I-13
C PAGE About the Authors I-5 Preface to third edition I-7 Acknowledgement I-11 Contents I-15 Chapter 1 Introduction 1 Chapter 2 Reopening under old law - Basic Principles 33 Chapter 3 Reopening under old law - Specific Propositions 80 Chapter 4 Income Escaping Assessment - Section 147 121 Chapter 5 Issue of notice where income has Escaped Assessment - Section 148 156 Chapter 6 Conducting inquiry, providing opportunity before the issue of Notice u/s 148 - Section 148A 190 Chapter 7 Implication of section 135A in Reopening of Assessment 231 Chapter 8 Concept and Scope of Deemed Information 243 Chapter 9 Time Limit for Notice - Section 149 263
hapter-heads
Chapter 10 Books of Account, Other Documents and Evidence 306 Chapter 11 Issue and Service of Notices Generally 338 Chapter 12 Approval of Additional Commissioner Section 148B 376 Chapter 13 Approval for Issue of Notice - Section 151 378 Chapter 14 Notice Deemed to be Valid under certain CircumstancesSections 292B and 292BB 400 Chapter 15 Assessment and Reassessment in Search, Requisition and Survey Cases 416 Chapter 16 Revision of Reassessment orders 474 Chapter 17 Penalties 506 Chapter 18 Misc. Escaped income and Reopening under new law 575 Chapter 19 Aggregation of Escaped income u/s 149(1A) 613 Chapter 20 Validity of Notices issued u/s 148 after 01-04-2021 under the old law 623 Chapter 21 Response to the Notices under new law 649 Chapter 22 Developments subsequent to Ashish Agarwal’s case 671 Chapter 23 Enhancement in Reassessment 691 Chapter 24 FAQs 707 SUBJECT INDEX 777 PAGE
I-14 CHAPTER-HEADS
I-15 ontents C PAGE About the Authors I-5 Preface to third edition I-7 Acknowledgement I-11 Chapter-heads I-13 CHAPTER 1 INTRODUCTION 1.1 Legislative Background of Reassessment provisions 1 1.2 The new provisions 11 1.3 Memorandum explaining the amended provisions regarding reassessment 16 1.4 The provisions in brief 24 1.5 The changes 27 1.6 Propositions which may govern new law of reassessment also 31 1.7 Some propositions applicable to new law only 32 1.8 Conclusion 32 CHAPTER 2 REOPENING UNDER OLD LAW - BASIC PRINCIPLES 2.1 Introduction 33 2.2 Relevant provisions u/ss 147 to 151 33 2.3 Constitutional validity 35 2.4 Concept of assess, reassess, assessment, reassessment and recomputation 35 2.5 Guidelines set by Hon’ble Apex Court in GKN Driveshaft 36 2.6 Conditions for Reopening of assessment 38 2.7 Nature of information received for reopening of assessment 40
I-16 CONTENTS PAGE 2.8 The applicable law 42 2.9 Reasons for reopening 42 2.10 Limitation for reopening 53 2.11 Reopening barred by limitation 54 2.12 Certain expressions in section 147 55 2.13 The charge of escapement of income is necessary in a valid reopening 57 2.14 Subsequent material/development cannot justify reopening 58 2.15 Jurisdiction of the AO to issue notice u/s 148(1) 59 2.16 Issue and service of notice u/s 148(1) 63 2.17 Issuance of notice u/s 148 64 2.18 Sanction for issue of notice u/s 148 69 2.19 Objections and their disposal 71 2.20 The procedure for dealing with objections raised by the assessee 72 2.21 Principles governing reopening 73 2.22 Law relating to multiple issue of notices 76 2.23 Certain settled propositions in relation to reassessment proceedings 77 2.24 Conclusion 78 CHAPTER 3 REOPENING UNDER OLD LAW - SPECIFIC PROPOSITIONS 3.1 Introduction 80 3.2 Challenge to reopening 80 3.3 81 3.4 Reopening on borrowed satisfaction 87 3.5 Where reopening is based on non-application of mind by the AO 88 3.6 Independent inquiries by the AO after receipt of information 89 3.7 Where reopening is done on the basis of presumptions, suspicion, conjecture and surmises 91 3.8 Reopening is based on change of opinion 92 3.9 Live link of information and tangible material with escapement of income 95 3.10 The proposition about live link of the material with the formation of belief as laid down by Hon’ble Apex Court in Lakhmani Mewal Das’s case 97
CONTENTS I-17 PAGE 3.11 Existence of tangible material for formation of belief about escapement of income is also necessary in cases completed u/s 143(1) 98 3.12 Reopening is made on incorrect facts 99 3.13 Issue of notice u/s 148(1) issued on, or in respect of dead person/ non-existent entity and amalgamating company and proceedings thereafter 101 3.14 Impermissible considerations to reopen assessment completed u/s 143(3) 106 3.15 108 3.16 110 3.17 Reassessment without issue of notice u/s 143(2) 115 3.18 Addition of another item of escaped income 115 3.19 Reopening on account of bogus purchases 119 3.20 Additional claim for deduction/exemption in reassessment proceedings 120 3.21 Conclusion 120 CHAPTER 4 INCOME ESCAPING ASSESSMENT - SECTION 147 4.1 Introduction 121 4.2 The new provision 121 4.3 Difference with old provision of section 147 121 4.4 Analysis of section 147 under new law 123 4.5 Difference between ‘reasons to believe’ under old law and ‘suggest’ under new law 123 4.6 Whether there will be any requirement of putting the material on record before issuance of notice u/s 148 124 4.7 What is the scope of expression “if any income chargeable to tax in the case of the assessee has escaped assessment for any assessment year”? 124 4.8 Conditions for invoking jurisdiction u/s 147 126 4.9 Whether section 147 can be invoked in following situations 136 4.10 Assessment of income in respect of new issue (under new law) 139 4.11 Whether whole assessment is open after issue of notice u/s 148 146 4.12 There is no bar in issuing multiple notices u/s 148 147 4.13 Some important judicial propositions u/s 147 applicable under new law also 147
