The scope and effect of a reopening of assessment is still shrouded in mystery even after various judgments of the Supreme Court and High courts. Reassessment is one of the distinguishing weapons in the armoury of the Department, empowers the Assessing Officer to assess, reassess or recompute income, turnover etc, which has escaped assessment. A number of intricate issues crop up during the reassessment proceedings. Some of the issues are been dealt with hereunder:
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 perquisite conditions to be fulfilled for invoking the jurisdiction to reopen the assessment.
1.2 The general principle is that once an assessment is completed it becomes final. Section 147 empowers the Assessing Officer to reopen an assessment if the conditions prescribed therein are satisfied. The conditions are:
i) The Assessing Officer has to record the reason for taking action under section 147. It is on the basis of such reasons recorded in the file that the validity of the order reopening a assessment has to be decided. Recorded reasons must have a live link with the formation of the belief.
ii) The Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year.
iii) The jurisdictional condition under section 147 is the formation of belief by the Assessing Officer that income chargeable to tax has escaped assessment for any assessment year.
iv) No action can be initiated under section 147 after the expiry of 4 years from the end of the relevant assessment year unless the income chargeable to tax has escaped assessment by reason for the failure on the part of the taxpayer to disclose fully and truly all material facts necessary for his assessment..
2. Procedure to challenge the reassessment proceedings
2.1 The Apex Court in the case of
GKN Driveshafts (India) Ltd. v. DCIT (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
(a) Is to file the return,
(b) If he so desires, to seek reasons for issuing the notices.
(c) The Assessing Officer is bound to furnish reasons within a reasonable time.
(d) On receipt of reasons, the assessee is entitled to file objections to issuance of notice, and
(e) The Assessing Officer is bound to dispose of the same by passing a speaking order.
(f) The assessee if desires 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 precondition are jurisdiction 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 AOs 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 AOs 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); www.itatonline.org;
CIT v. Trend Electronics( 2015) 379 ITR 456 (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/reassessment 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 entertained 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 reassessment 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 re-assessment order. On appeal by the department to 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.
3.3 The Hon'ble Bombay High Court in the case of
Aroni Commercials Ltd v. ACIT observed that the argument, based on
JCIT v. Kalanithi Maran, 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'ble 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.
4. Reasons – Recorded to be supplied and objections to be disposed off
4.1 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 296 ITR 96 (Bom)
4.2 Reassessment framed by the Assessing Officer without disposing of the primary objection raised by the assessee to the issue of reassessment notice issued by him was liable to be quashed. 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 case.
4.3 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 setaside to pass fresh order holding that the Reasons for notice must be given and objections of assessee must be considered.
4.4 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)
Disposal of objections
– To be linked with recorded reasons
4.5 In the case Pransukhlal
Bros. v. ITO (2015) 229 Taxman 444 (Bom.)(HC) where in 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 of by 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 of objections was held unsustainable in law with fresh opportunity to AO to dispose of the objections keeping in mind the recorded reasons.
4.6 However recently the Hon'ble Bombay High Court in the case of
Bayer Material Science Pvt. Ltd. v. DCIT(2016) 382 ITR 333 (Bom.)(HC) held that non-disposal of objections and 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 and take remedial action :
5. Communication of reasons
– Mandatory
5.1 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)
5.2 However if assessee does not ask for s. 147 reasons and object to reopening, ITAT cannot remand to AO and give assessee another opportunity:
CIT v. Safetag International India Pvt. Ltd. (Delhi High Court)
5.3 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 Mumbai 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.)
• Telco Dadajee Dhakjee Ltd. v. DCIT (Mum.) (TM) – itatonline.org
• Muller & Philips (India) Ltd. v. ITO (Mum.)(Trib.); www.itatonline.org
• Jeevanlal Jain ITA No. 910/M/2014 dt 13-1-2016, Bench J; (Mum.) (Trib.)
5.4 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)
6. New reasons cannot be allowed to be introduced or supplied
6.1 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 268 ITR 332 (Bom)
Mohinder Singh Gill v. Chief Election AIR 1978 SC 851
Mrs. Usha A. Kalwani v. S. N. Soni 272 ITR 67 (Bom)
Godrej Industries Ltd. v. B. S. Singh, Dy. CIT (2015) 377 ITR 1 (Bom.)
