Union Finance Minister Shri Arun Jaitley, placed Union Budget for the year 2017-18 before Parliament on 1st February, 2017, instead of
28th February, 2017. No separate budget for Railways was placed by the Railway Minister and the Railway Budget stands merged with the General Budget, which have been claimed as an historic step. Classification of expenditure between plan and non-plan have been done away with. The Finance Bill, 2017 to give effect to the financial proposals of the Central Government for the Financial Year 2017-18 was introduced in Lok Sabha on 1st February, 2017. Though many amendments, insertions, and substitutions have been made in the existing Act, this article is restricted to the provisions relating to search, assessment and reassessment only.
2. Search Provisions
Existing section 132(1) of this Act requires the prescribed authority to record “reasons to believe” before issuing authorisation to the authorised officer to search and reasons in the situation detailed in clauses (a) or (b) or (c) of the said section. Recording of reasons is not an idle formality. There must be live link and rational and reasonable connection, between the information and the satisfaction. On challenge it is justiciable and in case there is no information on which a reasonable person well instructed in law could form the belef, action is liable to be quashed. Assessees used to apply for copy of authorisation, copy of reasons recorded with material and information in possession for recording such reasons. The Revenue used to deny the copy or the inspection on the plea it is an administrative act and informer/ information is in secrecy and cannot be disclosed.
2.1 In CIT v. Smt. Chitra Devi (2009) 313 I.T.R. 174 (Raj.), it was held that on challenge of invalidity of the search before the tax authorities or the Appellate Tribunal the Revenue is bound to produce the search authorisation and relevant record for perusal of the Income Tax Appellate Tribunal and on failure to do so, search could be held as bad and assessment proceedings quashed. SLP was dismissed by the Supreme Court. In CIT v. Smt. Umesh Goel (2016) 387 I.T.R. 575 (Raj.) it was found that on challenge to validity of the search and reasons recorded, the CIT(A) called for Form No. 45, warrant. It was perused and found that there is no specific warrant of authorisation against the assessee and hence search being invalid proceedings for assessment are bad.
2.2 In order to avoid such challenge, it is proposed to insert an Explanation after the fourth proviso to the said sub-section (1) so as to provide that the “reason to believe” recorded by the prescribed authority shall not be disclosed to any person or any authority or the Appellate Tribunal. This amendment will take effect retrospectively from the date of commencement of the Act i.e., 1st April, 1962. Now the assessee would not be able to call for copy of recorded reasons, nor to inspect or to require the assessing authority or appellate authority or the Income Tax Appellate Tribunal to call for the records, peruse the “reasons recorded”, to entertain objection as to invalidity of the search so conducted and seizure effected. Challenge to the validity of the search and its consequence would not be entertained by the tax authorities and Appellate Tribunal.
2.3 In my view the challenge to the validity of the search, non-existence of “reason to believe”, non-existence of material information to entertain, the belief, absence of conditions precedent which are sinequanon for issuance of authorisation for search and seizure can continue to be challenged under Articles 226 and 227 of our Constitution, by way of a suitable writ. On challenge and on
prima facie satisfaction, the writ court would be competent to direct the Revenue to produce the record and after production to peruse, to furnish copy, to provide copy to the petitioner and to consider issue of lack of jurisdiction and invalidity of the action. The forbidden authorities are appellate, the Income Tax Appellate Tribunal and the person searched or any other person, other than the High Court or the Supreme Court in challenge under Article 32 of the Constitution. Right to challenge as on an action u/s. 148 of the Act by way of a writ remains open. All judicial precedents for the expression “reason to believe” for section 147 would be to the aid of the petitioner.