I-18 CONTENTS PAGE 4.14 Whether concept of change of opinion would be applicable under new law 149 4.15 Whether writ could lie in respect of procedure laid down u/s 148A or in assumption of jurisdiction u/s 147 or issue of notice u/s 148 153 4.16 Conclusion 155 CHAPTER 5 ISSUE OF NOTICE WHERE INCOME HAS ESCAPED ASSESSMENT - SECTION 148 5.1 Introduction 156 5.2 The new provision 156 5.3 The provision in brief 158 5.4 Amendment by Finance Act, 2022 159 5.5 Amendment by Finance Act, 2023 161 5.6 Conditions for issue and service of notice u/s 148 162 5.7 Guidelines by CBDT 164 5.8 Information 169 5.9 Meaning and scope of the expression “so far as may be” 183 5.10 Notice u/s 148A/148 can be issued by AO having jurisdiction only 184 5.11 Issuance of notice u/s 148 in different situations 184 5.12 Reassessment during reassessment pending under new law 185 5.13 Principles governing reopening and reassessment under the new law 185 5.14 Service of notices under Faceless Reassessment 188 5.15 Conclusion 188 CHAPTER 6 CONDUCTING INQUIRY, PROVIDING OPPORTUNITY BEFORE THE ISSUE OF NOTICE U/S 148 - SECTION 148A 6.1 Introduction 190 6.2 The provision 190 6.3 The provision in brief 191 6.4 Charge of escapement of income in a notice u/s 148A(b) is necessary 193 6.5 Whether section 148A covers the concept of reasons recorded and procedure laid down by Hon’ble Apex Court in GKN Drive Shafts (India) Ltd. v. ITO 194
CONTENTS I-19 PAGE 6.6 Application of procedure u/s 148A 195 6.7 Table to show where the procedure u/s 148A is required 195 6.8 Kind and scope of inquiries, AO can do u/s 148A(a) 196 6.9 Providing an opportunity to the assessee u/s 148A(b) 204 6.10 Number of notices u/s 148A(b), the AO can issue 205 6.11 Conditions inherent in issue of notice u/s 148A(b) 205 6.12 Notice u/s 148A(b), order u/s 148A(d) and notice u/s 148 should be in the same status and for the same assessee 208 6.13 Other propositions in respect of notices u/s 148A(b) 208 6.14 To consider the reply furnished by the assessee 210 6.15 Where no reply is furnished by the assessee 211 6.16 Passing of an order u/s 148A(d) 211 6.17 Nature of order u/s 148A(d) 212 6.18 Certain propositions where order u/s 148A(d) and consequential issue of notice u/s 148 are not upheld 213 6.19 Scope and relevance of the expression “material available on record” 214 6.20 Application of section 148A in survey cases 215 6.21 What should be the contents of the reply to notice u/s 148A(b) 217 6.22 Non-applicability of section 148A 218 6.23 Approval involved in search/requisition cases 218 6.24 Circumstances when notice issued u/s 148A(b) and/or order u/s 148A(d) is held invalid and its consequences 219 6.25 Some valid information under Explanation 1 224 6.26 Explanation 1 227 6.27 Service of notices under Faceless Reassessment 229 6.28 Conclusion 229 CHAPTER 7 IMPLICATION OF SECTION 135A IN REOPENING OF ASSESSMENT 7.1 Introduction 231 7.2 Section 135A 232 7.3 Various provisions covered in the scheme u/s 135A 239 7.4 Explanation 1 to section 148 and clause (d) of the proviso to section 148A 239 7.5 Consequential effect of section 135A on section 148A 241
I-20 CONTENTS PAGE 7.6 Conclusion 242 CHAPTER 8 CONCEPT AND SCOPE OF DEEMED INFORMATION 8.1 Introduction 243 8.2 Deemed information under Explanation 2 to section 148 243 8.3 Contents of information for the purposes of section 148A/148 244 8.4 Dumb information 244 8.5 Dumb document 245 8.6 Whether deemed information as per Explanation 2 can also be dumb information 249 8.7 If no documents/assets are found in the search/requisition for any relevant assessment year, for which no escaped income can be attributed, whether the issue of notice u/s 148 or assuming 250 8.8 Assessment in respect of other issues 251 8.9 251 8.10 Concept of ‘Deemed’ 253 8.11 255 8.12 Consequence of deemed information on reopening and completion of assessment 260 8.13 Conclusion 261 CHAPTER 9 TIME LIMIT FOR NOTICE - SECTION 149 9.1 Introduction 263 9.2 The provision 263 9.3 Amendment by Finance Act, 2022 265 9.4 Amendment by Finance Act, 2023 266 9.5 The provision in brief 269 9.6 The conditions for invoking clause (a) of section 149(1) 271 9.7 The conditions for reopening under clause (b) read with section 149(1A) 271 9.8 Concept and scope of “asset”- Explanation to section 149(1) 272 9.9 Concept and scope of word “expenditure” 274 9.10 Escaped Income in the form of entry or entries in the books of account 277
CONTENTS I-21 PAGE 9.11 Implication of the First Proviso 278 9.12 Implication of the Second Proviso 280 9.13 Implication of the Third Proviso 281 9.14 Implication of the Fourth Proviso 281 9.15 Implication of the Fifth Proviso 281 9.16 Implication of the Sixth Proviso 282 9.17 Implication of change from ‘less than seven days’ to ‘does not exceed seven days’ 282 9.18 Implication of the Explanation 282 9.19 Computation of limitation to issue notice u/s 148 in non-search 282 9.20 Computation of Limitation in the case of search/requisition cases against the person searched or other person 283 9.21 Issue of notice u/s 148 in survey cases carried out as a consequence to search/requisition as per Fourth Proviso to section 149(1) 284 9.22 Implication of sub-section (1A) 287 9.23 Mechanism of operation of sub-section (1) and sub-section (1A) of section 149 287 9.24 Implication of sub-section (2) 288 9.25 Nature and scope of section 149(1) 288 9.26 The time limit for completing assessment/reassessment made under the new law 291 9.27 Meaning of expression “amounts to” or “likely to amount to” 296 9.28 Multiple notices u/s 148 and application of section 149 297 9.29 Important principles which can be applied to the new provisions of section 149 298 9.30 Cases where issuance of notice u/s 148 r.w.s. 149(1)(b) may not be upheld 300 9.31 Following kind of escaped income may not be brought to tax after three initial relevant Assessment Years by invoking section 149(1)(b) 302 9.32 Cases where issuance of notice u/s 148 r.w.s. 149(1)(b) may be upheld 304 9.33 Conclusion 305 CHAPTER 10 BOOKS OF ACCOUNT, OTHER DOCUMENTS AND EVIDENCE 10.1 Introduction 306 10.2 Books of account 306
