About the Authors D.C. Agrawal, Advocate, has a vast experience in the field of taxation. He served in Income Tax Department, as an IRS officer for about 30 years. Thereafter in 2005, he was elevated to Income Tax Appellate Tribunal where he served as Accountant Member till his superannuation in July 2011. In Income Tax Department, he served in various capacities, from Assessing Officer, Investigating Officer and Departmental Representative before Income Tax Appellate Tribunal and Income Tax Settlement Commission. During his tenure as Investigating Officer in Delhi, he has been associated with some high-profile cases. Apart from being IRS, he holds master’s degree in Science. He is Law Graduate and is also a qualified Cost and Works Accountant. As an Accountant Member of Income Tax Appellate Tribunal, he has authored several landmark judgments which have been published in leading Tax journals. He has also authored two books “Basic Concepts of International Taxation” and “Taxation of Cash Deposits & Deposits after Demonetisation” published by Taxmann and about 200 Articles on various topics in Direct taxes, particularly carrying analysis of judgments rendered by Hon’ble High Court and Income Tax Appellate Tribunal. These Articles are published in leading journals such as Corporate Professionals Today. Currently, he is practising as an Advocate and Consultant and also appearing before Income Tax Appellate Tribunal and Income Tax Settlement Commission. He has represented in several important matters involving issues relating to domestic taxes, Transfer Pricing and International Taxation. His e-mail id is dcagrawal49@gmail.com Ajay Kumar Agrawal FCA, is a science graduate and fellow chartered accountant in practice for over 26 years. Ajay has been in continuous practice mainly in corporate consultancy, litigation in the field of Direct and Indirect Tax laws, Regulatory Law, and Commercial Law beside the Auditing of Corporates and Banks. He has wide experience in variety of consulting matters of corporates and multinationals in the field of merger & acquisitions, corporate restructuring, across sectors, domestic and international taxation. I-5
ABOUT THE AUTHORS
I-6
Litigation has been his favourite area of practice and he has advised corporates and multinational corporates in the field of Direct Tax, FEMA, FDI Laws and Search and Seizure segments. He is also contributor to the professional publications. He was also associated as member with Professional development committee of NIRC of ICAI. His e-mail id is ajay@caajaykagrawal.com
Preface The tax avoidance within the four corners of law is considered legitimate as taxpayers have every right to minimize their tax liability by resorting to tax planning. However, the boundary between tax planning and tax avoidance leading to tax evasion is very hazy and the taxpayers, knowingly or unknowingly enter into the domain of tax evasion by resorting to untenable adjustments, or by altogether omitting to disclose the true state of affairs to the tax authorities. By adopting accounting juggleries, round tripping of unaccounted money, unacceptable legal interpretations, finding loopholes in the legislative drafting, camouflaging transactions, accommodation entries, not recording transactions, etc. the taxpayers do not declare their correct income in their return, resulting in under assessment and thus, avoid payment of lawful tax to the Government. Such under assessment of the income is discovered subsequently when information relating thereto comes on the record of the tax authorities. In order to levy correct and lawful tax for the assessment year, the tax authority resorted to assessment/ reassessment of income of such assessment year. Section 25 of IT Act, 1918 empowered the collector to reassess income of the preceding year, if he found that income chargeable to tax has escaped assessment. Subsequently, section 34 of IT Act, 1922 gave similar power to the ITO to reassess income, if he believed in good faith that income for some reason has escaped assessment. Various modifications continued to take place subsequently so as to make the procedure of reassessment simpler and less troublesome to the taxpayers. Couple of limitations were provided under which procedure for reassessment could be adopted. When IT Act, 1961 came I-7
PREFACE
I-8
into force, section 147 to section 153 provided a systematic and legally comprehensive reassessment procedure. The concept of recording reasons before reopening was inserted so that settled assessments are not disturbed merely on the basis of suspicion or apprehension. Several amendments were carried out in the reassessment provisions considering the requirement of revenue for getting rightful tax and opinion of various stakeholders. Before 1995, the reassessment in cases resulting from search and seizure operations used to be carried out through sections 147 to 153 in the same manner as reassessment in normal non-search cases was carried out, i.e. the assessing authority had to record reasons and arrive at a prima facie belief that income chargeable to tax has escaped assessment. Hon’ble Apex Court in GKN Driveshafts (India) Ltd. v. ITO [2002] 125 Taxman 963 (SC) laid down procedure to be followed after recording the reasons for reopening the assessment which also led, on failure of the Assessing Officer to strictly adhere to that procedure, to leakage of revenue. But the legislature did not consider it appropriate to nullify the ratio of this decision which ultimately became the law for reassessment process. Through Finance Act, 1995, the concept of Block Assessments was introduced where six past assessment years was considered as one block year for carrying out reassessment of escaped income discovered due to search and seizure operations. However, feeling legal hurdles in the operations of these provisions, new reassessment scheme in search and seizure cases was introduced in 2003 through the sections 153A to 153D. This new scheme continued in operation from 2003 to 2021. The legislature felt leakage of revenue due to several technical glitches discovered by the taxpayers and approved by the Courts, such as not recording satisfaction, by the Assessing Officer of the “person searched”, making assessment/reassessment only on the basis of incriminating material found in the search i.e. escaped income could not be brought to tax, if discovered through post search investigations, difficulties faced in counting limitations for initiating proceedings or completing proceedings,
I-9
PREFACE