2.3.1 In New Kashmir and Oriental Transport Co. (P.) Ltd. v. CIT (1973) 92 I.T.R. 334 (Allahabad), as early as on 7-9-1972, it was held that when a challenge is thrown to the validity of search in a writ petition, the petitioner is entitled to inspect the record of the proceedings and to obtain copies of the orders passed in those proceedings, as Rule 12 framed under section 132 (14) requires, the reasons shall be recorded. In
M. D. Overseas Ltd. v. DGIT (2011) 333 ITR 407 (Allahabad), it observed. “The Court, in an appropriate case, can order the Department to indicate the contents or nature of information/ material and reasons to believe authorising the search (without disclosing the source of information) to the aggrieved person. The question of relevancy of information/material and reasons to believe is to be judged after hearing the aggrieved person. The question of their relevancy is not to be decided without assistance of the aggrieved person. This is subject to any valid claim of privilege under sections 123 and 124 of the Evidence Act, 1872.” It directed for disclosure of the information.
2.3.2 In Visa Comtrade Ltd. v. VOI (2011) 338 ITR 343 (Orissa) it was held “Before taking action under section 132 the competent authority must assure and reassure about the truthfulness and correctness of the information. A search under section 132 is a serious invasion into the privacy of the citizen. Therefore, section 132(1) has to be strictly construed and the information of the person or reason to believe by the authorising officer must be apparent from the note recorded by him”. It also observed “Formation of opinion on the basis of reason to believe that a particular property/asset has not been disclosed or would not be disclosed so that the action under
section 132 would be taken, is not an empty formality.”
2.3.3 Recently on 13-5-2015 in DGIT v. Spacewood Furnishers Pvt. Ltd. and Others (2015) 374 I.T.R. 595 (S.C.)
observed “The necessity of recording of reasons for issue of a warrant of authorization for search under section 132 of the Income-tax Act, 1961, so as to ensure accountability and responsibility in the decision-making process acts as a cushion in the event of a legal challenge being made to the satisfaction reached. Reasons enable a proper judicial assessment of the decision taken by the Revenue. However, this, by itself, would not confer in the assessee a right of inspection of the documents or to communication of the reasons for the belief at the stage of issuing of the authorisation. Any such view would be counter-productive of the entire exercise contemplated by section 132 of the Act. It is only at the stage of commencement of the assessment proceedings after completion of the search and seizure, if any, that the requisite material may have to be disclosed to the assessee. While reasons in support of the “reasonable belief” contemplated by section 132 must be recorded, there is no provision requiring the reasons recorded prior to authorising the search to be disclosed or communicated to the person against whom the warrant of authorisation is issued.”
2.4 The proposed Explanation is to do away with the claim of an assessee to challenge validity of the search on non-recording of valid reasons. However, as explained earlier the inherent right to challenge the validity and jurisdiction for issuance of the authorisation to search exists, could not be done away with and could not be closed. It would be open to an assessee to challenge the search and subsequent action by an appropriate writ, before the High Court. The Hon’ble Court would be entitled to call for the records, peruse and provide copy or permit inspection, as it may deem fit and proper.
2.5 Similar Explanation has been proposed to be inserted w.e.f. 1-10-1975, in the said sub-section (1A) of section 132 so as to declare that “reason to suspect” shall not be disclosed to any person or an authority or the Appellate Tribunal. However, as analysed herein before the right of the Courts and High Courts remain as hithertofore.
2.6 It has also been proposed to insert sections (9B), (9C), (9D) in existing section 132, to attach provisionally any property belonging to the assessee with the prior approval of Principal Director General or Director General or Principal Director or Director. This power is conferred for the purpose of protecting the interest of Revenue. Reasons shall have to be recorded and provisional attachment order shall have to be issued in writing with the prior approval of the specified authority. Such order would be operative for six months from the date of the order. Power has also been conferred on the authorised officer to refer valuation of a property to the valuation officer in the manner provided u/s. 142A of the Act. The valuation officer to provide the valuation report in six months. The proposed provisions are similar to existing section 281-B of the Act.
2.7 It has been further proposed to amend existing Explanation to section 132 so as to apply the provisions of existing section 153B, time limit for completion of assessment, with respect to “execution of an authorisation for search” for the purposes of the existing section (9A) and proposed new sections (9B — Provisional Attachment) and section (9D — Valuation). These amendments will take effect from 1-4-2017 i.e., are prospective.
