Re-opening of assessmentsBikash Kumar Jain8 November 2016

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Re-opening of assessmentSections 147 to 153

Logical sequence of reassessment Section 147 — Escapement of income Section 149 — Time limit for reopening Section 151 — Sanction for issue of notice Section 148 — Issue of notice Section 147 — Complying with law Section 150 — Assessment in pursuance of an order on appeal, etc. Section 152 — Other provisions Section 153 — Time limit for completion

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Escapement of income

Instances of escapement of income No return is filed No assessment done Under statement of income or excessive allowance claimed Non filing of report u/s 92E Assessment done but

- Under assessment of income- Assessed at a lower rate- Excess allowance given

An assessee is found to have income > taxable limit or claimed excessive allowance - On the basis of information received u/s 133C

A person is found to have any asset (including financial interest in an entity) located outside India

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Time limit for reopening Section 149 controls time limit for initiation of reassessment by issue of

notice u/s 148 Notice u/s 148 cannot be issued beyond limits prescribed in section 149 Starting time for issue of notice u/s 148

- End of the relevant assessment year Normal limit

- Four years from the end of the relevant assessment year If income escaped is Rs. One Lakh or more

- Six years from the end of the relevant assessment year If income escaped is from foreign asset

- Sixteen years from the end of the relevant assessment year If income is to be assessed u/s 163

- Six years from the end of the relevant assessment year

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Issue of Notice u/s 148 Notice requiring the assessee to file true return in prescribed format within time

given by the Assessing Officer. Before giving such notice, reasons for reopening have to be recorded by AO. No need to give preliminary hearing before issue of notice of notice u/s 148.

- British Electrical & Pumps (P.) Ltd. v/s. ITO (1978) 113 ITR 143 (Cal.) AO cannot seek books and other records at the time of notice.

- Prahladrai Agarwalla v/s. ITO (1973) 87 ITR 655 (Cal.) Notice can be given only by the AO having proper jurisdiction over the assessee.

- Mrs. Uma Loomba v/s. CIT (2000) 108 TAXMAN 232 (DELHI) Notice is invalid if reasons are recorded by officer other than the one issuing the

notice.- S.N. Bhargava v/s. ITO (2014) 43 taxmann.com 182 (Agra-Trib.)

Notice u/s 148 should be properly served. Service on wrong person vitiates section148.- P.N. Sasikumar v/s. CIT (1987) 35 TAXMANN 131 (KER)

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Income Escaping Assessment

GKN Driveshafts (India)

Ltd.

File the Return of Income

Seek for the

reasons recorded

for reopening

of case

File objections

to the reasons recorded

AO to dispose off

the objections

by a reasoned

order

Step Plan after receipt of the reassessment notice - Procedure laid down by the Apex Court in the case of GKN Driveshafts (India) Ltd. v/s. ITO (2003) 259 ITR 19

Constitutional remedies can be invoked at the appropriate time

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Request to the AO — seeking reasons (suggested wordings) "We refer to the Notice dated ____________ issued u/s. 148 of the Income-tax Act, 1961 and the return of income filed by us in response thereto on _____________ - a photocopy of the acknowledgement evidencing the return filing is forwarded herewith for ready reference.In this connection we have to request you to let us know the reasons for the issue of the Notice u/s. 148 so that appropriate action can be taken by us in the matter.In this connection we invite your attention to the decision of the Apex Court in the case of ‘GKN Driveshafts (India) Ltd. v/s. Income-tax Officer And Others’ reported in (2003) 259 ITR 19 wherein it has been inter-alia held that:“when a notice u/s.148 of the Income-tax Act, 1961, is issued, the proper course of action for the notice is to file the return and, if he so desires, to seek reasons for issuing the notices both of which viz. the filing of the return and making a request for the reasons recorded for the reopening have been done in the instant case by the assessee. On the above two steps being taken the Assessing Officer is bound to furnish reasons within a reasonable time. On receipt of reasons, the notice is entitled to file objections to issuance of notice and the Assessing Officer is bound to dispose of the same by passing a speaking order”.

