Introduction:
1) Section 147 of the Income Tax Act, 1961 dealt with ‘Assessment or Re-assessment of Incoming Escaping Assessment’.
2) Re-Assessment of Income is possible only in the case of Section 147 & Section 153A i.e. Reassessment in the case of search & Seizure.
3) Re-assessment simply means ‘Assessment upon Assessment’. It doesn’t mean that the Maximum 1 Assessment can be done over earlier Assessment. Re-Assessment can be done multiple times provided other conditions laid down in Section 147 have been satisfied.
4) For Example: For AY 2012-13 Assessment order u/s 143(3) has been passed by the Assessing Officer on 31st December 2014. Section 147 also open for the Same Assessment year on 25th October 2015 & Completed on 30th November 2016. Another Escapement of Income had been found for the same Assessment Year i.e. 2012-13 on 5th June 2018. Can AO Re-opened the case u/s 147 on 5th June 2018?
Ans- Yes, Re-assessment can be done multiple times provided that it had initiated within time limits as prescribed.
5) Re-assessment of Income is not possible u/s 143(3) & Best Judgment Assessment at any conditions.
6) For Example Order, u/s 143(3) for Assessment year 2015-16 was passed by AO on 5th June 2017 & total demand made u/s 156 was Rs 30 Lacs. On 06th June 2017, the Assessing officer got concrete evidence that LTCG which were claimed tax-free u/s 10(38) was Taxable u/s 112 @20%. AO is in of view that since only one day before he passed the order u/s 143(3) hence he can rectify the order. Comment.
Ans- Once the order is passed u/s 143(3) it can’t be reopened by AO u/s 143(3) of the Act. The argument that it is only one day before the order is passed will not alter the situation. In that case, the Department can either open the case u/s 263 or u/s 147 of the Act.
7) Assessment u/s 147 can be opened in those cases also where losses have been over-reported by the assessee. Since income includes losses also as per Income Tax Act, 1961.
8) It is to be noted that Section 147 along with Section 263 & Section 144 are made in the Income Tax Act for the sole benefits of the revenue. It means in these sections only either Income can be increased or losses can be decreased. In no case, Refund to the assessee will be calculated or Losses will be increased to the Assessee.
9) Re-assessment referred to in Section 147 or 153A means the case of that Assessment year was also opened earlier in Assessment Proceedings.
10) For Example History of Assessment proceedings in the case of Mr. X is as follows:
- AY 2012-13 – Section 143(3)
- Ay 2013-14 – Section 144
Now Assessing officer on 1st January 2018 wants to open the case of Assessment Year 2014-15. Comment.
Ans- In the given case Assessee was subject to assessment in earlier years. However, Re-assessment means that whether for the same AY any assessment has been done. Hence, for AY 2014-15 it will be Assessment u/s 147, not the reassessment.
Widening amplitude of Section 147 through various illustrations:
- X hadn’t filed ROI for AY 2013-14. Best judgment assessment is not done. Income escaped Rs 4 Lacs – Case can be opened u/s 147.
- X hadn’t filed ROI for AY 2013-14. Best judgment assessment is not done. Assessment u/s 147 done at Rs 20 Lacs. Another escapement of Rs 10 Lacs found- Case can be Re-opened u/s 147 i.e. Re-Assessment.
- X filed ROI for AY 2013-14. Shows his total Income of Rs 10 Lacs. 143(3) not done- Escapement of Income was Rs 2 Lacs- Can assess u/s 147.
- X filed his ROI for AY 2015-16 us 139(3) showing a loss of Rs 8 Lacs. Assessment u/s 143(3) was done & losses reduce to Rs 6 Lac. AO has evidence that losses were still overstated by Rs 3 Lacs- 147 Can be done.
Chronology of the Assessment or Reassessment u/s 147 of the Act.
1) To make any assessment all its will be started through a Notice. Hence, to making Assessment u/s 147 notice u/s 148 have to be issued.
2) Notice u/s 148 shall be issued within the time limits given u/s 149(1). The time limits given u/s 149(1) are for the issue of notice not for service of notice. It means even after the notice is served after the period still Assessment us 147 is possible.
3) However, there are certain cases where the time limits of issue of notice are not applicable i.e. unlimited time limits had been given to issue the notice.
4) It had to be remembered that unlimited time limits are given only for the issue of notice & not for passing the order. The situation where Section 150 attracts has to read with Section 153(6). When we read Section 150 in conjunction with Section 153(6) it will clear that there nothing in the law which gives AO to issue unlimited Time Limits.
5) Before issuing any notice u/s 148 it is mandatory to take necessary sanctions from the higher authorities by the Assessing officer so that arbitrary misuse of the powers can be avoided. This sanction will be obtained under Section 151.
6) Now, Notice is received by the Assessee. If the assessee is of opinion that notice is invalid because it had been issued after the time limits mentioned in the law, he can file a writ petition/SLP to quash such notice.
7) If Court quashes notice us 148 then the entire assessment is not possible. This means it will come to end before the start.
8) However, if the notice was perfectly served, then the assessee is under an obligation to file the ROI.
9) This return is known as Return u/s 148. It can’t be Revised. We can say at this moment Assessment Proceedings is started.
10) After the filing of ROI Assessee can demand the Certified copy of reason to believe from the concerned Assessing Officer.
11) On-demand AO has to give a certified copy of Reason. If Assessee thinks that reason which was recorded is not tenable or doesn’t exist he can file a writ petition against such assessment proceeding.
12) If the court decided in favor of the assessee then Assessment Proceeding will have to stop. It can’t be progressed further.
13) If the court decides against the assessee & held that Assessment proceedings invalid as per law then assessment proceedings will be progressed.
14) To complete the assessment proceedings books of accounts, information, etc. can be required by the AO.
15) To enable the AO, Section 142(1) (ii) powers the AO to call upon the books of Accounts, etc.
16) However, in practical life, this notice is generally issued along with Notice us 148. This is why in the notice it had mentioned in this way “Section 148/142(1)”
17) It is now mandatory for the department to issue notice u/s 143(2) within 6 months from the end of the Financial Year in which ROI u/s 148 had been filed otherwise Assessment Proceedings shall be invalid. Hence, we can say that even after the proceedings are validly progressed still there can be a situation where entire proceedings turn into an invalid one.
18) After the proceeding is concluded now it is time to draft the Assessment order.
19) The first question that will arise that what is Tax Rate applicable to the assessee. For Example, the Case of AY 2014-15 is opened in AY 2019-20. Rates of AY 2014-15 will apply or 2019-20?
20) In that case, Section 152 states that Rates applicable to Assessment Year 2014-15 will apply.
21) If demand increased then the following steps had been taken by the Revenue in practically:
- Preparation of Demand notice u/s 156 on or before signing of the order keeping in mind the Judgement of CIT Vs Purshottam Das P Patel.
- Preparation of show cause notice for the penalty of underreporting or misreporting of Income u/s 270A.
22) Order must be signed on or before the time limits given u/s 153.
Even if the order is received by the assessee after the time limits prescribed in Section 153 still the order is valid.
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