockingly low” and others in the same line of business are returning a higher income. The invocation of the jurisdiction u/s. 147 on the basis of suspicions and presumptions cannot be sustained. (WP. No. 36483/2016, dt. 13-2-2017) (AY. 2012-13)

    Rajendra Goud Chepur v. ITO (AP&T)(HC); www.itatonline.org

17. Expl. 3 to Section 147 : Any other income

17.1 If Assessing officer does not assess income for which reasons were recorded u/s. 147 he cannot assess other income u/s. 147.

CIT v. Jet Airways (I) Ltd. (2011) 331 ITR 236 (Bom.)

• Once Assessment is open – any other income can be considered. Expl 3 to sec 147.

CIT v. Best Wood [2011] 331 ITR 63 Ker. FB.

17.2 Though Explanation 3 to s. 147 inserted by the A Y 2009 w.r. e.f. 1-4-1989 permits the AO to assess or reassess income which has escaped assessment even if the recorded reasons have not been recorded with regard to such items, it is essential that the items in respect of which the reasons had been recorded are assessed. If the AO accepts that the items for which reasons are recorded have not escaped assessment, it means he had no “reasons to believe that income has escaped assessment” and the issue of the notice becomes invalid. If so, he has no jurisdiction to assess any other income.

Ranbaxy Laboratories Ltd v. CIT (2011) 60 DTR 77(Delhi) (High Court)

(Jet Airways Supra followed).

17.3 Similar view was taken in Hotel Regal International & Anr. v. ITO (2010) 320 ITR 573 (Cal) wherein the petitioners were called upon to file objection to the notice u/s. 148 proposing to reopen the assessment on ground that ₹ 73,219 had escaped assessment Now the authorities could not shift their stand and pass an order on other ground that valuation report received subsequent to passing of the order disposing the objection the Assessing Officer must consider the material and pass speaking order. Assessment quashed.

A Reference can also be made to following decisions :

ITO v. Bidbhanjan Investment & Trading CO (P ) Ltd ( 2011) 59 DTR 345 (Mum.) (Trib.)

Dy. CIT v. Takshila Educational Society (2016) 131 DTR 332/ 284 CTR 306 (Pat.) (HC)

Anugrah Varhney v. ITO ITA NO. 134/Agra/2014 dt. 5-4-2016 [A.Y. 2003-04] (Agra)(Trib.) www.itatonline.org

18. Procedural defect : Issue and Service of Notice etc. : S. 292BB

18.1 No notice u/s. 148 having been served on the assessee prior to reopening of assessment, Asst. made u/s. 147 was bad in law; argument based on S. 292BB was not sustainable on the facts of the case.

CIT v. Mani Kakkar (2009) 18 DTR (Del.) 145 (Asst Yr 2001-02)

18.2 Issue of notice beyond limitation period : Expression “to issue” – Meaning send out – Notice signed on 31/3/2010 sent through speed post on 7/4/2010 – Notice issued after six years for the relevant A.Y. 2003-04

Kanubhai M. Patel (HUF) v. HIren Bhatt (2010) 43 DTR 329 (Guj.)

18.3 Notice issued within period of limitation but sent after that period – Direction to ascertain when the notice had been dispatched by reg. post.

CIT v. Major Tikka Khushwat Singh [1995] 212 ITR 650 (SC)

R. K. Upadhaya v. Shanabhai P. Patel (1987) 166 ITR 163 (SC)

18.4 The notice prescribed by section 148 cannot be regarded as a mere procedural requirement. It is only if the said notice is served on the assessee that the ITO would be justified in taking proceedings against the assessee. If no notice is issued or if the notice issued is shown to be invalid, then the proceedings taken by the ITO would be illegal and void.

Y. Narayan Chetty v. ITO (1959) 35 ITR 388 (SC),

CIT v. Thayaballi Mulla Jeevaji Kapasi (1967) 66 ITR 147 (SC)

CIT v. Kurban Hussain Ibrahimji Mithiborwala (1971) 82 ITR 821 (SC)

18.5 Date of issue would be date on which notice is handed over to Postal Department-Notice handed over to Postal Department before expiry of time hence notice was not barred by limitation. [Ss. 148, 149] the Court held that the date of issue of notice under section 149 of the Income-tax Act, 1961 would be the date on which it was handed over for service to the proper officer, i.e., the Postal Department. The approval was granted by the Principal Commissioner of the Income-tax also on March 30, 2015. The notice was valid. (AY. 2008-09)

Rajesh Sunderdas Vaswani v. C.P. Meena, Dy. CIT (2017) 392 ITR 571 / 149 DTR 49 (Guj.)(HC) Editorial : SLP of the assesssee was dismissed, Rajesh Sunderdas Vaswani v. C. P. Meena, Dy. CIT (2016) 389 ITR 7 (St.)

18.6 Notice issued to individual. His HUF cannot be assessed on the ground that notice was issued to individual who was Karta of HUF. Defect of jurisdiction.

Suraj Mal HUF v. ITO (2007) 109 ITD 327 (Del.)(TM).

18.7 Assessment – Amalgamation – Transferor company – Scheme of amalgamation sanctioned by the High Court – No proceedings can be initiated against the transferor company.

Khurana Engineering Ltd. v. DCIT (2013) 217 Taxman 75 (Guj.)(HC)

However the recent decision of SC in case of Skylight Hospitality LLP v. ACIT (2018) 254 Taxman 390 (SC) held that notice issued in the name of a company which does not exist upon its conversion into LLP is valid if there is material to show that the issue in the name of the company was a clerical mistake. The object and purpose behind S. 292B is to ensure that technical pleas on the ground of mistake, defect or omission should not invalidate the assessment proceedings, when no confusion or prejudice is caused due to non-observance of technical formalities. The Court also observed that in the peculiar facts of this case, we are convinced that wrong name given in the notice was merely a clerical error which could be corrected under S. 292B of the Income-tax Act. (SLP No. 7409/2018, dt. 2-2-2018) (AY. 2010-11)

Editorial. Order in Skylight Hospitality LLP v. ACIT (2018) 254 Taxman 109 (Delhi) (HC) is affirmed

18.8 Similarly in the case of Techpac Holdings Ltd. v. Dy CIT [(2016) 135 DTR (Bombay HC) 322] it was held that service of notice u/s. 148 on the assessee company’s subsidiary was not valid service of notice.

18.9 Service of notice on accountant of assessee-company – Power of attorney given to accountant to conduct assessment proceedings not including authority to accept any fresh notice – Reassessment was not valid. CIT v. Kanpur Plastipack Ltd. (2017) 390 ITR 381 (All.) (HC)

18.10 Notice issued in name of deceased assessee — Objection raised by legal heir of deceased assessee before completion of reassessment — Notice was held to be null and void. Jaydeepkumar Dhirajlal Thakkar v. ITO (2018) 401 ITR 302 (Guj.) (HC)

18.11 In ITO v. Dharam Narain (2018) 253 CTR 479 (SC) held that non-availability of the assessee to receive the notice sent by registered post as many as on two occasions and service of notice on authorised representative of the assessee whom the assessee disowned, is sufficient to draw an inference of deemed service of notice on the respondent assessee and sufficient compliance of the requirement of sec. 143(2) .

19. Service by Affixture

19.1 Where notice was not sent by registered post nor served upon assessee in any other manner whatsoever, proceedings for assessment were void.

CIT v. Harish J. Punjabi (2008) 297 ITR 424 (Del.)

19.2 Invalid Service of notice not a procedural defect. No material to prove efforts made by Dept. to serve notice in normal course. Arunlal v. ACIT (2010) 1 ITR 1 (Trib.) (Agra) (TM)

19.3 Notice affixed on the door of the place of business after the assessee refusing to accept the notice is a valid service of notice. As per Order V, Rule 17 & 18 of CPC, 1908 Sheo Murti Singh (Dr.) v. CIT (2016) 383 ITR 174 (All.)(HC)

19.4 Similarly in case of ITO v. Om Prakash Kukreja (2016) 134 DTR (Chd. Trib.) 208 it was held that where A.O having served the notice under S.148 by affixture at a wrong address where the assessee was not residing it cannot be said that the notice u/s. 148 was served upon the assessee and therefore the resultant reassessment proceedings were invalid and bad in law.

19.5 A strict procedure has to be followed for service by affixture. If done improperly, the notice and the resultant assessment order are null and void

(i) As per sub-section (1) of section 282, the notice is to be served on the person named therein either by post or as if it was a summons issued by Court under the Code of Civil Procedure, 1908 (V of 1908). The relevant provision for effecting of service by different modes are contained in rules 17, 19 and 20 of Order V of CPC. Rules 17, 19 and 20 of Order V of CPC lay down the procedure for service of summons/notice and, therefore, the procedure laid down therein cannot be surpassed because the intention of the legislature behind these provisions is that strict compliance of the procedure laid down therein has to be made. The expression after using all due and reasonable diligence’ appearing in Rule 17 has been considered in many cases and it has been held that unless a real and substantial effort has been made to find the defendant after proper enquiries, the Serving Officer cannot be deemed to have exercised ‘due and reasonable diligence’. Before taking advantage of Rule 17, he must make diligent search for the person to be served. He therefore, must take pains to find him and also to make mention of his efforts in the report. Another requirement of Rule 17 is that the Serving Officer should state that he has affixed the copy of summons as per this rule. The circumstances under which he did so and the name and address of the person by whom the house or premises were identified and in whose premises the copy of the summons was affixed. These facts should also be verified by an affidavit of the Serving Officer.

(ii) The reason for taking all these precautions is that service by affixture is substituted service and since it is not direct or personal service upon the defendant, to bind him by such mode of service the mere formality of affixture is not sufficient. Since the service has to be done after making the necessary efforts, in order to establish the genuineness of such service, the Serving Officer is required to state his full action in the report and reliance can be placed on such report only when it sets out all the circumstances which are also duly verified by the witnesses in whose presence the affixture was done and thus the affidavit of the Serving Officer deposing such procedure adopted by him would also be essential. In the instant case, the whole thing had been done in one stroke. It was not known as to why and under which circumstances another entry for service of notice by affixture was made on 27-7-2012 when sufficient time was available through normal service till 30-9-2012. Nor there is any entry in the note-sheet by the AO directing the Inspector for service by affixture and had only recorded the fact that the notice was served by the affixture. It appears that the report of the Inspector was obtained without issuing any prior direction for such process or mode. In view of the above, it is clear that there was no valid service of notice u/s.143(2) by way of affixation and the assessment made on the basis of such invalid notice could not be treated to be valid assessment and, hence, such assessment order deserves to be treated as null and void and liable to be quashed and annulled.

Sanjay Badani v. DCIT [2014] 35 ITR (T) 536 (ITAT Mumbai)

19.6 No valid notice served upon assessee either through registered post or through affixture, reassessment was held to be not valid. Auram Jewellery Exports P. Ltd. v. ACIT (2017) 54 ITR 1 (Delhi) (Trib.)

20. Notice u/s. 143(2) is mandatory

20.1 Issue of a notice u/s. 143(2) is mandatory. The failure to do so renders the reassessment void (CWT v. HUF of H. H. Late Shri. J.M. Scindia (2008) 300 ITR 193 (Bom.). S.292BB was inserted w.e.f. 1-4-2008 and came into operation prospectively for AY. 2008-09 and onwards.

  • CIT v. Salman Khan Appeal No. 508 OF 2010 dt. 06/06/2011 (Bom.)(HC) www.itatonline.org.

  • CIT v. Mundra Nanvati [2009] 227 CTR 387 (Bom.)(HC)

  • CIT v. Virendra Kumar Agarwal Appeal No. 2429 of 2009 DT. 7/1/2010 (Bom.)

  • Dy. CIT v. Dharampal Satyapal Ltd. (2016) 130 DTR 241 (Delhi)(Trib.)

20.2 One should note that a Jurisdictional error cannot be cured by section 292BB. A reference can be made to a recent decision of Delhi High Court in the case PCIT v. Silver Line (2016) 383 ITR 455 (Delhi)(HC). The ratio is followed in

Alok Mittal v. DCIT (2017) 167 ITD 325 (Kol.) (Trib.)

Anil Kumar v. ITO (2017) 55 ITR 97 (Asr.) (Trib.)

