Application Of Natural Justice And Other Issues In Reassessment (Video)

Advocate Kapil Goel has dealt with the various legal and procedural aspects of reopening of assessments under sections 147 and 148 of the Income-tax Act, 1961. He has referred to all the important judgements on the principles of natural justice and explained how its non-observance by the AO can prove fatal to the reassessment. He has also prepared a check-list of the manner in which taxpayers should respond to a reopening notice. Practical suggestions regarding the correspondence with the Department have also been offered

Tax Friends from Mumbai, Tax Practitioners Association thane, Bhiwandi Tax Practitioners Association, Income tax Bar Association, Varanasi legal Relief Society Kolkata, Income tax Bar association Prayagraj have arranged a Webinar on   May 20, 2020 11:30 to 1:15 PM to discuss the subject on “Applicability of Natural Justice and other issues in Reassessment” By Advocate Kapil Goel, Delhi.

Introductory remarks by Dr. K. Shivaram, Senior Advocate, Chairman of the session. 

(Click image above to open video)

In Mumbai 80% writ petitions filed before the Hon’ble Bombay High Court are on reassessment, 5% on recovery and only 15% on other issues.

Natural Justice -Important case laws:

A.K Kranipak v. UOI AIR 1976 SC 150

“The aim of rules of natural justice is to secure justice or put in negatively to prevent miscarriage of justice.”

Dharkeswari Cotton Mills Ltd v. CIT (1954) 26 ITR 775 (SC)

“Principle of natural justice was violated, the Supreme Court set aside the assessment.”

C.B Gautam v. UOI (1993) 199 ITR 530 (SC)

“Violation of the principle of natural justice may lead to violation of Fundamental rights of equality guaranteed by Article 14 or 21 of the Constitution of India” 

R.B Shreeram Durga Prasad & Fatechand Nursing Das v. Settlement Commission (1969) 176 ITR 169 (SC)

“Order passed in violation of principle of natural justice is void and nullity.” 

Kishanchand Chellaram v. CIT ( 1980) 125  ITR 713 (SC)

“Authorities cannot use the statement without giving an opportunity of cross examination”

 Andaman Timber Industries v. CCE (2015) 127 DTR 241/ 281 CTR 241 (SC)

“Order passed denying the opportunity of cross-examination is violates principle of natural justice which is a serious flaw which renders the order a nullity.” 

How to read the judgements:

Oriental Insurance Co. Ltd. v. Rajkumari (Smt.) & Ors AIR 2008 SC 403

“What is of the essence in a decision is its ratio and not every observation found therein nor what logically flows from the various observations made in the judgement. Observations of courts are neither to be read as Euclid’s Theorems nor as provisions of the statute and that too taken out of their context.”

CIT v. Sun Enginering Works (1992) 198 ITR 297 (SC) 

“It is neither desirable nor permissible to pick out a word or a sentence from the judgment of this Court, divorced from the context of the question under consideration and treat it to be the complete ‘law’ declared by this Court. The judgment must be read as a whole and the observations from the judgment have to be considered in the light of the questions which were before this Court. A decision of this Court takes its colour from the questions involved in the case in which it is rendered and while applying the decision to a latter case, the Courts must carefully try to ascertain the true principle laid down by the decision of this Court and not to pick out words or sentences from the judgment, divorced from the context of the questions under consideration by this Court, to support their reasonings.”

New Delhi Television Ltd v. Dy.CIT (2020) 116 taxmann.com 151 (SC). 

Ratio of the judgement: 

1. In a challenge to reopening  proceeding the court should not go in to the merits  of  the  allegations made by the dept against the assessee  At this stage court will only   decide whether  the revenue has sufficient reasons  to  believe that  undisclosed  income of  the  assessee has escaped assessment and whether  there are  grounds to issue notice.

2. At the stage of issuance of notice, the assessing officer is to only form a prima facie view.

3. The material disclosed in assessment proceedings for subsequent years are sufficient to form a view that there were reasons to believe that income had escaped assessment in a case. 

4. Information which   comes   to   the   notice    of   the assessing officer during proceedings for subsequent assessment years can definitely form tangible material to invoke powers vested with the assessing officer u/s.  147 of the Act.