We trust our reasonable request will be acceded to.”

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Sanction for Issue of Notice

Section 151 - Sanction for reassessmentUpto 4 years By any officer below the rank of the Joint Commissioner – JCIT approvalBeyond 4 years CCIT or CIT approval

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Request for sanction u/s. 151 (suggested wordings)“In this connection we have to request you to forward to us photocopies of the following documents which are a part of our tax records for the year under consideration: Documents evidencing the request sent to the Chief Commissioner/ Commissioner

of Income tax in terms of section 151(1) of the Income-tax Act, 1961 for obtaining an approval for the reopening of the assessment in our case for the year under consideration;

Documents evidencing the approval received from the Chief Commissioner/ Commissioner of Income-tax

The aforesaid documents are required to enable us to submit our objections to the re-opening of the assessment for the year. Necessary fees, if any, may be collected from the bearer of this letter.We trust our reasonable request will be acceded to.”

If this does not work – ask for inspection of case records and/or apply under the RTI

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Compliance of Section 147Reason to believe Sufficiency of reasons is not criteria. However, such reasons should be

- Bonafide;- Based on tangible material.

Material should have live link/connection for the formation of belief. Material should not be vague, irrelevant or non-specific information. Stale information already available at the time of assessment may not be

considered as new tangible material.

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Compliance of Section 147 Conditions of 147 are mandatory and cannot be waived by assessee or

even if assessee participated in proceedings.- P.V. Doshi v/s. CIT (1978) 113 ITR 22 (Gujarat)

There must be reasons to believe and not mere reasons to suspect.- ACIT v/s. O. P. Chawla (2008) 114 ITD 69 (Delhi)- P.G. Foils Ltd. v/s. ITSC (2008) 302 ITR 331 (Madras)- CIT v/s. Mahesh Gum & Oil Industries (2007) 292 ITR 397 (Rajasthan)

Fishing or roving inquiry not permitted:− Poonam Rani Singh v/s. DCIT (2005) 97 ITD 390 (Delhi –Trib.)

Material basing on which belief is formed. Fresh material required to reassess:− CIT v/s. Orient Craft Ltd. (2013) 29 taxmann.com 392 (Delhi)

There must be precise information which is not vague:− Arjun Singh v/s. ADIT (2000) 246 ITR 363 (Madhya Pradesh)

Change of opinion:− Revenue can reassess but cannot review;− Formed opinion cannot be changed, even if incorrect or not legally sustainable.

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Compliance of Section 147 Section 143(1) – whether equivalent to assessment:

− ACIT v/s. Rajesh Jhaveri Stock Brokers (P.) Ltd. (2007) 291 ITR 500 (SC) When there is no assessment, no opinion can be said to have been

formed. Section 143(1) and reassessment u/s 147:

- Delhi HC in the case of Indu Lata Rangwala v/s. DCIT [W.P. (C) 1393/2002]

No review in the guise of reassessment− CIT v/s. Kelvinator of India Ltd. (2010) 320 ITR 561 (SC)

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Compliance of Section 147 Issue of notice u/s 143(2) mandatory: Reassessment valid if participated in proceedings having not received notice: Original assessment not to be disturbed:

− original addition cannot be increased− assessee cannot raise fresh claim

143(3) kept pending – notice u/s 148 – not valid:− KLM Royal Dutch Airlines v/s. ADIT (2007) 292 ITR 49 (Delhi)

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Consequential Assessment – Section 150 Notice u/s 148 is given to pass consequential orders:

− then time limit u/s. 149 is not applicable Finding or direction of the appellate authority:

− necessary to dispose off the appeal− particular person for a particular year− ITO v/s. Murlidhar Bhagwan Das (1964) 52 ITR 335 (SC)