– Only reasons recorded by Assessing officer must be considered.
6.5 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)
6.6 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)
7. Succeeding Assessing Officer cannot improve upon the reasons which were originally communicated to the assessee
7.1 In the case of
Indivest Pvt. 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 Oct., 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.
7.2 Similarly in the case 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
Reopening is not permissible on borrowed satisfaction of another Assessing Officer
7.3 Assessing Officer recording reasons for assessment and Assessing Officer issuing notice under section 148 must be the same person. Successor 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.)
– 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
7.4 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.)
7.5 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.)
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 Suratgarhs, however AO did not issued fresh notice or recorded reasons
– Held ITO did not have jurisdiction notice invalid.
8 Reasons – Non-application of mind
8.1 Reassessment merely on the basis of investigation wing held to be not valid
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 led to be not justified. (A.Y. 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 217/63 taxmann.com 170 (Delhi)(HC)
8.2 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
8.3 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 facie opinion 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.
8.4 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.)
9. Reason to believe of the AO
9.1 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..
9.2 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.)]
9.3 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.
Reasons to believe – Survey
9.4 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
9.5 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)
9.6 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.)
9.7 Irrelevant and non-existing reasons
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)
10. No reassessment just to make an enquiry or verification
No reopening to make fishing inquiries.
a) Bhor Industries Ltd. v. ACIT
– [(2004) 267 ITR 161 (Bom)]
b) Hindutan Lever Ltd. v. R. B. Wadkar, ACIT
– [(2004) 268 ITR 332 (Bom)]
c) Bhogwati Sahakari Sakhar Karkhana Ltd. v. Dy. CIT [(2004) 269 ITR 186 (Bom)]
d) Ajanta Pharma Ltd. v. ACIT
– [(2004) 267 ITR 200 (Bom)]
e) Pr. CIT v. G & G Pharma India Ltd. (Delhi)(HC) ; www.itatonline.com
f) Reassessment – Distinction between reason to believe and reason to suspect.
Universal Power Systems (P) Ltd. v. Asst. CIT [48 ITR (Tribunal) 191 (Chennai)]
The assessment reopened 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.
g) 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)
h) 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 (Delhi)(Trib); www.itatonline.org
New 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
11. Expl. 3 to Sec. 147: Any Other Income
11.1 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 Asst is open – any other income can be considered. Expl 3 to sec 147:
CIT v. Best Wood 331 ITR 63 Ker FB.
11.2 Though Explanation 3 to s. 147 inserted by the F 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).
11.3 Similar view was taken in
Hotel Regal International & Anr. v. ITO (2010) 320 ITR 573 (Cal)
wherein the Petitioner were called upon to file objection to the notice u/s. 148 proposing to reopen the assessment on ground that ₹ 73,219 had escaped asst. Now the authorities could not shift their stand and pass on 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 (Agra)(Trib.); www.itatonline.org
12 Procedural defect: Service of Notice etc. : S. 292BB
12.1 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 2001-2002)
12.2 Issue of notice beyond
limitation period: Expression "to issue" – Meaning send out – Notice signed on 31-3-2010 sent to 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.)
12.3 Notice issued within period of limitation but send after that period
– Direction to ascertain when the notice had been dispatched by reg. post.
CIT v. Major Tikka Khushwat Singh 212 ITR 658 (SC)
R.K. Upadhaya v. Shanabhai P. Patel (1987) 166 ITR 163 (SC)
12.4 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 us 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)
12.5 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).
12.6 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)
12.7 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,.
Service by affixture
12.8 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.)
Invalid Service of notice not a procedural defect. No material to prove efforts made by Department to serve notice in normal course.
Arunlal v. ACIT (2010) 1 ITR 1 (Trib.) (Agra) (TM)
12.9 Similarly in case of
ITO v. Om Praksh 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.
12.10 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 pain 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 summon 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 (ITAT Mumbai)
13. Notice u/s. 143(2) is Mandatory
13.1 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 (Bom.)(HC) www.itatonline.org.
• CIT v. Mundra Nanvati (Bombay High Court) 227 CTR 387 Bom.
• 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.)
13.2 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).
14. No reassessment u/s. 148, if assessment or reassessment is pending
14.1 So long the asst. 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 308 ITR 249 (Mad.)
14.2 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.)