or in identifying assessment years for which assessment/ reassessment is to be carried out, in the concept of pending and abatements, or in bringing to tax escaped income in the hands of a right person to whom it belonged and discovered in the search. Considering several technical flaws in the new scheme of assessment/reassessment through sections 153A to 153D and unavoidable impact of the ratio of Hon’ble Apex Court in GKN Driveshaft’s case, the legislature considered it appropriate to bring back old procedure of reassessment, in search/nonsearch cases, through sections 147 to 153 which was infact in vogue from 1922 (through section 34 of 1922 Act) to 1995 and was well established through highly respectable propositions held by Courts including Hon’ble Apex Court. To that system of reassessment, proposition held out in GKN Driveshaft’s case was incorporated in newly enacted section 148A with additional limitations imposed on the assessing authorities, which could enable them to reopen the concluded assessments with rather comfortable ease for three initial relevant assessment years, and with severe restrictions, if concluded assessment is sought to be reopened beyond three relevant assessment years. The new scheme of reassessment, though an incarnation of already existing procedure is not as simple as apparently it appears. The concept of deemed information in search/ requisition cases would enable the AO to reopen the assessment irrespective of whether any material, indicating escapement of income is discovered in the search or not, whether it would enable the AO to carry out roving and fishing inquiries even if no material is found in the search for a relevant assessment year. There are other very intricate issues which are emerging or apprehended when the new procedure of assessment/ reassessment will be applied such as (i) whether AO can keep the material found in the search under his sleeves for several years before resorting to reassessment procedure as the limitation provided u/s 149 permits him to do so (ii) if survey is a deemed information why procedure u/s 148A is allowed to be followed in contradistinction with search cases which are also deemed information but in those cases section 148A
PREFACE
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is not followed (iii) If reassessment u/s 148 is to be carried out only on the basis of information which suggests that income chargeable to tax has escaped assessment, then how search and survey which are only deemed information for three years will become information for subsequent seven years (iv) if the new law applicable from 01-04-2021 is more beneficial to the assessee then why it should not be effective retrospectively and therefore applicable for earlier assessment years also, wherever old law is to be applied (v) why escaped income which is otherwise taxable under the provisions of the Act is allowed to remain untaxed after three initial assessment years i.e. if such escaped income is not represented by an asset cannot be taxed. Is it not a premium to tax evasion, is it not discriminatory for honest taxpayers who declares it in the return as compared to those who do not declare and sleep over for more than three years enabling them to permanently evade tax on such escaped income. Therefore, objective of the book is (i) to provide general idea about the amendment through Finance Act, 2021 in the provisions relating to reassessment (ii) to provide an insight into various provisions through a simple and understandable explanation (iii) to highlight the conditions under which deeming provision of section 148 can be applied, or procedure contained in section 148A can be followed (iv) to highlight to what extent propositions upheld by the Courts under old law can be applied under new law (v) to highlight the circumstances under which revision u/s 263 in reopened cases can be done and (vi) to highlight the circumstances under which penal provisions in relation to escaped income can be invoked. It is possible that some readers may want quick answers to certain questions. In order to meet this requirement, a chapter on selected questions and answers, which may be called FAQs on the issues relating to assessment/reassessment has also been inserted in the book. As a supplement we have incorporated topics on “Revision u/s 263” and “penal provisions in reassessment” so that usefulness of the book is increased.
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PREFACE
In this book, the material available in public domain and the websites of Taxmann and other agencies have been used. Largely, it is a presentation of available data in a form suitable to the issues arising from reassessment procedure giving personal views wherever considered appropriate. Even though all the efforts have been taken to make the work error free, it is possible that some inadvertent errors might have crept in. It is sincerely hoped that readers will forgive us for these errors. As and when they come into our notice necessary corrections will be done. With these words we dedicate this book to our esteemed readers, with the hope that it will render maximum assistance to them to present their cases before Revenue/Appellate Authorities. D.C. AGRAWAL, Advocate M.Sc., LL.B., ICWAI IRS (Commissioner of Income tax (Retd.)) & Accountant Member, ITAT (Retd.) dcagrawal49@gmail.com AJAY KUMAR AGRAWAL, FCA ajay@caajaykagrawal.com
Acknowledgement A work of this nature requires substantial preparation and research and support of the friends. There are no words to express gratitude to all those friends, associates and mentors who have given especially important input to outline the structure, contents, and the details. We admit that work of this nature requires consultation and references. We have consulted the work of renowned authors on various topics available in public domain. At many places we have referred to their work. We deeply acknowledge with gratitude to all those esteemed authors. We have freely consulted and referred judgments of various Benches of Income Tax Appellate Tribunal and Hon’ble High Courts/Supreme Court. We sincerely thank and express gratitude to these esteemed institutions as their orders/ judgments referred to in this book will help “the seeker” to find answers of the issues at hand. In particular we express our sincere thanks (i) to Dr. Rakesh Gupta and Somil Agarwal, Advocates for their work on “Penalty under section 271AAD - Facets and Fallout”, on their webinars on search and seizure assessments and on section 148 which we have consulted; (ii) to Mr. Y. K. Gaiha, Advocate to whom we have consulted on some topics and (iii) to members of WhatsApp Group named “ITAT Bar Family Group” for valuable inputs. We also express my sincere thanks to our staff Ms. Aparna Bhutani who has sincerely carried out the transcription work. Many thanks to Mr. Rakesh Bhargava Director Taxmann Publications Pvt. Ltd., and his editorial Officers, particularly Mr. Naveen Wadhwa DGM and Mr. Mitra Pal Yadav DGM who have given valuable ideas to make the work effective and provided an attractive presentation. We have utilized the Corona period to carry out the research, compilation, and analysis.