5. Revenue can take the benefit of the extended period of limitation of 6 years for initiating proceedings under the first proviso section 147 of the Act only   if the revenue can show that the assessee had failed to disclose fully and truly all material facts necessary for its assessment.

6. Mere change of opinion of the assessing officer is not a sufficient to meet the standard of ‘reason to believe’.

7. The requirement of law is   that the assessee must disclosed all primary facts before the assessing officer and it was not required to give any further assistance to the assessing officer by disclosure of other facts.  

8. It was for the assessing officer to decide what inference should be drawn from the primary facts disclosed. Non-disclosure of other facts which may be termed as secondary facts is not necessary. 

9. The revenue cannot be permitted to take a contrary stand and therefore could not   be permitted to orally urge the same before the court.

10. The assessee must be put to notice of all the provisions on which the revenue relies upon. The assessee could not be taken by surprise at the stage of rejection of its objections or at the stage of proceedings before the Court that the notice is to be treated as a notice invoking a particular provision of the Act.

11. The notice and reasons given should confirm to the principles of natural justice and the assessee must get a proper and adequate opportunity to reply to the allegations which was being relied upon by the revenue. The court held that, the noticee or the assessee should not be prejudiced or be taken by surprise.

12. There is no bar in issuing second reopening notice if notice satisfy the other condition.

Address by Mr. Kapil Goel Advocate

Natural Justice following case laws are discussed.

Maneka Gandhi v. UOI  1978 AIR 597 (SC)/ 1978 SCR (2) 621 (SC) 

“Constitution of India 1949, Art 21 – Natural Justice – Opportunity to be heard is universally recognized as an essential ingredient of principle of natural justice.”

Suraj Mall Mohta and Co. v. A. V. Viswanatha Sastry, (1954] 26 ITR 1 (SC) “The Supreme Court has ruled that assessment proceedings before the Income-tax Officer are judicial proceedings and all the incidents of such judicial proceedings have to be observed before the result is arrived at. The assessee has a right to inspect the record and all relevant documents before he is called upon to lead evidence in rebuttal. This right has not been taken away by any express provision of the Income-tax Act.”

Sahara India (Firm) v. CIT (2008) 300 ITR 403 (SC)

“Even in absence of an express provision for affording an opportunity of pre-decisional hearing to an assessee and in absence of any express provision in section 142(2A) of the Act barring giving of a reasonable opportunity to an assessee, requirement of observance of principles of natural justice is to be read into said provision.”

Sona Builders v. UOI (2001)251 ITR 197 (SC)

“Only three days notice to respond the notice – Order of appropriate authority had to be quashed. Prayer for set aside the matter was not entertained.”

Navbkhan Abbas khan v. State of Gujarat 1974 AIR 1471 /1974 SCR (3) 427 (SC)

“An order which infringed a fundamental freedom passed in violation of audi alteram partem rule was ‘nullity’.”

Bharti Reddy v. State of Karnataka (2018) 6 SCC 162 (SC) dated March 6 2018

“Where the order is passed by the jurisdictional authority without hearing the party affected, which entails injury to a constitutionally guaranteed right to the affected party. It held that such orders may be treated as void and ineffectual to bind the parties from the beginning.” 

Dhakeshwari Cotton Mills v. Commissioner of Income-tax, [1954] 26 ITR 775, 783 (SC)

"It is… …surprising that the Tribunal took from the representative of the department statement of gross profit rates of other cotton mills without showing the statement to the assessee and without giving him an opportunity to show that that statement had no relevancy whatsoever to the case of the mill in question."

C.B.Gautam  v .UOI (1993) 199 ITR 530 (SC)

“Requirement of giving reasonable opportunity of being heard to intending purchaser and intending seller must be read into section 269UD.” 

Ajantha Industries Ltd v. CBDT (1976) 102 ITR 281 (SC)

“Non-communication of the reasons in the order passed under section 127(1) is a serious infirmity in the order for which the same is invalid.”

CIT v. Oriental Rubber  works (1984) 145 ITR 477 (SC)

“Under section 132(8) of the Act, the revenue is under a statutory obligation to communicate to assessee-commissioner’s approval, as well as recorded reasons of authorised officer on which such approval is based, for retention of seized books, etc., for a period exceeding 180 days from date of seizure.”

