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Reopening of an assessment concluded under section 143(1) or
even under section 143(3) (Scrutiny Assessment) of Income Tax Act,
1961 is a dreaded nightmare of any assessee.
While there are many articles on the subject on internet, author
seeks to elucidate the concept in brief and in a simple language
with many pointers having practical applicability that could be
applied in majority of situations. This guide will be helpful to
any assessee, whether resident or non-resident.
Regime Prior to introduction of s.148A under ITA, 1961 and
changes brought about by Act No. 13 of 2021 w.e.f. 01.04.2021
Major changes were incorporated in provisions pertaining to
reopening of assessment; provisions of previously existing sections
from 147 to 151 were superseded with amended sections 147, 148,
149, 150 and 151 and s.148A was introduced newly with effect from
April 1, 2021.
Prior to introduction of s.148A by the Government of India in
the 2021 budget, the assessing officer could issue a notice u/s.148
asking the concerned assessee to file his return of income for a
particular assessment year falling within the time limit of four,
six or sixteen years applying to different situations as prescribed
under the then existing s.149 of ITA, 1961 without disclosing the
reasons for issuing such a notice to reopen assessment. Assessee
could file an application before the AO for sharing of reasons to
reopen and satisfaction arrived at by the AO for issuing notice
u/s. 148 of ITA, 1961. In terms of court made law, after getting
the reasons from AO, assessee could file objections against such
reasons recorded by the AO and AO was obligated to dispose off the
same through speaking order.
Many litigations used to happen surrounding the issues of
non-supply of reasons, satisfaction notes or sanctions and w.e.f.
01.04.2021 s.148A was introduced under ITA, 1961. S.148A
essentially provides that before issuing a notice u/s.148 of ITA,
1961, the AO shall, if required conduct an inquiry with respect to
information that suggests that income chargeable to tax has escaped
assessment, provide an opportunity of being heard to assessee
through show cause notice, consider the reply of assessee and based
on material available on record including the reply of the
assessee, decide if it is a fit case to issue a notice u/s.148 of
ITA, 1961 with prior approval of specified authority.
W.e.f 01.04.2021 s.149 was also amended rewriting the
time frame within which notice could be issued. S.149 now provides
that notice could be issued u/s.148 within three years only unless
the AO has in his possession the books of accounts or other
documents or evidence revealing that income chargeable to tax and
represented in form of an asset or expenditure in respect of a
transaction or in relation to an event or occasion or an entry or
entries in the books of account, in which case notice could be
issued within ten years from the end of the relevant assessment
year.
S.147 was also amended. While erstwhile s.147 prescribed
that AO should have reason to believe that income chargeable to tax
had escaped assessment, amended provisions simply state that if
income chargeable to tax has escaped assessment for any assessment
year, the same could be reassessed or assessed subject to the
provisions of s.148 to s.153. Removal of phrase “reason to
believe” from s.147, in authors opinion, requires
establishment of escapement of income by AO as a matter of fact
beyond a purely subjective satisfaction about reason to
believe.
Typical Notice u/s.148A of ITA, 1961
A typical notice u/s.148A normally contains an assertion of the
AO about he being in possession of information revealing escapement
of income e.g. “Whereas I have information which suggests that
income chargeable to tax for the Assessment year ABCD-XY has
escaped assessment within the meaning of s.147 of ITA, 1961,
details whereof are enclosed with this notice along with supporting
documents.” and assessee will be required to show cause within
specified time limit as to why, in view of details in enclosure/
attachment, a notice u/s.148 should not be issued for a given
assessment year.
How to Respond to the Notice
As the name of the article suggests, the idea is to provide a
practical guide to responding to an SCN u/s.148A of ITA, 1961 and I
therefore do not seek to elaborate in detail about what is held in
what judgments; I rather seek to proceed to the requirements for
reopening of assessment through reference to sections or judgments
and share my points of view on possible pointers for reply to and
SCN u/s.148A.
Requirements for reopening of Assessment
Reopening of assessment is not to be analysed simply through
reference to s.148A or s.148 in isolation; rather it must be
appreciated that provisions of s.147 to s.151 are required to be
looked at as a complete code as regards reopening of assessment and
such provisions must be read together.