21. No reassessment u/s. 148, if assessment or reassessment is pending

21.1 So long the assessment proceedings are pending the AO cannot have any reason to believe that income for that year has escaped asst (period for issue of notice u/s. 143(2) had not expired)

CIT v. Qatalys Software Technology [2009] 308 ITR 249 (Mad)

21.2 When time limit for issue of notice under section 143(2) has not expired, Assessing Officer cannot initiate proceedings under section 147.

Super Spinning Mills Ltd. v. Addl. CIT (2010) 38 SOT 14 (Chennai)(TM)(Trib.)

21.3 Notice under section 148 cannot be issued for making reassessment, when time limit is available for issue of notice under section 143(2) for making an assessment under section 143(3). A reference can be made to following decisions in favour as well as against the assessee on the issue :

CIT v. TCP Ltd. (2010) 323 ITR 346 (Mad.)

Trustees of H.E.H. The Nizam’s Supplemental Family Trust v. CIT – [(2000) 242 ITR 381 (SC)]

Ghanshyamdas v. Regional Assistant Commissioner of Sales Tax – [(1964) 51 ITR 557 (SC)]

CIT v. S. Raman Chettiar – [(1965) 55 ITR 630 (SC)]

Commercial Art Press v. CIT – [(1978) 115 ITR 876 (All.)]

A.S.S.P & Co. v. CIT – [(1988) 172 ITR 274 (Mad.)]

CIT v. P. Krishnakutty Menon – [(1990) 181 ITR 237 (Ker)]

Indian Tube Co. Ltd. v. ITO – [(2005) 272 ITR 439 (Cal)]

CIT v. Rajendra G. Shah (247 ITR 372) (Bom.) [in favour of assessee]

Jimmy F. Bilimoria [ITA No.6063/Mum/2012] (against the assessee)

XL India Business Services (P.) Ltd. v. ACIT (2014) 67 SOT 117/167 TTJ 467 (Delhi)(Trib.)(In context to reference to TPO. In favour of assessee)

CIT v. Shamlal Bajaj (2014)222 Taxman 173 (Mag.) (Mad.)(HC)

S.147 : Reassessment – Non-initiation of action u/s. 143(2) though time is available. Reassessment is held to be valid. (Against the assessee)

CIT v. Jora Singh (2013) 215 Taxman 424 / 262 CTR 630 (All.)(HC)

Vardhman Holdings Ltd. v. ACIT (2016) 158 ITD 843 (Chd.)(Trib.)

22. Reopening beyond 4 years : Condition – Sanction – Failure on part of assessee to disclose material facts

22.1 Tribunal having concluded that all the material facts were fully and truly disclosed by the assessee at the time of original assessment, invoking the provisions of S. 147 after the expiry of four years from the end of the relevant asst. year was not valid.

German Remedies Ltd. v. DCIT (2006) 287 ITR 494 (Bom.)

CIT v. Former Finance (2003) 264 ITR 566 (SC)

Tata Business Support Services Ltd. v. Dy. CIT (2015) 232 Taxman 702 (Bom.)(HC)

Tirupati Foam Ltd. v. Dy. CIT (2016) 380 ITR 493 (Guj.)(HC)

Gujarat Eco Textile Park Ltd. v. ACIT (2015) 372 ITR 584 (Guj.)(HC)

Nirmal Bang Securities (P) Ltd. v. ACIT (2016) 382 ITR 93 (Bom.)(HC)

Reassessment has to be based on “fresh material”. A reopening based on reappraisal of existing material is invalid :

22.2 There was no tangible material before the Assessing Officer to form the belief that the income had escaped assessment and therefore, reopening of assessment under section 147 was not valid.

Balakrishna Hiralal Wani v. ITO (2010) 321 ITR 519 (Bom.)

Dempo Brothers Pvt Ltd. v. ACIT (2018) 403 ITR 196 (Bom.) (HC)

Golden Tobacco Limited v. DCI [2017] 48 ITR (T) 132(Mum.)(Trib.)

DIT v. Rolls Royal Industries Power India Ltd. [2017] 394 ITR 547 (Delhi)(HC)

ACIT v. Tata Chemicals Ltd. (2017) 185 TTJ 123 (Mum.) (Trib.)

Deloitte Haskins & Sells v. DCIT (2018) 253 Taxman 490 (Guj.)(HC)

22.3 Where the deduction under section 80IB of the Act was allowed to the assessee by the Assessing Officer in the original assessment order under section 143(3) of the Act after considering the audit report in Form 10CCB and the other details filed by the assessee, it cannot be said that there was a failure on the part of the assessee to disclose fully and truly all the facts for the assessment so as to invoke the provisions of section 147 for re-examining the deduction under section 80 IB of the Act, after expiry of four years from the end of the assessment year.

Purity Techtextile (P) Ltd. v. ACIT & Anr. (2010) 325 ITR 459 (Bom.) (HC)

Second Reassessment

– Issue raised in second reassessment was part of original assessment hence second reassessment was held to be not valid.

CIT v. Central Warehousing Corporation (2015) 371 ITR 81 (Delhi) (HC).

– During assessment proceedings and first reassessment proceedings questions regarding dealer’s commission as well as TDS on those amounts were replied to AO. Revenue considering same, disallowed certain portion. Notice was issued once again on the same issue. Allowing the petition, the Court held that an attempt of AO to revisit same issue for third time without any tangible or fresh material could not be held as valid reassessment. Action of AO was noting but the tax authorities effort to overreach the law and resultantly a sheer harassment of the petitioner.

Vodafone South Ltd. v. Union of India (2014) 363 ITR 388 (Delhi)(HC)

FAILURE TO DISCLOSE ALL MATERIAL FACTS WAS NOT MENTIONED IN THE RECORDED REASONS-REASSESSMENT WAS HELD TO BE NOT VALID

22.4 Notice after expiry of four years – As there is no allegation in the reasons for failure to disclose material facts necessary for assessment reopening beyond four years was held to be not valid.

The assessment was completed under section 143 (3) on 14th December, 2007 accepting the melting loss at 7.75 per cent. The notice for reopening was issued on the ground that in the similar line of business other assessee have claimed the melting loss at 5.5 per cent. The objection of assessee was rejected by the Assessing Officer. The assessee challenged the reopening by writ petition. The Court allowed the writ petition and held that there is no allegation in the reasons which have been disclosed to the assessee that there was any failure on his part to fully and truly disclose material facts necessary for assessment and therefore reopening beyond four years was not valid. (A.Y. 2005-06)

Sound Casting(P) Ltd. v. Dy. CIT (2012) 250 CTR 119 (Bom.)

Tao Publishing (P) Ltd..v. Dy. CIT (2015) 370 ITR 135 (Bom.)

Tata Business Support Services Ltd. v. DCIT (2015) 121 DTR 222/ 232 Taxman 702 (Bom)

Micro Inks P. Ltd. v. ACIT (2017) 393 ITR 366/ 246 Taxman 143 (Guj.)(HC)

Navkar Share and Stock Brokers P. Ltd. v. ACIT (2017) 393 ITR 362 (Guj.)(HC)

22.5 Beyond four years – Reassessment held to be not valid in the absence of any new or additional information.

Where the assessee had made full and true disclosure and also there was a note by the auditor in his audit report, reopening of assessment beyond the period of four years was held to be not valid notwithstanding the fact that for subsequent assessment year a similar addition had be made by the Assessing Officer. Assessment cannot be reopened on the basis of a mere change of opinion. There should be some tangible material with the Assessing Officer to come to the conclusion that there is an escapement of income. A mere change of opinion on the part of the assessing officer in the course of assessment for a subsequent year cannot justify the reopening of an assessment.(A.Y. 2006-07)

NYK Line (India) Ltd. v. Dy. CIT (2012) 68 DTR 90 (Bom.)(High Court)

22.6 Reassessment – Despite “Wrong Claim”, reopening invalid if failure to disclose not alleged:

It is necessary for the AO to first state that there is a failure to disclose fully and truly all material facts. If he does not record such a failure he would not be entitled to proceed u/s. 147. There is a well-known difference between a wrong claim made by an assessee after disclosing all the true and material facts and a wrong claim made by the assessee by withholding the material facts.

Titanor Components Limited v. ACIT (2011) 60 DTR 273 (Bombay)

22.7 Reassessment – Transfer pricing –Permanent establishment – Income had already been disclosed by the Indian subsidiary and found by the Transfer Pricing Officer (TPO) to be at arm’s length. Reassessment was held to be bad in law. The AO is not entitled to issue a reopening notice only on the basis that the foreign company has a permanent establishment (PE) in India if the transactions in respect of which it is alleged that there has been an escapement of income had already been disclosed by the Indian subsidiary and found by the Transfer Pricing Officer (TPO) to be at arm’s length. (CA. No. 2833 of 2018, dt. 14-3-2018)(AY. 2004-05)

Honda Motor Co. Ltd. v. ADCIT (2018) 301 CTR 601 /255 Taxman 72 (SC)

23. Approval and Sanction

23.1 CIT having mechanically granted approval for reopening of assessment without application of mind, the same is invalid and not sustainable.

German Remedies Ltd v. Dy. CIT (2006) 287 ITR 494 (Bom.) (AY. 1997-99)

CIT v. Suman Waman Chaudhary (2010) 321 ITR 495 (Bom.)

SLP dismissed on 12-2-2008 (2009) 312 ITR 339 (St.)

CIT v. S. Goyanka Lines & Chemical Ltd. (2016) 237 Taxman 378 (SC)

United Electrical Company (P) Ltd. v. CIT & Ors (2002) 258 ITR 317 (Del.)

Asiatic Oxygen Ltd. v. Dy. CIT (2015) 372 ITR 421 (Cal.) (HC)

Maruti Clean Coal And Power Ltd. v. ACIT (2018) 400 ITR 397 (Chhattisgarh) (HC)

ITO v. Virat Credit & Holdings Pvt. Ltd. ITA NO. 89/Del/2012 dt. 9-2-2018 (A.Y. 2005-06)(Delhi)(Trib.), www.itatonline.org

Sunil Agarwal v. ITO [2002] 83 ITD 1 (TM) (Delhi)(Trib.),

Banke Bihar Properties Pvt. Ltd. v. ITO (Delhi)(Trib) [Supra];

23.2 Merely affixing a ‘yes’ stamp and signing underneath suggested that the decision was taken by the Board in a mechanical manner as such, the same was not a sufficient compliance under section 151 of the Act. The approval is a safeguard and has to be meaningful and not merely ritualistic or formal. Central India Electric Supply Co. Ltd. v. ITO (2011) 51 DTR 51 (Del.) (HC)

Dy. CIT v. Dharampal Satyapal Ltd. (2016) 130 DTR 241/ 175 TTJ 217 (Delhi)(Trib.)

PCIT v. N. C. Cables Ltd. (2017) 391 ITR 11/ 149 DTR 90 (Delhi)(HC)

23.3 Failure on part of Assessing Officer to take sanction of appropriate authority would go to very root of validity of assumption of jurisdiction by Assessing Officer hence the order is bad in law. Anil Jaggi. v. CIT (2018) 168 ITD 599 (Mum.) (Trib.)

23.4 Sanction of Commissioner instead of JCIT renders reopening as void

There is no statutory provision under which a power to be exercised by an officer can be exercised by a superior officer. When the statute mandates the satisfaction of a particular functionary for the exercise of a power, the satisfaction must be of that authority. Where a statute requires something to be done in a particular manner, it has to be done in that manner (SPL’s Siddhartha Ltd. followed)(A.Y. 2004-05).

Ghanshyam K. Khabrani v. ACIT ( 2012) 346 ITR 443 (Bom.)(HC)

DSJ Communication Ltd. v. Dy.CIT (2014) 222 Taxman 129 (Bom.)(HC)

Purse Holdings India P. Ltd. v. ADDIT (IT)( 2016) 143 DTR 1(Mum.)(Trib.)