Oryx fisheries v. UOI (2010) 13 SCC 427 (SC) dated October 29, 2010 

“Requirement of natural justice is that justice must not only be done but it must eminently appear to be done as well is equally applicable to quasi judicial proceedings if such a proceeding has to inspire confidence in the mind of those who are subjected to it.”  

Kumaon Mandal Vikas Nigam Ltd v. Girija Shankar Pant & Ors  (2001) 1 SCC 182

“Show cause notice must specify the specific charge”

Khem Chand v. UOI AIR 1958 SC 300

“Reasonable opportunity must be given.”

Kranti Associates Pvt Ltd v. Sh. Masood Ahmed Khan & Ors. (2010) 9 SCC 496 (SC) dated September 8, 2010.

“In India the judicial Trend has always been to record reasons, even in administrative decisions if such decisions affect anyone prejudicially, must record reasons, insistence on reason is a requirement for both judicial accountability and transparency etc.”

Institute of Chartered Accountants of India v. L.K Ratna and ors  (1986) 4 SCC 537

“The principle of natural justice must be read in to the unoccupied interstices of the statute unless there is clear mandate to the contrary. The member accused of misconduct is entitled to a haring by the council when on receipt of the report of the Disciplinary Committee, it proceeds to find whether he or is not guilty.”  

Sona Builder v .UOI  (2001) 251 ITR 197 (SC)

“Only three days time was given to the appellant to reply to show cause notice. Court held that having regard to the statutory limit within which the appropriate authority had to act and his failure to act in conformity with the principles of natural justice, the matter need not be remanded to the appropriate authority. Order was quashed.”

State Of Kerala v. K.T. Shaduli Yusuff  Etc 1977 AIR 1627 , 1977 SCR (3) 233  (dt 15 March, 1977)

Natural justice – Best judgement assessment relying on certain entries in account books of other dealers – Cross examination of dealers is part of principle of natural justice. Particularly when the assesee makes a specific prayer to this effect. 

A.K Kraipak and Ors v. UOI (1969) 2 SCC 262 (SC) dated April 29, 1969 Natural justice -Applicability of principles to Administrative proceedings – Violation of principles by first authority -Effect on ultimate decision. The aim of the rules of natural justice is to secure justice or to prevent miscarriage of justice. 

H.R Mehata  v. ACIT ( 2016) 387 ITR 561  (Bom)  (HC)

Assessing Officer should have provided to the  assessee material used against him apart from providing him an opportunity to cross examine deponents whose statements were relied upon. Addition u/s 68 was deleted . 

Reopening Provisions under Income -Tax Act

(By Kapil Goel Advocate)

Main Provisions involved: Section 147 to Section 153

Brief overview of aforesaid provisions

Section 147	Income escaping assessment Three provisos Four explanations
Section 148	Issue of notice where income has escaped assessment Two subsections
Section 149	Three sub sections
Section 150	Provision for cases where assessment is in pursuance of an order of appeal etc (two sub-sections)
Section 151	Sanction for issue of notice
Section 152	Other provisions
Section 153(2)	Time limit for completion of assessment reassessment and re-computation

Locus classicus ( Main Supreme court rulings which covers the subject)

Citation and Title	Brief ratio
Kelvinator 320 ITR 561 (SC) three judge bench	Change of opinion and tangible material required
SC in Rajesh Jhaveri 291 ITR 500	Reasons to believe means prima-facie opinion
SC in Parsuram Potteries 106 ITR 1	Importance of finality in legal proceedings
SC in Lakmani Mewal dass 103 ITR 437	Requirement of live nexus in reasons to believe (different from reason to suspect)
SC in Chuggamal Rajpal v. S.P. Shaliha & Ors., (1971) 79 ITR 603 (SC)	Requirement of positive material in reasons to believe and application of mind
SC in Green World corp. 314 ITR 81	Meaning of directions and reopening on basis of dictates not allowed
SC in HEZ Nizam case 242 ITR 381	Multiplicity of proceedings not allowed on same cause of action
Delhi high court in J.sekar vs UOI (12/01/2018)	Reasons to believe recording explained at length with reference to application of mind angle (held rubber stamp reasons no reasons)
Delhi high court Sabh Infrastructure 398 ITR 198	Standard procedure in reopening stipulated

