As we all know that as per first proviso to Section 147 provides that where an assessment under Section 143(3) or 148 has previously been made for the relevant assessment year, no action shall be taken under Section 147 after the expiry of four years from the end of the relevant assessment year unless any income chargeable to tax has escaped assessment by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment. In the cases where assessment has earlier been made under Section 143(3)/ 148 and 4 years have expired from the end of the relevant assessment year, following three conditions are required to be met:
- ‘Reason to believe’ is based on the tangible material.
- Reopening is not based on ‘mere change of opinion’.
- There is failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment.
On perusal of the assessment records, AO may come across some material which was not disclosed fully and truly by the assesse and on the basis of that material/ information, the AO may have prima facie reason to believe that income chargeable to tax has escaped assessment. The assessee can always raise the issue that all the facts and material were available before the AO at the time of original assessment. In that case, AO may refer to Explanation 1 to Section 147 of the Act. However, the AO has to record his reasons in such a manner that failure on the part of the assessee to disclose fully and truly all material facts is prima facie established.
The AO may also receive information from other sources including information/ material from the DIT (Investigation), which was not available with him at the time of making original assessment. In such cases, AO has to establish live link or close nexus with such information/ material with the return of income and/ or details filed by the assessee during original assessment and on independent application of mind, he should arrive at the finding that the assessee failed to disclose fully and truly all material facts necessary for his assessment. The AO has to examine that not only all material facts were disclosed before the AO during the original assessment, but the same were disclosed fully and truly also. Disclosure of all material facts fully does not mean per se that it was disclosed truly also.
Some Important points regarding Re-opening of Assessment u/s 147 is as under:
a) In view of the Proviso to s. 147, merely having a reason to believe that income had escaped assessment is not sufficient to reopen assessments but it must be specifically alleged by the AO in the recorded reasons that the escapement was on account of the failure of the assessee to make a full and true disclosure of material facts. In the absence of such allegation, the reopening is without jurisdiction;
(b) Rejecting the argument of the AO that the “actual reasons” were different from the communicated reasons, there is a strong logic and purpose behind the directions issued by the Supreme Court in GKN Driveshafts 259 ITR 19 that the AO is bound to furnish reasons and pass a speaking order to deal with the objections of the assessee and that is to prevent high-handedness on the part of AO and to temper any action contemplated under S. 147 of the said Act by reason and substance. This is not a mere ‘charade’ or a ‘pretence’ or ‘formality’. The argument rendered the entire process into a sham and made a mockery of the law.
(c) The requirement of recording the reasons, communicating the same to the assessee, enabling the assessee to file objections and the requirement of passing a speaking order are all designed to ensure that the Assessing Officer does not reopen assessments which have been finalized on his mere whim or fancy and that he does so only on the basis of lawful reasons. These steps are also designed to ensure complete transparency and adherence to the principles of natural justice. A deviation from these directions would entail the nullifying of the proceedings.
(d) The decision of the Supreme Court in Phool Chand Bajrang Lal 203 ITR 456 that the AO may start reassessment proceedings either because some fresh facts had come to light which were not previously disclosed or some information with regard to the facts previously disclosed comes into his possession which tends to expose the truthfulness of those facts and that in such situation, it is not a case of mere change of opinion or the drawing of a different inference from the same facts as were earlier available, but, one of acting on fresh information DOES NOT APPLY as it was in the context of the old s. 147 prior to the amendment w.e.f 01.04.1989.
(e) Explanation I to Section 147 does not mean that production of account books and other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not “in any event” amount to disclosure within the meaning of the said proviso. The said explanation only stipulates that such evidence will not necessarily “amount to disclosure” within the meaning of the said proviso.
(f) As the facts showed that there were specific enquiries by the AO during the original assessment proceedings and due disclosure by the assessee, the reopening was not justified.
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(Republished with Amendments by Team Taxguru)