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ACKNOWLEDGEMENT
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We specially pay sincere thanks to our family members who always stood with us in this endeavour. It was their most precious time we spent on this work. D.C. AGRAWAL, ADVOCATE AJAY KUMAR AGRAWAL, FCA
Chapter-Heads PAGE
About the Authors
I-5
Preface
I-7
Acknowledgement
I-13
Contents
I-17
List of cases
I-27
Chapter 1 Introduction
1
Chapter 2 Income Escaping Assessment - Section 147
27
Chapter 3 Issue of Notice where Income has Escaped Assessment - Section 148
65
Chapter 4 Conducting Inquiry, providing Opportunity before issue of Notice under Section 148 - Section 148A 92 Chapter 5 Concept and Scope of Deemed Information
125
Chapter 6 Time limit for Notice - Section 147
145
Chapter 7 Books of account, other documents and Evidence
176
Chapter 8 Issue and Service of Notices Generally
208
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CHAPTER-HEADS
I-16 PAGE
Chapter 9 Sanction for Issue of Notice - Section 151
243
Chapter 10 Notice Deemed to be Valid under certain Circumstances - Sections 292B and 292BB 263 Chapter 11 Assessment and Reassessment in Search, Requisition and Survey cases 277 Chapter 12 Revision of Reassessment Orders
329
Chapter 13 Penalties
355
Chapter 14 Glimpses of faceless reassessment under New Law
403
FAQs
431
Appendix
505
Glossary
521
Contents PAGE
About the Authors
I-5
Preface
I-7
Acknowledgement
I-13
Chapter-heads
I-15
List of cases
I-27
CHAPTER 1 INTRODUCTION
1.1 1.2 1.3
Legislative Background of Reassessment Provisions
1.4 1.5 1.6 1.7
2
The new provisions
12
Memorandum explaining the amended provisions regarding reassessment
16
The provisions in brief
19
The changes
22
Propositions which may govern new law of reassessment also
26
Conclusion
26
CHAPTER 2 INCOME ESCAPING ASSESSMENT - SECTION 147
2.1 2.2 2.3
Introduction
27
The new provision
27
Difference with old provision of section 147
28
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CONTENTS
I-18 PAGE
2.4 2.5
Analysis of section 147 under new law
29
Whether there will be any requirement of putting the material on record before issuance of notice u/s 148
30
2.6
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”?
30
2.7 2.8 2.9 2.10 2.11 2.12 2.13
Conditions for invoking jurisdiction u/s 147
32
Whether section 147 can be invoked in following situations
42
Assessment in respect of new issue (under old law)
45
Assessment of income in respect of new issue (under new law)
47
Whether whole assessment is open after issue of notice u/s 148
55
There is no bar in issuing multiple notices u/s 148
55
Concept of assess, reassess, assessment, reassessment and recomputation.
55
2.14
Some important judicial propositions u/s 147 applicable under new law also
56
2.15
Whether concept of change of opinion would be applicable under new law
58
2.16
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
62
Conclusion
64
2.17
CHAPTER 3 ISSUE OF NOTICE WHERE INCOME HAS ESCAPED ASSESSMENT - SECTION 148
3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.8
Introduction
65
The new provision
66
The provision in brief
67
Conditions for issue and service of notice u/s 148
68
Information
70
Meaning and scope of the expression “so far as may be”
78
Jurisdiction of the AO to issue notice u/s 148
79
Issuance of notice u/s 148 in different situations
83
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CONTENTS PAGE
3.9 3.10 3.11
Principles governing reopening and reassessment under new law
87
Service of notices under Faceless Reassessment
90
Conclusion
91
CHAPTER 4 CONDUCTING INQUIRY, PROVIDING OPPORTUNITY BEFORE ISSUE OF NOTICE UNDER SECTION 148 - SECTION 148A
4.1 4.2 4.3 4.4
Introduction
92
The provision
93
The provision in brief
94
Charge of escapement of income in a notice u/s 148A(b) is necessary
95
4.5
Whether section 148A covers the concept of reasons recorded and procedure laid down by Hon’ble Apex court in GKN Driveshafts (India) Ltd. v. ITO
96
4.6 4.7
Application of procedure u/s 148A
97
Table to show where the procedure u/s 148A is required to be followed
97
4.8 4.9 4.10 4.11 4.12
Kind and scope of inquiries, AO can do u/s 148A(a)
98
Providing opportunity to the assessee u/s 148A(b)
107
To consider reply furnished by the assessee
108
Passing of an order u/s 148A(d)
109
Scope and relevance of the expression “material available on record”
110
4.13 4.14 4.15 4.16 4.17
Application of section 148A in survey cases
111
What should be the contents of the reply u/s 148A(b)
112
Non-applicability of section 148A
113
Approval involved in search/requisition cases
113
Circumstances when notice issued u/s 148A(a) and/or order u/s 148A(d) is held invalid and its consequences
114
4.18 4.19
Some valid information under explanation
118
General information may not be sufficient under Explanation 1
122
CONTENTS
I-20 PAGE
4.20 4.21
Service of notices under Faceless Reassessment
124
Conclusion
124
CHAPTER 5 CONCEPT AND SCOPE OF DEEMED INFORMATION
5.1 5.2 5.3
Introduction
125
Deemed information under Explanation 2 to section 148
125
Contents of information for the purposes of sections 148A and 148
126
5.4 5.5 5.6
