BUDGETARY AMENDMENTS TO THE PROVISIONS RELATING TO RE-ASSESSMENT UNDER INCOME TAX ACT

[Mr. M. GOVINDARAJAN]

Reassessment

Reassessment means reopening the already completed assessment on fulfillment of certain conditions and reassesses the total income of the assessee by including the income which has escaped earlier assessment. Reassessment is to be done under section 147 of the Income Tax Act.  As per the provisions contained in section 147 of the Income Tax Act, 1961, if the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recomputed the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned.

Section 148 to 153 deal with the following-

• Section 148 - Issue of notice where income has escaped assessment
• Section 149 - Time limit for notice;
• Section 150 - Provision for cases where assessment is in pursuance of an order on appeal, etc.;
• Section 151 – Sanction for issue of notice;
• Section 151A - Faceless assessment of income escaping assessment;
• Section 152 – Other provisions;
• Section 153 - Time limit for completion of assessment, reassessment and recomputation.

Budgetary amendments

Income escaping assessment

Section 35 of Finance Bill, 2021 (‘Bill’ for short) substitutes the existing section 147 of the Income Tax Act, 1961 (‘Act’ for short).  The existing section 147 contains three provisos and four explanations.  The newly substituted section is very simple.

The newly substituted section 147 provides that if any income chargeable to tax, in the case of an assessee, has escaped assessment for any assessment year, the Assessing Officer may, subject to the provisions of sections 148 to 153, assess or reassess such income or recompute the loss or the depreciation allowance or any other allowance or deduction for such assessment year.

The explanation to this section provides that 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, irrespective of the fact that the provisions of section 148A have not been complied with.

Issue of notice where income has escaped assessment

Section 36 of the Bill substitutes the existing section 148.  According to this new section the notice for the re-assessment shall be issued subject to section 148A.  Therefore it is highly required to see the provisions of section 148A before seeing the amendment in section 148A.

Section 37 of the Bill introduces a new section 148A which stipulates the requirements to be followed before issuing notice under section 148.

Section 148A provides that  the Assessing Officer shall, before issuing any notice under section 14-

1. conduct any enquiry, if required, with the prior approval of specified authority, with respect to the information which suggests that the income chargeable to tax has escaped assessment;
2. provide an opportunity of being heard to the assessee, with the prior approval of specified authority, by serving upon him a notice to show cause within such time, as may be specified in the notice, being not less than seven days and but not exceeding thirty days from the date on which such notice is issued, or such time, as may be extended by him on the basis of an application in this behalf, as to why a notice under section 148 should not be issued on the basis of information which suggests that income chargeable to tax has escaped assessment in his case for the relevant assessment year and results of enquiry conducted, if any, as per clause (a);
3. consider the reply of assessee furnished, if any, in response to the show-cause notice;
4. decide, on the basis of material available on record including reply of the assessee, whether or not it is a fit case to issue a notice under section 148, by passing an order, with the prior approval of specified authority, within one month from the end of the month in which the reply referred to in clause (c) is received by him, or where no such reply is furnished, within one month from the end of the month in which time or extended time allowed to furnish a reply as per clause (b) expires.

The provisions contained in this section shall not be applicable in a case where-

• a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A in the case of the assessee on or after the 01.04.2021; or
• the Assessing Officer is satisfied, with the prior approval of the Principal Commissioner or Commissioner that any money, bullion, jewellery or other valuable article or thing, seized in a search under section 132 or requisitioned under section 132A, in the case of any other person on or after the 01.04.2021, belongs to the assessee; or
• the Assessing Officer is satisfied, with the prior approval of the Principal Commissioner or Commissioner that any books of account or documents, seized in a search under section 132 or requisitioned under section 132A, in case of any other person on or after the 01.04.2021, pertains or pertain to, or any information contained therein, relate to, the assessee.

The specified authority means the specified authority referred to in section 151.

As per the newly substituted section 148, the Assessing Officer shall serve on the assessee a notice, along with a copy of the order passed, if required, under clause (d) of section 148A, requiring him to furnish within such period, as may be specified in such notice, a return of his income or the income of any other person in respect of which he is assessable under this Act during the previous year corresponding to the relevant assessment year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed.  The provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139.