I-22 CONTENTS PAGE 10.3 Loose paper 311 10.4 Documents 314 10.5 Source of books of account, documents or evidence for the purposes of section 149(1)(b) 315 10.6 Dumb document 315 10.7 Loose papers/documents/books seized/impounded in search/ survey should be relied upon as a whole 320 10.8 Evidence 322 10.9 Scope of section 292C 332 10.10 Conclusion 337 CHAPTER 11 ISSUE AND SERVICE OF NOTICES GENERALLY 11.1 Introduction 338 11.2 Issue of notice 338 11.3 Distinction between issue and service of notice 342 11.4 Law relating to service under the Act 342 11.5 Section 282 as amended by Finance (No. 2) Act, 2009 w.e.f. 01-10-2009 343 11.6 Addresses, as per Rule 127, at which service is to be affected 344 11.7 Service through WhatsApp 344 11.8 Service through emails 345 11.9 Difference in the law under section 282 as it existed prior to 01-10-2009 345 11.10 Service by speed post 346 11.11 Service as per CPC 346 11.12 Service through Electronic media 351 11.13 Burden of proof of valid service of notice 355 11.14 Presumption as to the service of notice 356 11.15 Simultaneous (multiple mode of) service 356 11.16 Issue and service of notice u/s 148A 357 11.17 Issue and service of notice u/s 148 358 11.18 Issue of notice in different circumstances 360 11.19 Criteria for examining notice u/s 148A 361 11.20 Issuance of notice in the name of erstwhile entity 362
CONTENTS I-23 PAGE 11.21 Initiation of reassessment proceedings against the amalgamating company and Finance Act, 2022 362 11.22 Service on various persons 364 11.23 Issuance of notice in the name of dead person 367 11.24 Prescribed form of notice 370 11.25 Time limit for service of notice 370 11.26 Service through courier 371 11.27 Oral notice 372 11.28 Notice not following procedure prescribed u/s 282 372 11.29 In brief salient features of issue and service 372 11.30 Conclusion 375 CHAPTER 12 APPROVAL OF ADDITIONAL COMMISSIONER SECTION 148B 12.1 Introduction 376 12.2 The Provision 376 12.3 Ingredients 376 12.4 Comments 377 CHAPTER 13 APPROVAL FOR ISSUE OF NOTICE - SECTION 151 13.1 Introduction 378 13.2 The Provision 378 13.3 379 13.4 Various stages of approval 379 13.5 Amendment by Finance Act, 2023 379 13.6 Whether section 151 provides sanctioning authority or approving authority 380 13.7 Analysis of various approvals u/ss 148 and 148A 381 13.8 Sanction/approval is a jurisdictional issue 386 13.9 Approval by a different authority 387 13.10 Prerequisites of sanction 389 13.11 Opportunity of being heard before approval 389 13.12 Non-Application of mind and mechanical approval 389 13.13 Incurable errors 393
NOTICE DEEMED TO BE VALID UNDER CERTAIN CIRCUMSTANCES - SECTIONS 292B AND 292BB
ASSESSMENT AND REASSESSMENT IN
I-24 CONTENTS PAGE 13.14 Whether Assessee entitled to copy of approval/sanction order 395 13.15 The following kind of approvals/sanctions not upheld 396 13.16 Contrary view 397 13.17 Whether irregularity in granting approval is curable u/s 292B/292BB 398 13.18 Service of notices under Faceless Reassessment 398 13.19 Conclusion 399
CHAPTER 14
14.1 Introduction 400 14.2 Section 292BB 401 14.3 Section 292B 403 14.4 Service of the notice u/s 148 and section 292BB 406 14.5 Issue of notice v. service of notice 407 14.6 Notice u/s 143(2), reassessment proceedings and section 292BB 408 14.7 Notice u/s 148A and section 292BB 408 14.8 Objection to issue and service of notice 409 14.9 At what stage one should raise the plea of non-service of notice 410 14.10 At what stage the question of service of notice u/s 148A(b) can be raised 411 14.11 Circumstances where section 292BB cannot be applied 411 14.12 Other situations concerning the application of section 292BB 413 14.13 Conclusion 414
CHAPTER 15
SURVEY
15.1 Introduction 416 15.2 Assessment in search/requisition cases where search/requisition is initiated on or after 1-4-2021 417 15.3 Assessment in cases where survey u/s 133A is initiated on or after 1-4-2021 418 15.4 Bar for issuing notice u/s 148 for certain earlier years 419 15.5 Possible options in different years 419
SEARCH, REQUISITION AND
CASES
CHAPTER 16 REVISION
CONTENTS I-25 PAGE 15.6 Time limit for completing assessment/reassessment under new provisions 427 15.7 Amendment by Finance Act, 2022 428 15.8 Amendment by Finance Act, 2023 429 15.9 Ingredients of section 153A 430 15.10 Concept of relevant assessment year 431 15.11 Concept of “pending” u/s 153A 432 15.12 Concept of abatement 433 15.13 Various situations of abatement and completion of assessment 434 15.14 Relevance of incriminating material 435 15.15 The non-obstante clause in sections 153A and 153C 442 15.16 The meaning of assess and reassess 443 15.17 Time limit for completion of assessment u/s 153A (search before 1-4-2018) 443 15.18 Assessment u/s 153C 447 15.19 Exclusion of time in handing over of the books 473 15.20 Extension of time limit 473 15.21 Conclusion 473
OF
16.1 Introduction 474 16.2 Ingredients of section 263 474 16.3 Amendment by Finance Act, 2022 476 16.4 Amendment by Finance Act, 2023 477 16.5 The power and function of the Commissioner in revision 478 16.6 The concept of “erroneous” 479 16.7 Concept of prejudicial to the interest of revenue 481 16.8 Revision of the assessment orders involving the issues in respect of cash deposits, receipts, investment and expenditure 483 16.9 Explanation 2 to section 263 487 16.10 Relevant propositions u/s 263 490 16.11 493 16.12 496 16.13 Doctrine of merger 496 16.14 No revision is permissible on marginal loss to Revenue 498 16.15 Revision of order passed u/s 148A(d) 498
REASSESSMENT ORDERS
MISC.