Dumb information
126
Dumb document
127
Whether deemed information as per Explanation 2 can also be dumb information
131
5.7
If no documents/assets are found in the search/requisition for any relevant assessment year, for which no escaped income can be attributed, whether issue of notice u/s 148 or assuming jurisdiction u/s 147 would be justified
133
5.8 5.9 5.10 5.11 5.12
Assessment in respect of other issues
134
Legal fiction
134
Concept of ‘Deemed’
135
Various legal propositions relating to legal fiction
138
Consequence of deemed information on reopening and completion of assessment
143
5.13
Conclusion
144
CHAPTER 6 TIME LIMIT FOR NOTICE - SECTION 149
6.1 6.2 6.3 6.4 6.5 6.6
Introduction
145
The provision
145
The provision in brief
146
The conditions for invoking clause (a) of section 149(1)
147
The conditions for reopening under clause (b)
148
Concept and scope of “asset” Explanation to section 149(1)
148
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CONTENTS PAGE
6.7 6.8 6.9 6.10
Implication of first proviso
150
Extension of the date for issuance of notice u/s 148
151
Implication of second proviso
156
Implication of Third Proviso (Limitation for initiating and completing assessment reassessment u/s 153A/153C)
157
6.11 6.12 6.13 6.14 6.15
Implication of Third Proviso
158
Implication of Fourth Proviso
158
Implication of sub-section (2)
158
Nature and scope of section 149(1)
158
The time limit for completing assessment/reassessment made under the new law
161
6.16 6.17 6.18
Meaning of expression “amounts to” or “likely to amount to”
166
Multiple notices u/s 148 and application of section 149
167
Important principles which can be applied to the new provisions of section 149
167
6.19
Cases where issuance of notice u/s 148 r.w.s. 149(1)(b) may not be upheld
170
6.20
Following kind of escaped income may not be brought to tax after three initial relevant assessment years by invoking section 149(1)(b)
172
6.21
Cases where issuance of notice u/s 148 r.w.s. 149(1)(b) may be upheld
175
6.22
Conclusion
175
CHAPTER 7 BOOKS OF ACCOUNT, OTHER DOCUMENTS, AND EVIDENCE
7.1 7.2 7.3 7.4 7.5 7.6
Introduction
176
Books of account
176
Loose paper
182
Documents
184
Dumb document
185
Loose papers/documents/books seized/impounded in search/ survey should be relied upon as a whole
190
CONTENTS
I-22 PAGE
7.7 7.8 7.9
Evidence
191
Scope of section 292C
201
Conclusion
207
CHAPTER 8 ISSUE AND SERVICE OF NOTICES GENERALLY
8.1 8.2 8.3 8.4 8.5
Introduction
208
Issue of notice
208
Distinction between issue and service of notice
212
Law relating to service under the Act
212
Section 282 as amended by Finance (No. 2) Act, 2009 w.e.f. 01-10-2009
213
8.6 8.7 8.8 8.9
Addresses, as per Rule 127, at which service is to be affected
214
Service through WhatsApp
215
Service through e-mails
215
Difference in the law under section 282 as it existed prior to 01-10-2009 and thereafter
216
8.10 8.11 8.12 8.13 8.14 8.15 8.16 8.17 8.18 8.19
Service by speed post
216
Service as per CPC
216
Service through Electronic media
222
Burden of proof of valid service of notice
223
Presumption as to the service of notice
223
Simultaneous (multiple mode of) service
224
Issue and service of notice u/s 148A
224
Issue and service of notice u/s 148
226
Issue of notice in different circumstances
228
Under amended law the validity of notice issued u/s 148 may be examined, inter alia, on the following criteria
229
8.20 8.21 8.22
Issuance of notice in the name of erstwhile entity
230
Service on various persons
230
Issuance of notice in the name of dead person
234
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CONTENTS PAGE
8.23
Initiation of reassessment proceedings against company which has wound up or amalgamated
237
8.24 8.25 8.26 8.27 8.28 8.29 8.30
Prescribed form of notice
237
Time limit for service of notice
237
Service through courier
238
Oral notice
239
Notice not following procedure prescribed u/s 282
239
In brief salient features of issue and service
240
Conclusion
242
CHAPTER 9 SANCTION FOR ISSUE OF NOTICE - SECTION 151
9.1 9.2 9.3 9.4 9.5
Introduction
243
The Provision
243
Sanctioning authorities
244
Various stages of approval
244
Whether section 151 provides sanctioning authority or approving authority
245
9.6 9.7 9.8 9.9 9.10 9.11 9.12 9.13 9.14 9.15 9.16
Analysis of various approvals u/ss 148 and 148A
245
Sanction/approval is a jurisdictional issue
250
Approval by a different authority
251
Prerequisites of sanction
252
Opportunity of being heard before approval
253
Non-application of mind and mechanical approval
253
Incurable errors
256
Whether Assessee entitled to copy of approval/sanction order
258
Following kind of approvals/sanction not upheld
258
Contrary view
259
Whether irregularity in granting approval is curable u/s 292B/292BB
260
9.17 9.18
Service of notices under Faceless Reassessment
261
Conclusion
261
CONTENTS
I-24 PAGE
CHAPTER 10 NOTICE DEEMED TO BE VALID UNDER CERTAIN CIRCUMSTANCES - SECTIONS 292B AND 292BB
10.1 10.2 10.3 10.4 10.5 10.6 10.7 10.8 10.9 10.10
Introduction
263
Section 292BB
264
Section 292B
266
Service of the notice u/s 148 and section 292BB
268
Issue of notice v. service of notice