• Notice issuance& service : refer following legal provisions & case laws
• Section 282 & Section 282A
• Rule 127 & Rule 127A
• Notification of 20/12/2017
• Section 124(3) & Section 292BB (timely objection before AO to assail notice not valid)
• Hon ble Delhi High Court in the case of Pr. CIT-1 Vs Atlanta Capital Pvt. Ltd. in ITA Nos. 6650 & 6651/2015, order dated 21.09.2015 & Chetan Gupta 382 ITR 613
• Key aspects & issues: whether AO duty bound to refer latest available address , Yes ( Eshaan Holding (P.) Ltd. [2012) 344 ITR 0541); Service by mode given in notification of 20/12/2017 to be chosen when notice could not be served normally; on non issue of notice objection can be raised at any stage as issue is not covered u/s 292BB (refer Delhi high court in Silver line 383 ITR 455 etc); address proper is critical to notice issue and service

• Nature of return filed in pursuance to notice u/s 148 Important aspects
• Firstly said return is akin to return u/s 139; (refer Delhi high court in Adobe case order dated 28/03/2014 and section 148(1))
• Secondly filing of return u/s 148 cannot confer jurisdiction on AO (refer Delhi high court in Adobe case )
• Thirdly income declared in said return ordinarily cannot invite concealment penalty as it is prior to detection (refer Delhi ITAT detailed decision in case of Ravina Khurana order dated 26/03/2018 referring to the Hon’ble Punjab & Haryana High Court in the case of CIT v. Rajiv Garg reported in 313 ITR 256 (P &H); Hon’ble Apex Court in the case of CIT vs. Suresh Chandra Mittal reported in 251 ITR 9 (SC);   Delhi High Court in the case of Pr. CIT v. Neeraj Jindal reported in 393 ITR 1; Delhi high court in case of Harnarain order dated 31/10/2011) (Apex court ruling in Mak Data 358 ITR 593 can be distinguished )
• Fourthly reasons can be supplied as per Delhi high court in Adobe case only post return filing u/s 148 where as according to Allahabad high court in Mitlesh Tripathi case 280 ITR 16 says reasons could be supplied without return also as it leads to more transparency

• What should be stage for issuance of notice u/s 143(2) post return filing u/s 148 (as per Hotel Blue Moon SC ruling in 321 ITR 362)
• Notice u/s 143(2) on same day of return filing u/s 148/139 is held to be bad;
• In reopening proceedings notice u/s 143(2) issued prior to/parallel with reasons being supplied as requested by assessee in letter filing return u/s 148 is not valid and atleast AO in that case must reasonably allow GKN driveshaft 259 ITR 19 process to be exhausted
• For framing assessment u/s 143(3)/147 valid notice u/s 143(2) is sine qua non which must be issued on basis of valid return u/s 148
• Role of section 144 to be carefully seen

• Broad categories of reopening and various scenarios

• Classification on basis of what happened in past in assessee’s case

• When only intimation is given (u/s 143(1)) (within four and after four years) (only thing to see reasons to believe and sanction by competent authority)
• When already scrutiny assessment is made and reopening is made with 4 yrs from asst year end (reasons + sanction + change of opinion protection available);
• When already scrutiny assessment is made and reopening is made after four years end from asst year end ((reasons + sanction + change of opinion + ist proviso to section 147 applies (disclosure angle) protection available);

• Classification on basis of types of information recd by AO

• Investigation wing information (leading citations: 329 ITR 110, 338 ITR 51, 384 ITR 147, 395 ITR 677, 396 ITR 5, 398 ITR 198,);
• AIR/database information for cash deposits (Delhi ITAT in Bir Bahadur Singh Sijalwi 68 SOT page 197   followed in DELHI ITAT in Mahabir Prasad case 9 October, 2017 and Krishan Kumar case 15.12.2017 Held not possible);  Sh. Amrik Singh vs. ITO reported in 159 ITD 329

• AIR information for immovable property dealings (already capital gains offered in different year double taxation angle, factually wrong information, reasons inchoate and vague, year of transfer, capital gains assessable where, etc)

