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Reopening Provisions under Income Tax Act- Biodata and Profile

(By Kapil Goel Advocate)

[email protected]

9910272806

1. Main Provisions involved: Section 147 to Section 153Brief overview of aforesaid provisions

Section 147 Income escaping assessmentThree provisos Four explanations

Section 148 Issue of notice where income has escaped assessment Two subsections

Section 149 Three sub sectionsSection 150 Provision for cases where assessment is in

pursuance of an order of appeal etc(two sub-sections)

Section 151 Sanction for issue of noticeSection 152 Other provisionsSection 153(2) Time limit for completion of assessment

reassessment and re-computation

1 | P a g e R e o p e n i n g D e m y s ti fi e d K a p i l G o e l A d v 9 9 1 0 2 7 2 8 0 6a d v o c a t e k a p i l g o e l @ g m a i l . c o m

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

Citation and Title Brief ratioKelvinator 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

3. Notice issuance& service : refer following legal provisions & case laws

a. Section 282 & Section 282Ab. Rule 127 & Rule 127Ac. Notification of 20/12/2017d. Section 124(3) & Section 292BB (timely objection

before AO to assail notice not valid)e. 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

f. 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


4. Nature of return filed in pursuance to notice u/s 148 Important aspects

a. 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))

b. Secondly filing of return u/s 148 cannot confer jurisdiction on AO (refer Delhi high court in Adobe case )

c. 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 )

d. 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


5. 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)

a. Notice u/s 143(2) on same day of return filing u/s 148/139 is held to be bad;

b. 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

c. 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

d. Role of section 144 to be carefully seen

6. Broad categories of reopening and various scenarios

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

i) 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)


ii) When already scrutiny assessment is made and reopening is made with 4 yrs from asst year end (reasons + sanction + change of opinion protection available);

iii) 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

i) Investigation wing information (leading citations: 329 ITR 110, 338 ITR 51, 384 ITR 147, 395 ITR 677, 396 ITR 5, 398 ITR 198,);

ii) 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

iii) 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 - PuneDnyaneshwar 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.”

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

7. Scope of new Amendment in section 147 explanation

4[(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

8. 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 hisjurisdiction 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 theprimary conditions as envisaged by Section 147 viz. reasons to believe was required to be fulfilled before resorting to reassessmentproceedings….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…”

9. Certain elementary principles


a. Burden to prove that income has escaped assessment lies on shoulders of revenue: 303 ITR 95 (Delhi high court Pardeep Gupta case)

b. 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;

c. 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)

d. 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.”

e. Sublato fundamento cadit opus (when foundation fail super structure fall) refer following citations in this regard:

i. 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/


https://indiankanoon.org/doc/408123/











investigation stand automatically vitiated and are liable to be declared non est.”

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

iii. Hon'ble Punjab & Haryana High Court in the case of CIT Vs Paramjit Kaur 311 ITR 38,

10. Key Steps/Check lista. 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

b. 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)

c. Whether notice issued by jurisdictional and proper officer having jurisdiction over the case (vs PAN Database) (refer SC in Raza Textiles case)

d. 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)

e. 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)

f. 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

g. When aforesaid exercise is completed then draft comprehensive objections (like proviso disclosure aspect , application of mind aspect and live nexus aspect ; sanction aspect etc)

h. Objections must be disposed by separate speaking order with application of mind (at this stage assessee can go for writ)

i. Gap between objection disposal and final order (4 weeks cooling period)

j. Final order u/s 147 different from objection disposal order

Draft suggested Letter-1 16 | P a g e R e o p e n i n g D e m y s ti fi e d K a p i l G o e l A d v 9 9 1 0 2 7 2 8 0 6a d v o c a t e k a p i l g o e l @ g m a i l . c o m

(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:

i) Relevant extract of investigation wing report concerning assessee ;

ii) Material gathered by investigation wing iii) Statements recorded by investigation wingiv) Reference letter recd from investigation wing etc

(Prey 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)


i) Ist proviso to section 147: assail AO did not specify how assessee disclosure faulty and weak (refer 398 ITR 198)

ii) 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

iii) 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)

iv) Reasons based on borrowed satisfaction and suffers from lack of application of mind (refer 395 ITR 677)

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

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

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

viii) 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;


ix) 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;

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

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

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

xiii) Law on sanction:

a. Always seek reasons which are with sanction of higher authorities;

b. AO duty bound to supply reasons with sanction copy;c. Check sanction by proper and competent officer;d. Further see if sanction is mechanical and ritualistic :

challenge it (391 ITR 11 etc);


Bombay high court recent decision in

M/s. Shodiman Investments Pvt. Ltd., .. Respondent.

INCOME TAX APPEAL NO. 1297 OF 2015

DATE : 16 th APRIL, 2018 .

