The Income-tax Department these days issues more reassessment notices than regular notices for scrutiny. After an assessment under Sec. 143(1) accepting the return, notice under Sec. 148 is being received for the first time after the normal time limit for issue of notice under Sec. 143(2) has expired. Are there no limitations for indiscriminate issue of such notices?

The law places a time limit for issue of notice for assessment or reassessment. Assessment is not expected to be made endless by process of reassessment. Since the taxpayer is entitled to peace after reasonable time after return, the law has placed outer time limits for issue of both notices for scrutiny and for back assessments.

Where the assessing officer passes an order under Sec. 143(1), it is not an assessment or in other words, a regular assessment.

He is merely raising a demand or issues a refund in respect of tax short-paid or over-paid with reference to declared income. After June 1, 1999, even if he were to find a case for prima facie adjustment of income, he can do so only after taking up the case for scrutiny by issue of notice under Sec. 143(2) of the Act. The order under Sec. 143(1) is no bar for a regular assessment by notice under Sec. 143(2) in the same year or for notice under Sec. 147 after the expiry of time limit for issue of notice under Sec. 143(2), if such notice is issued within time, subject to conditions necessary for the same.

Sec. 147 prescribes time limit and conditions for issue of notice under Sec. 148 for a back assessment, whether by way of fresh assessment or reassessment.

Where no return has been filed by an assessee, action could be taken under Sec. 147 for six preceding assessment years besides the current assessment year for which notice under Sec. 142(1) of the Act can be issued.

Escapement can be inferred if the assessing officer is of the view that the assessee has earned income above the taxable limit. Jurisdiction in such cases is indeed wide.

Where a return had been filed by the assessee, either within the time allowed under Sec. 139(1) or within the time for belated or revised return under Sec. 139(4) or (5) and no assessment has been made by issue of scrutiny notice under Sec. 143(2) within the time, notice can be issued under Sec. 147, where it comes to the notice of the assessing officer that the assessee had understated the income or has claimed excessive loss, deduction, allowance or relief in the return.

The present law after June 1, 1999, cannot justify the inference that the assessing officer had applied his mind as regards the correctness or otherwise of the return.

The assessing officer, therefore, can issue notice under Sec. 147, whenever he notices such understatement of taxable income. Jurisdiction is broad in such cases. Even so, there should be information to justify the inference, which he has drawn, of escapement of taxable income.

An audit opinion or a direction by the administrative superiors will not be sufficient, since “the reason to believe” escapement should be that of the assessing officer.

What is the limit of jurisdiction for re-opening a completed assessment?

Where an assessment has already been made, there could be re-assessment proceedings under Sec. 147. If there is concealment of particulars indicating conscious under-statement of income, it is possible to reopen the assessment within the six-year time limit for the past six years.

If the omission had occurred for no fault of the assessee, such reopening may still be possible for four-year time limit.

But where the matter has been considered in the original assessment and the assessee's stand has been accepted by the assessing officer, he cannot review his own decision as it would amount to a change of opinion, which is not permitted even for the four-year time limit.

A widespread belief in the Income-tax Department that there is wider jurisdiction in view of certain amendments from assessment year 1989-90 was found to be mistaken, since the requirement of “reason to believe” continues both prior to and after the amendment even as conceded by a Board Circular No. 549 dated October 31, 1990 (1990) 182 ITR (St.) 1 at 28. This law has been set out by the Supreme Court in CIT v Foramer France (2003) 264 ITR 566 (SC) and reiterated in CIT v Kelvinator of India Ltd. (2010) 321 ITR 561 (SC).

S. RAJARATNAM