2.8 On the same lines as under section 132 (1)and 132(1A) it has been proposed to insert an Explanation to the said sub-section, so as to declare that the reason to believe for making the requisition shall not be disclosed to any person or any authority or the Appellate Tribunal. But it can be called for by the Court or the High Court as discussed hereinabove. This amendment has been proposed to be operative from 1-10-1975.
3. Return, assessment and reassessment
Existing sub-section (4C) of section 139 mandates filing of returns by certain entities which are exempt u/s. 10. It is proposed to provide that — (1) Fund established for the welfare of employees u/s. 10 (23AAA), Investor Protection Fund u/s. 10(23 EC or Clause 23 (ED); Core Settlement Guarantee Fund u/s. 10(23 EE) and Board or Authority u/s, 10(29A) shall also be mandatorily required to furnish the return of income.
3.1 Section 139(5) regarding filing of revised return is proposed to be amended whereby time for furnishing revised return shall be up to the end of the relevant assessment year or before completion of assessment whichever is earlier. Existing period of one year from the end of the relevant assessment year is reduced. Both these amendments would be from 1-4-2018 and shall apply to the Assessment Year 2018-19 and subsequent years
3.2 Section 234F has been proposed to be inserted whereby late fee of ₹ 5,000/- or ₹ 10,000/- as the case may be shall be payable if return for the Assessment Year 2018-19 and onwards is filed not on the due date but before 31st December or after 31st December, as the case may be. However whose total income does not exceed ₹ 5 lakh quantum of fee would be ₹ 1,000/-. It shall be payable along with tax and interest on self-assessment u/s. 140A of the Act. Such fee payable shall also be considered while processing of return u/s. 143(1) of the Act.
3.3 Section 143(1D) (as substituted by section 68 of the Finance Act, 2016) has been proposed to be substituted whereby it shall not be necessary to do processing u/s. 143(1), where a notice for scrutiny has been issued u/s. 143(2). It shall be for the Assessment Year 2017-18 and onwards.
3.4 Existing section 153 of the Act provides for time limit for completion of assessment, reassessment and recomputation. Time limit proposed for regular assessment u/s. 143 or 144 is being reduced to 18 months from existing 21 months for the Assessment Year 2018-19 and 12 months for the Assessment Year 2019-20 and onwards.
3.5 Similarly for an assessment, reassessment or recomputation u/s. 147, if notice u/s. 148 is served on or after 1-4-2019, time limit for completion of assessment shall be 12 months from the end of the financial year in which notice was served.
3.6 Time limit for making fresh assessment pursuance to an order of the Tribunal u/s. 254 or revision u/s. 263 or 264 shall be 12 months from the end of the financial year in which order is received or passed.
3.7 From existing third proviso to Explanation 1 of section 153, the reference to section 153B has been proposed to be omitted. All these amendments will take effect from 1-4-2017.
3.8 It is proposed to amend existing sub-section (5) of section 153. Where an order u/s. 250 or 254 or 260 or 262 or 263 or 264 requires verification of any document or other person or granting on opportunity of being heard, the time limit relating to fresh assessment shall be as that in amended section 153(3).
3.9 Section 153(9) has been proposed to be amended to provide that where a notice under Section 142(1) or 143(2) or 148 has been issued prior to 1-6-2016 and assessment or reassessment has not been completed by the due date due to exclusion of time referred to in Explanation I, such act shall be completed in accordance with the provisions existing before the substitution of the said section by the Finance Act, 2016 meaning thereby under the old section. These amendments will take effect from 1-6-2016.
