{"id":7746,"date":"2020-06-08T10:01:47","date_gmt":"2020-06-08T04:31:47","guid":{"rendered":"https:\/\/itatonline.org\/articles_new\/?p=7746"},"modified":"2020-06-08T10:08:26","modified_gmt":"2020-06-08T04:38:26","slug":"remanding-back-of-assessment-an-exercise-in-futility","status":"publish","type":"post","link":"https:\/\/itatonline.org\/articles_new\/remanding-back-of-assessment-an-exercise-in-futility\/","title":{"rendered":"Remanding Back Of Assessment: An Exercise In Futility"},"content":{"rendered":"<p><img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/itatonline.org\/articles_new\/wp-content\/uploads\/Amol-Sinha-Ashvini-Kumar.png\" alt=\"Amol-Sinha-Ashvini-Kumar\" width=\"168\" height=\"99\" class=\"alignleft size-full wp-image-7748\" srcset=\"https:\/\/itatonline.org\/articles_new\/wp-content\/uploads\/Amol-Sinha-Ashvini-Kumar.png 168w, https:\/\/itatonline.org\/articles_new\/wp-content\/uploads\/Amol-Sinha-Ashvini-Kumar-100x59.png 100w, https:\/\/itatonline.org\/articles_new\/wp-content\/uploads\/Amol-Sinha-Ashvini-Kumar-150x88.png 150w\" sizes=\"auto, (max-width: 168px) 100vw, 168px\" \/><strong>Advocates Amol Sinha and Ashvini Kumar have pointed out that though the law is very clear on the procedure that has to be followed by the Assessing Officer when reopening an assessment under section 147 of the Income-tax Act, the same is often not followed. When the assessees challenge the breach, Courts tend to remand the entire matter back to the AO for being redone. The learned authors have argued that the practice of remand causes unnecessary hardship and harassment to the assessees. They have submitted that Courts ought to quash the proceedings and declare them void ab initio. This will also send a clear message to the AOs that they should always follow the proper procedure<\/strong> <\/p>\n<p><strong><u>REASSESSMENT PROCEEDINGS &ndash;  BACKGROUND AND THE LAW<\/u><\/strong><strong> <\/strong><\/p>\n<p>A reassessment proceeding is an age old and an important provision under  Income Tax Act. If an income which  otherwise would have been chargeable to tax has due to some reason, has escaped  assessment, for particular assessment year, then the proceedings undertaken by  the assessing officer against the assessee are defined as reassessment  proceedings.<\/p>\n<p><!--more--><\/p>\n<p>The power to initiate reassessment proceedings has been given to the  assessing officer under section 147 of the Income Tax Act, 1961 which deals  with &ldquo;<strong>Income escaping assessment&rdquo;. <\/strong>In order to make out a case for initiating reassessment proceeding against  the assesse, the assessing officer has to comply with the four key essential  pre conditions, as laid down in section 147. The four key essentials which  makes or break a case for reassessment under section 147 includes:<\/p>\n<ul>\n<li><span dir=\"ltr\"><em>The reason to believe.<\/em><\/span><\/li>\n<li><span dir=\"ltr\"><em>Establishment of nexus or live link.<\/em><\/span><\/li>\n<li><span dir=\"ltr\"><em>Application of mind before recording reasons.<\/em><\/span><\/li>\n<li><span dir=\"ltr\"><em>Satisfaction of authority  required u\/s 151 for issuance  of notice u\/s 148 of the  Act.<\/em><\/span><\/li>\n<\/ul>\n<p>If the assessing officer is of the view that there is some income which has  escaped assessment then the assessing officer ought to record reason which led  to formulation of such a belief. Post recording the recording the reason and  explaining the link, the assessing officer shall seek in writing, necessary  satisfaction from the authorities as prescribed in and mandated by section 151  of the Act if the reassessment is initiated after four years. After receiving the necessary sanctions  under section151 of the Income Tax Act, the assessing  officer issues a notice under section 148 of the Act to the assessee thereby initiating reassessment proceeding.