14.3 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. C.I.T
– [(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. Rejendra 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)
15. Reopening beyond 4 years
15.1 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)
15.2 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.)
15.3 Where the deduction under section 80-IB 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.)
Failure to disclose all material facts was not mentioned in the recorded reasons-reassessment was held to be not valid
15.4 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 percent. 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 percent. 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)
15.5 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)
15.6 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 (Bom.)
16. Approval and sanction
16.1 CIT having mechanically granted approval for reopening of assessment without application of mind, the same is invalid and not sustainable.
German Remedies Ltd vs. Dy. CIT (2006) 287 ITR 494 (Bom) (Asst Yr. 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)
16.2 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. (A. Y. 1965-66)
Central India Electric Supply Co. Ltd. v. ITO (2011) 51 DTR 51 (Del.)(H C)
16.3 Sanction of Commissioner instead of JCIT renders reopening is 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 (SLP’s Siddhartha Ltd. followed)(A.Y. 2004-05)
Ghanshyam K. Khabrani v. ACIT (Bom)(High Court) www.itatonline.org
DSJ Communication Ltd. v. Dy.CIT (2014) 222 Taxman 129 (Bom.)(HC)
17. Disclosure of primary facts : No power to review
17.1 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. 80-IB(10).
Mistry Lalji Narsi Development Corp. v. ACIT (2010) 229 CTR 359 (Bom.)
17.2 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.)
17.3 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.)
17.4 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 re-look 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),
17.5 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).
17.6. 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)]
Statement of unconnected person
17.7 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) (Asst year 1991-1992)
JCIT & Ors v. George Williamson (Aassam) 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)
18. Disclosure in balance sheet also amounts to disclosure
CIT v. Corporation Bank Ltd (2002) 254 ITR 791 (SC)
Arthus Anerson & 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)
19. 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)
20. Reassessment within four years: Asst. completed u/s. 143(3)
20.1 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 to 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. 323 ITR 97 (Bom)
Capgemini India (P.) Ltd. v. ACIT (2015) 232 Taxman 149 (Bom.)(HC)
20.2 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 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)
20.3 Change of opinion
– reopening not permissible
Commissioner of Income Tax-3 v. SICOM LTD. [Income Tax Appeal No 137 of 2014 dt : 8-8-2016 (Bombay High Court)].
21. Reassessment – Change of opinion
21.1 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 t hat 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) (Asst Yr. 1997-1998)
Approved by Supreme Court in (2010) 320 ITR 561 (SC)
21.2 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.)
21.3 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.)
21.4 Change of opinion : Case laws
No new material brought on records
– Reassessment on change of opinion of officer not valid.
a. Asteroids Trading & Investment P. Ltd. v. DCIT (2009) 308 ITR 190 (Bom)
b. Asian Paints Ltd. v. DCIT (2008) 308 ITR 195 (Bom) (198)
c. ICICI Prudential Life Insurance Co. Ltd. (2010) 325 ITR 471 (Bom)
d. Aventis Pharma Ltd. v. Astt. CIT (2010) 323 ITR 570 (Bom) (577)
e. Nirmal Bang Securities (P) Ltd. v. ACIT. (2016) 382 ITR 93 (Bom.)(HC)
f. 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)
22. Re-assessment – Audit objection
22.1 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)
22.2 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) (Asst Year 2003-2004)
Vijaykumar M. Hirakhanwala (HUF) v. ITO & Ors (2006) 287 ITR 443 (Bom) (Asst year 1997-1998 to 1999-2001 to 2002-2003)
CIT v. Lucuns TVS Ltd. 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)
22.3 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).
22.4 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) (Asst Yr 1993-94)
22.5 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 (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)
22.6 Audit objection vis-Ã -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.
22.7 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)
22.7 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)
23. 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)
24. Direction of the higher authorities
24.1 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)
(Asst yr. 1989-90 to 1999-2000)
24.2 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).
25. 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.)(Asst yr 1959-60)
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 year 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)
26. Reassessment based on retrospective amendment not justified
• Denish Industries Ltd. v. ITO ( ) 271 ITR 340 (Guj.) (346) SLP dismissed ( ) 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 A.Y. is different, reopening not proper.
• Siemens Information Ltd. (2007) 293 ITR 548 (Bom)
Notice u/s. 148 based on amended law not applicable to relevant A.Y.
