[Section 148(2)]: The Assessing Officer shall before issuing notice u/s 148 of the Income tax Act , 1961 , record the reasons for doing so . Recording of reasons carefully is very important and other various factors to be taken care of from the side of the revenue. From the side of the assesse it is very important to make interpretation of the reasons recorded according to the statue and judgement of the various courts on this issue . The assessing officer has to be utmost careful before recording the reasons .For assesse has to look what satisfaction was there to form the opinion for opening of assessment , defining its meaning , importance , satisfaction etc. We can have a look on the various points as under :
Reasons must be recorded by the Assessing Officer for reopening
Before issuing a notice u/s 148 recording of reasons is mandatory and prerequisite to the assumption of jurisdiction by the Assessing Officer for initiation of reassessment proceedings u/s 147. As regards to recording of reasons, the observations made by Hon’ble Gujarat High Court in the following case is worth to be noted.
“Before the Assessing Officer is satisfied to act under the provisions relating to reassessment he must have to record in writing as to why in his opinion or why he holds the belief that income has escaped assessment. Reasons for holding such belief must be reflected from the record of reasons made by the Assessing Officer. In a case where the Assessing Officer holds opinion that because of excessive loss or excessive depreciation ;then reasons recorded by the Assessing Officer must disclose by what process of reasoning he holds such a belief that excessive loss or depreciation allowance has been computed in the original assessment. Merely saying that excessive loss or depreciation allowance had been computed without disclosing the reasons which led the assessing officer to hold such a belief, does not confer jurisdiction on the Assessing Officer to take action under section 147 and under section 148”.[Birla VXl Ltd. v. ACIT (1996) 217 ITR 1 (Guj.)]
Reasons has to be recorded where no return has been filed .
Even when no return of income has been filed, the basic requirement of recording reasons must be fulfilled. The department’s contention that since the assessee had not filed a return of income and this was not a case of reassessment, the recording of reasons was not required was not acceptable.-[Renuka Travels v. ITO (1998) 66 ITD 143 (Banglore)]
Meaning of ‘disclose’
The implication of the word “disclose” is that one is expected to disclose a fact or is said to have failed to disclose the facts only if it is a matter which one knows.- [Canara Sales Corporation Ltd. v. CIT (1989)176 ITR 340(Kar.)]. To bring the facts on record.
Important Points to be noted while recording the reasons are:
1. An earlier stand, opinion based on mistake of law or a mistake of fact is not a valid opinion, and ,therefore, a new “opinion” based on correct facts/ law can still be a good basis for formation of a valid belief of escapement. But such facts must be clearly stated and brought on record in the reasons recorded.
2. Even if the earlier opinion/stand is one of the permissible legal opinion/stand but the same was taken without weighing pros and cons of possible stands or without due application of mind, and in a subsequent opportunity, say, in the subsequent Assessment year the contrary view is taken by the Assessing Officer after weighing pros and cons and after due application of mind, the “new opinion” can, possibly, lead to formation of a ” reason to believe”,;
3. An allowance, which is not at all allowable and uncalled for , if granted, would be a valid ground for re-opening;
4. If due to a binding decision of the court the knowledge has been acquired newly or discovery of patently (factually or legally) non- admissible claim granted in original assessment can also, thus form a valid reason for repening of assessment .
5. At the time of recording the reasons or in preparation to formation of the reason to believe , the Assessing Officer should always remain conscious of the facts (if need be, by resorting to Section 133(6)) and to so adopt the reasoning as to avoid the conclusion or even allegation of having ” a mere change of opinion”.
The reason for the reasons to be recorded .
The court will be able to look into whether the power of reopening was exercised in a fair manner .The power conferred u/s 147 can not be an unbridled one . It is protected with several safeguards in the interest of eliminating room for abuse of this power by the Assessing officer :.-[Sri Krishna Pvt. v. ITO (1996)221 ITR 538 (SC)]
No specific form prescribed for recording reasons under section 148 .
No specific form for recording reasons under section 148 has been prescribed under the Act or Rules and if an assessee voluntarily filed a return, for which omission had been detected in assessment proceedings in subsequent assessment year and taking note of revised return, a notice under section 148 was issued, reasons would be sufficient.-[Bharat Rice Mill v. CIT (2005) 148 Taxman 145: 278 ITR 599(All.)]