Yum! Restaurants Asia Pte Ltd. v. Dy. DIT (No.1) (2017) 397 ITR 639 (Delhi) (HC)

23.5 In case of CIT v. Gee Kay Finance And Leasing Co. Ltd. (2018) 401 ITR 472 (Delhi) (HC) it was observed that the satisfaction and approval of the Chief Commissioner or the Commissioner under section 151(1) was a sine qua non before issuance of a notice under section148 by the Assessing Officer, who might be of the rank of an Income-tax Officer or Assistant Commissioner or Deputy Commissioner, but when such notice was to be issued after the expiry of four years period of limitation, the sanction of the Chief Commissioner was a precondition. The proviso to section 151(1), when it referred to an Assessing Officer, could also mean not merely an Assessing Officer below the rank of an Assistant Commissioner and a Deputy Commissioner but also all Assessing Officers.

24. Disclosure of primary facts : No power to review

24.1 Order of Assessing Officer u/s. 143(3) reflects that the primary facts relating to case was before the Assessing officer therefore there was disclosure of all primary facts relating to claim of deduction u/s. 80IB(10).

Mistry Lalji Narsi Development Corp. v. ACIT (2010) 229 CTR 359 (Bom.)

24.2 Allowance of bad debt was specifically raised in the original assessment proceedings and on receiving explanation from assessee the claim of assessee was allowed, reassessment held to be invalid. (A. Y. 2004-05)

Yash Raj Films P. Ltd. v. ACIT (2011) 332 ITR 428 (Bom.)

24.3 Assessment order is not a scrap of paper & AO is expected to have applied his mind. Reopening on ground of “oversight, inadvertence or mistake” is not permissible.

CIT v. Jet Speed Audio Pvt. Ltd. (2015) 372 ITR 762 (Bom.)

24.4 The Court held that AO has no power to review assessment order under shelter of re-opening of assessment under sections 147/148, therefore, it was not open for AO to relook at same material only because he was subsequently of view that conclusion arrived at earlier was erroneous.

Housing Development Finance Corporation Ltd. v. J. P. Janjid (2014) 225 Taxman 81(Mag.) / (Bom.)(HC); CIT v. Amitabh Bachchan [2012] 349 ITR 76 (Bom.) (HC),

24.5 All facts were before AO at the time of original assessment as well as reopened asst. Even assuming that he failed to apply his mind, assessment cannot be reopened u/s. 147.

Asian Paints Ltd. v. CIT [2009] 308 ITR 195 (Bom.) (HC)

24.6 In the absence of any fresh material – Reopening would amount to change of opinion. The CIT-8. v. M/s. Advance Construction Co. Pvt. Ltd. [Income Tax Appeal No.77 of 2014; Dt. 28-6-2016 (Bombay High Court)]

24.7 Full particulars were furnished in the course of original assessment proceedings Crescent Construction Co. v. ACIT (2017) 188 TTJ 497 (Mum.) (Trib.)

24.8 There was no failure on part of assessee to submit related documents Muniwar Abad Charitable Trust v. ACIT (E) (2017) 59 ITR 204 Mum) (Trib.)

24.9 Reassessment – After the expiry of four years – Deemed dividend – No failure to disclose material facts hence reassessment was held to be not valid.

Gujarat Mall Management Company Private Limited v. ITO (2018) 400 ITR 329 (Guj.) (HC)

24.10 Reassessment – After the expiry of four years – There was no failure to disclose all material facts – Reassessment was held to be not valid – Alternative remedy is no bar to file writ petition if the action of the authority is beyond their jurisdiction.

Cedric De Souza Faria. v. DCIT (2018) 400 ITR 30 (Bom.) (HC)

25. Disclosure in balance sheet also amounts to disclosure

CIT v. Corporation Bank Ltd (2002) 254 ITR 791 (SC)

Arthus Anderson & Co. v. ACIT (2010) 324 ITR 240 (Bom.)

Considering the decision against of Dr. Amin’s Pathology Lab v. P.N. Prasad (2001) 252 ITR 673 (Bom.)

CIT v. Lincoln Pharmaceuticals Ltd. (2015) 375 ITR 561 (Guj.)(HC)

Against :

ACIT v. M.P. Laghu Udyog Nigam Ltd. (2017) 165 ITD 446 (Indore) (Trib.)

• Mere production of account books from which material evidence could have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the proviso. Hence reopening of assessments is perfectly in accordance with law hence same is upheld.

CIT v. Tata Ceramics Ltd. (2018) 403 ITR 389 (Ker.) (HC)

26. Full and true disclosures of all material facts

ICICI Securities Ltd. v. ACIT (2015) 231 Taxman 460 (Bom.)(HC)

Business India v. DCIT(2015) 370 ITR 154/299 Taxman 289 (Bom.) (HC)

Prashant Project Ltd. v. Asst. CIT (2011) 333 ITR 368 (Bom.)

Hindustan Petroleum Corporation Ltd. v. Dy. CIT (2010) 328 ITR 534 (Bom.)

Betts India (P.) Ltd. v. Dy. CIT (2015) 235 Taxman 77 (Bom.)(HC)

Kimplas Trenton Fittings Ltd. v. ACIT (2012) 340 ITR 299 (Bom.)

Hamdard Laboratories (India) & Anr. v. ADIT(E) (2015) 379 ITR 393 (Delhi)(HC)

Dempo Brothers Pvt Ltd. v. ACIT (2018) 403 ITR 196 (Bom.) (HC )

ACIT v. Kalyani Hayes Lemmerz Ltd. (Bom.) (HC)

Kotarki Constructions (P) Ltd. v. ACIT (2018) 162 DTR 49 (Karn.) (HC)

27. Reassessment within four years : Asst. completed u/s. 143(3)

27.1 An asst. order passed after detailed discussion cannot be reopened within a period of 4 years unless the AO has reason to believe that there is some inherent defect in the assessment.

German Remedies Ltd. v. DCIT & Ors (2006) 285 ITR 26 (Bom.)

Siemens Information System Ltd. v. ACIT (2007) 295 ITR 333 (Bom.)

Godrej Agrovet Ltd. v. Dy. CIT [2011] 323 ITR 97 (Bom.)

Capgemini India (P.) Ltd. v. ACIT (2015) 232 Taxman 149 (Bom.)(HC)

Friends of WWB India v. DIT (2018) 402 ITR 350 (Guj.) (HC)

CIT v. Aroni Commercial Ltd. (2017) 393 ITR 673 (Bom.)

United States Pharmacopiea India Pvt. Ltd. v. DCIT (2017) 57 ITR 312 (Hyd.) (Trib.)

Vijay Harishchandra Patel. v. ITO (2018) 400 ITR 167 (Guj.) (HC)

Pr. CIT v. Century Textiles and Industries Ltd. [Income tax Appeal No. 1367 of 2015 dt. 03/04/2018 (Bombay High Court)]

27.2 Change of opinion – Within period of four years

Once an assessment has been completed under section 143(3) after raising a query on a particular issue and accepting assessee’s reply to the query. Assessing Officer has no jurisdiction to reopen the assessment merely because the issue in question is not specifically adverted in the assessment order, unless there is tangible material before the Assessing Officer to come to the conclusion that there is escapement of income. (Asst Year 1998-99).

Asst. CIT v. Rolta India Ltd ( 2011)132 ITD 98 (Mumbai) (TM) (Trib.)

27.3 Change of opinion – reopening not permissible

Commissioner of Income-tax-3 v. SICOM Ltd. [Income tax Appeal No. 137 of 2014 dt : 08/08/2016 (Bombay High Court)].

27.4 During original assessment, assessee’s claim was processed at length and after calling for detailed explanation from him, same was accepted. Merely because a certain element or angle was not in mind of Assessing Officer while accepting such a claim, could not be a ground for issuing notice under section 148 for reassessment. Mere failure of AO to raise such a question would not authorise him to reopen assessment even within period of 4 years from end of relevant assessment year, any such attempt on his part would be based on mere change of opinion, therefore, notice issued under section 148 was liable to be quashed.

Cliantha Research Ltd. v. Dy. CIT (2014) 225 Taxman 102 (Mag.) (Guj.)(HC)

28. Reassessment – Change of opinion

28.1 Change of Opinion

Amendment as per Direct tax laws (Amendment) Act, 1989 w.e.f. April 1, 1989 as also of sec. 148 to 152 have been elaborated in Circular No. 549, dated October 31, 1989. A perusal of clause 7.2 of the said circular makes it clear that the amendments had been carried out only with a view to allay fears that the omission of the expression reason to believe” from sec. 147 would give arbitrary power to AO to reopen past assessments on a mere change of opinion i.e., a more change of opinion cannot form basis for reopening a completed assessment.

CIT v. Kelvinator of India Ltd. (2002) 256 ITR 1 (Del.) (FB) (AY. 1997-1998)

Approved by Supreme Court in (2010) 320 ITR 561 (SC)

ITO v. Techspan India (P) Ltd. (2018) 404 ITR 10/ 302 CTR 74 (SC)

28.2 In determining whether commencement of reassessment proceedings was valid it has only to be seen whether there was prima facie some material on the basis of which the department could reopen the case. The sufficiency or correctness of the material is not a thing to be considered at this stage.

Raymond Woollen Mills Ltd. v. ITO and Others (1999) 236 ITR 34 (S.C.)

28.3 Points not decided while passing assessment order under section 143(3) not a case of change of opinion. Assessment reopened validly.

Yuvraj v. Union Of India (2009) 315 ITR 84. (Bom.)

28.4 Change of Opinion : Case Laws

No new material brought on records – Reassessment on change of opinion of officer not valid.

  1. Asteroids Trading & Investment P. Ltd. v. DCIT (2009) 308 ITR 190 (Bom.)

  2. Asian Paints Ltd. v. DCIT (2008) 308 ITR 195 (Bom.) (198)

  3. ICICI Prudential Life Insurance Co. Ltd. (2010) 325 ITR 471 (Bom.)

  4. Aventis Pharma Ltd. v. Astt. CIT (2010) 323 ITR 570 (Bom.) (577)

  5. Nirmal Bang Securities (P) Ltd. v. ACIT. (2016) 382 ITR 93 (Bom.)(HC)

  6. Aryan Arcade Ltd v. DCIT (2017) 390 ITR 67 (Guj.)(HC)

  7. Change of opinion – Labour charges – Subsequent assessment year – Reassessment was held to be bad in law: CIT v. Srusti Diam (2015) 232 Taxman 127 (Bom.)(HC) ; PCIT v. Jai Prakash Associates Ltd. (2018) 403 ITR 41 (All.) (HC)

  8. Reopening on mere change of opinion by subsequent Assessing Officer is not permissible. Orient News Prints Ltd. v. Dy. CIT (2017) 393 ITR 527 (Guj.)(HC); Ajanta Pvt. Ltd. v. DCIT (2018) 402 ITR 72 (Guj.) (HC)

28.5 Reassessment has to be based on “fresh material”. A reopening based on reappraisal of existing material is invalid.

DIT v. Rolls Royce Industries Pvt. India Ltd.[Supra] (Delhi)(HC), www.itatonline.org

Golden Tobacco Limited v. DCI ITA No. 5858 & 5859 /M/2012 dt. 28-10-2015 (A.Y. 2005-06 & 2006-07)(Mum.)(Trib.) www.itatonline.org

Uttaranchal Jal Vidyut Nigam Ltd v. ACIT (2016) 47 ITR 198 (Delhi) (Trib.)

PCIT v. Anil Nagpal (2017) 291 CTR 272/ 145 DTR 209 (P&H)(HC)

Lambda Therapeutic Research Ltd. v. ACIT (2018) 402 ITR 177 (Guj.) (HC)

Giriraj Steel v. DCIT (2018) 402 ITR 204 (Guj.) (HC)

29. Re-assessment – audit objection

29.1 If the AO disagrees with the information/ objection of the audit party and is not personally satisfied that income has escaped assessment but still reopens the assessment on the direction issued by the audit party, the reassessment proceedings are without jurisdiction. Larsen & Toubro Ltd. v. State of Jharkhand Civil Appeal No. 5390 of 2007 dt. 21/03/2017 (SC) www.itatonline.
org

AO having communicated to the auditor that a certain decision of a HC did not apply to the facts of the petitioners case but later rejected the objections raised by the petitioner to the notice u/s. 148 taking a contrary view without giving any reason as to why he has departed from the earlier view that the decision was not applicable, there was total non application of mind on the part of AO; matter remanded back to AO for de-novo consideration.

Asian Cerc Information Services (P) Ltd. v. ITO (2007) 293 ITR 271 (Bom.)