4. Special Agreement in search or requisition cases.
During the last five years there is thrust on searches and its expeditious assessments, to enable to collect additional revenue and to curb unaccounted for assets, transactions, black money and corruption, which is flagrantly prevalent in all the fields. Section 197(c) of the Finance Act, 2016, provided that where any income has accrued, arisen or received or any asset has been acquired out of such income prior to commencement of the Income Declaration Scheme, 2016, and no declaration in respect of such evaded income is made, then such income shall be deemed of the year in which a notice under section 142(1) or 143(2) or 148 or 153 A or 153C of the Act is issued by the Assessing Officer and it shall be taxed in such year. It was noticed that such section is unconstitutional and action would be void. However, the Central Board of Direct Taxes clarified that the Finance Act, 2016, being later on point of time would prevail over the provisions of the Income-tax Act. It is not correct interpretation of law. Good sense have prevailed and the said section 197(c) stand omitted. We are happy it is better to correct the mistake rather then to harass the taxpayers with long drawn litigation. We have been told that some enlightened super active assessing authorities issued notices under the said provision. Such notices shall have to be withdrawn as a face saving. This amendment is w.e.f. 1st June, 2016.
4.1 Section 153A provides in case of search under section 132 and requisition under section 132A for issuance of notice to furnish the return of income in respect of each assessment year falling within six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisition is made. Now it is proposed to extend the said six years up to ten assessment years relevant to the previous year in which search is conducted or requisition is made in the following circumstances:
(i) If the Assessing Officer has in his possession books of account or other document or evidence which reveal, the escaped income is likely to be fifty lakhs or more in ten years;
(ii) Such escaped income is represented in the form of asset including immovable property being land or building or both, shares and securities, deposits in bank account loans and advances and it relates to the said ten years ;
(iii) Search is initiated or requisition is made on or after 1-4-2017. Consequent amendments have been proposed to the provisos of section 153A. It is also proposed to insert Explanation to define the expression “relevant assessment year”, to mean an assessment year preceding the previous year of search or requisition which falls beyond six assessment years, but not later than ten assessment years, from the end of the assessment year relevant to the previous year in which search is conducted or requisition is made. Explanation 2 explains the word “asset” as noted earlier. Applicability of this provision from 1-4-2017 shows the intention of the Government to give one more final chance to avail of “Pradhan Mantri Garib Kalyan Yojana, 2016”, which is open up to 31-3-2017.
4.2 Section 153B is proposed to amend time limit for completion of six assessments under section 153A within 21 months from the end of the financial year in which the last of the authorisation for search or requisition was executed. Hence time limit for searches conducted up to 31-2-2017 shall remain as it exists earlier. However for the search and seizure cases conducted on or after 1-4-2017 the time limit for making an assessment shall be reduced from 21 months to 18 months. It is also proposed to reduce the time limit for completion of assessment in case of such searches from
1-4-2019 and onwards to 12 months
4.3 In case of third party assessment under section 153C the time limit for completion of assessment shall be same as that of the person searched or 12 months from the end of the financial year in which books of account or documents or assets seized or requisition are handed over to the said Assessing Officer, whichever is later.
4.4 It is also proposed to insert a proviso to the Explanation to the said section, that where a proceeding before the Settlement Commission abates under section 245HA, the period of limitation shall not be less than one year after exclusion of the period taken in the settlement proceedings under section 245HA(4) of the Act.
4.5 As a saving measure, in respect of a notice under section 153A or 153C, issued prior to 1-6-2016, and assessment is pending, such assessment shall be completed in accordance with the provision of this section as it stood before its substitution from 1-6-2016. Second proviso to section 153C has been proposed to be amended, so as to provide a reference to the relevant assessment year as referred in the Explanation to section 153 A (1) i.e., instead of six years — not to exceed ten years. All these amendments shall be operative from 1-6-2017.
The extension of period to 10 years in search cases as against six years in other cases cannot be said to be discriminatory or unconstitutional. Separate classification of person searched and found possessed with specified assets and without the specified assets, can be claimed to be reasonable classification and two identifiable categories. Reduction in period for completion of assessments and reassessments is welcome. If would expedite revenue collection and also expeditious end of lis with the Revenue. However, it is desirable to change mindset of assessing and appellate authorities so as to make assessment in accordance with law and not hanky-panky or on surmises or suspicions or conjectures. Let the taxpayers and the tax collectors have introspection and both to do their duty as a civilized citizen of this Great country of India.