Recording of Reasons- Jurisdiction
Reassessment made on the basis of notice under section 148 issued by an ITO who is not having jurisdiction over the case/assessee and non-recording of reasons by the jurisdictional ITO and fresh notice from the latter is not valid. Provision of section 292B cannot be resorted to for curing such a jurisdictional defect.-[ITO v. Rajendra Prasad Gupta (2010)48 DTR489 (Trib.-Jd.)]
Reasons has to be recorded prior to issue of notice
Reasons cannot be recorded between date of issue and date of service of notice. It was held that the reasons were recorded before issuing any notice under section 148, the mandatory requirements of section 148(2) of recording of reasons before issuance of notice were not complied with.- [Rajoo Engineers Ltd. v. s DCIT (2008) 218 CTR 53: 10 DTR 173(Guj.)]
Reasons for reopening of assessment must be recorded by the Officer before issuing the reassessment notice. Only such recorded reasons can be looked into by the court for sustaining of setting aside such notice.- [CIT v. S.R. Constructions, (2002) 257 ITR 502 (MP)]
Reasons must be based on evidence.
The Assessing Officer, in the event of challenge to the reasons, must be able to justify the same based on material available on record;
He must disclose in the reasons recorded as to which fact or material was not disclosed by the assessee fully and truly necessary for assessment of that assessment year, so as to establish the vital link between the reasons recorded and evidence;
That vital link is the safeguard against arbitrary reopening of the concluded assessment;
The reasons recorded by the Assessing Officer cannot be supplemented by filling an affidavit or making an oral submission;
If the reasons were lacking in the material particulars, the same would get supplemented by the time the matter reaches to the court, on the strength of affidavit or oral submission advanced.
Reasons are required to be read as the same which were recorded by the Assessing Officer
Reason recorded by Assessing officer cannot be supplemented by additional affidavit/orally
The reasons recorded for issuing notice provide the link between conclusion and evidence. The reasons recorded must be based on evidence. The Assessing Officer in the event of challenge to the reasons, must be able to justify the same based on material available on record. He must disclose in the reasons as to which fact or material not disclosed by the assessee fully and truly was necessary for assessment of that assessment year, so as to establish the vital link between the reasons and evidence. That vital link is the safeguard against arbitrary reopening of the concluded assessment. The reasons recorded by the Assessing Officer cannot be supplemented by the filing an affidavit or making an oral submission.
Reasons to be formed only by Jurisdictional Assessing Officer and not any other
Reasons to be formed only by Jurisdictional Assessing Officer and not any other Assessing Officer, and the issuance of notice is mandatory. The basic requirement of section 147 is that the assessing officer must have a reason to believe that any income chargeable to tax has escaped assessment and such belief must be belief of jurisdictional assessing Officer and not any other assessing officer or authority or department under section 147 depends upon issuance of a valid notice and in absence of the same entire proceedings taken by him would become void for want of jurisdiction. (Assessment year 2006 07). [ACIT v. Resham Petrotech Ltd. (2012) 136 ITD 185 (Ahm. Tribunal)]
Reasons recorded should be clear and unambiguous and should not suffer from any vagueness.
The reasons recorded must disclose his mind. Reasons are the manifestation of mind of the Assessing Officer. The reasons recorded should be self-explanatory and should not keep the assessee guessing for the reasons. Reasons provide link between conclusion and evidence. The reasons recorded must be based on evidence. The Assessing Officer, in the event of challenge to the reasons, must be able to justify the same based on material available on record. He must disclose in the reasons as to which fact or material was not disclosed by the assessee fully and truly necessary for assessment of that assessment year, so as to establish vital link between the reasons and evidence. That vital link is the safeguard against arbitrary reopening of the concluded assessment.