CHAPTER 17 PENALTIES
CHAPTER 18
I-26 CONTENTS PAGE 16.16 Revision of reassessment order for making addition on new issues 499 16.17 Revision of reassessment order by invoking Explanation 2 to section 263 501 16.18 Limitation 501 16.19 Various propositions on application of section 263 taken in reassessment 502 16.20 Application of above principles in the context of new reassessment procedure 503 16.21 Conclusion 505
17.1 Introduction 506 17.2 Nature of default and penalties 506 17.3 General principles for penalty proceedings/order 507 17.4 Section 271(1)(c) 508 17.5 Penalty u/s 270A 510 17.6 Immunity u/s 270AA 529 17.7 Penalty u/s 271D 532 17.8 Penalty u/s 271E 543 17.9 Penalty u/s 271AAD 549 17.10 Penalty u/s 271AAC 561 17.11 Penalty u/s 271DA 563 17.12 Penalty u/s 271AAB 565 17.13 Penalty u/s 271AAE 572 17.14 Conclusion 574
INCOME
REOPENING
NEW LAW 18.1 Introduction 575 18.2 Cash deposited in bank 576 18.3 Acquisitions of Property 579 18.4 Loan/deposit/advance to other parties (sundry debtors) 580 18.5 Loan/deposit/advance/borrowings received by the assessee (sundry creditors) 582 18.6 Sales (under invoicing) 584
ESCAPED
AND
UNDER
CONTENTS I-27 PAGE 18.7 Sales (under invoicing by builders) 584 18.8 Sales (over invoicing) 585 18.9 Bogus Sales 585 18.10 Purchases (Substituted) 586 18.11 Purchases (bogus) 587 18.12 Purchases (costly household items) 588 18.13 Stock (excess) 589 18.14 Stock (short) 589 18.15 Deductions/exemptions 590 18.16 Computational errors 591 18.17 Accommodation entry 591 18.18 Receipt of on money (on sale of property) 592 18.19 Payment of on money (on purchase of property) 593 18.20 Property transactions below the stamp duty valuations 594 18.21 On money (received by builders) 595 18.22 Expenses (business) not recorded in the books 596 18.23 Acquisition of precious metals/jewellery 597 18.24 Purchase of shares (Dispute whether stock in trade or asset) 599 18.25 Expenditure (Gift/donations) 599 18.26 Expenditure (wedding, anniversaries, birthdays and other family functions) 600 18.27 Expenditure (on elections, temple constructions, foreign travels, school fees) 601 18.28 Bribery and illegal expenditure 601 18.29 Benami bank accounts 602 18.30 Payment of salary and perquisites 602 18.31 Receipts (business) 603 18.32 Receipts (illegal business) 604 18.33 Receipts (agriculture) 605 18.34 Receipts (gifts, inheritance) 605 18.35 Unaccounted money received in settlement 606 18.36 Unaccounted money paid in settlement 608 18.37 Unaccounted money received from developer 609 18.38 Unaccounted money paid by the developer 610 18.39 Expenditure found in electronics devices/loose sheets 611 18.40 Conclusion 612
19.4
CHAPTER 19
AGGREGATION OF ESCAPED INCOME U/S 149(1A)
escaped income in the form of asset can be clubbed with escaped income in the form of expenditure/entry to workout threshold limit provided u/s 149(1)(b)
19.5 Whether u/s 149(1A) aggregation is done only in respect of outexpenditure (in relation to an event or on an occasion) or whether such aggregation can be done both for asset and expenditure put together
19.6 Whether AO can stop if aggregation comes to ` 50 lakhs and thereafter does not identify other items of asset or expenditure?
CHAPTER 20
VALIDITY OF NOTICES ISSUED U/S 148 AFTER 01-04-2021 UNDER
I-28 CONTENTS PAGE
19.1 Introduction 613 19.2 Rule of aggregation u/s 149(1A) 613 19.3 Possible inferences and defence 617
619
Whether
620
621 19.7 Conclusion 621
OLD LAW 20.1 Introduction 623 20.2 Extension of due dates 624 20.3 624 20.4 625 20.5 626 20.6 The decision of the High Courts 627 20.7 SLP of the Revenue 631 20.8 The procedure to be followed as per Ashish Agarwal’s case (supra) 632 20.9 Analysis of section 149(1) of new law providing time limit for issue of notice u/s 148 632 20.10 Defence available to the taxpayer 634 20.11 Instructions issued by the CBDT 638 20.12 Comments 641 20.13 The gist of above Instructions 643 20.14 Conclusion 647
THE
CHAPTER 21
RESPONSE TO THE NOTICES UNDER NEW LAW
CHAPTER 22
SUBSEQUENT TO ASHISH AGARWAL’S CASE
CONTENTS I-29 PAGE
21.1 Introduction 649 21.2 Pre-notice procedure followed by the Department 649 21.3 Evaluation of notice u/s 148A(b) by the assessee 654 21.4 Further checking by the assessee before furnishing reply 656 21.5 Contents of the reply u/s 148A(b) 658 21.6 Evaluation by the assessee after the receipt of order u/s 148A(d) and notice u/s 148 659 21.7 Challenge to notice u/s 148 issued under new law 660 21.8 Writ may not be allowed in following circumstances 661 21.9 Draft responses to various kind of notices issued u/s 148A(b) 663 21.10 Summary of the issues which can be raised in response to notice u/s 148A(b) 667 21.11 Summary of the issues which can be raised in response to notice u/s 148A(d) 669 21.12 Conclusion 670
22.1 Introduction 671 22.2 The decision in Touchstone Holdings (P.) Ltd. v. ITO 672 22.3 The decision in Nutan Bhusan Jena v. PCIT 673 22.4 The decision in Ashok Kumar Agarwal v. UOI 673 22.5 The Decision in Ved Prakash Mittal’s case 676 22.6 The decision in Salil Gulati v. ACIT 676 22.7 The decision in Rajeev Bansal v. UOI 677 22.8 The decision in Keenara Industries (P.) Ltd. v. ITO 679 22.9 The Decision of Hon’ble Madhya Pradesh High Court in M/s. Space Enclave Private Limited v. ITD 682 22.10 Considering the background cases and above judgments, entire development can be summed up 683 22.11 issued under old law between 01-04-2021 to 30-06-2021 685
DEVELOPMENTS
CHAPTER 23
ENHANCEMENT IN REASSESSMENT
I-30 CONTENTS PAGE 22.12 The AO can drop notices u/s 148 issued under old law during the period between 01-04-2021 to 30-06-2021 and issue fresh notices under new law 685 22.13 A Possible different view 685 22.14 Possible scenario for issue of notice u/ss 148A(b) and 148 during FYs 2022-23 and 2023-24 688 22.15 Conclusion 690