<\/p>\n<p>Courts across India, through various judgments, have stated that, ideally,  the reason recorded by the assessing officer in order to initiate reassessment  proceedings should be provided to the assesse along with the notice under 148  of the Act. However, in practice, the approach  adopted by the revenue department is very different. Generally a notice  under section 148 of the act, pertaining to opening of reassessment proceedings  is sent to the assessee without the reasons recorded by the Assessing officer.  Upon the receipt of the notice under section 148 of the act, the assessee can write to the assessing officer and seek a copy of the  reasons recorded by the Assessing officer.<\/p>\n<p><strong><u>OBJECTIONS RAISED BY ASSESSEE<\/u><\/strong><strong> <\/strong><\/p>\n<p>In the landmark judgment in the case of <strong><u>GKN  Driveshafts (India) Ltd. v. ITO (2003)<\/u> <u>259 ITR 19 (SC)<\/u> <\/strong>in 2003, the Apex Court  laid down a proper procedure\/guideline for the revenue and the assessee to be  followed while dealing with the initiation of reassessment proceedings. The  Apex Court made the observation:<\/p>\n<p>&ldquo;<em>When a notice under section 148 of the Income Tax Act  is issued, the proper course of action for the noticee is to file return and if  he so desires, to seek reasons for issuing notices. The Assessing Officer is  bound to furnish reasons within a reasonable time. On receipt of reasons, the  noticee is entitled to file objections to issuance of notice and the Assessing  Officer is bound to dispose of the same by passing a speaking order.&rdquo;<\/em><\/p>\n<p>Thus as soon as a copy of reasons recorded by the assessing officer has  been served upon the assessee, if the assessee is of the opinion that the  necessary pre conditions as laid down under section 147 has not been complied  with, the assessee can take the liberty to file objections before the assessing  officer. Generally, the objections filed by the assessee are based on one or all of the above mentioned  four elements. If the assessee chooses to file objections to the reasons  recorded, then the assessing officer  is bound by law to dispose-off those objections  before he could continue with the reassessment proceedings.<\/p>\n<p>Recently, the Hon&rsquo;ble High Court of Delhi in the case of <strong><u>Surendra Kumar Jain Vs.<\/u> <u>PCIT (Central)-III, New Delhi &amp; Anr.(W.P.(C) 593\/2019),<\/u> <\/strong>relying  upon the procedure outlined by the Apex Court in the case of<u> <strong>GKN Driveshafts (India) Ltd. v.<\/strong><\/u><strong> <u>ITO (2003) 259 ITR 19 (SC),<\/u> <\/strong>set  aside the assessment order which was passed without disposing off the preliminary  objections raised by the assessee.  <\/p>\n<p>The High Court observed that where in response to a notice issued for  initiation of reassessment proceedings u\/s 147, the assessee seeks reasons to  believe and files objections against those reasons, the assessing officer has  to consider those reasons on their merits and has to pass a reasoned order. The  court further held that importantly, this has to happen prior to the assessing  officer proceeding with the re-assessment proceeding.  <\/p>\n<p>Thus the law with regards to initiation of reassessment proceedings has been laid down  and has been upheld by courts across India. However in the case of <strong><u>SABH<\/u> <u>Infrastructure  Ltd. v. Assistant Commissioner of Income tax&nbsp;  [2017] 398 ITR 198<\/u><\/strong><strong>(Delhi), the Hon&rsquo;ble <\/strong>High Court of Delhi made a key observation and noted that despite the law being settled with regards to procedure to be followed in  reassessment proceedings the same errors are repeated by the concerned Revenue authorities in various cases.  