Finding must be clear and not discretionary:− Rajinder Nath v/s. CIT (1979) 120 ITR 14 (SC)

If direction for some other assessee – opportunity must be provided to such other person:− A.B. Parikh v/s. ITO (1993) 203 ITR186 (Gujarat)

Direction for relevant year, if direction or finding is for one year notice cannot be given for any other year:− Consolidated Coffee Ltd. v/s. ITO (1987) 155 ITR 729 (Karnataka)

No sanction u/s 151 required for cases u/s 150:− Sukhdayal Pahwa v/s. CIT (1983) 140 ITR 206 (Madhya Pradesh)

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Time Limit for Completion of reassessment – Section 153 Reassessment must be completed within nine months from the end of financial

year in which notice u/s 148 is served.

Such period extended by 12 months, if there is transfer pricing compliance and order u/s 92CA(3) has to be obtained.

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Possible opportunities – challenging the reassessment Not recording reasons before initiation.

Recording of reasons which are vague and irrelevant.

Not obtaining proper sanction.

Not issuing the notice before the limitation period.

Not giving a speaking order against objections for reopening.

Overlooking concept of change of opinion.

Case Studies

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Mere change of opinion no basis for reassessmentCIT v/s. Kelvinator of India Ltd (2010) 320 ITR 561 (SC) Tax Authority must have a reason to believe that the income has escaped

assessment. The phrase ‘reason to believe’ needs schematic interpretation, failing

which, arbitrary powers would be vested with the Tax Authority to reassess the income on the basis of mere change of opinion which cannot, per se, be the reason to reassess.

Conceptual difference between power to ‘review’ and power to ‘reassess’ needs to be observed. The Tax Authority has the power to reassess and not the power to review.

Reassessment needs to be based on tangible material. The reason for reassessment must have a live link with the formation of

the belief. The legislative history of the amendments and the CBDT circular

explaining the amendment support the conclusion that mere change of opinion, per se, cannot be the basis for reassessment of income.

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CIT v/s. Usha International Ltd. (2012) 348 ITR 485 (Delhi) Expression 'change of opinion' postulates formation of opinion and then a

change thereof. In context of section 147, it implies that AO should have formed an

opinion at first instance. If assessment order records that the issue was raised and decided in

favour of assessee, reassessment proceedings will be hit by principle of 'change of opinion’.

If a query is raised and answered in regular assessment, but no addition is made by AO, it should be accepted that AO formed an opinion of not making addition, even though he had not recorded his reasons in assessment order.

If AO incorrectly or erroneously applies law or comes to a wrong conclusion and income chargeable to tax has escaped assessment, initiation of reassessment proceedings will be invalid on the ground of change of opinion. Revenue may resort to section 263 but not reassessment.

'Opinion' formed or based on wrong and incorrect facts or which are belied and untrue do not get protection and cover under the principle of 'change of opinion'.

Mere change of opinion no basis for reassessment

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ACIT v/s. Rajesh Jhaveri Stock Brokers (P.) Ltd. (2007) 291 ITR 500 (SC) Expressions "intimation" and "assessment order” are different and must

be understood differently. Intimation under section 143(1)(a) cannot be treated to be an order of

assessment. There being no assessment under section 143(1), there is no question

of change of opinion. At initiation of reassessment proceedings, what is required is "reason to

believe", but not the established fact of escapement of income. Failure to take steps under section 143(3) will not render the Assessing

Officer powerless to initiate reassessment proceedings even when intimation under section 143(1) had been issued.

Mere change of opinion no basis for reassessment

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CIT v/s. Orient Craft Ltd. (2013) 354 ITR 536 (Delhi HC) There can be no review of an assessment in the guise of reopening and that a

bare review without any tangible material would amount to abuse of the power.

Section 147 makes no distinction between an order passed u/s 143(3) and the intimation issued u/s 143(1).

