Subscribe To Our Free Newsletter:

Recording Of Satisfaction U/s 147 – SOP By CBDT

Vinay-Kawdia

The CBDT has prescribed a Standard Operating Procedure (SOP) to be followed by AOs while issuing notices u/s 148 of the Income-tax Act, 1961 for reopening of assessments. The SOP is designed to ensure that the AO addresses issues such as ‘change of opinion’, ‘failure to disclose’ etc so as to make the reopening foolproof and immune to challenge by taxpayers. CA Vinay Kawdia has studied the SOP and suggested changes and additions thereto so as to ensure that the objectives of the CBDT are met

Introduction:

In view of the section 147 of the Income Tax Act [‘The Act’], if the AO has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, for the assessment year concerned. Before making the assessment, reassessment or recomputation under section 147, the AO shall serve on the assessee a notice u/s 148 in prescribed form.

Background:

Before issue of notice u/s 148, AO is duty bound to record reasons (his satisfaction) in writing which led him to believe that income has escaped assessment for a particular assessment year. While recording these reasons, there are certain written as well as unwritten mandates enumerated in S. 147 which AO should observe meticulously in order to sustain his action u/s 147. Accordingly, to bring uniformity in the action of the department in the matters of income escaping assessments, CBDT has issued standard operating procedure [SOP] for recording satisfaction u/s 147 of the Act vide its internal directive No. 247/140/2017-A&PC-1 dated 10.01.18.

Framework prescribed by CBDT’s SOP:

The directive seeks to standardise the procedure before issue of notice u/s 148 under following situations:

A) Where no return of income is filed by the assessee

B) Where no regular assessment was made u/s 143(3)/147 of the Act

C) Where regular assessment was made u/s 143(3)/147 and a period of four years from the end of relevant asst. year has not expired

D) Where regular assessment was made u/s 143(3)/147 and a period of four years have expired from the end of relevant asst. year

There are sample templates annexed to the SOP for recording reasons of reopening of assessment under each of the above eventualities. A standard eight paragraph template is recommended covering almost all the necessary ingredients of section 147 and other relevant machinery provisions of the Act which are necessary to sustain the action of the AO u/s 147.

Broadly, as per the sample template, reasons are to be divided in 8 paragraphs as follows:

1st Paragraph: Brief details of the assessee

2nd Paragraph: Brief details of information collected/received by the AO

3rd Paragraph: Analysis of information collected/received by the AO

4th Paragraph: Enquiries made by the AO as sequel to information collected/received

5th Paragraph: Findings of the AO

6th Paragraph: Basis of forming reasons to believe and details of escapement of income

7th Paragraph: Details of escapement of income chargeable to tax in relation to any assets located outside India

8th Paragraph: applicability of provisions of section 147/151 to the facts of the case

Analysis:

Irrespective of the situation (A), (B), (C) or (D) as above, in initial paragraphs, the instruction mandates the AO to give brief details of the assessee, his business, details of ROI filed, past assessment history, if any and details of the information collected by AO along with the time period/ date of collection or receipt of information. In case the information is received from investigation wing or any other law enforcement agency, brief summary of information/ relied upon documents is required to be mentioned. Thereafter analysis of information collected such as details of parties involved, nature of transactions, details of relied upon documents and prima facia conclusion is required to be recorded.

Fourth paragraph will record details of enquiries made by AO which must have ‘live link’ with the information received/collected by AO. The enquiries may include scrutiny of information available on ITBA portal /other websites, enquiries made from other agencies or through notice u/s 133(6) / summon u/s 131 from assessee/other related parties.

Thereafter, on the basis of above, AO will summarise his findings and will come to ‘basis of reasons to believe’. The AO is expected to draw ‘nexus’ between his findings and reasons to believe.

A) Where no return of income is filed by the assessee:- In such cases, apart from the above information, AO shall record that since no return was filed by the assessee, the provisions of clause (a) of Explanation 2 to S. 147 are applicable and the asst. year under consideration is deemed to be a case where income chargeable tax has escaped assessment.

