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Indu Lata Rangwala vs. DCIT (Delhi High Court)

COURT:
CORAM: ,
SECTION(S): ,
GENRE:
CATCH WORDS: , ,
COUNSEL: ,
DATE: May 18, 2016 (Date of pronouncement)
DATE: May 21, 2016 (Date of publication)
AY: 1999-2000
FILE: Click here to download the file in pdf format
CITATION:
S. 143(1)/ 147: Entire law on the reopening of s. 143(1) assessments in the light of Zuari Estate Development 373 ITR 661 (SC) explained

(i) The upshot of the above discussion is that where the return initially filed is processed under Section 143 (1) of the Act, and an intimation is sent to an Assessee, it is not an ‘assessment’ in the strict sense of the term for the purposes of Section 147 of the Act. In other words, in such event, there is no occasion for the AO to form an opinion after examining the documents enclosed with the return whether in the form of balance sheet, audited accounts, tax audit report etc.

(ii) The first proviso to Section 147 of the Act applies only (i) where the initial assessment is under Section 143 (3) of the Act and (ii) where such reopening is sought to be done after the expiry of four years from the end of the relevant assessment year. In other words, the requirement in the first proviso to Section 147 of there having to be a failure on the part of the Assessee “to disclose fully and truly all material facts” does not at all apply where the initial return has been processed under Section 143 (1) of the Act.

(iii) As explained in Rajesh Jhaveri Stock Brokers (P) Ltd. (supra) “an intimation issued under Section 143 (1) can be subjected to proceedings for reopening”, “so long as the ingredients of Section 147 are fulfilled”.

(iv) Explanation 2 (b) below Section 147 states that for the purposes of Section 147, where a return of income has been furnished by the Assessee but no assessment has been made and it is noticed by the AO that the Assessee has understated the income and claimed excessive loss, deduction, allowance and relief in the return then that “shall also be deemed to be a case where the income chargeable to tax has escaped assessment”.

(v) As explained by the Supreme Court in Rajesh Jhaveri Stock Brokers P. Ltd. (supra) and reiterated by it in Zuari Estate Development and Investment Co. Ltd. (supra) an intimation under Section 143 (1) (a) cannot be treated to be an order of assessment. There being no assessment under Section 143 (1) (a), the question of change of opinion does not arise.

(vi) Whereas in a case where the initial assessment order is under Section 143 (3), and it is sought to be reopened within four years from the expiry of the relevant assessment year, the AO has to base his ‘reasons to believe’ that income has escaped assessment on some fresh tangible material that provides the nexus or link to the formation of such belief. In a case where the initial return is processed under Section 143 (1) of the Act and intimation is sent to the Assessee, the reopening of such assessment no doubt requires the AO to form reasons to believe that income has escaped assessment, but such reasons do not require any fresh tangible material.

(vii) In other words, where reopening is sought of an assessment in a situation where the initial return is processed under Section 143 (1) of the Act, the AO can form reasons to believe that income has escaped assessment by examining the very return and/or the documents accompanying the return. It is not necessary in such a case for the AO to come across some fresh tangible material to form ‘reasons to believe’ that income has escaped assessment.

(viii) In the assessment proceedings pursuant to such reopening, it will be open to the Assessee to contest the reopening on the ground that there was either no reason to believe or that the alleged reason to believe is not relevant for the formation of the belief that income chargeable to tax has escaped assessment.

(ix) The decisions of this Court and other Courts to the extent inconsistent with the above decisions of the Supreme Court cannot be said to reflect the correct legal position.

One comment on “Indu Lata Rangwala vs. DCIT (Delhi High Court)
  1. N.Devanathan says:

    The circular issued by the CBDT makes it clear requirement of reasons to believe for reopening
    The above position of law was accepted by the Central Board of Direct Taxes in its Circular No. 549 (182 ITR St. 1, 29) dated October 31, 1989, which explained the amendments in Section 147 made by the Direct Tax Laws (Amendment) Act 1989.

    In CIT v Kelvinator (256 ITR 1), a Full Bench of the Delhi High Court examined the legal impact of this Circular and after exhaustively examining the case law held that even after the amendment (i) the Assessing Officer must have `reason to believe’ that income has escaped assessment, (ii) a mere change of opinion does not justify a reassessment, and (iii) the Assessing Officer does not have the power of review on the same set of facts and law. The Bombay (IPCA Laboratories v Gajanand 251 ITR 416), Allahabad (Foramer v CIT 247 ITR 436) and Gujarat (Garden Silk v DCIT 237 ITR 668) High Courts have also taken the view that a mere change of opinion does not justify the initiation of reassessment proceedings under the amended law.

    The proviso to the amended Section 147 provides that no action can be taken under this Section after the expiry of four years from the end of the relevant assessment year unless the escapement is by reason of the failure of the assessee to disclose fully and truly all material facts necessary for the assessment.

    Thus, even under the present law, in all cases, there must exist reason to believe that income has escaped assessment and a mere change of opinion on the same facts and law does not justify a reassessment. For an action to be initiated after four years, it must further be established that no return has been filed or the escapement was by reason of failure of the assessee to disclose fully and truly all material facts.

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