Not permissible to adopt different standards while interpreting the words 'reason to believe' vis-à-vis section 143(1) and section 143(3).

An assessee whose return was processed u/s 143(1) cannot be placed in a more vulnerable position than an assessee in whose case there was a full-fledged scrutiny assessment made u/s 143(3).

Supreme Court’s decision in Rajesh Jhaveri Stock Brokers (P.) Ltd. (2007) 291 ITR 500 does not give a carte blanche to AO to disturb the finality of the intimation u/s 143(1) at his whims; he must have reason to believe within the meaning of section 147.

Forming a belief of escapement of income merely 'on going through the return of income' after acceptance of same u/s 143(1) is nothing but a review of the earlier proceedings and an abuse of power.

No reassessment if no reason to believe

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No reassessment if no reason to believeCIT v/s. Atul Kumar Swami (2014) ITA 112/2014 (Delhi HC) Mere conclusion of proceedings under section 143(1) does not ipso facto

bring powers of invocation of reopening assessment. Assessee clearly mentioned and described particulars of non-compete fee receipt in note forming part of ROI. Revenue failed to come up with any other fresh tangible material warranting reopening of assessment.

ITO v/s. A.M. Udyog Ltd. ITA 194/Kol/2010 (Kolkata Tribunal) The reason to believe must have bearing on the question on escapement

of income. It does not mean a pure subjective satisfaction of the assessing authority. The reason to believe must have a rational connection with or relevant bearing on the formation of the belief. Rational connection means there must be direct nexus or like link between the material coming to the notice of the AO and the formation of belief of escapement of income.

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No reassessment if no reason to believeMohan Gupta (HUF) v/s. CIT (2014) 44 taxmann.com 171 (Delhi HC) Following the decision of Orient Craft (supra), the writ petition filed by the

assessee against the issue of notice under section 148 was allowed. It may be noted that even in this case there was no scrutiny assessment under section 143(3) and the return of income was merely processed under section 143(1).

Bapalal and Co. Exports vs. JCIT (2008) 289 ITR 37 (Mad HC) In this case it has been held that in the absence of any new material, the

AO is not empowered to reopen an assessment irrespective of whether assessment was earlier completed under section 143(1) or section 143(3) of the Act.

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Decision by the Third Member Bench of the Mumbai Tribunal in the case of Telco Dadaji Dhackjee Ltd. vs. DCIT (ITA No. 4613/Mum/2005) The return, filed by the assessee was originally accepted under section 143(1).

In the said return, the assessee had claimed deduction for payment of non-compete fees and had also claimed depreciation on lease premises.

The AO issued notice under section 148 on the ground that these were not allowable expenses and income chargeable to tax had escaped assessment.

The learned Judicial Member took the view that there was no fresh material to support the formation of the belief of the AO that income chargeable to tax had escaped assessment.

The learned Accountant Member, however, took a different view relying on the decision of Hon’ble Supreme Court in the case of Rajesh Jhaveri Stock Brokers (P) Ltd.

The Third Member held that section 147 applies both to section 143(1) as well as section 143(3) and, therefore, except to the extent that a reassessment notice issued u/s 148 in a case where the original assessment was made u/s 143(1) cannot be challenged on the ground of a mere change of opinion, still it is open to an assessee to challenge the notice on the ground that there is no reason to believe that income chargeable to tax has escaped assessment.

No reassessment if no reason to believe

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Subsequent Delhi HC decision in INDU LATA RANGWALA [(W.P.(C) 1393/2002] – AGAINST THE ASSESSEE The HC has elaborately dealt with the case laws (viz., Orient Craft, Mohan

Gupta (HUF), Atul Kumar Swami, Rajesh Jhaveri Stock Brokers. etc.) and observed that:

“where reopening is sought of an assessment in a situation where the initial return is processed under Section 143 (1) of the Act, the AO can form reasons to believe that income has escaped assessment by examining the very return and/or the documents accompanying the return. It is not necessary in such a case for the AO to come across some fresh tangible material to form 'reasons to believe' that income has escaped

assessment.” However, in a case where the initial assessment order is u/s 143(3), and it is

sought to be reopened within four years from the expiry of the relevant assessment year, the AO has to base his 'reasons to believe' that income has escaped assessment on some fresh tangible material that provides the nexus or link to the formation of such belief.