23.1 Introduction 691 23.2 The power of CIT(A) falling within the scope of enhancement 691 23.3 Limitation on the power of enhancement of CIT(A) 692 23.4 Power of enhancement of CIT(A) in reassessment order under old law 694 23.5 Enhancement in reassessment u/s 153A/153C 696 23.6 Enhancement in reassessment made under Explanation 1 and under Explanation 2 (in respect of survey) to section 148 under new law 698 23.7 Enhancement in reassessment made under Explanation 2 to section 148 (other than survey) under new law 699 23.8 Conclusion 700 23.9 Introduction 700 23.10 The provisions 700 23.11 Whether Tribunal has power of enhancement? 703 23.12 Power of enhancement in Proviso to section 254(2) 704 23.13 Analysis of the above Proviso 704 23.14 Scope of word “assessment” in the Proviso to section 254(2) 704 23.15 Power of conversion of income assessed under one head into another 705 23.16 The consequence of lack of power of enhancement 705 23.17 Conclusion 706 CHAPTER 24 FAQs Old law v. New law 707 Scope of section 147 707
CONTENTS I-31 PAGE Scope of section 148A 708 To issue Fresh Notice u/s 148A(b), if earlier Notice is Defective 712 Jurisdiction of the AOs Conducting Proceedings u/s 148A and issuing Notice u/s 148 714 Scope of section 148 715 Issue of Notice u/s 148 in Faceless Assessment Scheme 716 Scope of Explanation 1 to section 148 716 Time limit for Utilizing Information for Reopening of Assessment under new law 720 Not enclosing order u/s 148A(d) with the Notice u/s 148 720 721 Scope of Explanation 2 to section 148 722 Scope of deemed income 725 Interplay of section 153C/153A and section 148A 726 Notice u/s 148 during Pendency of Reassessment Proceedings 728 Notices u/s 148 in search and Requisition cases 728 Reopening of Assessment on the basis of Survey 733 Issue of notice u/s 148A/148 during time available for issue Notice u/s 143(2) 736 Scope of Proviso to section 148 737 General scope of section 149(1) 737 Reopening of Assessment beyond three years under new law 742 Scope of sixth Proviso to section 149 742 Scope of Expression ‘asset’ in section 149(1) 743 Scope of section 149(1A) 747 Reopening under new law on the basis of Suspicion 748 Recording of reasons is not required under new law 749 Concept of Abatement of Proceedings under new law 750 Approval in Reopening under new law 751 Inclusion of new issue in Reassessment under new law 752 Disturbing concluded issues in Reassessment under new law 757 Requirement of issue of Notice u/s 143(2) in Reassessment under new law 759 Reopening on the Allegation of Assessment at Lower rate of tax 760 under new law 760
I-32 CONTENTS PAGE Entry as an Escaped Income 763 Sections 68 to 69D and Reassessment under new law 764 Utility of Statement Recorded during Summons/survey and Search 765 Penalties in Reassessment under new law 766 Utility of Books/Documents/Evidence in non-search cases 767 Scope of Expression ‘a Transaction’ 768 Revision u/s 263 of an order of Reassessment 769 Limitation in set aside cases 770 SUBJECT INDEX 777
OLD LAW v. NEW LAW
Q1. What is similarity/dissimilarity in the issuance of notice u/s 148 under new law and under old law:
Ans. The similarities are- (i) service of notice u/s 148 is essential for a valid reassessment, (ii) issue and service are different, whereas issue of notice before limitation is essential for assuming jurisdiction to reassess, the service of notice is essential for valid assessment, (iii) approval from specified authority (new law) or satisfaction of senior authority is essential as provided u/s 151.
The dissimilarities are- (i) the reasons are no longer required to be recorded, (ii) the limitation for issuance of notice u/s 149(1) is changed into two slabs, three years and ten years, (iii) additional conditions are provided for issuing notice u/s 148 after three years u/s 149(1)(b).
SCOPE OF SECTION 147
Q2. What is the scope of expression “for the purpose of assessment or reassessment under this section” used in section 147?
Ans. This issue is relevant in the context of Explanation to section 147. If an item of escaped income is added in the reassessment a purpose of assessment or reassessment will be served but where an item of income in respect of which procedure u/s 148A is followed and thereafter notice u/s 148 was issued, is not added in the reassessment then no purpose of reassessment is served and therefore, explanation to section 147 may not be invokable. There are other situations where there is apparently no purpose of reassessment. For example: where in survey cases no material is found for one or two relevant assessment years, then there is no purpose of reassessment and therefore, even notice u/s 148A(b) is not required to be issued and consequently no reassessment proceedings are initiated and explanation to section 147 is not required to be invoked.
707
CHAPTER FAQs 24
Q3. If there is no material for reassessment (to issue notice u/s 148) for any relevant assessment year, whether any purpose will be served to invoke explanation.
Ans. One view is that no purpose will be served if there is no material for reassessment. However, this issue will arise only when explanation to section 147 is invoked for adding in the reassessment new item of escaped income noticed during reassessment proceedings. For example: in a search case, search is deemed information and notice u/s 148 can be issued even though there may not be any material for any of the 3 initial relevant assessment years covered u/s 149(1)(a). Since there is no material, no purpose is likely to be served by initiating reassessment proceedings.
Q4. Whether section 147 can be invoked or procedure u/s 148A can be is above taxable limit.
