As per section 2(8) of the Income Tax Act, 1961, the term assessment includes re-assessment.

Meaning of income escaping assessment:

As per the provisions contained in section 147 of the Income Tax Act, 1961, if the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the relevant assessment year.

The Assessing Officer may assess or reassess income in respect of any issue which comes to his notice subsequently during the course of re-assessment, even though such an issue was not covered under the reasons recorded for reopening the assessment.

Issue of notice under section 148:

Before making the assessment, reassessment or re-computation under section 147 the Assessing Officer shall serve on the assessee a notice requiring him to furnish within such period, as may be specified in the notice, a return of his income or the income of any other person in respect of which he is assessable under this Act during the previous year corresponding to the relevant assessment year.

The assessee is required to file a return of income in response to the notice under section 148 within 30 days of receipt of the notice. Alternatively, in cases where the assessee had already filed a return of income for the relevant assessment year [under section 139(1) or 139)(4)] before the issue of notice under section 148, he may request the Assessing Officer to treat the return so filed under section 139(1)/139(4) as a return in response to the notice issued under section 148.

Time limit for initiation of re-assessment proceedings/ re-opening an assessment:

  • No notice under section 148 shall be issued for the relevant assessment year after the expiry of 4 years from the end of that assessment year. [Section 149(1)(a)]
  • As per the first proviso to section 147, where assessment under section 143(3) or section 147 has already been made in case of an assessee for the relevant assessment year, no action under section 147 shall be taken after the expiry of 4 years from the end of the relevant assessment year. An exception here would be in respect of cases where the income chargeable to tax has escaped assessment by reason of the failure on the part of the assessee to make a return under section 139  or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year.
  • Further, it has been clarified through Explanation (1) to section 147 of the Act, that mere production of books of accounts or other evidence from which material evidence could with due diligence have been discovered,  before the Assessing Officer will not necessarily amount to disclosure.
  • However, under the following two instances the above mentioned time limit of 4 years shall not be applicable and shall be appropriately extended:
  • In respect of incomes chargeable to tax in respect of any asset (including financial interest in an entity) located outside India which has escaped assessment [Second proviso to section 147]. In such cases, a notice for re-opening the assessment for the relevant assessment year can be issued up to the expiry of 16 from the end of the relevant assessment year [Section 149(1)(c)]
  • In respect of cases, where no assessment has previously been made either under section 143(3) or section 147, no notice for reassessment under section 148 can be issued after the expiry of 6 years from the end of the relevant assessment year, unless the income  chargeable to tax that has escaped assessment, amounts to or is likely to amount to one lakh rupees or more [Section 149(1)(b)]
  • In respect of persons acting as agents of non-residents, notice under section 148 shall not be issued after the expiry of 6 years from the end of the relevant assessment year. [Section 149(3)]

Sanction of notice issued under section 148:

  • Notice issued under section 148, up till the expiry of 4 years from the end of the relevant assessment year may be issued by any assessing officer below the rank of Joint Commissioner, after obtaining prior approval of the Joint Commissioner in respect of fitness of the reasons recorded by the AO
  • A notice under section 148 can be issued after the expiry of 4 years from the end of relevant assessment year by any assessing officer after obtaining  prior approval of the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner in respect of fitness of the reasons recorded by the AO

Reasons recorded for reopening:

Section 147 of the Act, clearly states that in order to initiate reassessment proceedings in respect of incomes escaping assessment, the Assessing Officer must have “reasons to believe” that income chargeable to tax has escaped assessment. The belief that prompts the assessing officer to invoke the provisions of section 147 must be that of an honest and reasonable person and based on reasonable grounds. The belief may be based on either direct or circumstantial evidence, but should not be based on mere suspicion, gossip or rumour. This, however, does not mean that the Assessing Officer needs a subjective satisfaction and a conclusive opinion that the income has escaped assessment. A prima facie opinion based on reasonable evidence and application of mind thereof would form the basis for a reason to believe. The term reason to believe has constantly remained under dispute, and the courts have clarified how the test of “reason to believe” is to be dealt with.  Some of the instances are presented below:

1. Re-opening not to be based on mere change of opinion of the AO [CIT vs. Kelvinator of India 320 ITR 561 (2010)(SC)]

2. Re-opening not to be based on borrowed satisfaction, satisfaction should be that of AO himself after application mind [PCIT-6 vs Meenakshi Overseas (P.) Ltd (Del HC) (2017) 395 ITR 677]

3. Only reports from investigation wing, without any material with the AO, cannot be the basis for re-opening. [M/s. Neelkanth Plywood Pvt. Ltd. Vs ITOr (ITAT Delhi) ITA No.6702/Del/2018]

4. Departmental audit objection cannot be the basis of forming a reason to believe.[CIT Vs. Lukas TVS Ltd., [2001] 249 ITR 306 (SC)]

5. Mere suspicion, gossip or rumour cannot be a basis for forming a reason to believe. [PCIT vs. Geetanjali Credits and Capital Ltd. (Del. HC) ITA No. 74/2017]

Characteristics of reason to believe:

As explained above, having a reason to believe is a pre-condition for an AO to invoke section 147. An assessee in receipt of notice under section 148, should keep the following points in mind while dealing with the same:

1. Reason to believe must be dated. The date specified in reasons to believe must be before the date of issue of notice under section 148 of the Income Tax Act.

2. Approval of appropriate authorities must be obtained on reasons to believe.[Section 151]

3. The words “I have reason to believe” must be mentioned in the notice.

4. Reason must be based on some evidence or information in possession of the AO.

Procedure for dealing with a notice under section 148:

The Income Tax Act, 1961 or the Income Tax Rules, 1962, does not specify any procedure to be adopted while dealing with a notice under section 148. However, the honourable Supreme Court has laid down guidelines in this regards in the case of GKN Driveshafts (India) Ltd. v. Income-tax Officer (2002) 125 TAXMAN 963:

1. File return off income in response to section 148

2. Seek a copy of Reasons recorded for re-opening from the AO. The AO is bound to furnish the reasons within reasonable time

3. Submit objections if any to the reasons recorded by the AO for reopening the case. The AO is bound to dispose of the objections by passing a speaking order. In case, the assessee finds that the objections to the reasons recorded for reopening have been disposed of by the AO on unreasonable grounds, a writ against such order of disposal can be filed before the High Court.

4. Notice u/s 143(2) along with questionnaire seeking details shall be issued by the AO. All details requisitioned by the AO are to be submitted by the assessee.

5. Passing of assessment order u/s 143(3) r.w.s. 148

Time limit for completion of re-opened assessment:

Order u/s 147 should be passed within 9 months from the end of the financial year in which the notice u/s 148 was served.

For notices served on or after 01/04/2019, the order u/s 147 can be passed within 12 months from the end of the financial year in which the notice u/s 148 was served.

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