We find that at the time of reopeningof the Assessment, theAssessing Officer did not provide the reasons recorded in support of the reopening notice in its entirety, to the RespondentAssessee.This was contrary to and in defiance of the decision of the Apex Court in GKN Driveshaft v/s. ITO 259 ITR 219. The entire objects of reasons for reopening notice as recorded being made available to an Assessee, is to enable the Assessing Officer to have a second look at his reasons recorded before he proceeds to assess the income, which according to him, has escaped Assessment. In fact, non furnishing of reasons would make an Assessment Order bad as held by this Court in CIT v/s. Videsh Sanchar Nigam Ltd., 340 ITR 66. In fact, partial furnishing of reasons will also necessarily meet the same fate i.e. render the Assessment Order on reopeningnotice bad. Therefore, on the above ground itself, the question asproposed does not give rise to any substantial question of law as it iscovered by the decision of this Court in Videsh Sanchar Nigam Ltd.,(supra) against the Revenue in the present facts.Besides, the submissions made on behalf of the Revenue that


in view of the decision of the Apex Court in Rajesh Jhaveri Stock Brokers Pvt. Ltd., (supra), the Assessing Officer is entitled to reopenthe Assessment for whatever reasons and the same cannot be subjected to jurisdictional review, is preposterous. First of all, taking out a word or sentence from the entire judgment, divorced from the context and relying upon it, is not permissible (see CIT v/s. Sun Engineering Works (P) Ltd., 198 ITR 297)Therefore, the sentence being relied upon was made in the contextof the change in law that under the amended provision 'reason to believe' that in case of escaped assessment, is sufficient to reopenthe assessment. This unlike the earlier provision of Section 147(a) of the Act which required two conditions i.e. failure to disclose fully and truly all facts necessary for assessment and reason to believe that income has escaped assessment. Thus, the observations being relied upon must be read in the context in which it was rendered. On so reading the submission, will not survive.11 Further, a reading of the entire decision, it is clear that thereasonable belief on the basis of tangible material could be, prima facie, formed to conclude that income chargeable to tax has escapedassessment. Mr. Mohanty, learned Counsel is ignoring the fact that the words 'whatever reasons' is qualified by the words 'having reasons to believe that income has escaped assessment'. The words whatever reasons only means any tangible material which would on application to the facts on record lead to reasonable belief that income chargeable to tax has escaped assessment. This material which forms the basis, is not restricted, but the material must lead to the formation of reason to believe that income chargeable to tax has escaped Assessment. Mere obtaining of material byitself does not result in reason to believe that income has escaped assessment. In fact, this would be evident from the fact that in para 16 of the decision in Rajesh Jhaveri Stock Brokers Pvt., Ltd., (supra), it is observed that the word 'reason' in the …. 'reason to believe' would mean cause or justification. Therefore, it can only 22 | P a g e R e o p e n i n g D e m y s ti fi e d K a p i l G o e l A d v 9 9 1 0 2 7 2 8 0 6a d v o c a t e k a p i l g o e l @ g m a i l . c o m

be the basis of forming the belief However, the belief must be independently formed in the context of the material obtained that there is an escapement of income. Otherwise, no meaning is being given to the words 'to believe' as found in Section 147 of the Act. Therefore, the words 'whatever reasons' in Rajesh Jhaveri Stock Brokers Pvt. Ltd., (supra), only means whatever the material, the reasons recorded must indicate the reasons to believe that income hasescaped assessment. This is so as reasons as recorded alone give the Assessing Officer power to reopen an assessment, if it reveals/ indicate, reasons to believe that income chargeable to tax has escaped assessment.12 The reopening of an Assessment is an exercise of extraordinarypower on the part of the Assessing Officer, as it leads tounsettling the settled issue/assessments. Therefore, the reasons to believe have to be necessarily recorded in terms of Section 148 of the Act, before reopening notice, is issued. These reasons, must indicate the material (whatever reasons) which form the basis of reopening Assessment and its reasons which would evidence the linkage/ nexus to the conclusion that income chargeable to tax has escaped Assessment. This is a settled position as observed by the Supreme Court in S. Narayanappa v/s. CIT 63 ITR 219, that it is open to examine whether the reason to believe has rational connection with the formation of the belief. To the same effect, the Apex Court in ITO v/s. Lakhmani Merwal Das 103 ITR 437 had laiddown that the reasons to believe must have rational connection with or relevant bearing on the formation of belief i.e. there must be a live link between material coming the notice of the Assessing Officer and the formation of belief regarding escapement of income. If the aforesaid requirement are not met, the Assessee is entitled to challenge the very act of reopening of Assessment and assuming jurisdiction on the part of the Assessing Officer.13 In this case, the reasons as made available to the RespondentAssessee as produced before the Tribunal merely indicates information received from the DIT (Investigation) about a particular entity, entering into suspicious transactions. However,


that material is not further linked by any reason to come to the conclusion that the RespondentAssessee hasindulged in any activity which could give rise to reason to believe on the part of the Assessing Officer that income chargeable to tax has escaped Assessment. It is for this reason that the recorded reasons even does not indicate the amount which according to the Assessing Officer, has escaped Assessment. This is an evidence of a fishing enquiry and not a reasonable belief that income chargeable to tax has escaped assessment.14 Further, the reasons clearly shows that the Assessing Officerhas not applied his mind to the information received by him from theDDIT (Inv.). The Assessing Officer has merely issued a reopeningNotice on the basis of intimation regarding reopeningnotice from the DDIT (Inv.) This is clearly in breach of the settled position in law that reopening notice has to be issued by the Assessing Office on his own satisfaction and not on borrowed satisfaction.


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