Income Tax department can
re-open the case within 6 years from the end of the assessment years in which
tax return has been filed. This can be
case where the year already assessed u/s 143(3) or not assessed u/s 143(1). The section applies to this segments are
from section 147 to153 of the Income tax act 1961.
The tax consultant should
carefully handle the re-assessment cases of their client and . found that due
to some procedural error by tax department the re-opening become void and there
cannot be any further re- assessment.
Hence, it become very
important to understand the re-assessment proceedings with the help of latest
case laws which were given below.
01. Notice
received after the expiry of 4/ 6 years (time limit u/s 149) is not valid
& bad in law. The same were
justified in the following judgments.
(i)
Gujarat Carbon and Industries Ltd. v. Asst.
CIT , 365 ITR 464
(ii)
Tecumseh Products India P. Ltd..v. ACIT, 361
ITR 429
(iii)
In the case of Vinod Dhudalal Shah v. ACIT, 362
ITR 345, it was held that Beyond the period of four years, if any notice of
reopening of assessment is issued in the absence of any failure on the part of
the assessee to disclose fully and truly all material facts, it would have no
validity. In the original assessment proceedings, if the Assessing Officer, had
examined the claim in detail after raising queries which were fully answered by
the assessee, such action of reopening cannot be sustained in such
circumstances.
(iv)
CIT v. H. M. Constructions, 366 ITR 277.
(v)
Failure to disclose material facts necessary
for assessment as Information from CBI that loans accepted as genuine in original
assessment were bogus & hence Notice valid after 4 years also. Refer, Yogendrakumar
Gupta v. ITO, 366 ITR 186.
(vi)
CIT vs. Petroleum India International, 220
Taxman 11.
(vii)
CIT .v. Bilag Industries (P.) Ltd., 220
Taxman 162.
(viii) Income
from offshore supply contracts were considered and accepted to be exempt in the
original assessment proceedings. Notice was issued u/s.148 after four years. No
allegation that there was any failure to disclose material facts necessary for
assessment. Re-opening held to be invalid. Refer, Atomstroy export .v. Dy. DIT
(IT), 363 ITR 612.
(ix)
If “reasons to believe” are not based on new,
“tangible materials”, the reopening amounts to an impermissible review after 4
years. Refer, Madhukar Khosla v. ACIT, Delhi HC.
(x)
Lupin Ltd. .v. ACIT, 224 Taxman 225.
(xi)
Lalitha Chem Industries (P). Ltd. .v. Dy.CIT,
97 DTR 107.
(xii)
Sadhna Nitro Chem Ltd. v. A. B. Koli,, 368
ITR 505.
(xiii) Aventis
Pharma Ltd. v. Asst. CIT, 368 ITR 498
(xiv) Global
Signal Cables (India) P. Ltd. v. Deputy CIT, 368 ITR 609
(xv)
Swarovski India P. Ltd. v. Deputy CIT, 368
ITR 601.
(xvi) Assessing
Officer reopened assessment on ground that hire charges paid by assessee to
foreign shipping companies had been made without deducting TDS and same had to
be disallowed. Since Assessing Officer had valid reasons to believe that income
chargeable to tax had escaped reassessment was valid. Notice issued within time
but served after expiry of time limitation, is a valid notice. Refer, Poompuhar
Shipping Corpn. Ltd. v. ADIT, 53 SOT 451(Chennai)(Trib.).
02. Reason
for re-opening :
(i)
In the case of Rasalika Trading and
Investment Co. P. Ltd. v. Deputy CIT , 365 ITR 447, there cannot be any
re-assessment due to investigation done by other government department.
(ii)
Assessing Officer should be in possession of
valid information which should have a live nexus with assesses record of
income. Since reasons are self-contradictory and based only on suspicion the reopening
to be quashed. Refer, Indo Arab Air Services v. Asst. CIT, VOL 33 PG 526.
(iii)
Bald statement that assessee has failed to
make a full & true disclosure of material facts not sufficient. Details
must be given as to which fact was not disclosed. Refer, Bombay Stock Exchange
.v. DDIT, Bombay High Court.
