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Notice of reassessment

QUESTION: Since the Central Government is following acceptance of most returns except those chosen for scrutiny, it is apparently noticed or apprehended after the expiry of time limit for scrutiny notice for regular assessment that there is understatement in the return so that numerous notices under Sec. 148 are being issued. In quite a few cases, the inference is wrong since they are issued merely on suspicion. What are the circumstances in which it can be inferred that the jurisdiction for the notice itself is lacking so that such jurisdiction can be questioned besides merits?

ANSWER: The inference of understatement should not be based on mere surmises and suspicion. There should be information necessary for the inference even for notice within the four-year time limit. The law gives better protection for the taxpayer for any action beyond the four-year time limit but within six-year limit. But this distinction has no relevance in cases where no return is filed or where return is filed but not chosen for scrutiny with no intimation or an intimation confined to tax with reference to the returned income.

When a regular amendment under Sec. 143(3) has been made, proviso to Sec. 147 provides that an action for reassessment beyond four years should arise only where the escapement of income is by reason of the failure of the assessee “to disclose fully and truly all material facts necessary for his assessment”. Explanation 1 would, however, rule out inference of disclosure on mere production of books or other evidence merely because the assessing officer could have discovered the understatement “with due diligence on his part”. This law, made at the time when almost all the returns were supported by enclosures and were scrutinised, does not make much sense now. Even the statutory audit report for companies or tax audit report for assessees exceeding specified turnover or income cannot be enclosed as no enclosure is permitted. In other words, the law does not permit disclosure except to the extent of the information in the returns and the schedules therein, which are extremely limited in scope. In the result, the inference of non-disclosure is often more readily available. All the same, there should be information leading to the inference of understatement of income. It is not permissible to reopen a matter merely for verification of the correctness of the return, which is possible only within the scope of a normal scrutiny notice under Sec. (2).

In most countries, there is limitation of time limit of not more than a year in respect of jurisdiction over the deceased persons but not so in law in India so that it is quite likely that the executor or the legal heirs may be called upon to explain a return filed by the deceased during his life time. On the other hand, most countries have no time limit for fraud cases but in India even for fraud cases, the time limit of six years protects a fraudulent return from action indicating the unbalanced law as regards reassessment jurisdiction. Such imbalance would continue even under the Direct Taxes Code Bill, 2010.The law seeks to protect the taxpayer against indiscriminate action as regards past assessments regularly made as it provides for recorded reasons by the assessing officer duly approved by a higher authority. Courts have often come to the assistance of the taxpayers, where the reasons do not prima facie justify the notice. There are numerous decisions, where jurisdiction beyond four-year time limit has been held to be wrongly assumed as in matters of certified relief or where there was no omission on the part of the assessee. Where an assessee, who has received reassessment notice, finds that there has been an error in his return, the wiser course for the assessee is to use the opportunity of the notice by filing a correct return in response to such notice so that there is possibility of avoiding penalty either on merits or by way of waiver under Sec. 273A with even possible waiver of interest on an application to the Chief Commissioner. Any attempt to question jurisdiction, where there is patent understatement of income in the return filed, is not likely to succeed.

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