The article is written by Dev Agarwal, a student of Heritage Law College, Calcutta University.
Section 147 of The Income Tax Act, 1961 deals with “income escaping assessment”. The definition of “assessment” provided in Section 2(8) of the Income Tax Act, 1961 also means “reassessment”. Section 147 empowers the AO(AO) to assess or reassess previously filed income tax returns. The AO may assess or reassess a person’s income tax returns with respect to the provisions provided in Chapter XIV of the Income Tax Act, 1961, only if he has a reason to believe that any income chargeable to a tax has escaped assessment.
In PCIT vs. Geetanjali Credits and Capital Ltd. (Del. HC) ITA No. 74/2017, it was held that a mere suspicion, gossip or rumor cannot be a reason to believe. Thus, for assessing/reassessing an individual’s previously filed returns the reasonable grounds for an AO might be either any circumstantial or direct evidences found against a particular assessee. A prima facie opinion based on reasonable evidence can also be one of the grounds to send a notice under Section 147 to an assessee. In CIT vs. Kelvinator of India 320 ITR 561 (2010) (SC), the Supreme Court held that re-opening of an assessment cannot be based on a mere change of opinion of the AO. Moreover, in PCIT-6 vs. Meenakshi Overseas (P.) Ltd (Del HC) (2017) 395 ITR 677, it was held that after gathering satisfactory or reasonable claims to reopen an assessment “application of mind” of the AO should be there and it should not be based on borrowed satisfaction.
For the AO to invoke Section 147 of the Act, he must send a notice as mentioned in Section 148 of the Act. The notice that is to be sent to the assessee must have the following:
- The AO needs to record the reason for taking such action under Section 147 of the Act. Depending on the reason recorded the validity of the order for reopening an assessment shall be decided.
- The AO shall have reason to believe that income or profits or gains chargeable to income-tax had escaped assessment for any assessment year.
- Approval of relevant authorities as provided in Section 151 of the Act must be taken before invoking Section 147 on an assessee
- The words “ I have a reason to believe” must be mentioned in the notice which is to be sent to an assessee
- The reason must be on some reasonable grounds and information which the AO possess.
WHO CAN ISSUE A NOTICE?
Section 148 of the Income Tax Act, 1961 provides that the AO has the right to furnish notice to an assessee, however in Section 151, it is mentioned that before serving any notice the AO has to take prior permission from relevant authorities.
- Assessee Officer has no right to issue a notice under Section 148 after the expiry of four years from the relevant assessment year. For example, if an individual has filed his tax returns during AY- 2014-15, then the AO can issue notice only till and for the AY- 2018-19. However, if Principal Chief Commissioner or Principal Commissioner or Chief Commissioner or Commissioner is satisfied, on reasons recorded by the AO, that it’s a fit case for issuing such notice.
- No notice under Section 148 can be issued by AO where AO is below the rank of a Joint Commissioner unless Joint Commissioner is satisfied, on reasons recorded by such AO, that it’s a fit case for issuing such notice.
- For the purposes of the above mentioned grounds, Principal Chief Commissioner or the Principal Commissioner or the Chief Commissioner or the Joint Commissioner, depending on the case, being satisfied on reasons recorded by AO about the fitness of the case for issuing notice under Section 148 of the Income Tax Act, need not issue the notice by himself.
TIME LIMIT TO ISSUE NOTICE UNDER SECTION 148
Section 149 of the Income Tax Act, 1961, provides that notice under Section 148 could be issued within a period of 4 years from the end of relevant Assessment Year in case the income so escaped doesn’t exceed Rs. 1,00,000/-. In case the income escaped is exceeds Rs.1 lakh the notice under the said Section could be issued within a period of 6 years from the end of relevant Assessment Year.
The notice under Section 148 could be issued within a period of 16 years from the end of relevant AY in case the income that has escaped assessment relates to assets located outside the territory of India.
TIME LIMIT FOR COMPLETION OF RE-OPENED ASSESSMENT
The assessing or reassessing under Section 147 should be passed within 9 months from the end of the financial year in which the notice under Section 148 was served. For example, if the notice under Section 148 is served on 15th October 2017, then the time limit provided will be 9 months from 31st March 2018, i.e. 31st December 2018.
For notices served on or after 01/04/2019, the assessment or reassessment order under Section 147 can be passed within 12 months from the end of the financial year in which the notice under Section 148 was served. For example, if a notice is served on 7th August 2020, then the time limit shall be 12 months from 31st March 2021, i.e. 31st March 2022.
- CA Nupur Khandelwal, Dealing with Reassessment under Income Tax Act, 1961, TaxGuru, https://taxguru.in/income-tax/dealing-reassessment-income-tax-act-1961.html
- PCIT vs. Geetanjali Credits and Capital Ltd. (Del. HC) ITA No. 74/2017
- CIT vs. Kelvinator of India 320 ITR 561 (2010)(SC),
- Bhargava, The Income Tax Act, 65th edition. 2020
- PCIT-6 v. Meenakshi Overseas (P.) Ltd (Del HC) (2017) 395 ITR 677