• Sadbhav Engineering Ltd. v. Dy. CIT ( ) 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 80-IB(10) is held to be invalid.:
Ganesh Housing Corporation Ltd. v. Dy. CIT (Guj.)(High Court) www.itatonline.org
• 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. 80-IB(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 80-IB(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. (A. Y. 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)
27. 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 hasto be considered bad in law. (A.Y. 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)
• 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)
• Allanasons Ltd. v. ACIT (2015) 230 Taxman 436 (Bom.)(HC)
• GTL Ltd. v. Asst CIT (2015) 37 ITR 376 (Mum.)(Trib.).
28. Jurisdiction – Reassessment
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.
– 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 v.
Safetag Int. India Pvt. Ltd. dt. 3-2-2011 (Del.) (H.C.)
29. Rectification proceedings initiated and dropped
29.1 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 us. 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) (Asst yr 2000-2001)
29.2 Allowance u/s. 80HHC having been granted by the ITO in rectification proceedings. The remedy the 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)
29.3 Sec. 147 viz-a-viz 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 initio, especially when except the return and its enclosures, no other material or information was in the possession of the assessing Officer.( Asst year 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]
29.4 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 section 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). (A. Y. 2000-2001)
Honda Siel Power Products Ltd. v. Dy. CIT( 2011) 197 Taxman415 (Delhi). Assessee’s SLP dismissed Honda Siel Power Products Ltd v. DCIT ( SC).www.itatonline.org.
30. Reopening based on valuation report
30.1 AO had no jurisdiction to reopen the concluded assessments on the strength of valuation report of valuation 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) (Asst yr 1997-2001)
30.2 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 v. UOI(2004) 269 ITR 45 (All)
30.3 Mere DVO’s report cannot constitute reason to believes that income has escaped assessment for the purpose of initiating reassessment and therefore tribunal was justified on 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 sufers from various defects and mistakes.
CIT v. Smt. Meena Devi Mansighka (2008) 303 ITR 351
30.4 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.)(Asst yr 1973-74)
ITO v. Shiv Shakti Build Home (P) Ltd. ( 2011) 141 TTJ 123 ( Jodhpur) (Trib).
Reopening of the assessment
– Based on the opinion given by the District Valuation Officer
Reopening of the 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 v. Dhariya Construction Co. (2010) 328 ITR 0515.
31. Reassessment jurisdiction is available for benefit of revenue only
31.1 Since the proceedings under section 147 are for the benefit of the revenue and in the assessee, and are aimed at gathering the escaped income of the revenue and an assessee and are aimed at gathering the escaped income of an assessee 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 v. Sun Engineering Works (P) Ltd. (1992) 198 ITR 297 (SC).
31.2 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 inrespect 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.
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).
31.3 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.) (Asst Yrs. 1975-1977)
32. When intimation under section 143(1) is issued
– Intimation is not an assessment-No question of change of opinion
32.4 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)]
4. Aipta Marketing P. Ltd. v. ITO – [(2008) 21 SOT 302 (Mum.)]
5. Pirojsha Godrej Foundation v. A.D.I.T. (E)
– [(2010) 133 TTJ (Mum) 194]
6. 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.
7. 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)]
33. Section 150 : Limitation prescribed
33.1 The 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.
33.2 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.
33.3 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 254 ITR 772 (SC)
33.4 According to s. 150(2), the provisions of s. 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.
33.5 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 lakhs, 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 lakhs 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.
33.8 Finding or direction. (S.149.).
– 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, (A.Y. 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 A.Y 2003-04). The Assessing Officer had assessed the capital gain in A.Y. 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 A.Y. 2002-03. In order to disposed of the appeal the
Hon’ble ITAT incidentally observed that the capital gain should have been assessed in A.Y. 2000-01. The Assessing officer issued notice under Section 148 dated 24-8-2007 on basis of the observation of ITAT order. On appeal challenging 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); ITA No. 1640/M/2010; dtd. 16-4-2014 (Mum. ITAT).
• 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. (A.Y. 1988-89).
Harsiddh Specific Family Trust v. JCIT ( 2011) 58 DTR 149 ( Guj.) (High Court).
• 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).
-Order barred by limitation
33.10 Power of Appellate authority
direction of appellate authority or Court.
(A.Y. 2002-03).
34. 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.