Advocate Sameer Bhatia
Introduction- Section 147 is clothed with a predominant and potential ascendancy of reopening the assessments framed under the statutory charter of Income Tax Act, 1961 accompanied by getting the assessments already framed into the clutch of the Department by making specific dominant references to the expressions `assess’, `reassess’ or `recompute’, all expressions of widest amplitude and magnitude. Although reopening of assessments carries with it the inherent burden upon the revenue to bank upon incomes escaping assessments but needless to say the very essence of the provisions remained under the cloud until and unless the Courts came down heavily in favour of the provisions of reopening by resorting to the litmus test prescribed for by the Magna Carta of India designated as `Constitution of India’. There is always a great degree of burden of proof attached to the proceedings designated under the umbrella of reopening but subject to certain safeguards, the provisions can very well be tested if they offend the basic tenants of the provisions imbibed for in the statute. Though in so far as the reopening provisions are concerned, the same too stood approved in the jurisdictions of other nations as evident from DJL v. Central Authority (2000) 170 ALR 659 where the High Court of Australia observed:
“It is now recognized both in Australia and England that orders made by ultimate appellate courts may be reopened by such courts in exceptional circumstances to repair accidents and oversights which would otherwise occasion a serious injustice. In my view, this can be done although the order in question has been perfected. The reopening may be ordered after due account is taken of the reasons that support the principle of finality of litigation. The party seeking reopening bears a heavy burden to demonstrate that the exceptional course is required “without fault on his part“.
The power of the assessing authority to trace and route out that respective portion of income in respect of which he has a `reason to believe’ escaped assessment despite his best endeavor to find out the same in assessment proceedings or otherwise falls flat. Since the provisions were declared intra-vires the constitution, it will be most suitable to have a reference to the Hon’ble Rajasthan High Court which settled in the case of Vimal Chandra Golecha vs. ITO  134 ITR 119 (Raj.), `that it cannot be said that sections 147 and 148 contain delegation of arbitrary and uncontrolled power to the ITO to reopen an assessment without any reason. These sections cannot therefore be challenged as unconstitutional.
But as a mere of enhanced liability of proving the escapement, the law as well as the courts have inclined a strong presumption that there is always a strong burden attached on the revenue to prove that there is an element of potential escapement. As supported by the dictum of the Hon’ble Allahabad High Court in the case of Tin Mfg Co of India vs. CIT  88 Taxmann 34 (Allahabad) `In Reassessment Proceedings, the revenue stands burdened to establish in all probabilities that there was an element of income which has escaped assessment’. The expression `reason to believe’ also stood subject to a massive experiment undertaken through judicial scrutiny to find out as to how the revenue can clasp the assessee within the watertight interpretation of the provision or the assessee can suitably counter the trap to assess, reassess or recomputed its income within the four corners of law. At many instances, it was accessed as a grundnorm that even information from any wing/source or information of any kind/nature would constitute what was reckoned as an element of income that carries with it the essential element of potential escapement so as to bring the subject within the four corners of law. But the element of escapement cannot be made as having any adherence to the element of suspicion or rumour.
The Constitution Bench of the Hon’ble Supreme Court of India has held in the case of A.N. Lakshman Shenoy v. ITO (1958) 34 ITR 275 (SC), `that an assessment cannot be reopened on the basis of a mere guess, gossip or rumour’. The terms `reason to believe’ also went under the judicial circumspection of the Hon’ble Supreme Court of India in the case of Commissioner of Income Tax, Delhi vs. Kelvinator of India Ltd  187 Taxmann 312 (SC) wherein it was settled, `Post 01-April-1989, Assessing Officer has power to reopen, provided there is `tangible material’ to come to conclusion that there is escapement of income from assessment; reasons must have a live link with the formation of belief. It will be of utmost importance here to highlight another dictum passed by the Hon’ble Supreme Court of India in the case of CIT vs. Bhanji Lavji  79 ITR 582 (SC), in which it got settled that, `When the primary facts necessary for assessment are fully and truly disclosed, the ITO will not be entitled to commence the proceedings for reassessment on the strength of mere `Change of Opinion’. Falling in the same equation, if assessing authority has raised a wrong legal inference from the facts disclosed, he will not be entitled on the prextext of that wrong inference to build an action for reassessment proceedings. To further weaken the theory of `Change of Opinion’ the Hon’ble Supreme Court of India has held in the case of ITO vs. Nawab Mir Barkat Ali Khan Bahadur  97 ITR 239 (SC), `that pondering over second thought on the same material and omission to draw the correct legal presumption during original assessment do not warrant the initiation of a proceedings under section 147. In furtherance thereof the Hon’ble Supreme Court of India has prescribed and devised a straight-jacket and linear formula to counter and raise parallel objections to proceedings in the case of GKN Driveshafts (India) Ltd vs. Income-tax Officer  125 Taxmann 963 (SC) wherein it got settled 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. On receipt of reasons, the noticee is entitled to file objections to issuance of notice and the Assessing Officer is bound to dispose of the same by passing a speaking order.’
Further relevancy of material on the basis of which the department intends to place its burden of stepping into the shoes of either assessment/reassessment or re-computation of income acquires utmost importance when the very material is based upon extraneous and inconclusive findings. As it has been settled by the Hon’ble Supreme Court of India in the case of CIT vs. Daulat Ram Rawatmull  87 ITR 349 (SC), `The use of extraneous and irrelevant material in arriving at that conclusion would vitiate the conclusion of fact because it is difficult to predicate as to what extent the extraneous and irrelevant material has influenced the authority in Arriving at the conclusion of fact’.