29.2 AO having allowed assessee’s claim for depreciation in the regular assessment and reopened the assessment pursuant to audit objection, it cannot be said that he had formed his own opinion that the income had escaped assessment, and the reopening being based on mere change of opinion, same was not valid.

IL & FS Investment Managers Ltd. v. ITO & Ors. (2008) 298 ITR 32 (Bom.) (AY. 2003-2004)

CIT v. Rajan N. Aswani (2018) 403 ITR 30 (Bom.)(HC)

Vijaykumar M. Hirakhanwala (HUF) v. ITO & Ors (2006) 287 ITR 443 (Bom.) (AYs. 1997-1998 to 1999-2001 to 2002-2003)

CIT v. Lucuns TVS Ltd. [2001] 249 ITR 306 (SC)

Prothious Engineering Services Pvt. Ltd. v. ITO (2016) 46 ITR 438 (Mum.)(Trib.)

Purity Tech Textiles Pvt. Ltd. v. ACIT (2010) 325 ITR 459 (Bom.)

CIT v. DRM Enterprises (2015) 230 Taxman 61/ 120 DTR 401 (Bom.)(HC)

Reckit Benckiser Healthcare India P. Ltd v. Dy. CIT (2017) 392 ITR 336 (Guj.)(HC)

Torrent Power S.E.C. Ltd v. ACIT (2017) 392 ITR 330 (Guj.)(HC)

Mehsana District Central Co-op Bank Ltd. v. ACIT [2018] 93 Taxmann.com 219 (Guj.)(HC)

29.3 Audit objection cannot be the basis for reopening of assessment to income tax by the revenue.

Indian & Eastern Newspaper Society v. CIT (1979) 119 ITR 996 (SC)

29.4 Reassessment was not valid as the AO held no belief on his own at any point of time that income of assessee had escaped asst. on account of erroneous computation of benefit u/s. 80HHC and was constrained to issue notice only on the basis of audit object.

Adani Exports v. DCIT (1999) 240 ITR 224 (Guj) (AY. 1993-94)

29.5 S. 147: If AO contests the audit objection but still reopens to comply with the audit objection, it means he has not applied his mind independently and the reopening is void:

Raajratna Metal Industries Ltd v. ACIT [2014] 227 Taxman 133 (Gujarat High Court)

National Construction Co. v. Jt. CIT (2015) 234 Taxman 332 (Guj.)(HC)

• Assessing Officer tried to justify his order and requested to drop the proceedings. Notice based solely on opinion of audit party-Not valid

Shree Ram Builders v. ACIT (OSD) (2015) 377 ITR 631 (Guj.)(HC)

29.6 Audit objection vis-à-vis debatable issue

Letter written by AO to CIT showing that AO himself found that the issue on which reassessment was sought was debatable, reasons recorded by A.O. did not meet the requirements of law.

Sunil Gavaskar v. ITO (2016) 134 DTR (Mumbai ITAT) 113

29.7 CBDT instruction directing remedial action in case of audit objections. Notice based solely on such instruction (CBDT Instruction No. 9 of 2006). No failure to disclose fact. No allegation that material facts had not been disclosed. Notice was held not valid.

Sun Pharmaceutical Industries Ltd. v. Dy. CIT (2016) 381 ITR 387/ 237 Taxman 709 (Delhi)(HC)

29.8 Assessing Officer disagreeing with audit objection yet issuing notice – Reassessment was held to be not valid

AVTEC Ltd. v. DCIT (2015) 370 ITR 611 (Delhi)(HC)

30. Reassessment – Interpretation of High Court Decision

Reopening of assessment on the basis of wrong interpretation of High Court decision was invalid.

Assam Co. Ltd. v. UOI & Ors. (2005) 275 ITR 609 (Gau.)

31. Direction of the higher authorities

31.1 Revisional authority having directed the AO to adjudicate specific issues which were addressed and examined by him, asst. made by the AO on a higher total income by assuming more powers than that of the revisional authority is patently illegal and without jurisdiction.

N. Seetharaman v. CIT (2008) 298 ITR 210 (Mad.) (AYs. 1989-1990 to 1999-2000)

31.2 The assessing officer for the assessment year 2000-01 recorded a specific note in the assessment order which indicated that the assessment order was passed under the dictates of the Commissioner. The Supreme Court in the challenge to the reopening for the same assessment year held that the assessment order passed on the dictates of the higher authority being wholly without jurisdiction, was a nullity. Therefore with a view to complete the justice to the parties, the Supreme Court directed that the assessment proceedings should be gone through again.

CIT v. Greenworld Corporation (2009) 314 ITR 81 (SC).

32. Supreme Court decision cannot be the basis for reopening

The ITO cannot seek to reopen an assessment under section 147 on the basis of the Supreme Court decision in a case where assessee had disclosed all material facts.

Indra Co. Ltd. v. ITO (1971) 80 ITR 559 (Cal.)(AY 1959-1960)

SESA Goa Ltd. v. Jt CIT [2007] 294 ITR 101 (Bom)

CIT v. ITW India Ltd. (2015) 377 ITR 195 (P & H)(HC)

Subsequent High Court decision – beyond 4 years Discloure of complete facts. Reopening bad in law.

Contrary Decision

Kartikeya International v. CIT (2010) 329 ITR 539 (All.)

Asst. CIT v. Central Warehousing Corp. (2012) 67 DTR 356 (Delhi)

33. Reassessment based on retrospective amendment. Not Justified

  • Denish Industries Ltd. v. ITO [2004] 271 ITR 340 (Guj.) (346)

    SLP dismissed (2005) 275 ITR 1 (St.)

  • Rallies India Ltd. v. ACIT (2010) 323 ITR 54 (Bom.)

  • SGS India Pvt. Ltd. v. ACIT (2007) 292 ITR 93 (Bom.)

    Law in subsequent AY. is different, reopening not proper.

  • Siemens Information Ltd. v. ACIT (2007) 293 ITR 548 (Bom.)

    Notice u/s. 148 based on amended law not applicable to relevant AY.

  • Sadbhav Engineering Ltd. v. Dy. CIT [2012] () 333 ITR 483 (Guj.)

  • Kalpataru Sthapatya (P) Ltd. (2012) 68 DTR 221 (Guj.)(High Court)

  • Reopening, even within 4 years, on basis of retrospective amendment to section 80IB(10) is held to be invalid.

    Ganesh Housing Corporation Ltd. v. Dy. CIT [2013] 350 ITR 131 (Guj.) (High Court)

  • Reassessment held to be invalid only on the basis of retrospective amendment as there is no failure to disclose fully and truly all material facts [S. 80IB(10)]

Assessee claimed the deduction under section 80(IB)(10) after enquiry the deduction was allowed. The amendment was introduced by Finance Act, 2009, inserting Explanation with retrospective effect from 1st April, 2001 which denied benefit of deduction under section 80IB(10) to works contractors execution housing project. The only reason for issuing the notice, was amendment brought in the statute book with retrospective effect. The said notice was challenged before the High Court. High Court quashed the notice and held that reopening only on the basis of retrospective amendment of law is not justified. (AY. 2004-05).

Pravin Kumar Bhogilal Shah v. ITO (2012) 66 DTR 236 (Guj.)(High Court)

Vinayak Construction v. ITO (2012) 66 DTR 233 (Guj.)(High Court)

34. Appeal pending from original assessment order. Reassessment cannot be done as the order merged with order of higher authorities

Proviso to section 147 has been inserted by Finance Act, 2008, w.e.f. 2008.

(2008) 298 ITR 163 (St), – Notes on clauses.

(2008) 298 ITR St. 222 to 224 Memorandum explaining the provision.

Metro Auto Corporation v. ITO (2006) 286 ITR 618 (Bom.)

Vodafone Essar Gujarat Ltd. v. ACIT (2010) 37 DTR 259 (Guj.)

Appeal was pending before ITAT and the matter was subject matter of appeal before CIT(A). No Reassessment. Once an issue is subject matter of appeal before Tribunal, issuance of notice of reassessment on said ground has to be considered bad in law. (AY. 2000-01).

Chika Overseas (P) Ltd. v. ITO ( 2011) 131 ITD 471 (Mum.) (Trib).

ICICI Bank Ltd. v. Dy. CIT (2012) 246 CTR 292/ 204 Taxman 65 (Mag.)(Bom.)(High Court)

CIT v. Flothern Engineers (P.) Ltd. (2014) 225 Taxman 223 (Mag.)(Mad.)(HC)

  • There is no escapement of income as the assessing officer had disallowed the assessee’s claim of exemption and the same was subject matter of appeal before CIT(A). Principal condition that income chargeable to tax has escaped assessment was not satisfied Nivi Trading Limited v. UOI [2015] 375 ITR 308 (Bom.)(HC);

  • Reassessment – Change of opinion – Beyond four years – Third proviso – Merger – There was no failure on part of assessee to disclose full and true particulars, and order of original assessment was merged with order of the Appellate Authority, hence the reassessment held to be invalid

  • CIT v. Reliance Energy Ltd. (2013) 81 DTR 130 / 255 CTR 357 (Bom.)(HC)

  • Allana Sons Ltd. v. ACIT (2015) 230 Taxman 436 (Bom.)(HC)

  • GTL Ltd. v. Asst CIT (2015) 37 ITR 376 (Mum.)(Trib.).

  • Radhaswami Salt Works v. ACIT (Guj.)(HC); www.itatonline.org

35. Jurisdiction issue can always be raised at any stage

35.1 Jurisdiction can be challenged in second appeal

Investment Corpn. Ltd. v. CIT (1992) 194 ITR 548 (Bom.) (556)

N. Nagaganath Iyer v. CIT (1996) 60 ITR 647 (Bom.) (655)

Hemal Knitting Industries v. ACIT (2010) 127 ITD 160 (Chennai)(TM)

Rule 27 of ITAT Rules: Reassessment ground can be raised.

35.2 If assessee does not ask for the reasons recorded and object to reopening, ITAT cannot remand to Assessing Officer and give assessee another opportunity. CIT vs. Safetag Int. India Pvt. Ltd. [2012] 332 ITR 622 (Del.) (HC.)

35.3 A question relating to jurisdiction which goes to the root of the matter can always be raised at any stage – Issue of notice or service of notice in the setaside appeal can be raised –Matter was set aside to Tribunal to decide the jurisdictional issue of reassessment. (ITA No. 87 of 2009, dt. 30-3-2017)(AY. 1997-98).

Teena Gupta v. CIT (All.)(HC); www.itatonline.org [referred Sun Engineering Works P. Ltd.]

35.4 Jurisdiction to issue notice was challenged after limitation period prescribed under S.124 (3) – Reassessment was held to be valid

Assessee having not challenged territorial jurisdiction of AO issuing notice under section 148 within 30 days as required under section 124(3) of the Act, belated challenge cannot be accepted. The Court further held that the contention of the assessee that objection is raised when it came to know about the CBDT notification regarding jurisdiction is not tenable as absence of knowledge of notification will not suspend running of limitation. (AY. 2012-13 to 2014-15) Elite Pharmaceuticals v. ITO (2017) 152 DTR 226/297 CTR 428 (Cal.) (HC)

35.5 In this context reference is made to the decision of Bombay High Court in case of CIT v. LalitKumar Bardia (2018) 404 ITR 63 wherein the Court held that though the assessee has taken part in the assessment proceedings, waiver will not confer jurisdiction on Assessing Officer. Irregular exercise of jurisdiction and absence of jurisdiction is explained.

35.6 Similarly in Tata Sons Ltd. v. ACIT (2017) 162 ITD 450 (Mum.) (Trib.)

Additional ground on jurisdiction was admitted- Assessment order passed without authority of law was held to be bad in law. [In favour of assessee].

35.7 Section 292B would not empower the AO. to treat a proceeding taken u/s. 147(b) as a proceeding u/s. 147(a). This is not a mere technicality but a question of jurisdiction.

Sunrolling Mills (P) Ltd. v. ITO (1986) 160 ITR 412 (Cal.)

P. N.Sasikumar & Ors. v. CIT (1988) 170 ITR 80 (Ker.)

36. Rectification proceedings initiated and dropped

36.1 Dept. having taken one of the two possible views in the matter of calculation of deduction u/s. 10B and 80HHE asst. cannot be reopened by taking the other view more so when the CIT(A) has already quashed the rectification u/s. 154 which was made on the very same ground.