Reasons are required to be read as they were recorded by the Assessing Officer
It was held that reopening notice has to be justified on the basis of reasons recorded at the time of issuing the impugned notice. The impugned notice must stand or fail on the reasons recorded. These reasons recorded cannot be supplemented by further reasons or by filing an affidavit and/or making oral submission, otherwise, the reasons which were lacking in the material particulars would get supplemented, by the time the matter reaches to the court, on the strength of affidavit or oral submissions advanced. The reasons are a manifestation of the mind of the Assessing Officer and must justified on the basis of inferences or interpretation. The reasons as recorded prime facie do not seem to indicate reasonable belief that income chargeable to tax has escaped assessment. It is needless to mention that the reasons are required to be read as they were recorded by the Assessing Officer. No substitution or deletion is permissible. No additions can be made to those reasons. – [Hindustan lever ltd. v. R.B. Wadkar, ACIT (2004) 268 ITR 332:137 479 (Bom.)]
Thus, in Hindustan Lever Limited v. R.B. Wadkar, ACIT (2004) 268 ITR 332 (Bom.)., a Division Bench has opined the followings with respect to recording of reasons which should form the unimpeachable code for the Assessing Officers:
1. The reasons are required to be read as they were recorded by the Assessing Officer;
2. No substitution or deletion is permissible;
3. No additions can be made to those reasons;
4. It is for the Assessing Officer to disclose and open his mind through reasons recorded by him,
5. It is for the Assessing Officer to reach to the conclusion as to whether there was failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for the concerned assessment year:
6. The reasons recorded should be clear and unambiguous and should not suffer from any vagueness;
7. The reasons recorded should be self explanatory and should not keep the assessee guessing for the reasons;
8. Reasons provide the link between conclusion and evidence;
9. The reasons must be based on evidence;
10. The Assessing Officer, in the event of challenge to the reasons must be able to justify the same based on material available on record;
11. He must disclose in the reasons as to which fact or material was not disclosed by the assessee fully and truly necessary for assessment of that assessment year, so as to establish the vital link between the reasons and evidence;
12. That vital link is the safeguard against arbitrary reopening of the concluded assessment;
If the recorded reasons show contradiction and inconsistency it means necessary satisfaction in terms of the statutory provision has not been recorded at all
FACTS OF THE CASE
In this case, in the course of the original assessment proceedings for assessment year 2009-10, the Assessing Officer called for details of long-term capital gains, trial run expenses and bad debts, all of which were furnished . Satisfied after scrutinizing the particulars, the Assessing Officer passed the assessment order. Thereafter, on 18.11.2013 i.e. within 4 years from the end of the relevant assessment year, a notice u/s 148 was issued . The reasons for the issuance of the notice were :(1) brought forward depreciation pertaining to assessment years 1997-98 and 1999-2000 could not be set off against income of assessment year 2009-10 since 8 years had elapsed (2) claim of deduction of bad debts written off was incorrect and (3) incorrect claim of lower of unabsorbed depreciation and brought forward business loss.
The High Court noted the Department’s contention that the issues involved in the reassessment proceedings were never examined by the Assessing Officer and that the Assessing Officer without looking into the issues allowed the claim of the assesses, which is not permissible. The high court held that the entire approach of the Revenue was misconceived. The assessment order had obviously taken into account the aspect of depreciation. Perusal of the assessment order revealed that all relevant documents and details as called for were filed. It was further recorded in the assessment order that the details filed with the return of income and during the assessment proceeding were scrutinized. There did not appear to be any tangible material/reason for the Assessing Officer to reopen the assessment proceedings.
We are unable to agree with the reasoning of the Assessing Officer. In our view the entire approach of the Assessing Officer in the facts of the present case is misconceived. The assessment order in the present case has obviously taken into account the aspect of depreciation. Perusal of the assessment order reveals that all relevant documents and details as called for were filed. It is further recorded in the assessment order that the details of assesses company along with return of income and those which were called for assessment proceedings were scrutinized. There does not appear to the tangible material/reason for the assessing officer to reopen the assessment proceedings in the facts of the present case. The reasons offered by the Assessing Officer while rejecting the objection that the issues involved in reassessment proceedings were never examined by the Assessing Officer are not tenable. No particulars whatsoever has been relied upon by the assessing officer while rejecting objections.
If the recorded reasons show contradiction and inconsistency it means necessary satisfaction in terms of the statutory provision has not been recorded at all. The court cannot be called upon to indulge in guess worth or speculate as to which reasons has enabled the assessing officer to act in terms of section 147. On said issue reassessment was quashed.-[Plus Paper Food Pac Ltd. v. ITO (2015) 374 ITR 485 : 56 467 (Bom.)]