Ans. There cannot be any dispute that there is an escapement of income but the procedure u/s 148A can be followed only when such information falls under Explanation 1 (except clause (iv)) or under Explanation 2 (ii) of section 148. Personal knowledge of the AO is not relevant in deciding to invoke section 148A.
Q5. Whether section 147 can be invoked in cases of claim of excessive depreciation, loss, allowance, or relief.
Ans. Yes, provided such information comes to the AO through audit objection or through RMS (falling under Explanation 1 to section 148) and satisfy the limitation u/s 149(1)(a). The AO has to follow procedure u/s 148A before issue of notice u/s 148. However, if such items fall within the limitation u/s 149(1)(b), no action apparently is possible.
Q6. Whether section 147 can be invoked in respect of errors committed by the AO in the assessment.
Ans. Where error committed by the AO in computation is pointed out by the audit it will form part of Explanation 1 to section 148 and AO can initiate proceedings u/s 148A/148 in respect of AY falling under limitation of section 149(1)(a). No action is possible if computation error falls in the AY falling within the limitation of section 149(1)(b). Other options available to the AO are section 154 or 263.
SCOPE OF SECTION 148A
Q7. Whether AO can carry out any inquiry u/s 148A(a) so as to discover new issues in addition to issues arising under Explanation 1 and Explanation 2 (ii) to section 148.
Ans: The scope of inquiry is limited to the information which suggests that
708 FAQs
FAQs 709
income chargeable to tax has escaped assessment. The language of section 148A(a) is very clear. No roving and fishing inquiry in respect of any other matter or issue, other than arising from the information is permissible.
Q8. Suppose notice u/s 148A is issued on 31-03-2022 for the Ay 2018-19 on the basis of information falling under Explanation 1 to section 148. The order u/s 148A(d) is passed on 03-05-2022, (being within limitation under u/s 149(1)(a) as the period consumed in the process of section 148A is excluded by virtue of fourth proviso to section 149(1)(a)) and order u/s 148A(d) along with notice u/s 148 is served on 07-05-2022. Whether for issue of notice u/s 148 approval u/s 151(i) or u/s 151(ii) will apply.
Ans. The AO can issue notice u/s 148A even on 31-03-2022 for the AY 2018-19 as this assessment year will be within limitation of section 149(1) (a). And by virtue of fourth proviso to section 149(1), limitation therein will be extended, so that minimum seven days are available to him to enable the AO to pass order u/s 148A(d). Therefore, for getting approval to pass order u/s 148A(d) section 151(i) will apply. Thereafter when notice u/s 148 is to be issued then limitation u/s 151(ii) will apply as AY 2018-19 will now fall beyond three years. Fourth proviso to section 149(1) cannot apply to section 151 as a deeming provision is enacted in that proviso which will enable the AO to pass order u/s 148A(d) within extended period and for approval for such order specified authority will be one mentioned in clause (i) of section 151. But such extension of limitation is not provided for issue of notice u/s section 148, hence clause (ii) thereof will be applicable to get approval to issue notice u/s 148. Similar situation may arise in cases falling under Explanation 2 (ii) to section 148. If this issue is extended further, and notice u/s 148A is issued on last day of tenth year, the case will fall beyond limitation, even u/s 151(ii), for granting approval to issue notice u/s 148. Hence issue of notice u/s 148 will be barred by limitation.
Q9. Is it necessary for the AO to prove in the notice u/s 148A(b) that there is right to receive the income by the assessee so that there is an escapement of income.
Ans. For issue of notice u/s 148A(b) it is not necessary that AO has to show that assessee has got right to receive the income which has escaped assessment. Merely information which suggests that income has escaped assessment (under Explanation 1 and Explanation 2(ii) to section 148) is sufficient to issue notice u/s 148A(b). It is for the assessee to furnish information to the AO, in the reply to the show cause notice, that he has no right to receive the income alleged to have escaped assessment. Thereafter, onus will shift on the AO to hold in the order u/s 148A(d) how assessee has right to receive the alleged escaped income. If AO is not able to establish how the assessee has the right to receive the income, issuance of notice u/s 148 may be invalid.
Reference may be made to the decision of Hon’ble Apex Court in P.G. & W. Sawoo (P.) Ltd. v. ACIT1 .
Q10. Whether assessee can demand documents annexed with the information received by the AO or inspection of the assessment record before replying to show cause notice issued u/s 148A(b).
Ans. So far as inspection of the assessment record is concerned, it is the right of the assessee under departmental instructions. He can comply with the rules relating to the inspection and make payment of necessary fee. So before reply to the show cause notice inspection can be demanded. He can also demand the documents annexed with the information. This will be in accordance with the principles of natural justice. Even though it is not so specifically provided in the section but the expression in section 148A(b) that “…on the basis of information which suggests that …” clearly vests a right in the assessee to get complete information including documents annexed with it. The scope of this expression is larger than the expression “…and results of enquiries conducted, …” in subsequent part of section 148A(b). The difference in the two expressions clearly require the AO to provide complete information to the assessee as compared to what is provided in respect of enquiries carried out by him, whose results alone are provided to the assessee.
Q11. Can AO ask the assessee to produce books of account and documents in reply to notice u/s 148A(b). Can he carry out regular hearing u/s 148A(b) before passing order u/s 148A(d).
Ans. As such the AO cannot ask the assessee to produce books of account and documents in response to the show cause notice u/s 148A(b). It is because AO is only empowered to issue show cause notice in writing and seeking a reply thereon. However, the AO can initiate proceedings for enquiries u/s 148A(a) after due approval from specified authority and call for books of account or documents from the assessee and examine them in the light of the information (As per Explanation 1 to section 148) received by him. It will not be a regular hearing u/s 148A(a) but examination of books of account and documents is likely to be carried out to support/supplement the information in possession of the AO. However, AO cannot call for books of account or documents relevant to the assessment year falling between seventh to tenth relevant assessment year because of Rule 6F(5) which requires the assessee to maintain books of account and documents only upto the six assessment years and in cases where presumptive income is taxed.