Westun Outdoor Interactive (P) Ltd v. A.K. Phute, ITO & Ors. (2006) 286 ITR 620 (Bom.) (AY. 2000-2001)

36.2 Allowance u/s. 80HHC having been granted by the ITO in rectification proceedings. The remedy against lay with the dept. either u/s. 154 or S. 263 and not S. 147 further reassessment having been made on a date earlier than fixed same was bad.

Smt. Jamila Ansari v. ITO & Anr (1997) 225 ITR 490 (Addl.)

36.3 Sec. 147 vis-a-vis Sec.154

Section 147 reopening for rectifying sections 154 mistakes are invalid.

Hindustan Unilever Ltd. v. Dy. CIT (2011) 325 ITR 102 (Bom.)

CIT v. EID Parry Ltd. [(1995) 216 ITR 489 (Mad)]

The jurisdiction under sections 147(b) and 154 are different but in cases where they seem to overlap, the ITO may choose one in preference to the other and once he has done so, he should not give it up at a later stage and have recourse to the other.

• Reassessment – Rectification pending – (S.154)

When proceedings under section 154 were pending on the same issue and not concluded, parallel proceedings under section 147 initiated by the Assessing Officer are invalid ab inito, especially when except the return and its enclosures, no other material or information was in the possession of the Assessing Officer.(AY 2004-05).

Mahinder Freight Carriers v. Dy CIT ( 2011) 56 DTR 247 (Mum) (Trib.).

Berger Paint India Ltd. v. ACIT & Ors. [(2010) 322 ITR 369 (Cal.)]

Jethalal K. Morbia v. ACIT [(2007) 109 TTJ (Mum.) 1]

Followed in:

S.M. Overseas P. Ltd. v. ACIT [(2009) 23 DTR (Del) (Trib.) 29]

CIT v. Jandu Construction Co. (2018) 61 ITR 235 (Chand.) (Trib.)

36.4 Against

CIT v. India Sea Foods [(2011) 54 DTR (Ker.) 223]

• Accordingly, the fact that there were section 154 proceedings is not a bar to the section 147 proceedings. It was further held that the scope of sections 154 & 147 / 148 are different and it cannot be said as a general principle that if notice under section 154 is issued, then notice under section 147 / 148 is barred 
or prohibited (Hindustan Unilever Ltd. 325 ITR 102 (Bom.) distinguished). (AY. 2000-2001)

Honda Siel Power Products Ltd. v. Dy. CIT (2011) 197 Taxman 415 (Delhi). Assessee’s SLP dismissed Honda Siel Power Products Ltd v. DCIT [2016] 240 Taxman 576 (SC).

37. Reopening based on Valuation Report

37.1 AO had no jurisdiction to reopen the concluded assessments on the strength of valuation report of valuation officer obtained officer obtained subsequently and that too not in exercise of 
powers u/s. 55A impugned notices under S. 148 quashed.

Prakash Chand v. Dy. CIT & Ors. (2004) 269 ITR 260 (MP) (AY. 1997-2001)

37.2 Assessing Authority having made a detailed enquiry before making the assessment of the petitioner u/s. 143(3) the impugned notice u/s. 148 was issued only on the basis of change of opinion and was therefore, invalid, notice was also illegal on the ground that it was based on the valuation report of cost of construction.

Girdhar Gopal Gulati vs. UOI (2004) 269 ITR 45 (All.)

37.3 Mere DVO’s report cannot constitute reason to believe that income has escaped assessment for the purpose of initiating reassessment and therefore tribunal was justified in holding that the reassessment proceedings initiated on the basis of DVO’s report were invalid ab initio, more so when it has found that the DVO’s report suffers from various defects and mistakes.

CIT v. Smt. Meena Devi Mansighka (2008) 303 ITR 351

37.4 Valuation report cannot by itself form the basis

Where apart from the valuation report which was relied upon by the ITO there was no material before him to come to the prima facie conclusion that the assessee had received the higher consideration than what had been stated 
in the sale deed, reassessment would not be justified.

ITO v. Santosh Kumar Dalmia (1994) 208 ITR 337 (Cal.)(AY. 1973-1974)

ITO v. Shiv Shakti Build Home (P) Ltd. ( 2011) 141 TTJ 123 (Jodhpur) (Trib).

Akshar Infrastructure P. Ltd. v. ITO (2017) 393 ITR 658 (Guj.)(HC)

CIT v. P. Nithilan. (2018) 403 ITR 154 (Mad) (HC)

37.5 Reopening of assessment – based on the opinion given by the District Valuation Officer

Reopening of assessment – based on the opinion given by the District Valuation Officer – opinion of the DVO per se is not an information for the purposes of reopening assessment under section 147 of the Income-tax Act, 1961 – Held that: The Assessing Officer has to apply his mind to the information, if any, collected and must form a belief thereon – Department was not entitled to reopen the assessment.

Assistant CIT vs. Dhariya Consturction Co. (2010) 328 ITR 515

38. Reassessment jurisdiction is available for benefit of revenue only

38.1 Since the proceedings under section 147 are for the benefit of the revenue and are aimed at gathering the escaped income of the revenue the same cannot be allowed to be converted as revisional or review proceedings at the instance of the assessee, thereby making the machinery workable.

CIT vs. Sun Engineering Works (P.) Ltd. (1992) 198 ITR 297 (SC)

38.2 Proceeding under section 147 are for the benefit of the revenue and not the assessee and hence the assessee cannot be permitted to convert the reassessment proceedings as his appeal or revision in disguise and seek relief in respect of items earlier rejected, or claim relief in respect of items not claimed in the original assessment proceedings unless relatable to the escaped income and reagitate concluded matters. Allowance of such a claim in respect of escaped assessment in the case of reassessment has to be limited to the extent to which they reduce the income to that originally assessed. Income for the purpose of reassessment cannot be reduced beyond the income originally assessed.

K. Sudhakar S. Shanbhag v. ITO (2000) 241 ITR 865 (Bom.)

CIT v. Caixa Economica De Goa ( 1994) 210 ITR 719 (Bom).

38.3 Assessee having not claimed deduction under section 80HHC, in its return because it had only income from other sources and no business income, claim made in the revised return by filing audit report under section 147 due to disallowances under section 43B is upheld.

ITO v. Tamil Nadu Minerals Ltd. (2010) 124 ITD 156 (Chennai)(TM)

Issue concluded in original assessment proceedings cannot be reagitated during course of reassessment proceedings.

Karnataka State Co-operative Apex Bank Ltd. v. Dy. CIT (2016) 46 ITR 728 (Bang.)(Trib.)

38.4 Ignorance of board circular is not sufficient to reopen:

The mere fact that the ITO was not aware of the circular of the board is not sufficient to reopen the assessment.

Dr. H. Habicht V. Makhija (1985) 154 ITR 552 (Bom.) (AY. 1975-1977)

39. When intimation under section 143 (1) is issued

39.1 So long as the ingredients of section 147 are fulfilled, Assessing Officer is free to initiate proceeding under section 147 even where intimation under section 143(1) has been issued; as intimation under section 143 (1) (a) is not assessment there is no question of treating re assessment in such a case as based on change of opinion.

Asstt. CIT v. Rajesh Jhaveri Stock Brokers (P) Ltd.

(2007) 291 ITR 500 (SC) (AY. 2001-2002)

39.2 Original assessment completed under section 143(1)- Intimation is not an assessment-No question of change of opinion.

CIT v. Zuari Estate Development and Investment Co. Ltd. (2015) 373 ITR 661(SC)

39.3 It is open to the assessee to challenge a notice issued u/s. 148 as being without jurisdiction for absence of reason to believe even in case where the assessment has been completed earlier by Intimation u/s. 143(1) of the Act.

The law on this point has been expressly laid down by the Apex Court in the case of Rajesh Jhaveri Stock Brokers P. Ltd. (Supra) and the same would continue to apply and be binding upon us. Thus, even in cases where no assessment order is passed and assessment is completed by intimation under Section 143(1) of the Act, the sine qua non to issue a reopening notice is reason to believe that income chargeable to tax has escaped assessment. In the above view, it is open for the petitioner to challenge a notice issued under Section 148 of the Act as being without jurisdiction for absence of reason to believe even in case where the assessment has been completed earlier by intimation under Section 143(1) of the Act.

Khubchandani Healthparks Pvt. Ltd. v. ITO [2016] 384 ITR 322 (Bom.)(HC)

39.4 No Reassessment if no ‘Reason to Believe’ even in cases of Section 143(1)

A. [Even in case of assessment under section 143(1)]

1. Prashant Joshi v. ITO [(2010) 324 ITR 154 (Bom.)]

Even if there is no assessment u/s. 143 (3), reopening u/s. 147 is bad if there are no proper “reasons to believe” recorded by the AO.

2. Bapalal & Co. v. Jt. CIT – [(2007) 289 ITR 37 (Mad.)]

3. Aipta Marketing P. Ltd. v. ITO – [(2008) 21 SOT 302 (Mum.)]

4. Pirojsha Godrej Foundation v. ADIT (E) – [(2010) 133 TTJ (Mum.) 194]

5. Rajgarh Liquors v. CIT – [(2004) 89 ITD 84 (Ind.)]

Where only intimation was issued u/s. 143 (1) and no notice was issued u/s. 143(2) within the prescribed time limit, a substantive right is created of not being put to scrutiny could be said to have accrued and could not be snatched away by resorting to other provisions of the Act.

Assessment u/s. 143(1) – Reopening on mechanical basis void even where section 143(3) assessment not made.

For purpose of reopening of assessment under Section 147, Assessing Officer must form and record reason before issuance of notice under Section 148. The reasons so recorded should be clear and unambiguous and must not be vague. There can not be any reopening of assessment merely on the basis of information received without application of mind to the information and forming opinion thereof.

Sarthak Securities Co. (P.) Ltd. v. ITO (2010) 329 ITR 110

B. [Within four years]

1. Asian Paints v. Dy. CIT & Anr. – [(2009) 308 ITR 195 (Bom.)]

2. Audco India Ltd. v. ITO – [(2010) 39 SOT 481 (Mum)]

3. Dy. CIT v. Pasupati Spinning & Weaving Mills Ltd. – [(2010) 6 ITR (Trib.) 689 (Del.)]

40. Section 150 : Limitation prescribed

40.1 Section 150 of the Act provides that notwithstanding the limitation prescribed under section 149, notice under section 148 may be issued at any time for the purpose of making an assessment or reassessment or recomputation in consequence of or to give effect to any finding or direction contained in an order passed by any authority in any proceedings under the Act by way of appeal, reference or revision or by a court in any proceeding under any other law.

40.2. ITO v. Murlidhar Bhagwan Das [1964] 52 ITR 335 (SC) held that the word “finding” can be only that which is necessary for the disposal of an appeal in respect of an assessment of a particular year. The Apex Court further held that the appellate authority may incidentally find that the income belongs to another year, but that is not a finding necessary for the disposal of an appeal in respect of the assessment year in question. Similarly, the expression “direction” has been construed by the Apex Court to mean a direction which the appellate or revisional authority as the case may be, is empowered to give under the sections mentioned therein.

40.3 Apart from the above, section 150(1) of the Act provides that the power to issue notice under Section 148 of the Act in consequence of or giving effect to any finding or direction of the appellate/revisional authority or the court is subject to the provision contained in Section 150(2) of the Act. Section 150(2) provides that directions under Section 150(1) of the Act cannot be given by the appellate/revisional authority or the court if on the date on which the order impugned in the appeal was passed, the reassessment proceedings had become time-barred.

K. M. Sharma v. ITO [2002] 254 ITR 772 (SC)

40.4 According to section 150(2), the provisions of section 150(1) shall not apply where, by virtue of any other provision limiting the time within which action for assessment, reassessment or recomputation may be taken, such assessment, reassessment or recomputation is barred on the date of the order which is the subject-matter of the appeal, reference or revision in which the finding or direction is contained. Thus, s. 150(2) enacts a well-settled principle of law that an appellate or revisional authority cannot give a direction which goes to the extent of conferring upon the AO if he is not lawfully seized of jurisdiction.