(iv)
During assessment proceedings, matter of
valuation of property was referred to Valuation Officer but assessment order
was passed before receipt of his report. After receipt of report, reassessment
proceedings were initiated on the basis of the valuation report. Held, the
reasons recorded were contrary to facts on record which showed non-application
of mind. Hence, reassessment notice was held not valid. Refer, MahashayChunnilal
.v. DCIT, 362 ITR 314.
(v)
Reassessment valid in case there is omission and failure on part
of assessee to disclose short-term capital gains arising out of transfer of bonus
shares. Refer, CIT v. D. V. Paranjape (Bom), 367 ITR 173.
(vi)
Reopening of assessment on identical facts as
original assessment is not allowed. Refer, Deputy CIT v. Vikas Sharma, VOL 34
PG 617.
(vii)
Assessing Officer assessing income which come
to his notice subsequently in course of proceedings under section 147. The Reassessment
valid. Refer, CIT v. Mehak Finvest Pvt. Ltd., 367 ITR 769.
(viii) In
the case of Gujarat Narmada Valley Fertilizers Co. Ltd. v. Deputy CIT, 367 ITR
677, it was held that even excessive claim accepted during regular assessment,
there cannot be any re-assessment in this respect as there was no failure to
disclose material facts.
(ix)
Failure by assessee to clarify why
rental income was shown as business income
and hence Reassessment was held to be valid. Refer, Crimson Properties (P.)
Ltd. .v. ITO, 220 Taxman 112.
(x)
Where Notice under s. 148 is based upon stale
information which was available at the time of the original assessment and in
fact appears to have been used by the AO during the completion of proceedings
under s. 143(3). It was held that Reopening was not sustainable. Refer, Rasalika
Trading & Investment Co. (P) Ltd. .v. Dy. CIT, 101
DTR 28.
(xi)
It was held that Opinion of the DVO is per se
not an information for the purpose of reopening of an assessment. AO has to
apply his mind to the report of the DVO and only if on application of mind, he
forms a belief that there is escapement of income, he can seek to reopen the
assessment under s. 147. Refer, Mahashay Chunilal Charitable Trust v. Dy. CIT, 101
DTR 209.
(xii)
Protective assessment-Retracted statement
cannot form the basis of reopening- Protective assessment without substantive
assessment is not permissible. Refer, G.K. Consultants Limited .v. ITO, Delhi
ITAT.
(xiii) Issuance
of notice in absence of new material bad in law. Refer, Asst. CIT (OSD) v.
Lincoln Pharmaceuticals Ltd. (Ahd), VOL 35 PG 498.
(xiv) Tangible
material that can lead to ‘reason to believe’ must be material that is
attributable to the assessee and not material that is attributable to change
opinion of the A.O. in respect of the material
already available prior to the original assessment. Refer, Ralson India
Ltd. v. Dy. CIT, 366 ITR 103.
(xv)
Reopening of assessment merely on possibility
of loss of revenue is not allowed. Refer, Investeringsforeningen BankInvest I
Afd Indien and Kina v. Deputy DIT, VOL 36 PG 146.
(xvi) Proceedings
for reassessment can be initiated only when Assessing Officer has reason to
believe that any income chargeable to tax has escaped assessment and not where
he simply wants to examine or verify particulars of return with a view to
ensure that assessee has not understated its income. When initiation of
reassessment proceeding is sustainable on any of several reasons recorded by
Assessing Officer, same shall be valid. Refer, Dy.DIT (IT) v. Societe
International De Telecommunication, 139 ITD 328 (Mum)(Trib.)
(xvii) Even
section 143(1) Intimation cannot be reopened u/s 147 without “fresh material”. Refer,
CIT v. Orient Craft Ltd, Delhi HC.