Q12. Whether it is necessary that in all cases where notice u/s 148 is issued in April 2021 and onwards, order u/s 148A(d) has to be enclosed. Ans. In a recent judgment in the case of Armada D1 Pte. Ltd. v. DCIT2
1. [2016] 69 taxmann.com 188 (SC)
2. 2021 (6) TMI 1056 – Bom. HC.,
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Hon’ble Bombay High Court vide there order dated 03-06-2021 stayed the proceedings in respect of the notice issued u/s 148 on 07-04-2021 for the AY 2013-14 on the plea of the counsel of the assessee that revenue has violated the mandatory provisions of section 148A which were effective from 01-042021. The issue which arises in such cases is whether notice u/s 148 issued on and after 01-04-2021, without following the procedure u/s 148A is invalid in all cases. Almost all the Courts, Delhi High Court, Allahabad High Court, Rajasthan High Court, Bombay High Court held that issuance of notice u/s 148 on or after 01-04-2021 without following the procedure u/s 148A is invalid. However, Hon’ble Apex Court by its order dated 04-05-2022 held that notices issued u/s 148 under old law during the period from 01-04-2021 to 30-06-2021 should be deemed as notices issued u/s 148A and the provision of law under new Act will apply accordingly.
Q13. Whether show cause notice can be supplemented by subsequent information/material and referred in the order u/s 148A(d) to justify issuance of notice u/s 148.
Ans. No. The order u/s 148A(d) has to be exclusively based on information, inquiries u/s 148A(a), show cause notice and replies of the assessee. The decision in the order u/s 148A(d) cannot be subsequently justified by other material/information/affidavits/statements. The legality of such order has to be evaluated only on the basis of material available on record which consist only of, information, inquiries, show cause notice and replies of the assessee.
Q14. Whether procedure u/s 148A is required to be followed in cases covered u/s 135A?
Ans. No. It has been specifically provided in clause (b) to proviso to section 148A that provisions of this section will not apply where AO receives information pertaining to income chargeable to tax escaping assessment for any assessment year in the case of the assessee.
Q15. Whether use of procedure u/s 148A has been considerably restricted to limited number of information by Finance Act, 2022 as compared to what was existed under Finance Act, 2021.
Ans. Yes, it appears to be so. The Finance Act, 2021 permitted direct issue of notice u/s 148 only in the cases of search/requisitions whereas in addition, Finance Act, 2022 has further empowered the AO to issue notice u/s 148 directly without following the procedure u/s 148A in the cases of information received u/s 135A. Section 135A enables the Department to collect, analyse and disseminate information received u/ss 133, 133B, 133C and 134 under a scheme and through electronic mode, and on that basis to issue notice u/s 148 without following the procedure u/s 148A. Earlier such information as
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per Finance Act, 2021, used to be received through RMS therefore, it became necessary to follow the procedure u/s 148A. Now entire such information may be received u/s 135A and therefore, clause (i) of Explanation 1 to section 148 is considerably diluted and therefore, necessity to follow the procedure u/s 148A is also considerably reduced. Now, as per Finance Act, 2022, procedure u/s 148A has to be followed under Explanation 1 to a limited number of situations as the impact of clause (i) of Explanation 1 is negligible.
to be followed in cases covered u/s 135A?
Ans. It seems yes. Under the scheme framed u/s 135A, the prescribed authority checks from the return of the assessee and calls for his explanation for verifying the correctness of information in his possession. Once the verification from the assessee about the information is already done, it is not considered necessary to issue notice u/s 148A which is also a kind of verification.
TO ISSUE FRESH NOTICE U/S 148A(b), IF EARLIER NOTICE IS DEFECTIVE
Q17. Whether new notice u/s 148A can be issued if earlier notice u/s 148A is dropped or quashed? What will be the situation in respect of notice u/s 148, whether such notice can be issued a fresh.
Ans. As stated above, there is no restriction as to the number of times notice u/s 148A(b) can be issued. If notice u/s 148A(b) is dropped for want of complete information about amount of income escaped assessment, the name of the assessee to whom such income would belong, the assessment year in which such income has escaped assessment and whether such income is chargeable to tax, and subsequently the AO gets complete information after carrying out enquiries u/s 148A(a) then he can issue a fresh notice u/s 148A(b). So far as notice u/s 148 is concerned, even though there is no limitation on the AO to undertake reopening of the assessment only once3, second notice cannot be issued during the pendency of reassessment proceedings in pursuance of first notice. Reference may be made to the following authorities4. But where, in response to an invalid notice assessee filed the return, the issuance of second notice u/s 148 was held invalid by Hon’ble Calcutta High Court in Indian Tubes Co. Ltd. v. ITO5
5. [2005] 272 ITR 439 (Cal.)
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3. Kunal Organics (P.) Ltd. v. DCIT [2014] 44 taxmann.com 323 (Guj.); Sukhlal Ice & Cold Storage Co. v. ITO [1993] 199 ITR 129 (All.)
4. Commercial Art Press v. CIT [1979] 1 Taxman 38 (All.); CIT v. Ram Kishan Leela [2007] 295 ITR 525 (Raj.)
Q18. If notice u/s 148A(b) is found defective, can the AO issue fresh show cause notice u/s 148A(b).
Ans. If show cause notice is found defective, on account of (i) jurisdiction of AO issuing such notice (ii) not mentioning therein the information which suggested that income chargeable to tax has escaped assessment or (iii) not providing results of inquiries carried out by him or (iv) not seeking approval, or not seeking from correct specified authority, it will be treated as non-est and no valid proceedings thereafter can continue. However, this does not preclude the issuance of notice u/s 148 by the correct officer after reinitiating proceedings u/s 148A, provided limitation u/s 149(1) is available.
Q19. If proceedings u/s 148A are quashed, whether AO is debarred for issuing notice u/s 148.
Ans. Where proceedings u/s 148A are quashed for certain reasons such as not taking approval from specified authority, no notice u/s 148 as a consequence of this procedure can be issued, but AO will be free to reinitiate fresh 148A proceedings after removing the irregularities or illegalities and if they are valid, notice u/s 148 can be issued as a consequence of such new proceedings provided limitations and other conditions mentioned in section 149(1) are complied with.
Q20. When notice u/s 148 is not issued as on the basis of information
proceedings u/s 148A on the same information by carrying out more and detailed inquiries.