No inference can be allowed to be drawn based on reasons not recorded
It is for the Assessing Officer to disclose and open his mind through reasons recorded by him. He has to speak through his reasons. It is for the Assessing Officer to reach to the conclusion as whether there was failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for the concerned assessment year. It is for the Assessing Officer to form his opinion. It is for him to put his opinion on record in black and white.
Settled legal position with regard to initiation of reassessment proceedings
The validity of initiation of reassessment proceedings has to be judged with regard to the material available with the officer at the point of time of issue of the notice under section 148 and cannot be sought to be substantiated by reference to material that may have come to light subsequently in the course of reassessment proceedings.-[Sheth Brothers v. JCIT (2001) 251 ITR 270 (Guj.)]
Assessing Officer recording reasons for assessment and assessing officer issuing notice under section 148 must be the same person
Re-opening is not permissible on borrowed satisfaction of another Assessing Officer.
Assessing Officer recording reasons assessment and assessing officer issuing notice under section 148 must be the same person. Successor assessing officer cannot issue notice under section 148 on the basis of reasons recorded by predecessor assessing officer. Notice issued invalid and deserves to be quashed.-[Hyoup Food and Oil Industries ltd. v. ACIT (2008) 307 ITR 115 (Guj.); [CIT & Anr v. Aslam Ullakhan (2010) 321 ITR 150 (Kar.)]
Succeeding Assessing Officer cannot improve upon the reasons which were originally communicated to the assesse
The assessee company filed its return of income for the Assessment year 2006 07 on 31.10.2006 declaring nil income. The assessee claimed that profits earned from the transactions in Indian securities are not liable to tax in India in view of art. 7 of the India Singapore treaty because the assessee company did not have PE in India. The assessment was reopened on the ground that no foreign companies are allowed to invest through stock exchanges in India unless it is approved as FII by the regulatory authorities viz.- RBI, SEBI. etc. According to the assessing officer the gain earned on investment as FII is liable to be taxed under section 115AD. The reassessment notice was challenged before the Court, the Court held that the attention was drawn to the notice of Assessing Officer that the assessee is not an FII and that provision of section 115AD would not be attracted. The Assessing Officer attempted to improve upon the reasons which were originally communicated to the assessee. Those reasons constitute the foundation of action initiated by the Assessing Officer for reopening of assessment.. Those reasons cannot be supplemented or improved upon subsequently. The court held that in the absence of any tangible material assessment could not be reopened under section 147, further succeeding Assessing Officer has clearly attempted to improve upon the reasons which were originally communicated to the assessee. Those reasons constitute the foundation of action initiated by the Assessing Officer for reopening of assessment. Those reasons cannot be supplemented or improved upon subsequently. The court held that in the absence of any tangible material assessment could not be reopened under section 147, further succeeding Assessing Officer has clearly attempted to improve upon the reasons which were originally communicated to the assessee which was not permissible. (Assessment Year 2006 07).-[Indivest PTE Ltd. v. Addl. DIT (2012) 250 CTR 15: 206 Taxman 351 (Bom.)]
New reasons cannot be allowed to be introduced or supplied
Proper reasons to believe must, even if there is no assessment under section 143(3)- only recorded by Assessing Officer must be considered.-[Prashant S. Joshi v. ITO (2010) 324 ITR 154 (Bom.)]
Irrelevant and non-existing reasons- Reassessment is held invalid
In the reasons recorded for reopening of assessment the Assessing Officer received information from the Dy. Director of Income tax (Inv.) and on the basis of a statement of the bank manager, that assessee purchased demand draft in cash but it was found that no such demand draft was issued in favour of assessee. The Tribunal held that the Assessing Officer proceeded for reopening of the assessment on non-existent and factually incorrect reasons and had not applied independent mind and did not verify the information received from the Dy. Director of Income Tax (Inv.), therefore reassessment was invalid and unjustified. (Assessment year 1993-94).-[Mahadev Trading Co. v. ITO (2012) 135 ITD 1: 143 TTJ 492 : 17 ITR 332 (Ahd.)(Trib.)]