(xviii) When
assessee disclosed all relevant facts ,even in case of reopening of assessment
within period of four years from the end of the relevant assessment year , the
Assessing Officer has reason to believe that income chargeable to tax has
escaped assessment on the basis of tangible material , there being no fresh
tangible material which would warrant taking a view different from one taken
during the regular assessment proceedings , reopening was not sustainable. The
reasons recorded at the time of issuing notice cannot be supplemented /improved
upon later. Writ petition of assessee was allowed and notice was quashed. Refer,
NDT Systems v.ITO, 81 DTR 1 (Bom.)(High Court).
03. Notice
and order on objections cannot be challenged in a Writ Petition in High court.
The same were justified in the following judgments.
(i)
KalanithiMaran .v. JCIT, Madras High Court.
(ii)
Writ Petition challenging lack of
jurisdiction to issue notice on the ground that it is based on ‘change of
opinion’ & preconditions of section are not satisfied is maintainable. Refer, Aroni Commercials Ltd.
.v. ACIT, Bombay High Court.
(iii)
In the case of Eleganza Jewellery Ltd. .v.
CIT, 269 CTR 475 the assesse is a 100
percent Export –Oriented Unit (EOU). The assesse claimed deduction under
section 10AA. The said claim was allowed under section 143 (3). Reassessment
notice after recording the reasons that
excess claim was allowed in the original assessment. The assesse challenged the
notice by way of writ. Dismissing the petition the court held that grounds
/reasons recorded for reopening the
assessment were not the issue which were considered by the AO while passing the
assessment and therefore it is permissible for the AO to reopen the assessment
on the basis reasonable belief that
income chargeable to tax has escaped assessment on these grounds and the same
did not stem change of opinion.
(iv)
Deduction claimed under section 80HHC was
allowed under section 143(3). Reassessment notice was issued on the ground that since the
assesse did not have profit from export and deduction on incentives was not available. The said notice
was challenged by writ petition. Allowing the petition, the court observed that reasons recorded do
not indicate even remotely any failure on the part of the assesse to disclose any material facts which
is necessary for assessment. Subsequent Court decisions by itself would not give jurisdiction to the
AO to reopen an assessment beyond four years unless coupled with a failure to disclose truly and
full all material facts and Reassessment was quashed. Refer, Allanasons Ltd. v.
Dy.CIT, 107 DTR 62.
(v)
After expiry of four years as during Survey
find Bogus purchases. Writ petition was held to be not maintainable. [S.133A,
148, Constitution of India, Art.226]. Refer, Nickunj Eximp Enterprises (P) Ltd.
.v. ACIT, 107 DTR 69 (Bom.)(HC).
04. Objection of re-assessment (GKN
driveshaft case).
(i)
When a notice under section 148 is issued,
the proper course of action for the notice is to file a return and if he so desires, to seek reasons for issuing
notices. The Assessing Officer is bound to furnish reasons within a reasonable
time. On receipt of the reasons, the notice is entitled to file objections to
issuance of notice and the Assessing Officer is bound to dispose of the
objections by passing a speaking order. Refer, Samsung India Electronics P.
Ltd. .v. DCIT, 362 ITR 460.
(ii)
In the case of Mukesh Modi v. Deputy CIT, 366
ITR 418, it was held that Rejection of objection without speaking order
the Notice and reassessment not valid.
(iii)
Recording of reasons is mandatory before
issue of notice. Refer, Debashu Services (P) Ltd. .v. Dy.CIT, 107 DTR 41.
(iv)
Assessing Officer reopened the assessment on
ground that assessee-society utilized Rs. 13.69 crores on acquisition of
certain overseas equipment etc. as per report of Comptroller and Auditor
General (Civil) for Govt. of Andhra Pradesh while a cross verification of
return shows that total assets amounted to Rs. 4.14 lakhs only, However, no
addition was made with respect to purchase of equipments. When initial reason given
for reopening did not survive anymore and Assessing Officer could not go beyond
reasons given by him for reopening. Refer, DCIT v Andhra Pradesh Right to Sight
Society. 53 SOT 480 (Hyd.)(Trib.).
