“Understand the critical role of the initial enquiry under Section 148A(a) for taxpayer protection in income tax assessments. Explore the significance of the initial enquiry in gathering relevant information, ensuring a reasonable basis, and providing the assessee an opportunity to explain. Learn from recent court decisions, such as CIT v. Ravindra Kumar Jain and CIT v. Pradeep Kumar Gupta, emphasizing the importance of credible and reliable evidence before issuing orders under Section 148A(d). Stay informed to protect your rights and navigate the assessment reopening process effectively.”
Section 148A, allows for the reopening of assessments where income chargeable to tax has escaped assessment but before AO issue an order u/s. 148A(d), it is must for AO to make initial enquiry be conducted u/s. 148A(a). In this article, we explores what is significance of initial enquiry and its role in protecting taxpayer rights.
Let us understanding why Initial Enquiry was made compulsion by Income tax.
Initial enquiry u/s. 148A(a) of IT Act, serves a crucial purpose in assessment reopening process in which inquiry is designed to achieve following objectives:
Gathering Relevant Information: Initial enquiry collects information and evidence indicating potential income escaping assessment. The AO examines records, assesses explanations, and considers significant information.
Ensuring Reasonable Basis: Initial enquiry prevents assessments based on mere suspicion in fact assessments require credible, reliable, and specifically relevant information and evidence.
Providing Assessee’s Opportunity to Explain: Assessee is given chance to present their case during the initial enquiry in which clarifications, explanations, and relevant information can be provided which ensures fairness in the assessment reopening process.
Now let us see what various Courts’ says on Initial Enquiry and its role in assessment :-
In recent years, the courts have made analysis that the AO cannot rely on mere suspicion or conjecture to initiate the reopening process. Instead, the information and evidence on record must be credible, reliable, and specifically relevant to the assessment year in question. Various judicial emphasis serves to safeguard the rights of taxpayers and prevent arbitrary assessment reopens here are some of these
CIT v. Ravindra Kumar Jain [2022] 390 ITR 687 (Delhi)
Facts: Assessee was assessed to income tax for the assessment year 2011-12 where AO has issued an order u/s. 148A(d) of the IT Act, 961reopening the assessment, on the basis of details that the assessee had received undisclosed income without making initial enquiry which is compulsion for AO.
Issue: Whether the AO was required to conduct an initial enquiry before issuing the order under Section 148A(d).
Decision and takeaway from it :
- The Court held that the requirement of an initial enquiry u/s. 48A(d) is must to protect rights of taxpayers and noted that if the order u/s. 148A(d) was issued without inquiry then can have serious consequences for taxpayers, as it can lead to increased tax liability and penalties.
- It is important to ensure that the AO has a reasonable basis for reopening the assessment before issuing the order.
- The Court held that the AO could not rely on mere suspicion or surmise to issue the order
- The information / details and evidence on record must be credible, reliable, and relevant to the assessment year in question.
This decision of Bombay High Court’s is a welcome development for taxpayers as it more difficult for the AO to reopen assessments without a reasonable basis and which also provides taxpayers with greater protection against arbitrary action by the AO.
CIT v. Pradeep Kumar Gupta (2022):
Facts: Assessee, was assessed to income tax for the assessment year 2013-14 and AO has issued order u/s. 148A(d) of IT Act for reopening assessment, on basis of details that assessee had received undisclosed income.
Issue: Whether the AO can rely on mere suspicion or surmise to issue an order under Section 148A(d).
Decision and takeaway from it :
- The Gujarat High Court held that AO cannot rely on mere suspicion or surmise to issue an order under Section 148A(d).
- AO must have credible, reliable, and relevant information on record before issuing the order.
- The requirement of credible, reliable, and relevant information is necessary to protect the rights of taxpayers.
- The Court held that it is therefore important to ensure that the AO has a reasonable basis for reopening the assessment before issuing the order.
Here are some additional points to note from these cases :
- The Court held that the information on record must be sufficient to establish that income has escaped assessment.
- The Court held that the AO must give the assessee an opportunity to explain their case before issuing the order under Section 148A(d).
- The Court held that the order under Section 148A(d) must be issued in writing and must be served on the assessee in the manner prescribed under the Act.
Take away from both case
Overall, these cases strengthen the position of taxpayers by making it more challenging for the AO to reopen assessments without a reasonable basis. They provide a higher level of protection against arbitrary action and emphasize the importance of fair and informed decision-making in tax assessments and this must be taken in to consideration
Other case
- CIT v. Abhishek Aggarwal (2022): The Delhi High Court held that the information and evidence on record must be credible, reliable, and relevant to the assessment year in question.
- CIT v. Atul Jain (2022): The Delhi High Court held that the AO is required to conduct an initial enquiry before issuing an order under Section 148A(d). The Court held that the AO must gather information and evidence to suggest that income has escaped assessment, and must also give the assessee an opportunity to explain their case.
Takeaways from article :
The initial enquiry mandated by Section 148A(a) plays a vital role in the assessment reopening process. It facilitates the collection of relevant information, ensures assessments are based on a reasonable basis, and upholds the rights of taxpayers. By adhering to this procedural requirement, the tax authorities can make informed decisions, minimizing the risk of arbitrary actions. If you receive a notice under Section 148A(a), it is advisable to seek professional advice to ensure your rights are protected and to effectively navigate the assessment reopening process.
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Disclaimer: This article is not served as professional advice. You may not rely on the opinion expressed in this article to make a business or regulatory compliance-related decision. If you are looking for professional advice, please consult a professional. Any comments and/or suggestions concerning this article may be sent to dipak_fca@yahoo.in (wp.) + 91 8000777854
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