Thus in this background the Hon&rsquo;ble High Court laid down the following  guidelines which were to be followed in matter pertaining to reassessment proceedings:-<\/p>\n<ul>\n<li><span dir=\"ltr\"><em>while communicating the reasons  for reopening the assessment, the copy of the standard form used by the AO for  obtaining the approval of the Superior Officer should itself be provided to the  Assessee. This would contain the comment or endorsement of the Superior Officer  with his name, designation and date. In other words, merely stating the reasons  in a letter addressed by the AO to the Assessee is to be avoided;<\/em><\/span><\/li>\n<\/ul>\n<ul>\n<li><span dir=\"ltr\"><em>the reasons to believe  ought to spell  out all the reasons and grounds available with the AO for re-opening the assessment especially in those cases  where the first proviso to  Section 147 is attracted. The reasons to believe ought to also paraphrase any  investigation report which may form the basis of the reasons and any enquiry  conducted by the AO on the same and if so, the conclusions thereof;<\/em><\/span><\/li>\n<\/ul>\n<ul>\n<li><span dir=\"ltr\"><em>where the reasons make a reference to another  document, whether as a letter or  report, such document and\/ or relevant portions of such report should be  enclosed along with the reasons;<\/em><\/span><\/li>\n<\/ul>\n<ul>\n<li><span dir=\"ltr\"><em>the exercise of considering the  Assessee&rsquo;s objections to the reopening of assessment is not a mechanical ritual.  It is a quasijudicial function. The order disposing  of the objections should deal with each objection and give proper reasons for  the conclusion. No attempt should be made to add to the reasons for reopening  of the assessment beyond what has already been  disclosed.<\/em><\/span><\/li>\n<\/ul>\n<p><strong><u>REMEDIES AVAILABLE TO ASSESSEE<\/u><\/strong><strong> <\/strong><\/p>\n<p>Though the judgment  by the Hon&rsquo;ble Apex Court in the GKN Driveshaft was landmark, it was  silent on with respect to the effect of non compliance of the procedure by the  assessing officer i.e. the question as to what shall happen to a case where  procedure is not being followed while dealing with the preliminary objections.  <\/p>\n<p>In such a scenario, courts on being approached in a case where the  assessing officer passes a speaking order without disposing off the preliminary  objections raised by the assessee has provided  relief to the assessee by doing either  of the following two things:-<\/p>\n<ul>\n<li><span dir=\"ltr\">Either the courts in some cases  have set aside the speaking order passed by the Assessing Officer and remand  back the matter to the assessing officer for fresh disposal of objections  raised by the assessee;<\/span><\/li>\n<\/ul>\n<ul>\n<li><span dir=\"ltr\">or in other cases have declare the reassessment  proceedings as void ab initio by quashing the issuance of notice u\/s 148 for  initiation of reassessment proceedings.<\/span><\/li>\n<\/ul>\n<p><strong><u>THE PROBLEM WITH REMANDING BACK<\/u><\/strong><strong> <\/strong><\/p>\n<p>As seen above the relief that is generally granted in the cases filed by  assessee questioning the initiation of reassessment proceedings are not  standardized. In this regards a key observation was made by the Hon&rsquo;ble  Rajasthan High Court in the case of<u> <strong>M\/s K.C. Mercantile (Presently Known As Genus Innovation Limited) vs. DCIT<\/strong><\/u><strong> <u>Circle, Circle-2, Jaipur  in Income Tax Appeal No. 292\/ 2016<\/u><\/strong>. It noted that Court has to make sure that where the assessing  officer has clearly ignored the procedure laid down by the Supreme  Court, then by taking the law in true spirit  the Tribunal ought  not to have remitted back the matter for fresh reassessment and  remanding back of the matter will open a second inning in his own for no fault  of the assessee.<\/p>\n<p> Further in the case of <strong><u>KSS<\/u><\/strong><strong><u> Petron Private Ltd, <\/u><\/strong>the court has observed  that:<\/p>\n<p><em>&ldquo;If the AO does not follow the law laid down in GKN Driveshafts 259 ITR 19,  the reopening proceedings have to be quashed.  There is no reason to restore the issue to the AO to pass a  further\/fresh order because it would give a licence to the AO to pass orders on reopening notice,  without jurisdiction (without compliance of the law in accordance with the procedure), yet the only  consequence, would be that in appeal, it would be restored to the AO for fresh  adjudication after following the due procedure. This would lead to unnecessary  harassment of the assessee by reviving stale\/ old matters.