Requirements for reopening of assessment as emerging from
reading of different provisions are detailed below:-
- Assessment or reassessment can happen for a given assessment
year, subject to provisions of s.148 to s.153 if income chargeable
to tax has escaped assessment. (s.147) - Before making assessment u/s.147, AO shall serve on the
assessee a notice, requiring him to furnish return of income within
period specified in notice. (s.148) - The escapement of income must be established as a matter of
fact as against the possibility in the form of subjective
satisfaction of AO as regards “reason to believe” based
on direct nexus between material in AO’s notice and formation
of belief and thus greater burden of proof is on the department.
(s.147- by virtue of absence of phrase “reason to
believe”) - No notice u/s. 148 could be issued unless there is information
in terms of Explanation 1 to s.148 or a deemed information in terms
of Explanation 2 to s.148 with the AO suggestive of income
chargeable to tax having escaped assessment. (Proviso to
s.148) - The information with the Assessing Officer which suggests that
the income chargeable to tax has escaped assessment
means,—
- any information 95[***
] in the case of the assessee for the relevant assessment
year in accordance with the risk management strategy formulated
by the Board from time to time; - any audit objection to the effect that the assessment in
the case of the assessee for the relevant assessment year has not
been made in accordance with the provisions of this Act; or - any information received under an agreement referred to
in section 90 or section 90A of the Act; or - any information made available to the Assessing Officer
under the scheme notified under section 135A; or - any information which requires action in consequence of the
order of a Tribunal or a Court. (Explanation 1 to
s.148)
- any information 95[***
- Before issuing a notice u/s.148, AO shall conduct an inquiry,
if required, with the approval of specified authority with respect
to information suggesting that income chargeable to tax has escaped
assessment. (s.148A(a)) - AO must serve SCN upon the assessee of specified time
limit asking him to show cause as to why a notice u/s.148 should
not be issued. (s.148A(b)). - Service must be made in compliance to provisions of s.282 of
ITA r/w rule 127 of Income Tax Rules, 1962. - AO must consider reply of assessee and material on record and
decide by passing an order whether a given case is a fit case to
issue notice u/s.148. (s.148A(c) and (s.148A(d)) - Notice could be issued u/s.148 ( in case of information with AO
suggesting that income chargeable to tax has escaped assessment)
within three years only form the end of relevant assessment year.
(s.149(1)(a)) - Only if AO has in his possession:-
- the books of accounts or other documents or
evidence - revealing that income chargeable to tax and
- represented in form of an asset or expenditure in
respect of a transaction or in relation to an event or
occasion or an entry or entries in the books of
account - has escaped assessment and amounts to or is likely to amount
to fifty lac rupees or more;
he could issue a notice u/s.148 within up to ten years from the end
of the relevant assessment year.
(s.149(1)(b)). - the books of accounts or other documents or
- For any notices for AY 2013-14 to 2017-18, escapement of income
amounting to or likely amounting to fifty lac rupees or more must
be represented solely in the form of an “Asset” and for
any such income even if represented in the form of
“expenditure in respect of a transaction in relation to an
event or occasion or an entry or entries in the books of
account”, no notice could be issued for reopening of
assessment as such phrase came to be inserted through Finance Act,
2022 w.e.f. 01.04.2022 only. - No notice u/s.148 could be issued at any time in a case for
assessment year beginning before 01.04.2021, if a notice u/s.148 or
s.153A or s.153C could not have been issued on said date on account
of being beyond the time limit specified under relevant provisions
as they stood before commencement of Finance Act, 2021.
(Proviso 1 to s.149(1)) - Notice must be issued with prior approval of Principal
Commissioner or Principal Director or Commissioner or Director, if
three years or less than three years have elapsed from the end of
relevant assessment year. (s.151(i) r/w s.148 and s.
148A) - Notice must be issued with prior approval of Principal Chief
Commissioner or Principal Director General or where there is no
Principal Chief Commissioner or Principal Director General, Chief
Commissioner or Director General, if more than three years have
elapsed from the end of relevant assessment year.(s.151(ii)
r/w s.148 and s. 148A).