Income Tax Appellate Tribunal – Pune

Dnyaneshwar Govind Kalbhor … vs Department Of Income Tax on 5 August, 2016

“14. On a close scrutiny of the reasons recorded, we simultaneously notice that the Assessing Officer has nowhere indicated the quantum of income which has escaped or is likely to have escaped assessment. Thus, the entire process so initiated appears to be vague and listless. The formation of ‘reason to believe’ is expected to be qua the quantum of income that has escaped assessment on prima facie consideration of relevant material. The escapement in generic terms stated to be in millions without formulating any belief thereon is bizarre & inexplicable. On this ground also, the action of the Assessing Officer in issuing notice under section 147 cannot be approved. Needless to say, the assessing officer does not enjoy unbridled or sweeping powers in the matter of reopening an assessment. The provisions of section 147 are structured with inbuilt safeguards and requirements of the provision need to be strictly complied with. From the recorded reasons, we may note that while purported sale proceeds of Rs.5,76,15,000/- is referred to by the Assessing Officer, the corresponding cost of acquisition of property which is germane to determination capital gain allegedly escaped has not been referred to at all. Apparently, the Assessing officer has pre-supposed the existence of capital gains without acquiring objective knowledge about the cost of acquisition of assets. In the absence of cost of acquisition available, it is nearly impossible to visualize with some degree of certainty as to whether such transaction has resulted in any gain at the first place or not to allege escapement thereof. Thus, the action of the AO is marred on this score also.”

• AIR information for share sale /purchase (Mumbai ITAT in Ajay Doshi HUF)

• Scope of new Amendment in section 147 explanation

(ca) where a return of income has not been furnished by the assessee or a return of income has been furnished by him and on the basis of information or document received from the prescribed income-tax authority, under sub-section (2) of section 133C, it is noticed by the Assessing Officer that the income of the assessee exceeds the maximum amount not chargeable to tax, or as the case may be, the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return;

Notable points: firstly explanation cannot be interpreted like main substantive provision and it has to be read in light of main provisions that is, explanation generally cannot add what is not there in main provision ; secondly, given explanation to section 148 only deems income escaping assessment but same cannot override section 148 etc  which indispensably requires recorded reasons to believe (on basis of tangible material) and appropriate sanction to reasons; thirdly, said clause requires following aspects to be verified with authenticity: i) whether return is filed or not (failure to record correct fact regarding return filing is fatal to reopening held by 396 ITR 5 & various other decisions) ii) factum of information being recd (information to be actionable should be incriminatory in nature giving rise to chargeable income) iii) independent application of  mind by AO as evident from words “it is noticed by assessing officer” (for definition of assessing officer refer section 2(7A) of the Act) iv) prima facie existence of chargeable income in hands of assessee concerned. That is assessing officer before making reasons to believe u/s 148 on basis of given information must satisfy himself that chargeable income exists for which necessary enquiries may be required to be made like calling of bank statement in case of cash deposits, like calling of full sale deed in case of immovable property transactions etc

• Scope of explanation 3 to section 147

Explanation 3.—For the purpose of assessment or reassessment under this section, the Assessing Officer may assess or reassess the income in respect of any issue, which has escaped assessment, and such issue comes to his notice subsequently in the course of the proceedings under this section, notwithstanding that the reasons for such issue have not been included in the reasons recorded under sub-section (2) of section 148.

Juliet Industries Limited  IN THE INCOME TAX APPELLATE TRIBUNAL “G” BENCH, MUMBAI : 04/04/2018

“…Therefore, the Ld. AO, in our opinion, has exceeded his jurisdiction by way of making fishing & roving inquiries, which could not be sustained. The reassessment proceedings were never meant to give second inning or chance to revenue to scrutinize the assessee’s return of income particularly when no tangible material suggesting escapement of income was available on record. There should have been minimum material to trigger further action on the part of Ld. AO so as to assume valid jurisdiction u/s 147/148. It is trite law that there must be an end to litigation and finality of issues and the issues could not be agitated / reagitated or revisited by the respective parties except within the framework of law. The Explanation-3 to Section 147, in our opinion, could not enlarge the scope of basic provisions as contained in Section 147 and the primary conditions as envisaged by Section 147 viz. reasons to believe was required to be fulfilled before resorting to reassessment proceedings….Further, both the Hon’ble Courts have observed that a fresh notice u/s 148 with respect to new items would be required, which is missing in the present case. 6.6 In view of the above stated analysis, we find that Ld. AO was not right in assuming jurisdiction with respect to independent and unconnected items without any tangible material or information suggesting escapement of income which was the basic requirement of Section 147. Hence, impugned additions u/s 68 could not survive…”