&rdquo;<\/em><\/p>\n<p>The two kind of relief  granted by various  courts in matters  where the procedure  has not been followed  by the assessing officer while initiating reassessment proceedings are not at equal footing. Despite several  judgments upholding and settling down the law regarding the procedure that is  to be adopted by the assessing officer in case of reassessment proceedings, the procedure is not followed  and large number  of cases land up  before the Courts  questioning the conduct  of the assessing officer. In such a scenario,  remanding back a matter for reconsideration gives a second chance to the  assessing officer who has failed to uphold the law of the land in letter and in  spirit. This causes unnecessary  hardship to the assessee and further results into prolonged litigation and  harassment for no fault of its own. Furthermore, remanding back a case rarely  changes the outcome and the cases land up before the court again.  Thus the only effective remedy that should be given in case where  the assessing officer has failed to follow the procedure is to declare  the whole proceedings void ab inito. Such approach  will not only save time and resources for both the  assessee and the revenue but will also ensure that the assessing officer  ensures that proper procedure is followed while initiating reassessment  proceedings as no second opportunity will be given to him to rectify his error.<\/p>\n<div class=\"journal2\"><a href=\"https:\/\/itatonline.org\/articles_new\/s-147-remanding-futility\/#blurbdl\">Click here to download the article in pdf format<\/a><\/div>\n<table width=\"103%\" border=\"1\" cellpadding=\"5\" cellspacing=\"0\" bgcolor=\"#FFFFCC\">\n<tr>\n<td><strong>Disclaimer: <\/strong>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<\/td>\n<\/tr>\n<\/table>\n","protected":false},"excerpt":{"rendered":"<p>Advocates Amol Sinha and Ashvini Kumar have pointed out that though the law is very clear on the procedure that has to be followed by the Assessing Officer when reopening an assessment under section 147 of the Income-tax Act, the same is often not followed. When the assessees challenge the breach, Courts tend to remand the entire matter back to the AO for being redone. The learned authors have argued that the practice of remand causes unnecessary hardship and harassment to the assessees. They have submitted that Courts ought to quash the proceedings and declare them void ab initio. This will also send a clear message to the AOs that they should always follow the proper procedure<\/p>\n<div class=\"read-more\"><a href=\"https:\/\/itatonline.org\/articles_new\/remanding-back-of-assessment-an-exercise-in-futility\/\">Read more &#8250;<\/a><\/div>\n<p><!-- end of .read-more --><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","default_image_id":0,"font":"","enabled":false},"version":2}},"categories":[1],"tags":[],"class_list":["post-7746","post","type-post","status-publish","format-standard","hentry","category-articles"],"jetpack_publicize_connections":[],"jetpack_featured_media_url":"","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/itatonline.org\/articles_new\/wp-json\/wp\/v2\/posts\/7746","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/itatonline.org\/articles_new\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/itatonline.org\/articles_new\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/itatonline.org\/articles_new\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/itatonline.org\/articles_new\/wp-json\/wp\/v2\/comments?post=7746"}],"version-history":[{"count":0,"href":"https:\/\/itatonline.org\/articles_new\/wp-json\/wp\/v2\/posts\/7746\/revisions"}],"wp:attachment":[{"href":"https:\/\/itatonline.org\/articles_new\/wp-json\/wp\/v2\/media?parent=7746"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/itatonline.org\/articles_new\/wp-json\/wp\/v2\/categories?post=7746"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/itatonline.org\/articles_new\/wp-json\/wp\/v2\/tags?post=7746"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}