DRAFTING OF A REPLY TO SCN U/S.148A
Drafting of reply to the show cause notice is an exercise of
response on facts specific to assessee’s case coupled with the
aspect as to whether the requirements as pointed out above are met
with.
The assessee should, upon receipt of a notice u/s.148A of
ITA:-
- Firstly check what is the information, which is in possession
of the AO based whereupon he seeks to show escapement of assessment
of income. If the information / material is not fully disclosed and
it is a generic document titled as “Case Related Information
Detail” or something else from insight portal that is shared
by the AO along with the notice, assessee must demand full
particulars of all material/ information and evidence in AO’s
possession. If the full particulars of information are not given,
submit the reply without prejudice to the contention that full
particulars are not provided and therefore proceedings are
happening in violation of principles of natural justice and in
violation of provisions of s.148A itself. - Once the information/ material is fully provided, assessee
should analyse whether the information /material is relevant and
admissible for any purposes whatsoever in terms of Indian Evidence
Act and accordingly deal with the same in your reply. E.g.
department frequently seeks to rely upon loose sheet of papers /
diaries obtained from one assessee to show cash payment from an
otherassessee, however such loose papers/ diaries are not books of
accounts maintained in regular course of business and therefore not
relevant/ admissible at all. - Analyse if relevant and admissible material is actually
suggestive of escapement of income and accordingly draft a reply
considering whether it could be contended that AO could not have
arrived at such a conclusion before conducting an inquiry as
prescribed u/s.148A. - Analyse whether information provided is actually information
within the meaning of s.148 and Explanation 1 to s.148 and
accordingly deal with the information in the reply; if it is not
the case, it could be contended that no notice u/s.148A could be
issued. - Analyse further whether such relevant material establishes
escapement of income as a matter of fact beyond the realm of
probabilities based on subjective satisfaction of AO as regards
reason to believe and deal with the notice considering said
aspect. - In case of reopening having been sought for an Assessment year
ended prior to 3 years of date of issuance of notice, analyse if
the information/ material in possession is in form of books of
accounts, other documents or evidence. If that is not the case, one
should incorporate a submission in reply that assessment could not
be reopened in terms of provisions of s.149(1)(b). - In case of reopening having been sought for an Assessment year
ended prior to 3 years of date of issuance of notice, analyse if,
pursuant to the information shared, income can be said to be
represented in form of an asset or expenditure in respect of a
transaction or in relation to an event or occasion or an entry or
entries in the books of account. In case the income is represented
in any other form, one should incorporate the submission in reply
that assessment could not be reopened in terms of provisions of
s.149(1)(b). - Also, one must keep in mind that if the notice is for any
assessment year for up to 2017-18, income must be represented in
form of an ASSET only and accordingly raise an objection in
reply. - Carefully check up all the timelines in terms of s.149 of ITA
read with Taxation and Other Laws (Relaxation of Certain
Provisions) Act, 2020 and if the notice falls beyond time line,
raise an objection accordingly.
What happens if you get a negative order u/s.148A(d) after
consideration of your reply
In such a case, assessee has remedy of participating in
assessment proceedings and deal with the matter through channel of
faceless assessment, faceless appeal and appeal before ITAT or the
assessee could challenge the very order of reopening of assessment
and issuance of notice u/s.148 before the jurisdictional High Court
by a writ petition under article 226 of the constitution of india.
In such a petition, assesee could raise all grounds in reply and
also take up the contentions as regards s.148 notice and s.148A(d)
order having been issued with proper approval in terms of s.151 of
ITA or otherwise and in case the assessee has not been able to
participate in proceedings of s.148A by virtue of non-service of
notice in terms of s.282 of ITA r/w 127 of Income Tax Rules, the
said point could be taken up writ petition.
* Readers should contact their attorney to
obtain advice with respect to any particular legal matter. No
reader or user should act or refrain from acting on the basis of
information written above without first seeking legal advice from
qualified law practitioner.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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