• Certain elementary principles
• Burden to prove that income has escaped assessment lies on shoulders of revenue: 303 ITR 95 (Delhi high court Pardeep Gupta case)
• Validity of reopening to be strictly seen in light of reasons recorded as communicated to assessee : Bombay high court Hindustan Lever case and Delhi high court in Singature Hotels 338 ITR 51 and Sarthak Securities 329 ITR 110;
• Principle of natural justice to be strictly fulfilled like confrontation and cross examination of back material (leading judgment SC in Andaman Timber industries281 CTR 241 Held order passed in violation of natural justice a nullity; also relevant are SC in Sahara case & 300 ITR 403, SC in Kishan Chand Chellaram 125 ITR 713 & Bombay high court H.R.Mehta 387 ITR 561 & SC three judge bench in Sona Builder vs UOI (decision dated 24/07/2001))

(Also cross examination of officer recording statement can be sought)

• Uniformity and consistency in revenue action (Madras high court in case of Karti.Chidambram 13/11/2017)

In Berger Paints India Ltd., vs. Commissioner of Income Tax, Calcutta, (2004) 12 SCC 42, the Supreme Court has opined in this regard, at paras 12 thus : “12. In view of the judgments of this Court in Union of India vs. Kaumudini Narayan Dalal, (2001) 10 SCC 231, CIT vs. Narendra Doshi, (2004) 2 SCC 81, and CIT vs. Shivsagar Estate , (2004) 9 SCC 420, the principle established is that if the Revenue has not challenged the correctness of the law laid down by the High Court and has accepted it in the case of one assessee, then it is not open to the Revenue to challenge its correctness in the case of other assesses, without just cause.”

• Sublato fundamento cadit opus (when foundation fail super structure fall) refer following citations in this regard:
• Supreme Court of India State Of Punjab vs Davinder Pal Singh Bhullar & … on 7 December, 2011

“72. It is a settled legal proposition that if initial action is not in consonance with law, all subsequent and consequential proceedings would fall through for the reason that illegality strikes at the root of the order. In such a fact-situation, the legal maxim "sublato fundamento cadit opus" meaning thereby that foundation being removed, structure/work falls, comes into play and applies on all scores in the present case.

73. In Badrinath v. State of Tamil Nadu & Ors., AIR 2000 SC 3243; and State of Kerala v. Puthenkavu N.S.S. Karayogam & Anr., (2001) 10 SCC 191, this Court observed that once the basis of  proceeding is gone, all consequential acts, actions, orders would fall to the ground automatically and this principle is applicable to judicial, quasi-judicial and administrative proceedings equally.

74. Similarly in Mangal Prasad Tamoli (dead) by Lrs. v. Narvadeshwar Mishra (dead) by Lrs. & Ors., (2005) 3 SCC 422, this Court held that if an order at the initial stage is bad in law, then all further proceedings, consequent thereto, will be non est and have to be necessarily set aside. 75. In C. Albert Morris v. K. Chandrasekaran & Ors., (2006) 1 SCC 228, this Court held that a right in law exists only and only when it has a lawful origin. (See also: Upen Chandra Gogoi v. State of Assam & Ors., (1998) 3 SCC 381; Satchidananda Misra v. State of Orissa & Ors., (2004) 8 SCC 599; Regional Manager, SBI v. Rakesh Kumar Tewari, (2006) 1 SCC 530; and Ritesh Tewari & Anr. v. State of U.P. & Ors., AIR 2010 SC 3823). 76. Thus, in view of the above, we are of the considered opinion that the orders impugned being a nullity, cannot be sustained. As a consequence, subsequent proceedings/orders/FIR/ investigation stand automatically vitiated and are liable to be declared non est.”

