In the Income-Tax Act, the term `assessment' includes reassessment. The reason for reassessment could arise where the income chargeable to tax was not assessed at all or in the assessment made earlier it was not charged to tax. The apex court, in CIT vs Sun Engineering Works (P) Ltd (198 ITR 297), held that the proceedings for reassessment are meant for the benefit of the Revenue only. Similarly, any loss determined in reassessment proceedings could not be carried forward for set off against other incomes in the subsequent years (CIT vs State Agro Development Corporation 248 ITR 487).
Scope for reassessment
Section 147 empowers the assessing officer (AO) to assess or reassess income which has escaped assessment. The basic premise for initiating reassessment is `reason to believe' that there has been escapement of income chargeable to tax. Once the satisfaction of escapement is reached, then the machinery provisions such as Section 148 meant for issue of notice; Section 149 dealing with time limit for issue of notice; Section 151 meant for obtaining sanction for issue of notice; and time limit for completing the reassessment as per Section 153 would come into play.
The provisions of Section 147 have been a subject matter of debate and the Direct Tax Laws (Amendment) Act, 1989 substituted the expression `reason to believe' with `reason to be recorded by him in writing'. The impact of the amendment came up for discussion in Assistant CIT vs Rajesh Jhaveri Stock Brokers (P) Ltd (291 ITR 500 SC) and facts relate to the assessment year 2001-02.
The Rajesh Jhaveri case
The assessee received intimation under Section 143(1) which, per se, is a confirmation of the receipt of return filed by the assessee. Subsequently, proceedings were initiated under Section 147 on the ground that the AO was not satisfied with the claim of assessee in respect of bad debts write-off.
The apex court held that Section 147 authorises the AO to issue a notice if he has reason to believe that income had escaped assessment. It is not compulsory that the AO must have ascertained the fact of escapement by legal evidence or conclusion.
The court held that the AO is to administer the statute with solicitude. At the stage of issue of notice there must be some relevant material to form a requisite belief, namely, the escapement of income chargeable to tax. The final outcome of the reassessment proceedings may not be in the Revenue's favour, yet, at the stage of initiation, the possibility of reaching that result is not a requisite.
The apex court held that previously two conditions were to be cumulatively satisfied for initiating reassessment proceedings.
They are (i) reason to believe escapement of income; and (ii) the escapement has occurred due to omission or failure of the taxpayer to disclose fully or truly all material facts relevant for the assessment.
Now, after the amendment, the only requirement is `reason to believe' of the AO and the `full and true disclosure' of the taxpayer will not insulate him from reassessment proceedings. This new interpretation is discouraging as the tax law and most of the amendments are already skewed in favour of the Revenue.
V. K. Subramani (The author is an Erode-based chartered accountant.)