Rationalized Re-assessment proceedings under Income Tax Act, 1961.

Hon’ble Finance Minister introduced a new scheme of reassessment proceedings in order to reduce compliance burden, bring certainty in tax proceedings and reduction of litigation.

Section 148A under the new scheme of reassessment proceedings, states that before issuance of notice u/s 148 of the Act, the assessing officer shall conduct inquiry on the basis of the information or material available on record which suggests that income chargeable to tax has escaped assessment.

Thereafter, based on the information or material available on record and the inquiry report, the assessing officer issue a show cause notice along with the information relied upon, providing an opportunity of being heard and asking to file a reply in response to said show cause notice.

That the assessing officer after considering the reply filed by assesse, material available on record and inquiry report, passed an order u/s 148A(d) of the Act with the prior approval of specified authority.

If the assesse is aggrieved by the order passed u/s 148A(d), then the assesse can approach the Hon’ble High Court by filing a writ petition under Article 226 of the Constitution of India.

Earlier the law was settled by the Hon’ble Supreme Court in the case of GKN Driveshafts (India) Ltd. vs. ITO (2002) 125 Taxman 963/259 ITR 19 (SC) stating that assesse after receipt of notice u/s 148, the assesse could file a return of income and then ask the assessing officer for the reasons recorded and subsequently raise the objections before assessing officer and the jurisdictional assessing officer disposed of the same and if the assesse was not satisfied with the order disposing objection, then assesse can approach the Hon’ble High Court by filing writ petition. However, the said procedure has been substituted by new reassessment proceedings.

Prior to new scheme of reassessment, assessing officer had to conduct an independent inquiry based on the tangible material available on record and thereafter, the assessing officer after application of mind form a reason to believe that there has been an escapement of income. In other words, the assessing officer was liable to establish a direct nexus or link between the material available on record and formation of reason to believe which states that there has been an escapement of income.

However, after substitution of new reassessment provisions, it is established that, from now onwards, the assessing officer only needs material or information suggesting escapement of income. There is no requirement of forming a reason to believe by the assessing officer. Additionally, the assessing officer can now open the reassessment proceedings based upon the third party information available.

In order to avoid any ambiguity and to understand the clear intention of legislature, a list of cases are defined where it is deemed of escapement of income as follows:

1. any information received from risk management strategy formulated by the Board from time to time; 
2. any audit objection; or
3. any information received in reference to section 90 or section 90A of the Act; or
4. any information received in reference to section 135A; or
5. any information which requires action in consequence of the order of a Tribunal or a Court.¹

In accordance with new reassessment provisions as amended by Finance Act, 2021, reassessment can be opened within 3 years up to 10 years from end of the relevant assessment year if the assessing officer is in possession of books of accounts of assesse represented in the form of assets which amounts to or likely to amounts to fifty lakh rupees or more for that year which represents escapement of income. It is noteworthy to mention that the time period for reassessment up to 10 years would not be applicable if time period as defined in former section 148 of the Act i.e. prior to Finance Act, 2021.

Conclusion

Keeping in mind the above, it is stated that w.e.f. 01.04.2021, new provision comes into existence and old provision departs. As per the old provision, notice u/s 148 of the Act was to be issued, assesse files return of income, ask for reason to believe, raise objections after receipt of reason to believe, and the assessing officer dispose of the objections. Then the assesse decided whether it is a fit case to approaching the Hon’ble High Court by filing the writ petition.

However, according to new provision (amended provision), before issuance of notice u/s 148 of the Act, assessing officer needs to conduct inquiry, issue show cause notice, assesse file reply in response to notice and subsequently, assessing officer passes an order and if thereafter, assesse approached the Hon’ble High Court by filing writ petition if the assesse finds it a fit case to approach the court.

Now the issue is when assessing officer already formed a view and which is also endorsed by specified authorities, then giving opportunity to file reply in response to show cause notice is of no use as the assessing officer may not take a different view while passing the order.