CA Paras Dawar

Assessee Can Claim Reasons For Issue Of Notice U/S 148 Before Filing Of Return U/S 148.

Section 148 of the Income Tax Act, 1961 is possibly the most belligerent combat tank in the armory of Income Tax Department. This tank has been further strengthened by recent amendments by Finance Act 2012 which gives department power to issue notice u/s 148 where not more than sixteen years have elapsed from the end of the relevant assessment years, if there is any income in relation to any asset (including financial interest in any entity) located outside India, chargeable to tax, which has escaped assessment.

However, judiciary of the country has ensured that this tank is not misused to harass assessees, where there lies no reason that may cause an assessing officer to believe that income has escaped assessment.

Hon’ble Supreme Court in GKN Driveshafts (India) Ltd. vs. ITO & Ors. (2003) 259 ITR 19 (SC) had held that :-

“When a notice under section 148 of the Income-tax Act, 1961, is issued, the proper course of action for the notice is to file the return and, if he so desires, to seek reasons for issuing the notices. The assessing officer is bound to furnish reasons within a reasonable time. On receipt of reasons, the notice 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.”

A point has always been bone of contention between department and representatives whether reasons for issue of notice u/s 148 can be issued prior to filing of return of income. Or to be more specific, are reasons required to be sent along with notice u/s 148.

So far as Section 148(2) of the Act is concerned, it is silent regarding ‘communication of reasons’ and as to whether the same are to be communicated before or after filing of return.

Allahabad High Court, while addressing this issue in the case of Mithilesh Kumar Tripathi vs CIT 2006) 280 ITR 16 (All.) held that :

  1. Normally one expects ‘Reasons’ to be communicated along with notice so that assessee is informed of the ‘ground’ for initiating reassessment in order to ensure that action is not ‘arbitrary’. It shall enable an ‘assessee’ to take care of the ‘escaped assessment’ (which is the basis/foundation of the notice) as well as to take care, while filing fresh return, to disclose/ explain any other income, if any, which may have otherwise escaped assessment.
  2. Notice Under Section 148(2) of the Act requiring an assessee to file ‘Revised-Return’ for re-assessment without disclosing ground/’reasons’ is no notice of the case to be met or opportunity to explain. Such a notice for sure lacks basic information and thus for certain fails to apprise the party even the basic ground/circumstance on the basis of which he is compelled by Assessing Officer to file revised return. It is complete denial of opportunity to defend and answer the Notice. Assessee is left in dark and compelled to make a ‘roving and fishing search’ to detect/locate alleged “escaped income”. In case reason/ground is disclosed along with the notice (without disclosing ‘source of information’ or ‘other material’) it will definitely facilitate expeditious filing of revised return and also enable the ‘Assessee’ to declare, apart from the ‘escaped income’ pointed out in the notice, other ‘escaped income’ or ‘undisclosed income’.
  3. In our considered opinion, if reasons are supplied along with notice under Section 148(2) of the Act, it shall obviate unnecessary, harassment to the assessee as well to the Revenue by avoiding unnecessary litigation which will save Courts also from being involved in unproductive litigations. Above all it shall be in consonance with the principles of natural justice, as discussed above.

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5 responses to “Section 148: Reason for Issue of Notice can be claimed before Filing of Return”

  1. Srikanth MS says:

    Dear Sir
    Can the return on Income be filed without getting notice u/s 148

  2. mahendra singh says:

    no any marked

  3. Prem Prakash Dusad says:

    The reply furnished by Shubham Balothia is not fair. The assessee has a right to know what exactly has warranted the Assessing Officer to issue such a notice . Also, the assessee will be in a better position to explain the requirement of the AO andwill not be subjeccted to avoidable harassment of the authorities.Princples of natural justice should be respected.

  4. Paras Dawar says:

    Appreciate your interpretation of section 148(2) which to some extent is logical but somehow is not backed by any legal provision.

    In the above case, judiciary made the following observation :

    “it is not only ‘unfair’ but also uncalled for on the part of the Revenue to presume all ‘assessees’ to be dishonest and then to make an endeavour to interpret Section 148(2) of the Act when there is nothing in the section/Act to warrant this approach.”

    Apex Court, following the ‘ratio’ laid down in the case of Swadeshi Cotton Mills (supra),-observed:-

    ” 10. Even if a statute is silent and there are no positive words in the Act or the Rules made thereunder, there could be nothing wrong in spelling put the need to hear the parties whose rights and interest are likely to be affected by the orders that may be passed, and making it a requirement to follow a fair procedure Before taking a decision, unless the statute provides Otherwise The principles of natural justice must be read into unoccupied interstices of the statute, unless there is a clear mandate to the contrary. No form or procedure should ever be permitted to exclude the presentation of a litigant’s defence or stand, even in the absence of a provision in procedural laws, power inheres in every tribunal/court of a judicial of character, to adopt modalities, necessary to achieve requirements of natural justice and fair play to enquiry better and proper discharge of their Duties. Procedure is mainly grounded on the principles of natural justice irrespective of the extent of its application by express provision in that regard in a given situation. It has always been a cherished principle. Where the statute is silent about the observance of foe principles of nature justice, such statutory silence is taken to imply) compliance with in principles of natural justice where substantial rights of the parties are considerably affected. The application of natural justice becomes presumptive, unless found excluded by express words of statute or necessary intendment. (see Swadeshi Cotton Mills v. Union of India, . It aim is to secure justice or to prevent miscarriage of justice. Principles of natural justice do not supplant the law, but supplement it. These rules operate only, in area not covered by any law validly made. They are a means to an end and tun an end in themselves. The principles of natural justice have many facets. Two of them are notice of the case to be met, and opportunity to explain.”

    Settled principles of ‘statutory interpretation’ require that a provision’ in a legislative enactment is to be interpreted it in a manner which conform to the rules of natural justice, i.e. which may not be against sense of ‘fairness’ and ‘good conscience’.

    Thus, unless legislature specifically does not provide for furnishing of reasons after filing of return, one can require assessing officer to furnish reasons taking plea of rules of natural justice.

  5. Shubham Bhalothia says:

    Reassessment under different sections of Income Tax is not for the benefit of assessee it is made to facilitate the department in taxing and leaving penalties over the escaped income. As you have clearly mentioned if the reasons are provided along with the notice assessed shall take care of escaped income, but see the another part of issue if such reasons were furnished assessed shall take care of only that escaped income which is disclosed in notice.
    So there is no point to give the reasons along with the notice. Let the assessed be in dark so that assessing officer can get light over the other escaped incomes

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