Since due to the impulsive and chronic litigation resorted to under the provisions of section 147 of the Income Tax Act, 1961, a question arose as whether reassessment proceedings can be resorted to in respect of any issue for which the very procedural requirement of recording reasons are Sub-Silentio or in- Absentia. Initially the cursive procedures lent on the benefit in favour of the assesses, thereby propounding and concluding that `any assessment, reassessment or recomputation’ can be made qua the reasons specially recorded by the Assessing Authority with regard to potential escapement. The very situs of proceedings highlighted and pounced upon the very legitimate practice of keeping the hands of the assessing authority tied and manifestly tethered to the elements of income having a record base to its credit. Any proceedings undertaken pursuant to the exercise done via recording of reasons could not gain any lift due to the absence of the specific provisions providing for enlargement of jurisdiction of the assessing authority to assess the assessee with regard to other sources of income which might come in his knowledge during the course of proceedings initiated and were under hand. The purposive action of restricting the assessing authority to limited channels of verification in reopening proceedings also received the legitimate certification of the law propounded by the Hon’ble Seat of Punjab & Haryana High Court in the case of Amrinder Singh Dhiman vs. Income Tax Officer cum Assessing Officer  269 ITR 378 (P&HHC), wherein it was laid down as a binding precedent that, `Assessing officer cannot seek material unconnected for the reasons of reassessing the income. The proceedings are only material with respect to the items of under-assessment and the finality of assessment proceedings on other issues settled during assessment remained undistrurbed’. As a consequent measure of the dictum of the Hon’ble P&HHC as it then stood, the proceedings initiated were restricted in its scope, application, form and substance in so far as the assessments, re-assessments of re-computation references were concerned.
Since the proceedings were resulting into a mere fall-out provisions restraining the revenue from moving forward, it was desired that to bridge and overcome the effect of restricted jurisdictional effect to make assessment/reassessment/re-computation under section 147 of the Income Tax Act, 1961, a more comprehensive/notional provisions in form of explanation be appended to section 147 in order to overpower the failing reassessment effects. An explanation No.3 w.r.e.f. 01st April 1989, Finance (No.2) Act, 2009 was incorporated in the section giving way to reassessment to provide:-
For the purpose of assessment or reassessment under this section, Assessing Officer may assess or reassess the income in respect of any issue, which has escaped assessment, and such issues comes to his notice subsequently in the course of the proceedings under this section, notwithstanding that the reasons for such issue have not been included in the reasons recorded under sub-section (2) of section 148. It becomes important to state what prudent effects does the term explanation possess and how it alters the character of the charging section towards the subject in words of the Hon’ble Supreme Court verdict in the case of Sundaram Pillai vs. Pattabiraman, (1985) 1 SCC 591, p. 613, An explanation to a statutory provision:-
(a) to explain the meaning and intendment of the Act itself;
(b) where there is any obscurity or vagueness in the main enactment, to clarify the same so as to make it consistent with the dominant object which it seems to subserve,
c) to provide an additional support to the dominant object of the Act in order to make it meaningful and purposeful;
(d) an Explanation cannot in any way interfere with or change the enactment or any part thereof but where gap is left which is relevant for the purpose of the explanation, in order to suppress the mischief and advance the object of the Act it can help or assist the court in interpreting the true purport and intendment of the enactment; and
(e) it cannot, however, take away a statutory right with which any person , under a statute has been clothed or set at naught the working of an Act by becoming an hindrance in the interpretation of the same.
The above said passage completely highlight that the purpose of an explanation is to further explain the razor sharp intendment of the statutory provision thereby becoming a part and parcel of the enactment. Explanation No.3 w.r.e.f. 01st April 1989 gave way to the revenue authorities to assess/reassess or re-compute any source of income other than for which the reasons were duly recorded by the assessing authority. Hon’ble Punjab & Haryana High Court in the case of Manjinder Singh Kang vs. CIT  344 ITR 358 gave vent to the very basis `that reassessment proceedings can be made of additional grounds, even though the original reason forming the basis of issue of notice did not survive.’ thereby adhering with the legislative intent of the enactment. Very recently the issue arose again before the Hon’ble Seat of Punjab & Haryana High Court in the case of CIT vs Mehak Finvest (P) Ltd  367 ITR 769 (P&HHC), wherein it has been settled by the Hon’ble court that, ` Even though no addition is made on the original grounds which formed the basis of initiation of reassessment proceedings, the assessing officer is empowered to make additions on another ground for which reassessment notice might not have been issued but which came to his notice subsequently during the course of proceedings for reassessment. The Hon’ble High Court cited the dismissal of Special Leave Petition (SLP) against the High Court ruling in Manjinder Singh Kang’s case by the Supreme Court on 19/08/2011 as a binding precedent thereby affirming the findings of revenue.
With the advent of Explanation No.3 appended to section 147 of the Income Tax Act, 1961 the surface over which the revenue can initiate its legitimate right to assess/reassess/recomputed has been widened thereby making enough room to trap the assessee over issues not forming part of the record reasons which can result in manifold extractions of information and sources of income discredited to the interest of assessee at large. Since the power has been advanced by way of a legislative action, the prudency and the natural justice norms should not be thrown out by the revenue which sitting under the umbrella of machinery provisions thereby giving way to their actions and the action should not be undertaken in its entirety to cast merely a doubt over the accuracy of what stood accepted as a tangible material by resorting to the course of intangible material in hand as on the date of validating the reassessment action for assessing/reassessing or re-computing the allowances under hand is sought to be done.
(Article by – Advocate Sameer Bhatia, R/o, 158/2, Guru Teg Bahadur Nagar, Opposite Mata Gujri Park, Jalandhar – 144003, Punjab Contact Nos:- 9041304900 Email Address: email@example.com)