No reassessment if no reason to believe

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Reopening based on information from Investigation WingReasons read as under:“As per information received from DDIT (Inv.), Gurgaon, the assessee had taken bogus entry of capital gains Rs. 1,08,845 on June 22, 1996 (assessment year 1997-98) by paying cash along with some premium and taking cheque of same amount.”Decision:The information does not indicate the source of the capital gains (which in this case are shares). We do not know which shares have been transacted and with whom has the transaction taken place. There are absolutely no details available and the information supplied is extremely scanty and vague.

The Assessing Officer did not verify the correctness of the information received by him but merely accepted the truth of the vague information in a mechanical manner. The Assessing Officer has not even recorded his satisfaction about the correctness or otherwise of the information or his satisfaction that a case has been made out for issuing a notice under section 148 of the Act.

CIT v/s. Atul Jain (2008) 299 ITR 383 (DELHI) HC

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Earlier assessment set-aside on technical ground – subsequent reopening on same groundOriginal Assessment Order set aside on technical ground like assessment was time barred or the notice was issued late, subsequent re-opening on the very same facts/issues whether valid or not?

Case laws against the assessee:R. Kakkar Glass & Crockery House v/s. CIT (2002) 254 ITR 273 (P & H)

When a notice is quashed on some technical ground, it would be in order to issue a fresh notice under section 148 provided all other legal requirements of law have been complied with.

However, if a notice under section 148 is quashed after examination of the material relied on by the Assessing Officer and after recording a finding that on the basis of such material the additional income cannot be said to have escaped assessment, then it shall not be permissible for the Assessing Officer to issue a fresh notice on the basis of same material in respect of the same item of income. However, in case some fresh material comes into the possession of the Assessing Officer subsequently suggesting escapement of income under the same head or some other head, there could be no fetters on his power to issue a fresh notice under section 148. All such subsequent notices have to conform to the parameters prescribed under the law including the provision regarding limitation.

CIT v/s. Vishal Gupta (2012) 22 taxmann.com 82 (Delhi)

Fresh reassessment proceedings cannot be quashed on ground that in original assessment/reassessment proceedings notice under section 143(2) was not served within statutory time

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Earlier assessment set-aside on technical ground – subsequent reopening on same ground

Case law in favour of the assessee:Smt. Anchi Devi v/s. CIT (2008) CTR 11 (P & H)A perusal of the reasons recorded by him for reopening the assessment proceedings vide notice dt. 22nd March, 2004 shows that the same reasons have been recorded which were stated in the earlier notice served under Section 148 of the Act on the basis of which the assessment was made on 14th Feb., 2003 and which was quashed being barred by limitation. Thus, from the facts itself, it is crystal clear that though the present proceedings were initiated by the AO within the prescribed period of limitation yet it is clear that the same were initiated only to circumvent the earlier order of the Tribunal vide which the assessment dt. 14th Feb., 2003 was held to be time-barred. Thus, the AO cannot be allowed to initiate fresh proceedings on identical facts as the first assessment proceedings had failed to result in a valid assessment due to lapse on the part of the IT authority.