05. Findings
by Audit team:
(i)
Held, ground for reopening assessment was
brought to the notice of the Assessing Officer by audit party but the Assessing
Officer, on application of mind, was convinced with such reason. Therefore, it
could not be said that the Assessing Officer acted at the instance of the audit
party. There was no dispute that the issue in reassessment required
reconsideration. Hence, reassessment was held valid. Refer, N.K. Industries
Ltd..v. ITO, 362 ITR 502.
(ii)
The audit party objected that non-charging of
interest on advances resulted in short levy of tax. However, the Assessing
Officer did not accept the objections but still issued notice solely on basis
thereof. Held, notice was not valid. Refer, N.K. Roadways P. Ltd. .v. ITO, 362
ITR 522.
(iii)
Original assessment of profits on sale of
shares was completed as capital gains. Similar assessments were completed even
for prior and subsequent years. Held, notice on the basis of audit objection to
assess the amount as business income was held not valid. Though the principle of
resjudicata is not applicable to tax matters as each year is separate and
distinct, nevertheless where the facts are identical from year to year , there
has to be uniformity and consistency in treatment. High court decision binding
on Income tax authorities under its
jurisdiction. Ratio of CIT v.GopalPurohit (2011) 336 ITR 287 (Bom)(HC ) is
followed. Refer, Aroni Commercial Ltd v. DCIT, 362 ITR 403.
06. Change of Opinion. There
cannot be any re-assessment due to this. The same were justified in the following
judgments
(i)
Spunpipe and Construction Co. .v. ACIT, 362
ITR 559.
(ii)
In the case of Transwind Infrastructure P.
Ltd..v. ITO, 362 ITR 67, it was held that The Assessing Officer framing a
scrutiny assessment had not overlooked TDS aspect of the matter but, having
enquired with the assessee and having concluded that deduction of tax at source
though required, was not deducted, for some reason did not apply the provisions
of section 40(a)(ia) but instead made an ad hoc disallowance. Whatever be the
legality of such assessment, the fact remained that, in the scrutiny
assessment, the Assessing Officer had thoroughly and fully scrutinised the
assessee's claim. Any reexamination of such a question at this stage would only
amount to change of opinion. The notice was not valid and was liable to be
quashed.
(iii)
Deduction claimed u/s 80IA allowed in
assessment made u/s 143(3) then Reopening of assessment for purpose of
‘verifying’ or ‘verification’. Reassessment is not valid.[S. 80IA]. Refer, J.
.V. Agrawal . .v. ITO, 220 Taxman 32.
(iv)
Notice was issued without application of mind
and hence Reassessment was bad in law. Refer, Pardesi Developers Infrastructure
(P.) Ltd. .v. CIT, 220 Taxman 18.
(v)
Where the assessing officer proposed to
reopen the assessment of the assessee within four years from the end of the assessment year, on the very
same issues on which he had raised quires while framing the original assessment. Reopening was held
to be invalid as the reopening suffered from change of opinion. Further, the court held that a
fringe benefit assessment can be reopened only under the special provisions of section 115 WG and 115
WH and not under general provisions of section 147 of the Act. Refer, CIT v. P.
G. Foils Ltd., 102 DTR 26.
(vi)
When material is available before the A.O.
while framing assessment under section 144 read with section 153 A of the Act .
It is assumed that all the material was
examined and verified by the A.O and hence Notice issued by the A.O. thereafter
on mere suspicion amounts to mere change of opinion. [S.144, 148, 153A] . Refer,
Mukesh Modi v. Dy. CIT, 366 ITR 428
(vii)
It was
only after detailed scrutiny that the AO framed original assessment making no
additions to the income disclosed by the assessee. AO examined the claim
thoroughly before passing the assessment order. Such scrutiny assessment cannot
be reopened even within four years from the end of relevant assessment year on
the reasons recorded by the AO. There was merely a change of opinion for which
reopening was not sustainable. Refer, Ashwamegh Co-op. Housing Society Ltd. v.
Dy. CIT, 79 DTR 449.
07. Disclosed
information in the tax return.