40.5 Similarly Bombay High Court in the case of Rakesh N Dutt v. Asst CIT (2009) 311 ITR 247 wherein it was held, that the Tribunal had held that the addition of ₹ 90 lakh, if at all permissible legally, it could be considered in the hands of the two companies and not in the hands of the assessee. There was no finding that the amount of ₹ 90 lakh was liable to be taxed in the hands of the assessee. Consequently, reopening of the assessments by invoking the provisions of section 150 of the Act could not be sustained. Once it was held that section 150 of the Act was not applicable, then the reopening of the assessment beyond the period of six years from the end of the relevant assessment year would be time barred.

40.6 The Tribunal does not have power to give any finding or direction in respect of another year / period which is not before the authority as held by Supreme Court in CIT v. Green World Corporation [2009] 314 ITR 81 (SC).

40.7 The decision of the Apex Court in the case of CIT v. Green World Corporation 314 ITR 81 (106) SC wherein it was observed that the provision of section 150 although appears to be of a very wide amplitude, but would not mean that recourse to reopening of the proceedings in terms of sections 147 and 148 can be initiated at any point of time whatsoever. Such proceedings can be initiated only within the period of limitation prescribed therefore as contained in section 149. Section 150(1) is an exception to the aforementioned provision. It brings within its ambit only such cases where reopening of the proceedings may be necessary to comply with an order of the higher authority. For the said purpose, the records of the proceedings must be before the appropriate authority. It must examine the records of the proceedings. If there is no proceeding before it or if the assessment year in question is also not a matter which would fall for consideration before the 
higher authority, section 150 will have no application.

40.8 Finding or Direction (S.149)

Sec 148 r.w.s 150: Reopening of assessment – Based on Tribunal “finding or direction” in respect of any other year or period – Beyond six years – Not valid.

During the year ending 31-3-2000, (AY. 2000-01) the assessee had entered into an Development Agreement. The building was to be completed within 21 months (AY. 2002-2003). However the Original Agreement was not materialised and was supplemented by Second agreement prepared on 8-4-2002 (i.e., AY. 2003-04). The Assessing Officer had assessed the capital gain in AY. 2002-03. On appeal to Hon’ble ITAT the assessee appeal was allowed and held that the amount assessed as capital gains was not liable to be taxed in AY. 2002-03. In order to disposed off the appeal the Hon’ble ITAT incidentally observed that the capital gain should have been assessed in AY. 2000-01. The Assessing Officer issued notice under Section 148 dated 24-8-2007 on basis of the observation of ITAT order. On appeal challengening the reopening of assessment the Tribunal Held:

The observation of the Tribunal for the purpose of deleting the addition in respect of the AY. 2002-03 cannot be treated to be a ‘finding’ for reopening the AY. 2001-02 as the appeal for said assessment year has not been before the Tribunal for adjudication. The observation of the Tribunal that ‘the case of the assessee is to be brought to tax for assessment year 2000-01 and not assessment 2002-03 as done by the assessing officer’ is incidental for holding the addition made in the year 2002-03 is not justifiable and the same cannot be the basis for having recourse to section 150 of the Act by holding it as ‘finding or direction’. Section 150(1) is an exception which brings within its ambit only such cases where reopening of the proceedings may be necessary to comply with an order of the higher authority. Since the observation of the Tribunal that ‘the case of the assessee is to be brought to tax for assessment year 2000-01’, does not require compliance by the authorities below so far as the assessment year 2000-01 is concerned, taking recourse to section 150 of the Act by holding the same as ‘finding’ of the Tribunal is not legally tenable.

Shri Anil Suri v. ITO 11(1)(3); [2014] 66 SOT (Mum. ITAT)

40.9 Assessment having not been reopened to give effect to the order of the CIT(A). According to the Assessing Officer because of giving effect to the order made by the CIT(A), will result in to escapement of income. The Court held that section 150 did not apply. As there was no failure on the part of assessee to disclose fully and truly all material facts, reassessment is clearly time barred. (AY. 1988-89).

Harsiddh Specific Family Trust v. JCIT (2011) 58 DTR 149 (Guj.) (High Court)

40.10 Since no findings or directions had been given in assessment year 1992-93 to tax the receipt in question in assessment year 1994-95 under appeal which is also inherently impossible in view of the findings that it is capital receipt, provisions of section 150 would apply in the case of the assessee and reopening of the assessment made after a period of six years from the end of the assessment year was clearly time barred. (A.Y. 1994-95).

Vadilal Dairy International Ltd. v. Asst CIT (2011) 140 TTJ 371 (Ahd.) (Trib).

40.11 Observation of Tribunal in AY. 1990-91 is not a finding or direction u/s. 150 and thus reassessment proceedings are not sustainable. 
[Ss. 45 (4),147, 148, Art. 226]

In appeal for the assessment year 1991-92 held that if at all the issue of capital gains arises, it shall arise in AY. 1990-91 and not under AY. 1991-92 which was the year under consideration before the Tribunal. Based on the observation AO issued notice u/s. 148 for reopening of assessment of AY. 1990-91. On writ allowing the petition the Court held that, the observation of Tribunal is not a finding or direction u/s. 150 and thus reassessment proceedings are not sustainable. (AY. 1990-91)

Kala Niketan v. UOI (2016) 293 CTR 178/148 DTR 121 (Bom.) (HC)

40.12 Finding given by Tribunal could not enable Assessing Officer to extend period of limitation – Order barred by limitation.

EskayK’n’ IT (India) Ltd. v. Dy. CIT (2015) 229 Taxman 204 (Bom.)(HC)

40.13 In respect of any assessment year wherein further proceedings are barred by limitation, assessment cannot be reopened merely by virtue of an opinion expressed by any higher forum at a later date, i.e., subsequent to date of limitation period.

Emgeeyar Pictures (P.) Ltd. v. DCIT (2016) 159 ITD 1/ 138 DTR 20/ 179 TTJ 383 (TM) (Chennai)(Trib.)

40.14 Power of Appellate authority

Section 150 does not enable or require an appellate authority to give any directions for reopening of assessment, but it deals with a situation in which a reassessment is to be initiated to give effect to finding or direction of appellate authority or Court. (AY. 2002-03).

Sujeer Properties (AOP) v. ITO ( 2011) 131 ITD 377 (Mum.) (Trib).

41. Section 153 – Time Limits for Reassessment

• The order u/s. 147 has to be passed within one year from the end of the financial year in which the notice u/s. 148 has been served – Section 153(2).

• If during the reassessment a reference is made to TPO then time limit will be two years from the end of the F.Y. in which the notice u/s. 148 has been served.

Finance Bill, 2016 – Limits in both the above cases has been reduced by 3 months – Reduced to 9 months and 21 months respectively.

Thank You. I acknowledge support of Mr. Ravindra Poojari, Adv. and my office staff.

Section 14A of the Income-tax Act read with Rule 8D of Income-tax Rules which provide for disallowance of expenditure incurred in relation to income which does not form part of the total income, had been subject matter of a number of controversies. The issues had finally travelled up to the Supreme Court. The Supreme Court has settled many important issues in regard to application of provisions of section 14A read with Rule 8D of Income-tax Rules vide three judgments delivered in the recent past in the case of Godrej & Boyce Manufacturing Co. Ltd. v. Dy. CIT & Anr. (2017) 394 ITR 449 (SC); Commissioner of Income-tax v. Essar Teleholdings Ltd. (2018) 401 ITR 445 (SC) and Maxopp Investment Ltd. v. Commissioner of Income Tax (2018) 402 ITR 640 (SC). The issues which now stand settled by the Hon’ble Supreme Court are discussed hereunder:

1. The expenditure should be actually incurred

In the decision in the case of Godrej & Boyce (supra) (para 36), the Hon’ble Court has observed that “what cannot be denied is that the requirement for attracting the provisions of Section 14A(1) of the Act is proof of the fact that the expenditure sought to be disallowed/deducted had actually been incurred in earning the dividend income. Again in the judgment of Maxopp Investment (supra) vide para 32, the Hon’ble Court has held that “if an expenditure incurred has no casual connection with the exempted income, then such an expenditure would obviously be treated as not related to the income that is exempted from tax, and such, expenditure would be allowed as business expenditure. To put it differently, such expenditure would then be considered as incurred in respect of other income which is to be treated as part of the total income.” Accordingly, the first condition to apply provisions of section 14A of the Act is that the assessee must have incurred expenditure which can be said to be related to exempt income.

2. Rule 8D was prospective w.e.f. A.Y. 2008-09

Vide judgment in the case of Essar Teleholdings Ltd. (supra), the Hon’ble Court settled the issue that Rule 8D was prospective and could not be applied to assessment years up to A.Y. 2007-08. Accordingly, in respect of assessment year up to 2007-08, the disallowance could be made by the Assessing Officer in his best judgment.

3. In order to apply Rule 8D satisfaction is to be recorded

The Hon’ble Supreme Court in the case of Godrej & Boyce vide para 37 held that “whether such determination is to be made on application of the formula prescribed under Rule 8D or in the best judgment of the Assessing Officer, what the law postulates is the requirement of a satisfaction in the Assessing Officer that having regard to the accounts of the assessee, as placed before him, it is not possible to generate the requisite satisfaction with regard to the correctness of the claim of the assessee. It is only thereafter that the provisions of Section 14A(2) and (3) read with Rule 8D of the Rules or a best judgment determination, as earlier prevailing, would become applicable.” Again in the case of Maxopp Investment, the Hon’ble Court vide para 41 held that “having regard to the language of Section 14A(2) of the Act, read with Rule 8D of the Rules, we also make it clear that before applying the theory of apportionment, the AO needs to record satisfaction that having regard to the kind of the assessee, suo motu disallowance under Section 14A was not correct. It will be in those cases where the assessee in his return has himself apportioned but the AO was not accepting the said apportionment. In that eventuality, it will have to record its satisfaction to this effect. Further, while recording such a satisfaction, nature of loan taken by the assessee for purchasing the shares/making the investment in shares is to be examined by the AO.”

4. No disallowance on account of interest expense if borrowed funds have not been used for investments

The Court vide para 38 of the judgment in the case of Godrej & Boyce held that in the absence of any basis disclosed by the Assessing Officer establishing a reasonable nexus between the expenditure to be disallowed and dividend income received and also in the absence of any basis that any part of the borrowings of the assessee had been diverted to earn tax free income despite the availability of surplus or interest free funds available disallowance cannot be made. The Hon’ble Court in the judgment of Maxopp Investment also vide para 41 while holding that recording of satisfaction is necessary, it has specifically been observed that “further, while recording such a satisfaction, nature of loan taken by the assessee for purchasing the shares / making the investment in shares is to be examined by the AO.”

5. Interest expenditure on loans taken for specific business purpose is not to be considered for the purpose of apportionment

The Hon’ble Supreme Court in the case of Godrej & Boyce was considering the circumstances wherein it has been held in earlier years that no disallowance was to be made since the borrowed funds had not been used for the purpose of investments. In assessment year under consideration there was no increase in the amount of investments. In the circumstances view was taken that the expenditure under reference was not related to earning of dividend income and the assessee was entitled to exemption of full amount of dividend income. In the case of Maxopp Investment the Hon’ble Supreme Court in para 42 has discussed the decision of Punjab & Haryana High Court in the case of Avon Cycles Ltd., Ludhiana. It has been stated that the assessee had paid total interest of ₹ 2.92 lakh out of which interest paid on term loan raised for specific purpose totals to ₹ 1.70 crore and balance interest paid by the assessee was ₹ 1.21 crore. In view of provisions of Rule 8D(2)(ii) of Income-tax Rules, the Tribunal had upheld the disallowance of ₹ 10,49,851/- which was determined with reference to interest of ₹ 1.21 crore only after excluding interest on loans raised for specific purpose. High Court had dismissed the appeal filed against the order of ITAT observing that after examining the Balance Sheet of the assessee and finding of fact, there was no question of law. The Hon’ble Supreme Court also after going through the record and applying the principle of apportionment has dismissed the appeal. What is important to be noted is that the apportionment as per Rule 8D(2)(ii) of Income-tax Rules had been made and upheld only with reference to balance interest of ₹ 1.21 crore. The position that amount of disallowance of ₹ 10,49,851/- was determined with reference to interest expenditure of ₹ 1.21 crore is quite clear on the basis of relevant order of ITAT, Chandigarh Bench, which was the subject matter before the High Court and the Supreme Court in ITA No.1143/Chd/2011 dated 17-1-2013. As per the facts average amount of investments was ₹ 18.685 crore and average of total assets was ₹ 215.34 crores and on that basis proportionate disallowance out of total expenditure of ₹ 1.21 crore related to the average investment worked out to ₹ 10,49,851/-.