269
Notice u/s 143(2), reassessment proceedings and section 292BB
270
Notice u/s 148A and section 292BB
270
Objection to issue and service of notice
271
At what stage one should raise the plea of non-service of notice
272
At what stage the question of service of notice u/s 148A(b) can be raised
273
10.11 10.12 10.13
Circumstances where section 292BB cannot be applied
273
Other situations concerning application of section 292BB
275
Conclusion
276
CHAPTER 11 ASSESSMENT AND REASSESSMENT IN SEARCH, REQUISITION, AND SURVEY CASES
11.1 11.2
Introduction
277
Assessment in search/requisition cases where search/requisition is initiated on or after 01-04-2021
278
11.3
Assessment in cases where survey u/s 133A is initiated on or after 01-04-2021
279
11.4 11.5 11.6
Bar for issuing notice u/s 148 for certain earlier years
280
Possible options in different years
281
Time limit for completing assessment/reassessment under new provisions
290
11.7 11.8
Ingredients of section 153A
291
Concept of relevant assessment year
292
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CONTENTS PAGE
11.9 11.10 11.11 11.12 11.13 11.14 11.15
Concept of “pending” u/s 153A
292
Concept of abatement
293
Various situations of abatement and completion of assessment
294
Relevance of incriminating material
295
The non-obstante clause in sections 153A and 153C
298
The meaning of assess and reassess
300
Time limit for completion of assessment u/s 153A (search before 01.04.2018)
300
11.16 11.17 11.18
Assessment u/s 153C
303
Time limit for completion of assessment u/s 153C
325
Time limit for completion of assessment u/s 153C (search on PS followed by Search on OP)
327
11.19 11.20
Extension of time limit
327
Conclusion
328
CHAPTER 12 REVISION OF REASSESSMENT ORDERS
12.1 12.2 12.3 12.4 12.5 12.6
Introduction
329
Ingredients of section 263
329
The power and function of the Commissioner in revision
331
The concept of “erroneous”
332
Concept of prejudicial to the interest of revenue
333
Kinds of revisions which can be made in respect of cash deposits, receipts, investment, and expenditure
336
12.7 12.8 12.9 12.10 12.11 12.12
Explanation 2 to section 263
339
Other relevant aspects relating to revision u/s 263
342
Doctrine of merger
345
No revision is permissible on marginal loss to Revenue
347
Revision of order passed u/s 148A(d)
347
Revision of reassessment order for making addition on new issues
348
12.13
Revision of reassessment order by invoking Explanation 2 to section 263
350
CONTENTS
I-26 PAGE
12.14 12.15 12.16 12.17
350
Limitation Various propositions on application of section 263 taken in reassessment Application of above principles in the context of new reassessment procedure Conclusion
351 352 353
CHAPTER 13 PENALTIES
13.1 13.2 13.3 13.4 13.5 13.6 13.7 13.8 13.9 13.10 13.11 13.12 13.13
Introduction
355
Nature of default and penalties
355
General principles for penalty proceedings/order
356
Section 271(1)(c)
358
Penalty u/s 270A
359
Immunity u/s 270AA
372
Penalty u/s 271D
373
Penalty u/s 271E
380
Penalty u/s 271AAD
384
Penalty u/s 271AAC
395
Penalty u/s 271DA
396
Penalty u/s 271AAB
397
Conclusion
402
CHAPTER 14 GLIMPSES OF FACELESS REASSESSMENT UNDER NEW LAW
14.1 14.2 14.3
Introduction
403
Part A: Faceless Assessment Procedure in general
404
Part B : Case study on reopening of assessment under new law as per Faceless Reassessment Scheme Personal hearing
411 428
14.4 Conclusion 14.5 FAQs Appendix Glossary
429 431 505 521
4
C H A P T E R
Conducting inquiry, providing opportunity before issue of notice under section 148 - Section 148A 4.1 Introduction There has been experience in the past that notice u/s 148 used to be issued simply on any kind of information received by the AO, or on the recommendation of other authorities/agencies without applying his own mind as to whether material available before him had a live link with the escapement of income and consequently with formation of belief. It was also felt that objections raised by the assessee against reasons recorded or on formation of belief were used to be brushed aside by the AO on frivolous grounds or simply by passing a non-speaking order. As a result, the reopening used to be quashed by the appellate authorities on various grounds such as there is non-application of mind by the AO, notice u/s 148 is issued on borrowed satisfaction, there is no live link between material available on record and formation of belief, or there were issues on limitation not considered by the AO. Thus, to simplify and strengthen the reopening, the Finance Act, 2021 introduced a new section 148A after section 148, apparently for the purposes of ensuring opening of completed assessment on sound footings. To achieve this aim, the legislature has not only incorporated the principles laid down by Hon’ble Apex Court in GKN Driveshafts (India) Ltd. v. ITO1 but also made it necessary for the AO to seek approval of senior authority before deciding to issue notice u/s 148 so that technical issues involved in reopening are taken care of. In this chapter the provisions of section 148A are described in brief with different kind of implications. 1. [2002] 125 Taxman 963/259 ITR 19 (SC).
