The landscape of tax reassessment has undergone significant changes with the introduction of Section 148A by the Finance Act 2021. This section has redefined the procedure for reopening cases under Section 148, aiming to bring greater transparency and accountability to the process. Recently, many notices have been issued for reopening cases under Section 148 read with Section 135A, highlighting the need to understand these changes and their implications.
I. Recently many notices have been issued for reopening cases u/s 148 read with section 135A.
II. It will be worth to note here that the entire procedure for reassessment has completely been changed by Finance Act 2021 which introduced a new section 148A into the whole procedure.
III. One would recollect the decision laid down by Apex Court in case of GKN Driveshafts – 125 Taxman 963- SC-2002, which in principle laid down that – Whether when a notice is issued under section 148, proper course of action for noticee is to file return and if he so desires, to seek reasons for issuing notice and on receipt thereof to file objections to issuance of notice.
IV. The department as well as the judiciary for many years thereafter took this ratio as law of the land and followed it in many cases a vital part of recognizing the assessee’s right to challenge the whole process of reopening by raising objections to the same after filing of return in response to the notice u/s 148, though nothing to that effect was brought into the Act specifically to that effect.
V. The introduction of section 148A into the Act has specifically recognized this ratio laid down by Hon’ble Apex Court in case of GKN Driveshafts in following manner –
- Sub section (a) talks about collecting information and conducting discrete enquiries for gathering information regarding escapement
- Sub section (b) talks about providing assessee the gathered material and provide him an opportunity to explain his stand on the said information & controvert the same with relevant documents to support his claim
- Sub section (c) talks about applying AO’s mind to the replies submitted by the assessee.
- Sub section (d) talks about either dropping the proceedings if assessee’s explanation is found to be sufficient, OR passing an order holding that the case on hand is fit to be visited with issue of notice u/s 148 for reopening the case & the reassessment proceedings will follow thereafter after issue of notice u/s 148
VI. As can be seen and understood from above the whole process introduced by section 148A now precedes the process of issue of notice u/s 148 & the AO after applying his mind can decide whether to issue notice u/s 148 or to drop the whole process after considering the assessee’s response to the notice u/s 148A(b)
VII. However, Explanation 1(iv) to section 148 read with proviso (d) to section 148A carve out an exception to the whole process of section 148A, which spell out that if the AO has in his possession any information gathered u/s 135A, THEN he can bye pass the whole process as specified u/s 148A & go on directly to issue notice u/s 148
VIII. This brings us to the section 135A which was fathered by TOLA 2020 wef 1.11.2020 & talks about “Faceless Collection of information” & takes under its ambit all sorts of enquires or processes of collecting information u/s 133 / 133B /133C /134 / 135 allegedly to impart greater efficiency, transparency & accountability by adopting faceless manner and mode for the same
IX. The lawmakers perhaps in their own wisdom may have concluded that the gamut of section 135A very well covers the entire process as spelt out u/s 148A & therefore the assessee does not deserve an ADDITIONAL opportunity to controvert the information gathered u/s 135A by the AO as the process spelt out u/s 135A takes care of the same, with assessee getting enough opportunity to respond to the notices and submit required supporting documents too.
X. However, there is one more concept which may not be specifically there in the whole Act, BUT the Judiciary has found it fit to introduce in the process of Assessment & Reassessment & Revision, which calls for APPLICATION OF MIND by the AO to the available information on hand & one of the facets of this concept is that the AO has to work on the available information to arrive at the conclusion regarding ESCAPEMENT OF INCOME in the case on hand.
XI. One more important point to note here is that, the information coming into the hands of the department / AO is many times a third party information, which could contain unintentional mistakes / errors / deficiencies adversely affecting the assessee if blindly acted upon, which when found, the assessee is well within his right to respond & bring to the attention of the authority issuing the notice u/s 135A or any other similar section & this itself is one such situation where the AO NEEDS TO APPLY HIS MIND on the replies submitted by the assessee during the course of proceedings u/s 135A & decide on his own whether to proceed further of not in such a case with issue of notice u/s 148 while bypassing the procedural requirements of section 148A
XII. These exactly were the facts before Hon’ble Bombay High Court in case of Benaifer Vispy Patel – WP No 8594 of 2024 decided on 15.07.2024, wherein while accepting the stand taken by the appellant, Hon’ble High Court laid down two important ratios –
AO has to apply his mind to every peace of information coming into his hand including the information reaching to him u/s 135A & failure to do so is fatal to the whole proceedings
Dispensing with the procedure laid down u/s 148A totally without application of mind to the facts of the case too would be fata to the whole proceedings
Finally it will be important to summarize where this particular decision laid down by Hon’ble Bombay High Court could be of immense help to the assessee & his advisor alike –
1. There was an enquiry conducted in assessee’s case under one of the sections as mentioned at VIII, based on some information with the department
2. Assessee during the course of enquiry takes care to show that the information on the basis of which the enquiry is initiated is not correct & supports the same with appropriate documents
3. The AO without taking into consideration the assessee’s reply initiates procedure of reopening the case by issue of notice u/s 148 without taking course to procedures laid down u/s 148A
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