Reasons –Non- application of mind
Assessing Officer having communicated to the auditor that a certain decision of a High Court did not apply to the facts of the petitioner to the notice under section 148 taking a contrary view without giving any reasons as to why he has departed from the earlier view that the decision was not applicable there was total non-application of mind on the part of the Assessing Officer, impugned communication is set aside and the matter is remanded back to the Assessing Officer for de novo consideration.- [Asian Cerc Information Services (P) Ltd. v. ITO (2007) 293 ITR 271 (Bom.); [Purity Tech Textiles Pvt. Ltd. v. ACIT (2010) 325 ITR 459 (Bom.)]
Communication of reasons- Mandatory
For passing an order under section 147 recording of reasons under section 148 and communication thereof to party concern is mandatory.-[Gujarat Fluorochemicals Ltd. v. Inspecting ACIY (1998) 230 ITR 943 (SC)]
Assessee is entitled to be supplied with the reasons in the event he challenges the notice for reassessment; assessee is not stopped from challenging the impugned notice after having submitted to the jurisdiction of the officer by filing returns. [ Berger Paints India Ltd. v. ACIT and Ors (2004) 266 ITR 462 (Cal.)]
Non-furnishing of reasons recorded- Renders the reassessment proceedings invalid.
The Assessing Officer initiated reassessment proceedings by issuing notice under section 148 seeking to reopen the assessment for the assessment year 2008-09. On receipt of notice, the assessee sought copy of recorded reasons for reopening of assessment under section 148. The Assessing Officer completed the reassessment proceedings under section 143(3) read with section 147 without having given a copy of the reasons recorded for reopening the assessment. On an appeal, CIT(A) confirmed the action of Assessing Officer. On further appeal to tribunal, Held: The recording of reasons for reopening of assessment and furnishing of the same has to be strictly complied with as it is a jurisdictional issue. In issues such as this, i.e. where jurisdictional issue is involved the same must be strictly complied with by the authority concerned and no question of knowledge being attributed on the basis of implication can arise. Tribunal did not appreciate the stand of the revenue, that the assessee had asked for reasons recorded only once and therefore seeking to justify non- furnishing of reasons. Tribunal expect the state to act more responsibly. As no substantial question of law arisen, Therefore appeal for revenue to High Court was dismissed.-[CIT v. Trend Electronics, (2015) 379 ITR 456 (Bom.)]
Furnishing reasons to Assessee : What is reasonable time
The Supreme Court in the case of GKN Driveshaft (India) Limited v. ITO(2003) 259 ITR 19 (SC) had clarified that the Assessing, Officer is bound to furnish reasons within a reasonable time. The term ‘reasonable time’ is interpreted by the High Court of Delhi, in the case of Haryana Acrylic Manufacturing Co. v. CIT (2009) 308 ITR 38 (Del.), in following manner:
A notice under section 148 without the communication of the reasons therefore is meaningless inasmuch as the Assessing Officer is bound to furnish the reasons within a reasonable time. In a case where the notice has been issued within the said period of six years but the reasons have not been furnished within that period, any proceedings pursuant thereto would be hit by the bar of limitation inasmuch as the issuance of the notice and the communication and furnishing of reasons go HAND-IN- HAND. The expression ‘within a reasonable period of time’ as used by the Supreme Court in the case of GKN Driveshaft (India) Ltd. (supra) cannot be stretched to such an extent that it extends even beyond the six years’ period stipulated in section 149. Then, the validity of the notice under section 148 and any proceedings pursuant thereto could not be upheld.
The above decision of Delhi High Court is further followed by ITAT Delhi bench in the case of Shri Balwant Rai Wadhwa v. ITO, in ITA No. I.T.A. No. 4806/Del/10. The ITAT bench held that if reason are not supplied to the assessee within the period of 6 years then it would be constructed that assessment has not been validly reopened.
It is well settled that the court cannot go beyond the recorded reasons, nor can it take into account any supplementary reasons which did not enter into the mind of the assessing authority at the time of issuing the reassessment notice.-[S. sreeramachandra Murthy v. DCIT (2000) 243 ITR 427 (AP)]