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Failure to disclose - (decided in favour of the assessee)“It is seen from the records that during the year, assessee has credited interest amount of Rs. 4,91,33,466 to the Income & Expenditure account, which includes interest under section 244A amounting to Rs. 50,14,633 on account of interest on tax refund, net of interest paid under section 220(2) of the Income-tax Act amounting to Rs. 1,01,11,960. The assessee in the note to the computation of income has stated that the interest income represents interest received under section 244A, net of interest paid under section 220(2). As per the provisions of section 40(ii) of the Income-tax Act, any sum paid on account of any rate, or tax levied on the profits or gains of any business or profession are not deductible from the income of the assessee. Therefore, the interest charged under section 220(2) amounting to Rs. 1,01,11,960 is not an admissible expenditure for deduction from the total income of the assessee.I have, therefore, reason to believe that the interest paid by the assessee under section 220(2) amounting to Rs. 1,01,11,960 claimed as deduction chargeable to tax has escaped assessment.”

Arthur Anderson & Co. v/s. ACIT (2010) 190 TAXMAN 279 (BOM.)

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Failure to disclose - (decided in favour of the assessee)“On verification of case records, it is seen that the assessee is claiming deduction under section 80-IB for an amount of Rs. 3,85,75.992. However, as per details filed and P & L A/c. it is further observed that during the year assessee has other income of Rs. 50,13,307 which mainly comprises of society deposit of Rs. 47,80,517, Stilt Parking Rs. 1,25,000 and Sundry Credit Balances of Rs. 1,07,712. Since this income does not qualify as the income eligible for deduction under section 80-IB, I have reason to believe that the income to this extent has escaped assessment and it is a fit case for issuing notice under section 148 of the Income-tax Act, 1961.”

Bhavesh Developers v/s. AO reported in (2010) 188 Taxman 123 (Bom)

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Failure to disclose - (decided in favour of the assessee)“As per profit and loss account enclosed to the return of income, the company had STPI unit at Visakhapatnam and two non-STPI units, one at Visakhapatnam and other at Mumbai. The STPI unit at Mumbai was engaged in research and development work and loss of Rs. 3,38,49,429 was declared from the unit.

It is seen from the profit and loss account of non-STPI that the company had credited interest income (other income) of Rs. 1,92,328 and debited expenditure of Rs. 3,40,41,756 and arrived at a loss of Rs. 3,38,49,429. No business income was offered from Mumbai non-STPI unit. Further, the unit being research and development unit and the expenditure claimed had no connection with STPI, Visakhapatnam, the same was to be capitalised in the absence of commencement of business by the unit and income from the business thereof was to be disallowed.”

Agilsys IT Services India (P.) Ltd. v/s. ITO (2013) 40 taxmann.com 139 (Mumbai - Trib.)

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Failure to disclose ~ Examples – where there is a “failure”Decision of the Bombay High Court in the case of Pranawa Leafin (P.) Ltd. v/s. DCIT (2013) 33 taxmann.com 454 - Relevant facts:

In the ROI filed, the assessee disclosed LTCL on sale of shares. While arriving at this LTCL the date of acquisition was shown as 09-12-1994.

− This was the date on which the first installment for acquiring the shares was paid.− The 2nd and the last installment was paid on 30-01-2004.

The date of sale was 12-05-2004. During the course of the original assessment proceedings, details vis-à-vis the LTCL

were called for and a few details were filed. One day prior to the passing of the original Assessment Order the assessee filed a

letter with 14 annexures including the share certificates. There was no discussion in the Assessment Order on the entitlement to claim the

LTCL.

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Failure to disclose ~ ExamplesDecision of the Bombay High Court in the case of Pranawa Leafin (P.) Ltd. v/s. DCIT (2013) 33 taxmann.com 454 - Findings of the Court: What the assessee failed to disclose in the computation was the fact that the

payment of Rs. 2.57 crores for the shares was in fact made on 30 January 2004. This was a fact which ought to have been disclosed to the Assessing Officer, but which was not disclosed even in the further letter of the assessee dated 24 September 2007. In that letter, the assessee disclosed the initial payment of Rs. 28.65 lakhs on 9 December 1994, but carefully avoided disclosure of the fact that the payment of Rs. 2.57 crores was made only on 30 January 2004. Finally, it was on 30 January 2004 that the assessee addressed a communication to the Assessing Officer containing as many as fourteen annexures. One of them was a share certificate of DFPCL. That share certificate contained an endorsement to the effect that the assessee has paid the final call on 30 January 2004

The nature of the disclosure has to be assessed in the facts and circumstances of each individual case. In the present case, there was a failure on the part of the assessee to make a disclosure that was candid, frank and true of the fact that it was only on 30 January 2004 that the assessee had made a payment of Rs. 2.57 crores for the acquisition of the shares of DFPCL.