(i)
Assessee created a provision at a time when
its income was exempt from tax which was subsequently written back and this fact was disclosed in
the return. Held, notice seeking to tax the amount after four years was not
valid. Refer, National Dairy Development Board .v. DCIT, 362 ITR 79.
(ii)
When the information clearly disclosed in the
tax return & financials of the company, then there cannot be any new facts
or new information and hence re-assessment not valid. Refer, Madhukar Khosla v.
Asst. CIT, 367 ITR 165.
(iii)
Explanation of the assessee that the receipt
of Japanese Yen alleged to have been escaped assessment for the current year
had been disclosed in the return for earlier year filed after issuance of
notice under section 148 for the year,
could not invalidate the reassessment proceedings. Refer, Canon India (P) Ltd.
& Anr. .v. ACIT, 102 DTR 420 (Delhi)(HC).
08. Number of Notices:
(i)
There cannot be two notices for same ground.
Refer, Kunal Organics P.Ltd..v. Dy.CIT, 362 ITR 530.
(ii)
Notice issued but proceedings dropped due to
technical reasons then Second notice could be issued. Refer, Chokhani Brother
v. Joint CIT, 367 ITR 230
09. Others.
(i)
In the case of Asst. CIT v. DLF Cyber City
Developers Ltd, VOL 34 PG 696, it was held that notice is void as it had been
issued in the name of firm & taxpayer converted into limited company. Hence
Issue of notice in name of dead person void.
(ii)
Fact
that TPO has examined international transactions in payer’s hands and found
them to be at arm’s length does not mean the PE of payee cannot be assessed.
Refer, LG
Electronics Inc. v. ADIT, Allahabd High Court.
10. Procedural error.
(i)
Failure to issue notice under section 143(2).
Notice not valid. Refer, CIT v. Sukhini P. Modi (Guj), 367 ITR 682.
(ii)
Notice under section 143(2) issued after
expiry of twelve months from end of month in which return filed but before
expiry of time limit for making assessment or reassessment. Notice valid.
Refer, Deputy CIT v. Chemm Finance Ltd., VOL 35 PG 167.
(iii)
In the case of Shree Palani Transport Co. v.
Assessing Officer , 368 ITR 524, the AO not allowed time to assesse to submit
the details & hence the assessment become void.
(iv)
Failure by assessee to file return in
response to notice. Assessee not entitled to question reassessment on ground of
failure to issue notice under section 143(2). Refer, Giriyappa (D.) v. Asst.
CIT , VOL 36 PG 186.
(v)
There
cannot be any re-assessment for issue pending before settlement commission. Refer,
Omaxe Ltd v. ACIT, 79 DTR 83.
(vi)
The Tribunal held that on the facts the
assessee has failed to demonstrate that during original assessment proceedings
under section 143(3), a considered view was taken by Assessing Officer,
question of forming an opinion will not arise and hence, question of change of
opinion also will not arise and, thus, re-opening is to be upheld. As regards
objections to the notice, where assessee had appeared during reassessment
proceedings in response to notice/letter and cooperated in assessment
proceedings, it would be deemed that notice had been duly served upon assessee
in time in accordance with provisions of Act, and therefore, assessee could not
take any objection in any proceedings or enquiry that no notice was given as
assessee had not raised such objection before completion of said reassessment
proceedings, hence cannot object now accordingly the reassessment was held to
be justified. Refer, Hindustan Thompson Associates (P.) Ltd. v. ACIT, 53 SOT
389 (Mum)(Trib.).
11. Decided cases.
When earlier year in favour of the assessee
then Assessing Officer could not reopen assessment on merit on same ground in
succeeding assessment year. Refer, CIT
.v. Kalpatru Sthapatya (P.) Ltd, 220 Taxman 157.
12. Retrospective Amendments.
In case of retrospective legislative
amendment, rectification under section 154, as well as reopening of assessment
under section 147 are permissible as they are not mutually exclusive. Refer, Ester
Industries Ltd. .v. UOI, 221 Taxman 22.
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