92
93
PROVISION
Para 4.2
4.2 The provision Conducting inquiry, providing opportunity before issue of notice under section 148. “148A. The Assessing Officer shall, before issuing any notice under section 148, — (a) conduct any enquiry, if required, with the prior approval of specified authority, with respect to the information which suggests that the income chargeable to tax has escaped assessment; (b) provide an opportunity of being heard to the assessee, with the prior approval of specified authority, by serving upon him a notice to show cause within such time, as may be specified in the notice, being not less than seven days and but not exceeding thirty days from the date on which such notice is issued, or such time, as may be extended by him on the basis of an application in this behalf, as to why a notice under section 148 should not be issued on the basis of information which suggests that income chargeable to tax has escaped assessment in his case for the relevant assessment year and results of enquiry conducted, if any, as per clause (a); (c) consider the reply of assessee furnished, if any, in response to the show-cause notice referred to in clause (b); (d) decide, on the basis of material available on record including reply of the assessee, whether or not it is a fit case to issue a notice under section 148, by passing an order, with the prior approval of specified authority, within one month from the end of the month in which the reply referred to in clause (c) is received by him, or where no such reply is furnished, within one month from the end of the month in which time or extended time allowed to furnish a reply as per clause (b) expires: Provided that the provisions of this section shall not apply in a case where,— (a) a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A in the case of the assessee on or after the 1st day of April, 2021; or (b) the Assessing Officer is satisfied, with the prior approval of the Principal Commissioner or Commissioner that any money, bullion, jewellery or other valuable article or thing, seized in a search under section 132 or requisitioned under section 132A, in the case of any other person on or after the 1st day of April, 2021, belongs to the assessee; or (c) the Assessing Officer is satisfied, with the prior approval of the Principal Commissioner or Commissioner that any books of account or documents, seized in a search under section 132 or requisitioned under section 132A, in case of any other person on or after the 1st day of April, 2021, pertains or pertain to, or any information contained therein, relate to, the assessee.
Para 4.3
CONDUCTING INQUIRY BEFORE ISSUE OF NOTICE U/S 148
94
Explanation.—For the purposes of this section, specified authority means the specified authority referred to in section 151.”.
4.3 The provision in brief Before issue of notice u/s 148, in certain cases, the AO has to take following steps (i) To examine the information as to whether it fulfils the conditions of section 148. (ii) To conduct inquiries, wherever required, with prior approval of specified authority. (iii) Such inquiry has to be in respect of information which suggests that income chargeable to tax has escaped assessment. (iv) After carrying out inquiries, the AO has to provide opportunity of being heard to the assessee. (v) For this purpose, he has to issue a show cause notice asking the assessee to explain as to why notice u/s 148 be not issued against him on the basis of information which suggest that income chargeable to tax has escaped assessment and (b) and on the basis of result of inquiries, if any conducted by him. (vi) Such notice has to be issued with prior approval of specified authority. (vii) He has to give time of not less than 7 days but not more than 30 days to the assessee for furnishing his explanation. (viii) He may extend the time for furnishing the explanation on an application made by the assessee in this behalf. (ix) To consider the reply, if any, submitted by the assessee in respect of show cause notice. (x) To decide on the basis of material available on record, including the reply furnished by the assessee, whether it is a fit case for issue of notice u/s 148 or not. (xi) Such decision has to be made by passing an order (in writing). (xii) This order has to be passed within one month from the end of the month in which time or extended time allowed to the assessee to furnish reply expires. (xiii) Prior approval of the specified authority has to be taken before passing such order. (xiv) Above procedure of carrying out inquiries, issuing show cause notice and passing order u/s 148A(d) is not required to be followed in following cases-
95
CHARGE OF ESCAPEMENT OF INCOME IN A NOTICE U/S 148A(b)
Para 4.4
i. In cases of searches carried out u/s 132(1) on or after 01-042021.
ii. In requisition cases u/s 132A, where books of accounts or other documents or assets are requisitioned on or after 01-04-2021.
iii. In search/requisition cases where the AO is satisfied with the prior approval of PCIT/CIT that money, bullion, jewellery or other valuable article or thing seized in the search/requisition (against person searched) carried out after 01-04-2021, or requisitioned u/s 132A after 01-04-2021 belongs to “other person”.
iv. In search/requisition cases where the AO is satisfied with the prior approval of PCIT/CIT that books of account or documents seized in the search/ requisition (against person searched) carried out on or after 01-04-2021 or requisitioned u/s 132A on or after 01-04-2021 pertains to or pertain to, or any information contained therein relate to the “other person”.