Accordingly, it is stated that any expenditure incurred which is relatable to specific loans taken for business activities is to be excluded for the purpose of determining the proportionate disallowance on account of interest as per Rule 8D(2)(ii) of Income-tax Rules.

6. In case own funds are more than the investments no disallowance on account of interest is to be made

The Hon’ble Supreme Court in the case of Godrej & Boyce has specifically taken note of the fact in that case investments were only of ₹ 125.54 crore whereas own funds of the company were of ₹ 280.64 crore which was interest free funds in the form of share capital and reserves. In the circumstances it was held by the Supreme Court that the fact that any part of the borrowings of the assessee had been diverted to earn tax free income despite the availability of surplus or interest free funds available remains unproved by any material whatsoever. Therefore, no disallowance for interest was to be made.

7. Position accepted in earlier years need to be followed in subsequent years

The Hon’ble Court also held in the case of Godrej & Boyce that though the principle of res judicata would not apply to assessment proceedings under the Act, the need for consistency and certainty and existence of strong and compelling reason for a departure from a settled position has to be spelt out. In this case since position had been examined and accepted by the Tribunal in earlier years the Hon’ble Court held that different view could not be taken.

8. Disallowance is to be restricted to exempt income

In the case of Maxopp Investment, the Hon’ble Court had taken note of the facts of the case vide para 5 wherein amount of disallowance u/s. 14A was determined at ₹ 67.74 lakh but the Assessing Officer had restricted the same to the amount of dividend income received and claimed as exempt of ₹ 49.90 lakh. Again while recording the facts of the case of State Bank of Patiala, the Hon’ble Court has noted the fact that the Assessing Officer had restricted the disallowance to the amount of exempt income after applying the formula contained in Rule 8D. CIT(A), however, had issued the notice of enhancement and disallowed the entire expenditure claimed by the assessee instead of restricting the disallowance to the amount of exempt income as done by the Assessing Officer. ITAT and the High Court had deleted the total disallowance. The Hon’ble Supreme Court vide para 40 has again specifically taken note of the fact that while passing the assessment order the Assessing Officer had restricted the disallowance to the amount which was claimed as exempt income. CIT(A) had disallowed the entire amount of expenditure. Hon’ble Court held “that the view of the CIT(A) was clearly untenable and rightly set aside by the ITAT. Therefore, on facts, the Punjab & Haryana High Court has arrived at a correct conclusion by affirming the view of the ITAT, though we are not subscribing to the theory of dominant intention applied by the High Court”.

Accordingly, the issue stands approved by the Supreme Court that disallowance is to be restricted to the amount of exempt income.

9. Dominant purpose of investment is irrelevant

The Hon’ble Supreme Court in the case of Maxopp Investment after detailed discussion has held that “we are of the opinion that the dominant purpose for which the investment into shares is made by an assessee may not be relevant. No doubt, the assessee like Maxopp Investment Limited may have made the investment in order to gain control of the investee company. However, that does not appear to be a relevant factor in determining the issue at hand. Fact remains that such dividend income is not-taxable. In this scenario, if expenditure is incurred on earning the dividend income, that much of the expenditure which is attributable to the dividend income has to be disallowed and cannot be treated as business expenditure. Keeping this objective behind Section 14A of the Act in mind, the said provision has to be interpreted, particularly, the word ‘in relation to the income’ that does not form part of total income.” Similarly, in the case of State Bank of Patiala wherein shares had been held as stock-in-trade the Hon’ble Court vide para 38 has disagreed with the judgment of Punjab & Haryana High Court observing that “at the same time, we do not agree with the test of dominant intention applied by Punjab & Haryana High Court, which we have already discarded.”

10. The basis on which disallowance is to be determined in the case of shares held as stock-in-trade

The Hon’ble Supreme Court in the case of Maxopp Investment after holding that dominant intention of holding the shares as stock-in-trade is not relevant vide para 38 specifically noted that having held so, “The question is as to on what basis those cases are to be decided where shares of other companies are purchased by the assessee as ‘stock-in-trade’ and not as investment. We proceed to discuss this aspect hereinafter.” Thereafter, the Hon’ble Supreme Court vide para 39 has held that “where shares are held as stock-in-trade, the main purpose is to trade in those shares and earn profits therefrom. However, we are not concerned with those profits which would naturally be treated as ‘income’ under the head ‘profits and gains from business and profession’. What happens is that, in the process, when the shares are held as ‘stock-in-trade’, certain dividend is also earned, though incidentally, which is also an income. However, by virtue of Section 10(34) of the Act, this dividend income is not to be included in the total income and is exempt from tax. This triggers the applicability of Section 14A of the Act which is based on the theory of apportionment of expenditure between taxable and non-taxable income as held in Walfort Share and Stock Brokers P Ltd. case. Therefore, to that extent, depending upon the facts of each case, the expenditure incurred in acquiring those shares will have to be apportioned”. (Emphasis supplied). Accordingly, the Hon’ble Supreme Court has held that in such cases “depending upon the facts of each case, the expenditure incurred in acquiring those shares will have to be apportioned”. In other words, the Supreme Court has appreciated the factual position that in a case where shares are held as stock-in-trade, dividend may be received or may not be received or may be received at a small portion of shareholding and, therefore, formula provided in Rule 8D may not be suitable. Hence, disallowance is to be determined on apportionment basis considering the facts of each case. Further, vide para 40 of the judgment the Hon’ble Court has approved the disallowance to the extent of exempt income, as was made in that case.

In conclusion it is stated that all the major issues which have been subject matter of controversy have been settled by the Hon’ble Supreme Court. In order to set the controversy at rest CBDT should issue a circular directing all the Assessing Officers to determine the disallowance as per section 14A read with Rule 8D of Income-tax Rules in accordance with law settled by the Hon’ble Supreme Court.

Dear Brothers & Sisters,

DIGITALISATION of AIFTP

Happy Navratri and Dusshera to my fellow brothers and sisters of AIFTP, I pray the Goddess of Shakti to bestow her blessings on all and make every one prosperous healthy and happy with lots of peace in life.

I would take this opportunity to congratulate you for withstanding the stress and completing the Herculean Task within the time schedule specified by the I.T. Act and G.S.T Act. Now is the time to enjoy quality time with family in festive season.

We at AIFTP had been toiling hard to make administrative changes, and digitalising the office working, and redesigning our website, to make it user friendly and easy to access.

An extremely hard task of preparing member’s directory is almost accomplished, the data has been uploaded on the website with the facility of self-correction, so as to enable the members to check their personal details and make required corrections.

We propose to publish and unveil a printed directory of our members in Guwahati Convention in the month of December. The printed directory shall be available to the members.

I would like to appreciate the efforts of Mrs. Anagha Kulkarni in complying and computerising the data of 4000 members in her office. This task was initiated by our Past President, Mrs. Premlata Bansal and accomplished by us.

The commendable efforts of our Secretary General, Shri Pankaj Ghiya in getting the website designed, providing various online facilities such as AIFTP Times, our Journal, facility of online registration of new members and link for online payment of membership fees. Journal subscription, above all there is a link for you to register your grievance for non-receipt of Journal and AIFTP Times that shall be taken immediate care of by AIFTP office.

I would also appreciate our office manager Mr. Ravi and his associates Mrs. Shweta and Mr. Kalpesh in not leaving any stone unturned in providing support and link between Secretary General Pankajji and website people. Shri Ghiya has spent several hours to get the things lined up and making website most useful in its present form.

I shall be failing my duty if I do not appreciate all our Vice Presidents, Zone Chairpersons and Zone Secretaries for extending their full co-operation in updating data as far as possible. It is now your turn to check your details and make correction if needed latest by 31st October, 2018. So we may get the directory printed and make ready for its release.

I may appreciate in advance the help of Shri R. D. Kakra for promised printing of directory and shouldering the printing expenses by garnering funds through his contacts.

I request all my friends to log-in to AIFTP website [aiftp.org] and check your personal details, please make correction if required and upload the updated data to make our member’s directory error free, some of our members have done it and we are getting good response, now it is your turn if you have not done it so far.

Friends, our worthy deputy President Dr. Ashok Sarafji is organising a mega conference at Guwahati, Assam, you will find galaxy of our judiciary. The conference is going to be inaugurated by the Hon’ble Chief Justice of India My Lord Justice Ranjan Gogoi who will bless the AIFTP and incoming team of 2019, on 22nd and 23rd December, 2018.

Friends, I request all of you to please participate in large numbers in our ensuing conferences at Thane, Allahabad and Guwahati. Your participation in the conferences boosts the morale of organisers and helps us in fulfilling our object of imparting education to our members. It also allows opportunity to develop fellowship with our professional brothers from all parts of the country and make AIFTP a truly Pan India National Organisation.

I wish you a very happy, healthy and joyful festive month of October 2018. We shall meet again in November issue and ensuing conferences. Till than Jai Hind-Jai Bharat.

Jabalpur
17-9-2018

Ganesh N. Purohit
National President

Fulfilling the promise of the ‘ease of doing business’ in India may not be achievable without the speedy dispensation of tax matters – It takes approximate time of 23 years to get finality in tax matters after filing of the return – Major changes may have to be made by the Ministry of Finance and Law – A thought for debate

In the Times of India on 16-9-2019, it was reported that it will take a minimum of 15 years to fill the vacancy of judges. Though the Government promises to help achieve ‘ease of doing business’ in India, unless the tax litigation is settled within a reasonable period of time, the object of doing business with ease in India may not be achieved. Total pendency of appeals before the ITAT as on 1-07-2018 is approximately 9,69,050, out of which a pendency of 22,039 is at Delhi and 16,108 is at Mumbai (2018) AIFTPJ–July–P 45. It takes two years for the matters to come on board or be listed for hearing before the ITAT at Mumbai. The pendency before the Bombay High Court is around 10,000 appeals and only one Direct Tax Bench is available for hearing of the tax matters. One may note that the appeals which were admitted in the year 2002, have still not been taken up for final hearing and appeals which were filed in the year 2015 are yet to be taken up for admission. After filing the return, it takes two years for assessment. If additions are made, it may take at least two years for an appeal to be decided before the CIT(A) and another two years for the disposal of the matter before the ITAT. After filing an appeal before the High Court, it takes a minimum of three years to get a date for admission. If the case is admitted, it could take another 12 years for the matter to be heard in finality. If the matter is taken further in appeal before the Supreme Court, another four years may lapse. It can be therefore inferred with reasonable confidence that it takes an approximate period of 23 years to get finality in tax matters. If an assessee succeeds before CIT(A), Tribunal and also the High Court and if Supreme Court decides against the assessee after 23 years, the assessee would have to pay interest from the date of notice of demand under section 156 read with the assessment order, till the date of giving effect to the order of Supreme Court. What will be the tax and interest liability? Is it fair to the assessee? This will make it may difficult for a businessman to take a decision to invest in India due to high level of uncertainty.

The following suggestions can put for debate so that speedy disposal of tax matters may be achieved.