No notice under this section shall be issued unless there is information with the Assessing Officer which suggests that the income chargeable to tax has escaped assessment in the case of the assessee for the relevant assessment year and the Assessing Officer has obtained prior approval of the specified authority to issue such notice

The explanation 1 to this section defines the expression ‘income escaped assessment’ as-

• any information flagged in the case of the assessee for the relevant assessment year in accordance with the risk management strategy formulated by the Board from time to time;
•  any final objection raised by the Comptroller and Auditor General of India to the effect that the assessment in the case of the assessee for the relevant assessment year has not been made in accordance with the provisions of this Act.

Explanation 2 deals with the deemed to have  information by the Assessing Officer.  Explanation 2 provides that where-

• a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A, on or after the 01.04.2021, in the case of the assessee; or
• a survey is conducted under section 133A in the case of the assessee on or after the 01.04.2021 Assessing Officer is satisfied, with the prior approval of the Principal Commissioner or Commissioner, that any money, bullion, jewellery or other valuable article or thing, seized or requisitioned in case of any other person on or after the 01.04.2021, belongs to the assessee; or
•  the Assessing Officer is satisfied, with the prior approval of Principal Commissioner or Commissioner, that any books of account or documents, seized or requisitioned in case of any other person on or after the 01.04.2021, pertains or pertain to, or any information contained therein, relate to, the assessee,

the Assessing Officer shall be deemed to have information which suggests that the income chargeable to tax has escaped assessment in the case of the assessee for the three assessment years immediately preceding the assessment year relevant to the previous year in which the search is initiated or books of account, other documents or any assets are requisitioned or survey is conducted in the case of the assessee or money, bullion, jewellery or other valuable article or thing or books of account or documents are seized or requisitioned in case of any other person.

Time limit for issue of notice

Section 38 of the Bill substitutes the existing section 149.  According to the newly substituted section 149 no notice under section 148 shall be issued for the relevant assessment year-

• if three years have elapsed from the end of the relevant assessment year;
• if the escaped assessment amounts to or is likely to exceed ₹ 50 lakhs the time limit for issue of notice is 10 years from the end of the relevant assessment year unless the Assessing Officer has in his possession books of accounts or other documents or evidence which reveal that the income chargeable to tax, represented in the form of asset;

No notice under section 148 shall be issued at any time in a case for the relevant assessment year beginning on or before 01.04.2021, if such notice could not have been issued at that time on account of being beyond the time limit specified, as they stood immediately before the commencement of the Finance Act, 2021.

Non applicability

 The provisions of section 149(1) shall not apply in a case, where a notice under section 153A, or section 153C read with section 153A, is required to be issued in relation to a search initiated under section 132 or books of account, other documents or any assets requisitioned under section 132A, on or before the 31st day of March, 2021.

Exclusion period

For the purposes of computing the period of limitation as per this section, the time or extended time allowed to the assessee, as per show-cause notice issued under clause (b) of section 148A or the period during which the proceeding under section 148A is stayed by an order or injunction of any court, shall be excluded.

Deemed extension

Where immediately after the exclusion of the period referred to above, the period of limitation available to the Assessing Officer for passing an order under clause (d) of section 148A is less than seven days, such remaining period shall be extended to seven days and the period of limitation shall be deemed to be extended accordingly.

Specified Authority

Section 39 of the Bill substituted the existing section 151.  According to this newly substituted section the specified authority mentioned in section 148 and 148A shall be-

• Principal Commissioner or Principal Director or Commissioner or Director, if three years or less than three years have elapsed from the end of the relevant assessment year;
• Principal Chief Commissioner or Principal Director General or where there is no Principal Chief Commissioner or Principal Director General, Chief Commissioner or Director General, if more than three years have elapsed from the end of the relevant assessment year.

Time limit for completion of assessment

Section 153(1) of the Act provides that no order of assessment shall be made under section 143 or section 144 at any time after the expiry of 21 months from the end of the assessment year in which the income was first assessable.

Section 41 of the Bill inserts a third proviso to section 153(1).  The newly inserted third proviso to section 153(1) provides that  in respect of an order of assessment relating to the assessment year commencing on or after the 01.04.2021, the provisions of this sub-section shall have effect, as if for the words ‘twenty-one months’, the words ‘nine months’ had been substituted.