Limit for rectification, revision and reassessment proceedings are desirable for result orientation and ABC Control.

[C.A. DEV KUMAR KOTHARI]

References:

Sections 148, 154 and 263 of Income-tax Act, 1961 and case laws on these sections.

Assessment and complexity of law:

Tax laws are very complex. At any time there can be several possible views on any particular issue. Different officers and courts can have different rulings. It is settled principal that a view which is favorable to the assessee should be adopted in tax matters. We have noticed that in some situations, even after ruling from the Supreme Court, different views may be possible even in respect of the ruling and the ruling can be applied differently due to some differences in facts and circumstances. It is generally seen that assessing authorities many times do not follow even binding judgments by saying that facts are different, though the facts are similar.

Scrutiny assessment and subsequent proceedings:

In case of scrutiny assessment, the AO makes enquiry and gathers evidences. Based on his enquiry he passes assessment order against which assessee can prefer an appeal before CIT(A) or a revision petition u/s 264 before CIT to seek further relief which has been denied by the AO or against additions and disallowances .

In case it is noticed that the assessment order suffers from some mistakes or it is erroneous or prejudicial to interest of revenue or that there was escapement of income, the revenue can take remedial actions by way of rectification, revision or reassessment proceedings. All these proceedings have their own limitations.

Reasonable and possible views:

Where assessing officer has taken a reasonable and possible view on the matter, there should not be any rectification, revision or reassessment proceedings. Because in such case it cannot be said that the assessment order contains mistake apparent from record, or that the assessment order is erroneous and prejudicial to the interest of revenue or that there was escapement of income.

Audit objections are source of un-necessary litigation:

Ground reality it that audit objections are a major un-necessary source of litigation by revenue. It is experienced that Just to avoid exercises and explanations involved to clarify points raised by revenue audit party and also to avoid responsibility, the revenue authorities accept the audit objections and take some action by way of rectification, revision or reassessment, whichever is open   or whichever is considered to be on comparatively better footing. From a sample study of cases it is noticed that most of such proceedings ultimately fail.  On overall basis also the ratio of failure is likely to be in range of 80-85%. For an example a recent ruling of Delhi High Court is also discussed lateron.

Monetary limits are desirable:

It has also been noticed that many times rectification, revision and reassessment proceedings are initiated even in small cases where revenue impact is not significant.  In such cases usually litigation will take place for the reasons that the assessee faces sudden and unexpected tax liability, and burden of interest is also high. In most of such cases litigation up to second appeal before Tribunal can be expected. The impact of assessee may be significant, however, in overall context of revenue the gains to revenue is not very significant. 

It is desirable that monetary limit for tax impact should be fixed for taking actions by way of rectification, revision and reassessment proceedings. The following limits are suggested:

Rectification	Revision	Reassessment
In case of point involving repetitive impact in many years (say more than four years) Rs .fifty thousand per year.	In case of point involving repetitive impact in many years (say more than four years) Rs . one lakh  per year.	In case of point involving repetitive impact in many years (say more than four years) Rs . one lakh  per year.
In case of point not involving repetitive impact in many years (say less than four years) Rs .one lakh.	In case of point not involving repetitive impact in many years (say less than four years) Rs . two  lakh.	In case of point not involving repetitive impact in many years (say less than four years) Rs . two  lakh.

 There should be clear guidelines to ensure that un-necessary proceedings should not be initiated which has not much revenue effect but just involves litigation and this aspect is well known to the authority concerned.

Explanations can be asked from assessee in case of audit objections:

Many times it happens that there is change in officer in charge in post of the AO. The new officer is not very much aware about the facts and circumstances. It may take lot of time to study and reply properly to the audit party.

Therefore, in case of audit objections, it may be made mandatory for the AO to provide a copy of the audit objection to the concerned assessee and ask him to furnish his explanation and file relevant details and basis of claim etc. The reply to audit party can be prepared after consideration of the explanation by assessee on the audit objection.

Government policy:

It can be said that the overall policy is to rely on assessment made by the assessee himself. For this reason, majority of returns are accepted. However, whenever there is a scrutiny, the revenue authorities do not follow the general policy and make high pitched assessments, which generally do not stand legal scrutiny, when the assessee challenge the order. It is matter of fact that majority of disallowances stand deleted. Therefore, there should be some checks and balances so that the assessing authorities do not make illegal, improper and unjust additions and disallowances.

Avoid source of harassment:

It is general feeling that scrutiny assessment, and proceedings by way of rectification, revision, and reassessment are a big source of litigation and also harassment. This becomes evident when we find that the additional demands raised in such proceedings are mostly vacated. Therefore, it is desirable that government should take suitable steps to put a check on unreasonable proceedings, and additions and disallowances.

Recent case before Delhi High court:   

In a recent decision of December 01, 2011 on a Writ Petition being W.P.(C) 6884/2010

in case of BLB Limited Vs. ACIT 2011 -TMI - 207786 - DELHI HIGH COURT it was found that the assessing officer had considered and examined and then allowed non-compete fee paid as a business expenditure of  revenue nature by  accepting the stand of the assessee.

The court held that if in the course of original assessment proceedings, the Assessing Officer has considered and examined a particular aspect, the said aspect cannot be made a ground to reopen and initiate reassessment proceedings. The assessing authority cannot have a fresh look and reopen an assessment on the ground of change of opinion. The re-assessment proceedings cannot, therefore, be initiated on the ground that the Assessing Officer was legally wrong and had misapplied and wrongly understood the law/legal position.

 If we have a look on result of litigation in case of rectification, revision and reassessment proceedings we find that wherever the assessee and his counsel has made proper efforts and case is presently effectively, the assessee has generally won the case and the proceedings fail. Therefore, there should be proper application of mind before initiation of such proceedings.