Challenge to the notice for reassessment is generally not proper remedy. Instead of that step-by step proceedings may be preferable

[CA DEV KUMAR KOTHARI]

Links and references:

Article 226 of the Constitution of India.

Section 68, 143, 147 and  148 of the Income-tax Act, 1961.

Pankaj Hospital Ltd. v. Commissioner of Income- 2014 (2) TMI 1125 - ALLAHABAD HIGH COURT

Cases referred by the High Court:

G.K.N. Driveshafts (India) Ltd. v. ITO 2002 (11) TMI 7 - SUPREME Court

Asstt. CIT v. Rajesh Jhaveri Stock Broker (P.) Ltd. 2007 (5) TMI 197 - SUPREME Court.

Issue of notice to reassess and opportunities available to assessee:

A notice to reassess (e.g. to reassess income by) is preliminary step taken by concerned authority. The noticee / assessee / tax payer is at liberty to ask for reasons make objections to such reasons, file return , explain return and in case additions have been made he can file appeal against the same. Assessee has opportunities to explain before the original authority (Assessing Officer) and then can prefer appeal before first appellate authority (E.G. CIT(A), then before second  appellate authority (E.G. ITAT) and then before High Court and in case of need before the Supreme Court.

Adequate alternate remedies are available:

Procedure to file  objections and in case of need return in response to notice and reasons for reassessment, assessment and appeals  and provisions for providing opportunity of hearing by the original and appellate authorities and courts provide check and balances, and adequate opportunity and alternate remedy to challenge reassessment proceedings.

Therefore, challenging a notice to reassess is prima facie not a proper course of action. A notice issued to reassess can be challenged and can be declared null and void by courts only in certain exceptional circumstances and not as a routine manner.

Generally challenging a notice to reassess at the very preliminary stage can in fact be considered as gross abuse of legal proceeding by way of challenge in a Writ Petition before any High Court.

We have many cases in which Writ Petitions to challenge reassessment proceedings were dismissed even by the Supreme Court of India. Challenge to notice to reassess is generally dismissed for the reason that assessee has adequate and efficacious remedy, in case a reassessment proceeding is initiated and completed. On the other hand, in normal course of reassessment and appeal, a reassessment may be set aside (fully or partly) when an addition made in reassessment is due to change of opinion , is without any new tangible and valid material, or is based on bias or change of opinion etc. or is otherwise not sustainable.

Therefore, as per author generally regular course of making objections, in case of need filing return, attending assessment proceedings, and in case of need pursuing appeal proceedings is better course of action.

A recent case before Allahabad High Court:

In case of Pankaj Hospital Ltd (supra.) the assessee challenged notice to reassess the income. The notice was issued based on information that assessee has received accommodation entries against cash provided. Such information was based on confession of a CA (‘T’)  during search in his premises when  'T' admitted that he had created as many as 90 bogus private limited companies and firms for providing accommodation entries to beneficiaries, and (iii) assessee was one of beneficiaries, which had arranged accommodation entries during assessment year 2006-07 of a total amount of Rs. 2.21 crores from four bogus companies created by 'T' in lieu of cash deposits of equal amount plus premium which were not disclosed to department.

Thus the information with the Assessing Officer was of special nature and formed peculiar facts and circumstances of case. The challenge to notice for reopening assessment proceedings was held valid and thus Writ Petition was dismissed by the High Court. The High Court followed certain judgments of the Supreme Court, which were on issue of challenge of notice to reassess income.

What could be established in normal course?

Whether assessee is covered by such information or not, whether confession of the CA was applicable to the assessee or not, whether the CA has made confession in  some compelling circumstances or in a wrong manner and with some ulterior purposes, whether the assessee has disclosed full facts of the case at the time of original assessment, and reassessment is just based on change of opinion are such things which could be established and argued in normal process of assessment and appeals. 

Thus in the normal course, based on evidence available at the time of original assessment including  public documents like return of allotment, annual returns, audited accounts etc. assessee could have make a case that reassessment or additions are not proper and legally not sustainable.

The honorable High Court has also observed and held as follows:

“We, however, clarify that these observations are only for the purposes of determining as to whether the notice reopening the assessment proceedings is valid or otherwise. Undoubtedly, the Assessing Officer in the course of the reopening of the assessment will be at liberty to make an appropriate determination since these are all matters of fact which are to be decided in the course of assessment.

Thus the assessee and the AO both are at liberty to establish their case in course of reassessment proceeding and if necessary in appeals, as the situation may warrant. The observations of the author in relation to Writ Petition vis a vis normal original and appeal proceedings are equally applicable in case of rectification and  revision proceedings under various tax laws. Therefore, taking regular course of proceedings can generally be regarded as proper course of action to be taken by assessee.