Reopening of Assessments after 4 Years -Section 148 -Income Tax Act – Special Considerations

The reopening of an assessment is carried out by the Assessing Officer by first issuing a notice under Section 148 of the Income Tax Act, 1961 (the Act) and thereafter proceeding to make a reassessment order under Section 147 of the Act. Yet, in certain circumstances, the assessee is advised or he decides to challenge the reopening notice itself as invalid, or without jurisdiction. A Writ Petition is filed before the concerned High Court and the notice (along with the speaking order disposing of objections) is challenged. In this Article, I will not elaborate upon the numerous precedents on the subject but specifically refer to an important facet of these proceedings and whether or not the notice must or must not be quashed.

The relevant portion of Section 148 of the Act reads as follows:

“Issue of notice where income has escaped assessment.

148. (1) Before making the assessment, reassessment or recomputation 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, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed; and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139

 (2) The Assessing Officer shall, before issuing any notice under this section, record his reasons for doing so.”

The relevant portion of Section 147 of the Act reads as follows:

“Income escaping assessment.

147. 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 148to 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 assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year) :

Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year 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”

It may sometimes happen, that the reopening notice is issued beyond a period of four years from the end of the relevant assessment year. In such cases, the arguments led by various counsels representing the assessee are to the effect that since the reopening notice is issued beyond four years, it must be shown that the assessee has failed to fully and truly disclose all material facts necessary for his assessment, and that if the assessee is shown to have disclosed all material facts fully and truly, the notice reopening the assessment must be quashed. It is this aspect which, in my opinion, requires consideration there being no reason to accept such a submission. My views on the subject find favour with the Revenue and are as follows:

• If a reopening notice issued under Section 148 of the Act is quashed, it would amount to barring any subsequent proceedings which include the reassessment order made under Section 147, to the stage of the judgment, if any, of the final appellate authority. It is apparent, therefore, that the issue is not one to be taken lightly.
• Under Section 148 of the Act, the only real criterion for issuing the reopening notice under the said section, is the recording of reasons by the Assessing Officer issuing the notice which is laid down under Section 148(2) of the Act. That there must have been a failure on the part of the assessee to disclose fully and truly all material facts is well within the domain of the first proviso to Section 147 of the Act. Therefore, if the notice issued under Section 148 of the Act is otherwise valid, there can be no justification for the High Court to quash such a notice issued under this Section.
• Whether or not the assessee has disclosed fully and truly all material facts necessary for his assessment, for that assessment year is purely a question of fact. At the most it may be a mixed question of fact and law. Therefore, to entertain such a question in writ proceedings will amount to the concerned High Court exceeding its jurisdiction, especially if no perversity is shown. It is settled law, that Writ jurisdiction must be exercised sparingly.
• As shown above, since the first proviso to Section 147 of the Act, lies squarely within the domain of the said section, the right course would be to sustain the validity of the reopening notice(if otherwise valid) and to allow the Assessing Officer to pass a reassessment order under the said section . This narrow issue of disclosure could be taken up in appeal or otherwise before the Commissioner (Appeals). It is clear from Section 246A(b) that an appeal lies to the Commissioner (Appeals) against an order of reassessment passed under Section 147 of the Act. But to quash the reopening notice on this ground alone, when reasons are shown to be cogent, based upon tangible material and raise a doubt upon the escapement of income upon assessment, would be seriously prejudicial to the Revenue leaving it remediless.

A number of cases have been disposed of in favour of the assessee in writ proceedings challenging these notices on the ground of disclosure. As shown above, it seems entirely prejudicial to the Revenue to debar them from reopening assessments at the threshold. Unless the reasons are unreliable, vague, are drastically irregular etc. there seems to be no plausible reason to quash these reopening notices.

The views expressed in this Article are the authors own views and are attributable to the author only.