“……..it cannot be said that the invocation of the jurisdiction to reopen the assessment beyond the period of four years did not fulfil the jurisdictional requirement. In our view, the Assessing Officer acted within jurisdiction since the record would indicate that there was a failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment of that assessment year. We, therefore, do not find any merit in the Petition. The Petition is accordingly dismissed.”

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Failure to disclose ~ ExamplesRohilkhand Educational Charitable Trust v/s. CCIT (2014) 42 taxmann.com 586 (Allahabad)

Where assessee trust, running hospital, hadnot produced list of donors, expenditures claimed were reported by Medical Council to be bogus and discrepancies were found in investment declared and balance sheet submitted, initiation of reassessment was justified

Board of Control for Cricket in India v/s. ACIT (2012) 21 taxmann.com 103 (Bom.)

Failure of assessee, claiming exemption undersection 11, to disclose misappropriation of funds by its Secretary at time of assessment was sufficient reason to initiate reassessment proceedings by taking recourse to proviso to section 147

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Reopening based on audit objectionsDecision of ICICI Home Finance Co. Ltd. v/s. ACIT and Ors (2012) 25 taxmann.com 241 (Bom.)

“The impugned order is without reasons and displays a non-application of mind to the objections made to reopening of assessment for the assessment year 2006-2007. Consequently, the entire exercise of seeking to reopen the assessment for assessment year 2006-2007 has been initiated not on any tangible material, but merely on a change of opinion and the same is not permissible.

However, this belief that income has escaped assessment has to be the reasonable belief of the Assessing Officer himself and cannot be an opinion and/or belief of some other authority.

The Assessing Officer cannot blindly follow the opinion of an audit authority for the purpose of arriving at a belief that income has escaped assessment.

AUDIT OBJECTIONS AND THE REASONS FOR RE-OPENING WERE IDENTICAL

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Reopening based on audit objectionsSuggested wordings – request to clarify v/v. Audit Objections

In this connection we have to request you to let us know if any audit objections were raised for the year under consideration. If yes, please provide the photocopies of the following documents: A photocopy of the objections raised by Revenue Audit cell. Photocopies of the replies sent by you to the Revenue Audit pursuant to the audit

objections raised.

OR

Further we have to also request you to clarify as to whether the re-opening in question is pursuant to an audit objection. If yes, also let us know the views of the Assessing Officer on the said audit objection as were conveyed to the Audit Partly.

If this does not work – ask for inspection of case records and/or apply under RTI

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Re-opening ~ other issues ~ retrospective amendmentsDecision of the Delhi High Court in the case of CIT v/s. Sil Investments Ltd. (2011) 9 taxmann.com 143 (Delhi)“…….the law cannot contemplate the performance of an impossible act. It was not expected of the assessee to foresee or forecast a future amendment which was to be brought into effect retrospectively. Therefore, the Tribunal has rightly concluded that the proviso to section 147 could not be invoked merely because there was an amendment in the future which was introduced retrospectively and covered the period in question.”

Decision of the SC in the case of CIT v/s. Avadh Transformers (P.) Ltd. (2014) 51 taxmann.com 369 (SC) Reassessment proceedings could not be initiated after expiry of four years from relevant assessment year merely on ground that in view of retrospective amendment to provisions of section 80-IA, assessee was not entitled to deduction granted under said section earlier.