• 180 ITR 319: Punjab-Haryana High Court Commissioner Of Income-Tax vs Atlas Cycle Industries on 24 April, 1989

• Hon’ble Punjab & Haryana High Court in the case of CIT Vs Paramjit Kaur 311 ITR 38, 

• Key Steps/Check list
• Whether notice issued to existing person (refer DHC in 247 CTR 500 spice info case approved by SC) Notice to dead person invalid; (latest Gujarat high court decision in case of
• Whether notice issued within time limit (refer Delhi high court in Nokia case and ST Micro electronics and Allahabad high court in Kusum Gupta case)
• Whether notice issued by jurisdictional and proper officer having jurisdiction over the case (vs PAN Database) (refer SC in Raza Textiles case)
• Whether notice can be vague or it should be specific (refer SC in 289 ITR 341 Manish Maheshwari case and DHC 300 ITR 83 New Delhi Auto finance case)
• Letter filing return of income or no income assessable there under protest (nature of return filed u/s 148 = return u/s 139 refer Delhi high court Adode case for penalty purposes)
• Right to receive reasons with sanction (read them properly & before filing objections must seek all information referred in reasons by separate letter) SC in GKN case 259 ITR 19
• When aforesaid exercise is completed then draft comprehensive objections (like proviso disclosure aspect, application of mind aspect and live nexus aspect ; sanction aspect etc)
• Objections must be disposed by separate speaking order with application of mind (at this stage assessee can go for writ)
• Gap between objection disposal and final order (4 weeks cooling period)
• Final order u/s 147 different from objection disposal order

Draft suggested Letter-1

(to be filed when reasons are obtained and it is known from reasons that investigation wing information is used extensively, and prior to filing objections against reasons)

Seek following information:

• Relevant extract of investigation wing report concerning assessee ;
• Material gathered by investigation wing
• Statements recorded by investigation wing
• Reference letter recd from investigation wing etc

(Pray at the outset cross examination of revenue witness if any)

Letter-2  Objections to reasons/reopening

Part 1 (issue and service of notice)

If applicable on facts, challenge issue of notice is time barred u/s 149 with reference to dispatch date (when notice was sent out of control of AO) refer Delhi high court in Qualimax and recent decision of Nokia

On service aspect : if applicable , challenge jurisdictional notice u/s 148 not served as per law and proceedings are invalid (when notice u/s 148 not served and proceedings are intimated later by telephone or notice u/s 142 etc)

Part 2

Jurisdiction aspect in light of notice not issued by assessing officer of assessee (refer section 124(3)) object within 30 days of notice recd.

(Note PAN database cannot confer jurisdiction) (refer section 2(7A),section 120 & section 124)

Part 3

Notice issued to living person or dead person

(above three parts are challenging notice u/s 148)

Part 4 main objections against reasons (read reasons carefully)

 Key aspects to object:

Applies when earlier assessment is framed u/s 143(3)

• Ist proviso to section 147: assail AO did not specify how assessee disclosure faulty and weak (refer 398 ITR 198)
• Change of opinion and review: when already assessee filed every thing in original scrutiny assessment to take second view on self same material is not allowed (refer 320 ITR 561);

Applies in all contingencies

• Reasons do not sprout and give rise to any income escaping assessment per se and reasons cannot stand on its own legs ; (396 ITR 5 etc)
• Reasons based on borrowed satisfaction and suffers from lack of application of mind (refer 395 ITR 677)

• Return filing aspect missed (refer 396 ITR 5);

• Live nexus aspect (coherence, cause and effect relationship, reasons not inductive and deductive) refer 103 ITR 437;

• Difference between reasons to believe and reasons to suspect (refer 103 ITR 437)

• Highlight weakness in information referred in reasons that same is scanty, vague ; not actionable and is inchoate and said information is not incriminatory in nature;

• Find reasons seek to verify in garb of reopening and intend to make roving and fishing enquiries which is impermissible specially in AIR based cases;

• If reply filed u/s 133(6) prior to reopening , and reasons are silent on it highlight the same;

• If reasons want to make protective assessment challenge it by saying no protective assessment permissible u/s 147;

• Condition of section 149 when reopening made after four years fulfilled check;

• Law on sanction:

• Always seek reasons which are with sanction of higher authorities;
• AO duty bound to supply reasons with sanction copy;
• Check sanction by proper and competent officer;
• Further see if sanction is mechanical and ritualistic : challenge it (391 ITR 11 etc);

xiv): Borrowed satisfaction:

PCIT v Shodiman Investments Pvt. Ltd  (2018) 93 taxmann.com 153 (Bom) (HC)

Reassessment was quashed on the ground that the AO has merely issued a reassessment notice on basis of intimation regarding re-opening notice from DDIT (Inv.), this is clearly in breach of settled position in law that re-opening notice has to be issued by Assessing Officer on his own satisfaction and not on borrowed satisfaction.

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