(xv) Specified authority for the purposes of this section is the authority referred to in section 151.
4.4 Charge of escapement of income in a notice u/s 148A(b) is necessary The notice issued u/s 148A must contain information that income chargeable to tax has escaped assessment. There must be some material supporting allegation of escapement of income. A bald assertion about escapement of income is not sufficient to validate issuance of notice u/s 148A. Therefore, wherever AO receives information about a transaction such as cash deposited in bank, mere fact of deposit of cash will not lead to inference that cash so deposited was of income character and that it was chargeable to tax in the hands of the assessee in the relevant assessment year. The inference of the AO that an income equal to deposit in bank has escaped assessment of income, proceeds on the fallacious assumption that the bank deposits constitute undisclosed income and overlooks the fact that the sources of deposit need not necessarily be income of the assessee. The AO has to put up some more material after carrying out inquiries that cash deposits may be undisclosed income of the assessee and hence income chargeable to tax has escaped assessment2. Thus, no reopening is permissible merely for verifying the source of cash deposited in the bank particularly when AO did not contend that said cash
2. Based on Bir Bahadur Singh Sijwali v. ITO [2015] 53 taxmann.com 366/68 SOT 197 (Delhi - Trib.)(URO); Amrik Singh v. ITO [2016] 70 taxmann.com 26/159 ITD 329 (Asr. - Trib.); Gurpal Singh v. ITO [2016] 71 taxmann.com 108/159 ITD 797 (Asr. - Trib.).
Para 4.5
CONDUCTING INQUIRY BEFORE ISSUE OF NOTICE U/S 148
96
deposits were not reflected in the return of income3. The verification part must be done before issuing SCN u/s 148A. So also, reopening only on the basis that there are huge cash withdrawals towards purchases and the SCN (reasons recorded earlier) did not indicate that any income chargeable to tax has escaped assessment cannot be sustained4. When information about cash deposited in bank is received by the AO, it is his duty to examine whether said cash deposit is reflected in return or not. Without examining the information about cash deposit as to whether it reflects income chargeable to tax or not, reopening will not be justified5. Now even issue of notice u/s 148A(b) may not be justified. Issuing notice u/s 148 cannot be sustained when explanation of the assessee that source of cash deposit post demonetisation was withdrawal of cash from the same bank and the withdrawals and deposits closely matched was not considered by the AO6. Even in cases where recomputation is required on account of grant of excessive depreciation allowance, loss, deduction or relief, charge of escapement of income would be necessary for acquiring jurisdiction u/s 147.
4.5 Whether section 148A covers the concept of reasons recorded and procedure laid down by Hon’ble Apex Court in GKN Driveshafts (India) Ltd. v. ITO7 Under new law there is no requirement anymore for recording reasons, supplying to them to the assessee, inviting objections from him and passing an order disposing of such objections before proceeding to make reassessment. Such procedure has been practically incorporated in section 148A which provides that, before issue of notice u/s 148, the AO is required to carry out inquiries u/s 148A, if required , with prior approval of specified authority, provide an opportunity of being heard, consider the reply furnished by the assessee to the show cause notice issued by the AO and pass an order u/s 148A(d) with prior approval of specified authority within the time limitation provided thereunder. Thus, if an assessee has objection as to whether (i) there is an income chargeable to tax (ii) such income has escaped assessment or (iii) any recomputation of loss, depreciation allowance or any other allowance or deduction is required (iv) AO has correctly assumed jurisdiction to issue notice u/s 148, (v) a particular issue on which ld. AO 3. Sunrise Education Trust v. ITO [2018] 92 taxmann.com 74 (Guj.). 4. ITO v. Amit K. Shah [2016] 71 taxmann.com 256/159 ITD 767 (Ahd. - Trib.). 5. CIT v. Indo Arab Air Services [2015] 64 taxmann.com 257 (Delhi). 6. Based on Swati Malove Divetia v. ITO [2018] 98 taxmann.com 447 (Guj.). 7. [2002] 125 Taxman 963/259 ITR 19 (SC).
97
PROCEDURE U/S 148A
Para 4.7
intends to issue notice u/s 148 is covered in appeal, reference or revision, he can raise such objections in the reply to be furnished in response to show cause notice issued u/s 148A(b). Thus, order u/s 148A(d) would have all the trappings of reasons recorded, objections raised by the assessee and disposal of such objections through speaking order which is required to be enclosed with the notice u/s 148.