1. Accountability in tax administration

One of the reasons for increase in tax litigation is lack of accountability provisions for the tax administration. Officers sometimes make additions for the sake of making additions, knowing very well that though the entire addition may get deleted before any appellate authority, they won’t be answerable. Prosecutions are initiated and launched even though the quantum proceedings may be pending in appeal. In the reported case of Devinder Singh Gill v. DCIT (Chd) (Trib) (www. itatonline. org.), it was held that in spite of a stay order granted by the Tribunal and giving a direction to the Income tax authorities to release the assessee who has been arrested for non-payment of tax, the tax administration follow the said directions. It is only after approaching the High Court by the way of a writ petition the person arrested was released. The Apex Court in CIT v. Hapur Pilkhuwa Development Authority (www.itatonline.org) imposed a cost of ₹ 10 lakh on tax administration for giving a misleading statement before the Court in a petition. The Bombay High Court in the case of PCIT v. International Biotech Park Ltd. (www.itatonline. org) observed that “On a number of occasions, this Court has brought to the notice of the Department of Revenue, Ministry of Finance Government of India through Commissionerates that the Revenue has been selective in its approach. It picks either the assessee or the assessment years pertaining to that assessee for challenging the orders in relation to them, before higher forums. This results in revenue leakage or perpetuation of wrongs affecting adversely the collection of revenue. The public at large is at loss to understand as to why the Department/Revenue consistently loses the battle in the higher courts. This could be termed as a deliberate or intentional act. If the Department of Revenue, Ministry of Finance, Government of India is going to conveniently overlook this and not being the guilty persons to book by initiating disciplinary measures against them, then no purpose will be served at all. This is not short term exercise, but a major surgery which will have to be performed. If the Revenue Officials are prepared to take some bold decisions then only this state of affairs will improve and not otherwise.” The AIFTP had sent a representation to the Chairman of CBDT for bringing to his notice that where the appeal of the revenue is allowed by the Apex Court or the High Courts, after long number of years of battle, there is no mechanism to find out whether the effect has been given and whether the taxes have been recovered. In Piramal Fund Management Pvt. Ltd v. DCIT (Bom) (HC) (www. itatonline. org), strictures were passed against high-handed unfair approach of the Assessing Officer in refusing to give an acknowledgement of stay petition. The Chief CIT was directed to ensure that such a behaviour is not accepted. It is the need of the hour to bring accountability provisions in the Income-tax Act as suggested by Dr. Raja J. Chelliah Tax Reform Committee (1992) 197 ITR 177(St) (257) para 5. 9: “The Assessing Officers should be made accountable for their actions by being blamed for raising demands which are not upheld by a reasonable figure, say 50 per cent, the Officer should be given a blackmark and reprimanded. On the other hand an Assessing Officer should be protected and defended if he has observed instructions of the Board and followed the Court rulings even though audit might raise objections about his actions.”

2. Appeal before CIT(A)

It is desirable that the Appeal before the CIT(A) is heard and order is passed within six months of filing of appeals. As there is no time limit prescribed for the sending of a remand report, the CIT(A), on several occasions, is unable to dispose the appeals within a reasonable time. The AIFTP has filed a petition before the Delhi High Court to increase the postings for CIT(A) and also made a representation to the CBDT to prescribe the time limit for sending the remand report. The ITAT Rules, 1963, 34(5)(c) prescribe that within period of 60 days from the days from date on which the hearing of the case is concluded however shall not ordinarily be a day beyond period of 30 days of the hearing of appeal, the order must be passed. It is desired that similar rules may be prescribed for adjudication of appeals before the CIT(A).

3. Appeal before ITAT

It is desired that an appeal before the ITAT may be heard and the order is passed within six months of the filing of an appeal. The sanctioned strength of the ITAT is 63 Benches and 126 members, whereas the current situation shows that there is a shortage of 33 members and more will retire in the year 2019, therefore as on 31-12-2019, there will be an acute shortage of Members. It is desired that the filling up of vacancies may be done at the earliest so that the matters pending before the ITAT can be decided within six months of filing of an appeal without compromising on the quality of the orders.

4. Appeal before High Court

1. Separate legal cell of tax department

More than 65% of appeals in tax matters before the High Courts are those of the Revenue. However, there is no separate legal cell of the department to monitor the tax appeals in the various High Courts. It is desired that there is a centralised legal cell of the department. Every month the ITAT prepares a list of the appeals filed in various Benches across the country and matters are accordingly disposed off. If such a method is adopted, the department would be able to know the number of appeals pending before the High Courts and the issues involved. This will help the revenue in grouping of appeals and if required to apply for early hearing before the Apex Court in issues where a large number of appeals have been filed. This will help in reducing the pendency before High Courts and also in bringing finality in tax matters at the earliest.

2. Filing an appeal to High Court

In CIT v. Reliance Infrastructure (Bom.) (HC)(www.itatonline.org), the Hon’ble High Court summoned the senior officials of the Department and strictures were passed for “irresponsible conduct” of filing an appeal on a point which was admittedly covered against the department by a judgment of the Supreme Court. In CIT v. State Bank of India (2015) 375 ITR 20 (Bom.) (HC), it was held that the department cannot arbitrarily pick up and choose which orders of the ITAT should be challenged in the High Court.

It is desired that whether or not an appeal is to be filed against the order of the Tribunal may be decided by an independent committee in the Department, preferably headed by a Retired Judge of High Court as a Chairman and two Members, one of who could be a retired Member of the ITAT and the other could be a lawyer having more than 25 years of practice before the High Court. At present, appeals are filed by the department, before the High Court due to fear of audit, considering the amount of tax involved and even if the appeal maybe dismissed, nothing is lost and it is only the tax payer’s money which is spent. However, when an assessee files an appeal before the High Court, he considers the cost factor, time involved and the chances of success. That is one of the reasons that only few matters of the assessee are pursued before the High Court. Approximately 80% of the orders of the Tribunal are accepted by assessees. If the above method is adopted, the department may succeed in more than 80% of the matters appealed by it and the tax payer’s money can be used for alternative productive purposes.

4. Use of technology

The Bombay High Court in CIT v. TCL India Holding Ltd. (www.itatonline.org) directed the Commissioner of Mumbai to host all the questions of law admitted by the High Court and also the Judgments of the Bombay High Court accepted by the Revenue on an online portal. Though the affidavit was filed on 5-5-2006 before the High Court stating that in the web site www.incometaxmumbai.gov.in, it has been decided to add “legal corner” on the website where all questions of law admitted and dismissed by the Honourable Bombay High Court will be hosted. It was also observed that the said legal corner shall become functional from 10th June, 2016. However, no action has been taken till date. Legal corner is not yet functional. This shows that in spite of filing an Affidavit in the year 2016, no action has been taken till date. If the CBDT publishes a list of cases accepted by the Revenue from time-to-time on their website and also the questions of law admitted by various High Courts, it would help in reducing the tax litigation and the assessees will be able to know the issues pending before various High Courts. Circular No 3 of 2018, dt.11th July, 2018 (2018) 405 ITR 29 (St) revising the monetary limit for filing the appeal is prescribed at ₹ 50 lakh to Courts and circular is clearly mentioned that all pending appeals will also will be withdrawn. It is seen that more than 3,500 appeals are filed by the Revenue where the tax in dispute is less than ₹ 50 lakh, however the appeals are not withdrawn as the Revenue is not able to prepare the list of pending cases where the tax in dispute is less than ₹ 50 lakhs due to non-availability of records. Due to this process, the High Court is unable to dispose matters quickly. If the department prepares the list and makes an application to withdraw all the appeals where the tax amount is less than ₹ 50 lakh, all 3,500 matters can be disposed in a single day .

4. Increase the retirement age limit of Judges from 62 to 65

The Parliamentary Committee headed by Smt. Jayanti Natarajan, as the Chairperson in the year 2010, recommended the increase in the retirement age limit of judges from 62 to 65 years. However, no progress has been achieved till date. We are of the opinion that an increase in the retirement age limit of judges will help in reducing pendency of cases.

5. Appeal before Supreme Court

All the questions of law relating to direct taxes admitted by the Apex Court should be published on the website of the CBDT from time-to-time and this may help the assessees in knowing the issues pending before the Apex Court. Before the introduction of appeal provisions u/s. 260A of the Income-tax Act, S.257 provided a direct reference to the Supreme Court where important questions of law were involved. Similar provisions may be introduced which may help in achieving finality in tax matters at the earliest stage. The AIFTP had suggested that an ‘E-Bench’ of the Supreme Court may be constituted and the same be linked with all the High Courts. Initially the SLP relating to direct taxes can be tried in such an ‘E-Bench’, after giving an option to the parties to either opt out or opt in. The ITAT has started E-Benches which have been very successful. If the same ideas are adopted, even Advocates from Guwahati would be able to argue a matter before the Supreme Court from the premises of the Guwahati High Court. This will greatly help in making justice accessible to the public at large and bring a revolution in Indian justice administration. This can be one of the legacies of the digitalization of India, which is one of the dreams of Honourable Prime Minister of India, Shri Narendra Modi.

6. Instability of Income-tax Law

Shri Nani A. Palkhivala, in his article titled “The Maddening Instability of Income-tax Law“ (1996) Income tax review – Aug-Sept P. 57-60 reads as under, “A telling example of the total absence of a sense of time in our tax administration is afforded by the Supreme Court’s decision rendered last November in the case of Sutlej Cotton Mills Ltd v. CIT (1990) 2 SCALE 931. It was a case under the Business Profits Tax Act, 1947. The accounting period was 1946-47. The amount involved was paltry sum of a few lakhs of rupees. The High Court’s judgment was rendered in 1965. The Supreme Court sent the matter back to the Income-tax Appellate Tribunal to re-hear the appeal 44 years after the close of the accounting period. Is there any other civilised country where a taxpayer would not know the quantum of his liability for 44 years?“

Even the Tribunal may not be able to give any effect to the order of the Supreme Court as the records may not be available before the Tribunal.

We hope that the Government will fill the vacancies of Judges and Members of the ITAT within a reasonable time and will make sincere efforts to reduce the pendency and disposal of matters so that the object of ‘ease of doing business’ in India is achieved. The professional organisations can play a proactive role by compiling all the judgments where the directions have been given to CBDT, but the same have not been followed to assist the Apex Court and High Courts. The same may also be forwarded to the Honourable Finance Minister for his consideration. If no response is received, the appropriate authority should be approached under the Right of Information Act for reasons for delay in compliance of these directions. If even that recourse fails, then respective High Courts may be approached for initiation of appropriate contempt proceedings. A thought for debate .

Dr. K. Shivaram
Editor-in-Chief

On the eve of the superannuation of Honourable Accountant Member of ITAT,
Mr. B. Ramakotaiah, a full court farewell was held on 9-8-2018 at Hyderabad.
Mr. Sunil Kumar Yadav, Senior Judicial Member, chaired the
full court farewell function

Professionals across the country attended the full court farewell and
expressed their respects and gratitude for rendering immense service to the
ITAT and taxpayers.

Speaking on the occasion, Mr. B. Ramakotaiah thanked the Members,
Staff, Professionals and Departmental Representatives for helping him in
discharging his duties and responsibilities with great diligence.

August 4, 2018

Mr. B. Ramakotaiah, Accountant Member, ITAT, Hyderabad

Respected Sir,

The members of the ITAT Bar Association, Mumbai had the good fortune to appear before Your Honour for over 5 years. Your tenure in Mumbai was unanimously regarded as too short.

We will always remember you for your quick grasp of complex issues and analytical skills.

Your professional approach in the Bench you presided over, put all those who appeared before you at ease. It was a Court Room singularly free of tension.

On the eve of your superannuation and the beginning of a new phase in your life, on behalf of the ITAT Bar Association and on my own behalf, I convey our best wishes to you. We pray that the future holds ample opportunities for you to do all that you have always wanted to. ‘

Yours Sincerely
For ITAT Bar Association,
Mrs. Arati Vissanji, President

August 4, 2018

To,

Hon’ble Mr. B. Ramakotaiah,
Accountant Member
ITAT, Hyderabad.

Respected Sir,

On the eve of your retirement, it is with great happiness that the Members of the Income Tax Bars across the country remember your distinguished career on the Bench. Your Honour has rendered immense service to the ITAT and the taxpayers by delivering many landmark judgments which have contributed immensely to Income Tax Jurisprudence. Your Honour has always conducted Court proceedings with a smiling face which made the court proceedings very cordial and pleasant. Sir, your in-depth knowledge on taxation and ability to convince the fellow member with persuasion has always been appreciated by the Bar.

During your tenure at Mumbai, the Bar and the Departmental Representatives had a very cordial atmosphere while presenting the matters before the Bench.

Your Honour is a fitting inspiration for Junior Members and also for a presiding Judge / Member to exemplify that how a good judge should conduct his court proceedings. Your conduct on the Bench was supportive to junior members of the Bar in promoting their art of advocacy.

Sir, on behalf of both, the All India Federation of tax Practitioners and on my own behalf, I wish your Honour a very happy, healthy and peaceful retired life and success for your future endeavours. We look forward to you joining the profession where undoubtedly you shall continue to use your knowledge and command on tax laws for the benefit of taxpayers of our country.

Thanking you,

For All India Federation of Tax Practitioners
Ganesh Purohit
National President