Further if the case is within four years from the end of asst. year under consideration or if more than four years have lapsed from the end of relevant asst. year, AO shall further mention that necessary sanction to issue notice u/s 148 has been obtained from Jt. CIT / Pr. CIT, as the case may be, as required by Section 151 of the Act.

B) Where no regular assessment was made u/s 143(3)/147 of the Act: In such cases, apart from the above information, AO shall record that since ROI was filed for the year under consideration but no scrutiny assessment u/s 143(3) of the Act was made, the provisions of clause (b) of Explanation 2 to S. 147 are applicable and the asst. year under consideration is deemed to be a case where income chargeable tax has escaped assessment.

Further if the case is within four years from the end of asst. year under consideration or if more than four years have lapsed from the end of relevant asst. year, AO shall further mention that necessary sanction to issue notice u/s 148 has been obtained from Jt. CIT / Pr. CIT, as the case may be, as required by Section 151 of the Act.

C) Where regular assessment was made u/s 143(3)/147 and a period of four years from the end of relevant asst. year has not expired: In this case since ROI was filed for relevant asst. year and regular asst. u/s 143(3)/147 was made, the provisions of clause (c) of Explanation 2 to section 147 are applicable and the asst. year under consideration is deemed to be a case where income chargeable tax has escaped assessment. Here AO shall specifically discuss the applicable sub clause (i), (ii), (iii) or (iv) of clause (c) of Explanation 2 or clause (ba) of Explanation 2 to section 147 with facts and figures.

Further since the case is within four years from the end of asst. year under consideration, AO shall further mention that necessary sanction to issue notice u/s 148 has been obtained from Jt. CIT as required by Section 151 of the Act.

D) Where regular assessment was made u/s 143(3)/147 and a period of four years have expired from the end of relevant asst. year: In addition to above, specifically in such cases, first proviso to S. 147 read with Explanation 1 becomes applicable. Accordingly, AO shall give detail and instances along with corroborative material to prove that the assessee had not disclosed fully and truly all material facts necessary for his assessment or that the facts of the case are covered by the explanation 1 to section 147 of the Act.

AO shall have to specifically list down the material facts that are necessary for assessment but, which assessee failed to fully and truly disclose during the course of original assessment proceedings, as a result of which AO have reason to believe that income for the year under consideration have escaped assessment. On applicability of Explanation 1 to s. 147, AO shall mention as follows:

It is true that assessee has filed a copy of annual report and audited P and L a/c and Balance sheet along with return of income where various information /material were disclosed. However, the requisite full and true disclosure of all material facts necessary for assessment has not been made as noted above. It is pertinent to note here that, even though the assessee has produced books of accounts, annual report, audited P & L a/c and Balance Sheet or other evidences as mentioned above, the requisite material facts as noted above in the reasons for reopening were embedded in such a manner that material evidence could not be discovered by the AO and could have been discovered with due diligence, accordingly attracting provisions of Explanation 1 of section 147 of the Act.

Thereafter, to prove that this reopening is not based on change of opinion, AO shall specifically record as follows:

It is evident from the above discussion that in this case, the issue under consideration were never examined by the AO during the course of regular assessment/reassessment. This fact is corroborated from the contents of notices issued by the AO u/s 143(2)/142(1) and other order sheet entries dated ______ recorded during the 143(3)/147 proceedings. It is important to highlight here that material facts relevant for the assessment on the issue(s) under consideration were not filed during the course of assessment proceedings and the same may be embedded in annual report, audited P & L a/c, Balance Sheet and books of account in such a manner that it would require due diligence by AO to extract these information. For aforesaid reasons, it is not a case of change of opinion by the AO.

Finally, since more than four years have lapsed from the end of relevant asst. year, AO shall further mention that necessary sanction to issue notice u/s 148 has been obtained from Pr. CIT as required by Section 151 of the Act.