Ans. Technically yes. The reasons are that no assessment or reassessments are initiated or framed on the basis of that information, the character and quality of information is not altered by not issuing notice u/s 148, the AO will be at liberty to conduct more and in-depth inquiry to come to a fresh conclusion that there was an income which was chargeable to tax, and which has escaped assessment for that relevant assessment year. However, he has to issue a fresh show cause notice u/s 148A(b) incorporating therewith fresh material collected on inquiries. For example, the initial information was that assessee had made a cash deposit of ` 50 lakhs in bank account. He made preliminary inquiry by way of verification from the record and issued show cause notice u/s 148A(b). The assessee replied that they are the sale proceeds recorded in the books. The cash deposit is no longer unexplained and therefore, it will not be a fit case for issue of notice u/s 148. The AO drops the proceedings u/s 148A, carries out further inquiries by way of survey and finds that assessee did not have stock to make sales. The AO will be at liberty to issue fresh show cause notice u/s 148A(b) incorporating therein new material so found. This may now become a case under Explanation 2 to section 148. There is no limit as to how many times notice u/s 148A(b) can be issued on the same issue provided fresh material is available every time.
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JURISDICTION OF THE AOs CONDUCTING PROCEEDINGS U/S 148A AND ISSUING NOTICE U/S 148
than that who has conducted proceedings u/s 148A. Ans. Primarily, the AO who conducts the proceedings u/s 148A should be the same who is to issue notice u/s 148 i.e. the AO who has jurisdiction over the assessee. This jurisdiction can be primary jurisdiction u/s 124(1) or specific jurisdiction as conferred upon him u/s 127, or where assessee is regularly assessed. If the proceedings u/s 148A, or issuance of notice u/s 148 is done by an officer who does not have either natural jurisdiction or conferred jurisdiction, then such proceedings will be invalid. But it is possible that an assessee may have natural jurisdiction at a different place, then the jurisdictional place of the AO, where he is regularly assessed. Thus, the AO having natural jurisdiction over the assessee based on (i) where he carries on business or profession, or principal place of business of profession, (ii) place of residence or (iii) place where he has bank account, can issue notice u/s 148A(b) to the assessee (based on decision of Hon’ble Delhi High Court in Abhishek Jain v. ITO6. Thus, an officer having natural jurisdiction, or an officer having regular/conferred jurisdiction can issue notice u/s 148A but notice u/s 148 needed to be issued by the AO having regular/conferred jurisdiction provided the assessee in the reply to the show cause notice raises the issue of jurisdiction of the AO who has issued notice u/s 148A(b). In any case, objection to jurisdiction can also be raised during reassessment proceedings. Once, such objection about jurisdiction is raised before the AO who has issued notice u/s 148A(b), then it is necessary that such AO should transfer all the material available with him to the AO having regular jurisdiction who would issue fresh notice u/s 148A(b) and start afresh proceedings u/s 148A. If the AO having natural jurisdiction but not regular jurisdiction comes to know that there is dispute to jurisdiction, he must get it resolved u/s 124(2) or u/s 124(4). (For further discussion on this issue please refer to the Chapter on section 148)
The principle involved in recording reasons and issuance of notice u/s 148 that, if reasons are recorded by non-jurisdictional officer but on that basis notice u/s 148 is issued by jurisdictional officer will be bad in law7, can also apply in issuing notice u/s 148A(b). If notice u/s 148A(b) has been issued by non-jurisdictional officer but notice u/s 148 has been issued along with the copy of the order u/s 148A(d) by the jurisdictional officer, such notice u/s 148 may be bad in law. Therefore, the AO issuing the notice u/s 148A(b) and passing order u/s 148A(d) and the one who issues notice u/s 148 should be the same and should be jurisdictional officer. Further reference, on the
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6. [2018] 94 taxmann.com 355 (Delhi)
7. M/s. G.K. Business Centre (P.) Ltd. v. ITO 2021 (3) TMI 508 - (ITAT-Delhi)
similar issue may be made to the decision of Hon’ble Gujarat High Court in Hynoup Food & Oil Industries Ltd.8
Q22. Where more than one Assessment Year is required to be reopened, is it necessary that conditions for assumptions of jurifor all the years taken together?
Ans. The condition for assumption of jurisdiction must be satisfied for each year independently. If notice u/s 148A(b) is required to be issued for more than one assessment year, then facts relating to each assessment year should be explained separately. If income escaping assessment fall within three initial Assessment Years and some income escaping assessment fall within fourth to tenth assessment years, then notice u/s 148A(b) needed to be issued separately for the two slabs satisfying conditions mentioned u/s 149(1). On the issue that conditions u/ss 147/148 and 149 should be satisfied for each assessment year separately reference may be made to the following decisions.9
Q23. Whether the AO issuing notice u/s 148A(b) and the AO issuing notice u/s 148 should be the same person?
Ans. Under old law it has been held by Hon’ble Gujarat High Court in Hynoup Food and Oil Industries Ltd. v. ACIT10 that a successor officer cannot issue notice u/s 148, on the satisfaction recorded by the predecessor officer because the belief that there is an escapement of income has to be of the same officer who has issued notice u/s 148. However, under the new law the requirement is of issuing show cause notice and passing an order u/s 148A(d) that it is a fit case to issue notice u/s 148A after due approval from specified authority. Thus, the officer who passed order u/s 148A(d) and who issued notice u/s 148 should be the same jurisdictional officer and may not be the same person (officer). The issue does not have much relevance now in faceless assessment where jurisdiction lies with National e-Assessment Centre (NeAC).
SCOPE OF SECTION 148
Q24. Can notice u/s 148 issued for ignoring binding decision of the jurisdictional courts.
Ans. After insertion of clause (v) in Explanation 1 by Finance Act, 2022, w.e.f. 01-04-2022, information which requires action in consequence of the order of a Tribunal or a Court, can become basis for issuance of notice u/s 148A and thereafter u/s 148.
8. [2008] (7) TMI 192 – Guj. High Court.
9. P.K. Nair v. ITO [1973] 90 ITR 512 (Ker.); Ashoka Marketing v. ITO [1978] 111 ITR 783 (Cal.)
10. [2008] 307 ITR 115 (Guj.)
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