4.6 Application of procedure u/s 148A Procedure laid down u/s 148A is applicable in following two circumstances. They are (i) When AO receives information, which falls within Explanation 1 to section 148. It is mentioned in the Explanation 1 that for the purposes of issuance of notice u/ss 148 and 148A, the information with the AO which suggest that income chargeable to tax has escaped assessment means (i) the information which is flagged in the case of the assessee for the relevant assessment year as per Risk Management Strategy formulated by the CBDT from time to time and (ii) any final objection raised by C&AG to the effect that assessment in the case of the assessee for the relevant assessment year has not been made in accordance with the provisions of the Act. This procedure is to be followed for all ten relevant assessment years. (ii) Where survey operation is carried out u/s 133A, in case of the assessee on or after 01-04-2021. Even though, carrying out survey is treated as deemed information with the AO which suggest that income chargeable to tax has escaped assessment in the case of the assessee for three assessment years immediately preceding the assessment year relevant to the previous year in which search, or requisition is made, but procedure laid down u/s 148A has to be followed for all the ten years including three initial relevant assessment years. It may be noted that procedure laid down u/s 148A will not be applicable in cases of search and requisitions carried out on or after 01-04-2021 in the cases of “person searched” and in the cases of “other person” as covered in clauses (a), (b) and (c) of Proviso to section 148A.
4.7 Table to show where the procedure u/s 148A is required to be followed Following table shows in which cases procedure u/s 148A is required to be followed:
Para 4.8
CONDUCTING INQUIRY BEFORE ISSUE OF NOTICE U/S 148
Section 149(1)(a)
Limitation ExplanaExplanation 2 to section 148 (deemed to issue no- tion 1 to information) tice u/s 148 s e c t i o n Survey search Requi- Search/requi148 sition sition - other person Three initial RAYrs
Whether procedure u/s 148A is required to be followed 149(1)(b)
Whether procedure u/s 148A is required to be followed
98
Provided AO is satisfied with prior approval of PCIT/CIT on conditions in clauses (iii) and (iv) Yes
Yes
No
No
No
Yes
Yes
No
No
No
From fourth t o Te n t h RAYrs
4.8 Kind and scope of inquiries, AO can do u/s 148A(a) Section 148A(a) gives power to the AO to conduct any inquiry, if required, with prior approval of specified authority, with respect to the information which suggest that the income chargeable to tax has escaped assessment. Such inquiries can be carried out in respect of information covered in Explanation 1 of section 148 and in respect of survey cases (whether covered under deemed information or not). These inquiries may be (i) Verification from own records of the assessee. (ii) Verification from other AO. (iii) Verification with various statutory statements filed by the assessee and other taxpayers. (iv) Verification from other Departments such as GST, SEBI. (v) Verification from books of account by summoning books. (vi) To exercise power u/s 131(1) read with sub-section (2) to collect information, to record statements, to compel the production of books or other documents or to issue commissions.
New Law Relating To
REASSESSMENT AUTHOR
: D.C. AGRAWAL , AJAY KUMAR AGRAWAL
PUBLISHER
: TAXMANN
DATE OF PUBLICATION : AUGUST 2021 EDITION
: 1ST EDITION
ISBN NO
: 9789391596002
Rs. 1295
Description This book is a comprehensive commentary on the Reassessment provision under the Income-tax Act, as introduced by the Finance Act, 2021. It features an exhaustive discussion on both fundamental concepts and issues arising under the new law of reassessment combined with essential commentary on statutory provisions and the jurisprudence. It also includes cross-references to other chapters wherever implications need to be understood entirely to assist the reader. The objective of this book is as follows: u [Amendments made by the Finance Act 2021] To provide a general idea about the amendment through Finance Act, 2021 in the provisions relating to reassessment u [Insight into Provisions] To provide an insight into various provisions through a simple and understandable explanation u [Condition for Deeming Provisions/Procedure] To highlight the conditions under which deeming provision of section 148 can be applied, or procedure contained in section 148A can be followed u [Case Laws under the Old Law] To highlight to what extent propositions upheld by the Courts under the old law can be applied under the new law u [Revision u/s 263 in Reopened Cases] To highlight the circumstances under which revision u/s 263 in reopened cases can be done u [Penal Provisions] To highlight the circumstances under which penal provisions in relation to escaped income can be invoked. The Present Publication is the Latest Edition, authored by D.C. Agarwal & Ajay Kumar Agarwal, as amended by the Finance Act 2021, with the following noteworthy features: u [FAQs] for quick answers to 100+ selected questions relating to assessment/reassessment u [Easy-to-Understand Commentary in Article Format with a focus on Implications] This book is prepared in the form of an easy-to-understand commentary in an article format, and it also provides guidance in understanding the implications of the new law on reopening of completed assessments u [Understanding Concepts such as Inquiry, Jurisdiction Issues, etc.] It will be helpful to understand the new concept of inquiry before the issue of notice u/s 148 of Income-tax Act for reopening of assessment, and implications and jurisdiction issues arising during its implementation u [Scope & Limitation of ‘Deemed Information’] The new concept of deemed information contained in section 148, its scope and limitation has been explained in a very lucid manner u [Interplay of Section 149 & Deemed Information] The book also helps the reader to understand the scope and limitation of section 149 and its effect on deemed information u [Discussions on Terms which have a Broad Interpretation] The book features thorough discussion on the scope of expressions such as: n ‘Suggest’ n ‘Books of Accounts’ n ‘Other Documents’ n ‘Evidence’ n ‘Asset’ n ‘Dumb Information’ u It also seeks to share the intricacies and issues arising from the implementation of the new law and their solutions
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