Conclusion:

The attempt of CBDT to standardise the procedure of recording the satisfaction/ reasons to believe by AO u/s 147 is praiseworthy. While drafting the said standard procedure, CBDT has indirectly recognised various judicial precedents declaring reopening of assessment invalid due to lapses on the part of the AO while recording reasons u/s 147 of the Act. If the aforesaid directives are followed strictly and as elaborately as suggested by CBDT, it will not only prevent the illegal/casual reopening but also reduce litigation to great extent. On the other hand, the reasons recorded in casual or routine manner by ignoring the above stepwise procedure, may be liable to be quashed by the judiciary on that ground alone.

However, there is still scope for improvement in the said directives, for ex:

– Paragraph relating to Change of opinion is missing in template for situation (C) which is necessary notwithstanding the fact whether reopening is before or after expiry of four years from relevant assessment year.

– The directives nowhere addresses third proviso to s. 147 regarding findings of the AO that he is assessing/reassessing such income, other than the income involving matters which are the subject matters of any appeal, reference or revision, which is chargeable to tax and has escaped assessment.

Let’s hope that CBDT will address such issues at the earliest!!

Disclaimer: The contents of this document are solely for informational purpose. It does not constitute professional advice or a formal recommendation. While due care has been taken in preparing this document, the existence of mistakes and omissions herein is not ruled out. Neither the author nor itatonline.org and its affiliates accepts any liabilities for any loss or damage of any kind arising out of any inaccurate or incomplete information in this document nor for any actions taken in reliance thereon. No part of this document should be distributed or copied (except for personal, non-commercial use) without express written permission of itatonline.org
16 comments on “Recording Of Satisfaction U/s 147 – SOP By CBDT
  1. Bharat Shah says:

    Please provide PDF of SOP on info@bmsassociates.in

  2. Manisha bhambri says:

    Kindly provide us the original copy of SOP on manishabhambri@snbindia.com

  3. Sourav Agrawal says:

    Please share with the copy of direction issued by CBDT (i.e. SOP)

  4. mridul says:

    what happens when there is a disclosure of material facts but not material evidences from the part of the assessee as it is not asked by the A.O?

  5. Adv. I.S.Verma says:

    such a move by the CBDT may amount to carrying on the Assessment/ re-assessment proceedings,which is the sole domain of the Assessing Officer.

  6. vswami says:

    Wprt the situation under B), for viewpoints / attendant inevitable vexing / irresolute controversies,-
    https://www.facebook.com/swaminathanv3/posts/1645060258903587

    On that premise, no such SOP, could, for ostensible reasons, legitimately serve any useful purpose /intended objective in times to come ?!

  7. gopal nathani says:

    there is no objectivity in the SOP

    it is going to create more chaos than anything else

    before writing SOP for reassessment it is desirable to first prescribe an SOP for writing assessment orders

    wonder how at subsequent stage an AO self certify that there is no change in his opinion….this subject be left for comment by the higher authorities or rather by the approving authority viz JCIT/PR CIT. AO recording this will damage the case of the revenue at the inception itself.

  8. DEPAKE GADGIL says:

    PLEASE PROVIDE US WITH THE FULL TEXT OF THIS SOP TOGETHER WITH THE FORMATS SUGGESTED

  9. sunil gupta says:

    thanks where can i download the official SOP document kindly send a link

Leave a Reply

Your email address will not be published. Required fields are marked *

*

Top

If you are a tax professional, you must sign up for our free newsletter. Why? Because we keep you informed about the latest developments in the world of tax. We focus only on the most important must-read judgements & articles that will impact your day-to-day professional work. You can see a chronological listing of all our postings on twitter & facebook


IMPORTANT: After signing up & clicking on the confirmation mail, send a test/ blank mail to editor@itatonline.info. Why? Because it is the easiest way to add our email address to your address/ contacts book and ensure that our Newsletter does not get sent to the Spam/ Junk folder


Email



Unsubscribe