When the taxman comes calling — again

Since the inception of the Income Tax Act in 1922, the scope and power of the Assessing Officer in reopening an assessment have been a matter of dispute. The Act provides that if the officer has reason to believe that income chargeable to tax has escaped assessment he/she can reassess it. Consequently, the succeeding officer would often reopen the assessment on the basis of the same material due to a difference of opinion. The Apex Court held that an error discovered on reconsideration of the same material (and not more) does not give the assessing officer the power to reopen the assessment — that is, a change of opinion on the part of the officer would not justify reassessment.

However, subsequently, the I-T department often contended that the Apex Court’s ruling was not applicable to cases where no opinion was really formed. To justify this, the assessing officer often exercised the power to reopen. Particularly in cases where the time limit for scrutiny of assessments had lapsed, the officer would initiate reassessment proceedings on the premise that an intimation is not an assessment (wherein an opinion is framed), which was accepted by the Apex Court. However, the Gujarat High Court as well as the Mumbai Tribunal have held that even when only an intimation is passed, the power to reopen can be exercised only when there is ‘reason to believe income has escaped assessment’ and not merely to ‘scrutinise’ the return or ‘verify’ the expenditure. Further, the assessing officer can reopen the assessment only if he had some tangible material, and this is a safeguard against arbitrary exercise of reassessment powers to circumvent time-barred scrutiny proceedings. Nevertheless, there have also been contrary views from other benches of the Tribunal in other cases.

Often the succeeding officer reopens completed assessments on the basis of the same material on the premise that no opinion had been formed during the original proceedings, thereby causing a great ordeal to taxpayers. This view of I-T department was upheld by the Gujarat High Court. However, subsequently, a full bench of the Delhi High Court, relying on section 114E of the Evidence Act, held that a presumption can be drawn that in scrutiny assessments, the assessing officer has carried out his duty properly and applied his mind to the material on record. It further observed that even if the assessing officer had not applied his mind he could not be permitted to obtain a premium on his lapse. It concluded that in either situation, reassessment was not permissible. However, contrary views have been taken by various high courts.

Despite the conflicting views, recently the Bombay High Court quashed the reopening of completed assessments as there was no new material at the time of reassessment, and observed that negligence cannot be presumed on the part of tax officers. This gives a ray of hope to taxpayers that once their assessment is completed, it would not be reopened unless there is new material to persuade the assessing officer that income has escaped assessment.

(Sunil M. Lala is Partner and Shailvi Singhal is senior Executive — Tax Dispute Resolutions, KPMG in India.)

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