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Re-opening – earlier rectification proceedings Reopening on the same grounds on which rectification proceedings were initiated

and then dropped is not valid. – Berger Paints India Ltd v/s. ACIT (2010) 322 ITR 369 (Cal HC)

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/s. A.K. Phute, ITO & Ors (2006) 286 ITR 620 (Bom HC)

During the pendency of the return filed u/s 139 along with refund application u/s 237, action could not have been taken u/s 147/148 - Trustees of H.E.H. the Nizam’s Supplemental Family Trust v/s. CIT (2000) 242 ITR 381 (SC)

Mandate of section 147 was not fulfilled for reason that AO himself was not sure whether issue in controversy could be subject-matter of section 154 or same could be subject-matter of proceedings under section 147 – Hence AO was not justified in issuing notice to assessee u/s 148 - Mahinder Freight Carriers v/s. DCIT (2011) 129 ITD 278 (ITAT Mum)

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Re-opening – earlier rectification proceedings Against ruling: 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 - Honda Siel Power Products Ltd. v/s. Dy. CIT( 2012) 340 ITR 53 (Del HC)

Against ruling: Where notice u/s 147 was challenged on ground that notice u/s 154 had already been issued and notice u/s 154 was clearly barred by time, initiation of reassessment proceedings was held to be valid – CIT v/s. S. M. Overseas P. Ltd. (2011) 335 ITR 281 (P&H HC)

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Re-opening based on SC decision The AO cannot seek to reopen an assessment u/s 147 on the basis of the SC

decision in a case where assessee had disclosed all material facts - Austin Engineering Co. Ltd v/s. JCIT (2009) 312 ITR 70 (Guj HC)

A subsequent decision of a Court cannot justify reopening of an assessment after a period of four years as subsequent decision does not mean failure on part of an assessee to disclose fully and truly all material facts - Sesa Goa Ltd v/s. JCIT (2007) 294 ITR 101 (Bom HC)

Against ruling: After the decision of the SC, it was incumbent on AO to examine whether the claim allowed by him during the original assessment proceedings was in conformity with the same. Theory of reassessment based on change of opinion is not applicable to assessee’s case as the AO was implementing the law of the land as declared by the SC. Reopening was therefore valid and sustainable - Asst. CIT v/s. Ventral Warehousing Corp.(2012) 67 DTR 356 (Delhi)

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Request to wait for 4 weeks after disposal of objections filed (suggested wordings)“Further, in case you do not agree with our submissions we have to request you to wait for a period of four weeks after service of order rejecting our objections before proceeding with the reassessment proceedings as held by the Bombay High Court in the case of Asian Paints Ltd. v/s. DCIT & Another reported in (2008) 296 ITR 90. The relevant portion of the decision of the High Court is also extracted hereunder for your ready reference:

“Hence we make it clear that if the Assessing Officer does not accept the objections so filed, he shall not proceed further in the matter within a period of four weeks from the date of receipt of service of the said order on objections, on the assessee.”

Accordingly, rule is made absolute.”

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Unfettered powers under IDS?

The scheme enabled any person to make a declaration of his undisclosed income or asset that was chargeable to tax in any assessment year prior to AY 2017-18.

Section 149 prescribes the time limits within which an AO can issue a notice to assess undisclosed income of earlier years – maximum of six or sixteen years depending upon the location of such income/asset.

Section 197(c) of the Finance Act, 2016 prescribes that if an undisclosed income pertains to a year falling beyond the time limit allowed u/s 149 and the said undisclosed income is not declared under the Scheme, then the said undisclosed income shall be treated as the income of the year in which a notice under section 148 of the Income-tax Act has been issued.

Above view further fortified by the CBDT vide Circular No. 27 dated 14.07.2016 (Question No. 2) and Circular No. 24 dated 27.06.2016 (Question No. 4)

IDS provisions cannot overrule the provisions of the Act

Thank you