1999 PLP 660 (PTD)

(iii) The existing legal interpretation that once an assessment has been reopened, any other income that has escaped assessment and comes to the notice of the Assessing Officer subsequently during the course of proceedings under this section can also be included in the assessment, has been incorporated in the new section itself. (iv) A proviso to the new section provides that an assessment, which has been completed under section 143(3) or section 147, i.e., a scrutiny assessment, can be reopened after the expiry of four years from the end of the relevant assessment year only if income has escaped assessment due to the failure on the part of the assessee to file a return of income or to disclose fully and truly all material facts necessary for this assessment. 7.2. Amendment made by the amending Act; 1989, to reintroduce the expression 'reason to believe' in section 147.

A number of representations were received against the omission of the words "reason to believe' from section 147 and their substitution by the 'opinion' of the Assessing Officer. It was pointed out that the meaning of the expression, 'reason to believe' had been explained in a number of Court rulings in the past and was well-settled and its omission from section 147 would give arbitrary powers to the Assessing Officer to reopen past assessments on mere change of opinion. To allay these fears, the Amending Act, 1989, has again amended section 147 to reintroduce the expression 'has reason to believe' in the place of the words 'for reasons to be recorded by him in writing, is of the opinion'. Other provisions of the new section 147, however, remain the same. 7.3. Deemed cases of income escaping assessment (Explanation 1 to section 147)

Under the old provisions of Explanation 1 to section 147, income chargeable to tax was deemed to have escaped assessment if it had been under assessed or assessed at too low a rate or if any excessive relief or loss or depreciation allowance had been allowed. The new provisions in this respect, as contained in Explanation 2 to new section 147, are more elaborate and cover those cases where assessments have been completed (called as scrutiny cases) as well as those cases where no assessments have been completed (called as non-scrutiny cases). Thus, the new Explanation 2 to the section clarifies that the following shall be deemed to be cases of income escaping assessment: (i) Where no return of income has been furnished by the assessee, although the total income is above the taxable limit. (ii) Where a return of income has been furnished, but no assessment has been made (i.e., in a non-scrutiny case)

If the assessee is found to have understated his income or claimed excessive loss, deduction, allowance or relief in the return. (iii) Where an assessment been made (i.e., in a scrutiny case)

if income chargeable to tax has been under assessed or assessed at too low a rate or if any excessive relief or loss or depreciation allowance or any other allowance under this Act has been allowed. 7.4. Amendment of provisions relating to issue of notice where income has escaped assessment (section 148)

The old provisions of section 148 of the Income-tax Act provided that a notice issued under this section shall tantamount to a notice under section 139(2). It was also provided in subsection (2) of the said section 148 that before issuing a notice under this section, the Income-tax Officer will record the reasons for doing so. The Amending Act, 1987, has substituted a new section

148. The main features of the new section are: (i) Consequent upon the omission of subsection (2) of section 139, reference to same has been removed and the new section 148 has been made self-contained. (ii) Subsection (2) of this section has been omitted, as the requirement of recording reasons in writing has been incorporated in the new section 147 itself. 7.5. Consequent upon further amendment of section 147 by the Amending Act, 1989, whereby the requirement of recording reasons in writing has been omitted from that section (refer to paragraph 7.2 ante), the Amending Act, 1989, has again amended section 148 to reinsert subsection (2). Thus, the requirement of recording reasons in writing before issuing a notice under section 148 continues to remain in the Act. 7.6. Provisions relating to time limits for issue of notice under section 148 subsection (1) of section 149).

Under the old provisions of subsection (1) of section 149, time limits for opening or reopening of past cases were laid down depending upon whether the case was covered under clause (a) or clause (b) of the old section

147. Thus, no notice under section 148 could be issued in a case falling under clause (b) after the expiry of four years and in a case falling under clause (a) after the expiry of eight years from the end of the relevant assessment year. .However, in a case falling under clause (a) if the income which had escaped assessment amounted to Rs.50,000 or more in that year, the case could be reopened up to 16 years. 7.7. In view of the new procedure for assessment (refer to paragraph 5.1 of these Explanatory Notes) whereby the majority of cases will be non-scrutiny cases, while only a very small percentage will be scrutiny cases (i.e., where an assessment order will be passed under section 143(3) or 147), the Amending Act, 1987, has substituted a new subsection (1) in section 149, which contains an entirely different basis for the time limits. The time limits now depend upon whether the case is a scrutiny case or a non-scrutiny case and also the amount of income which has escaped assessment. The income limits for opening or reopening a non-scrutiny case are lower than those for reopening a scrutiny case. The new provisions of section 149(1) are explained in a chart given in paragraph 7.11 post. 7.8. Time limits not to apply to give effect to an order of a Court in any proceedings (subsection (1) of section 150).

Under the old provisions of subsection (1) of section 150, a notice under section 148 could be issued at any time, notwithstanding the time limits prescribed in section 149, if an assessment, reassessment or recomputation was to be made in pursuance of any finding or direction contained in an order of appeal, reference or revision passed under the Income-tax Act. However, there can be proceedings other than those under the Income-tax Act, which can have a bearing in quantifying the past income of the assessee, which may have escaped assessment. For example, a writ proceeding challenging the Constitutional validity of any other Act may have a bearing on the assessment of income. To plug this loophole, the Amending Act, 1987, has amended the said subsection (1) to empower the Assessing Officer to issue a notice under section 148 at any time to give effect to any finding or direction contained in an order passed by a Court in any proceeding under any other law. 7.9. Provisions, relating to sanction of superior authorities for issue of notice under section 148 (section 151).

Under the old provisions of section 151, the sanctioning authorities for opening or reopening of past cases were prescribed depending upon the period after which action was being taken. Thus, if notice under section 148 was to be issued after the expiry of four years from the end of the assessment year, the sanction of the Commissioner was necessary,, while after the expiry of eight years from the end of the assessment year, the sanction of the Board was necessary. 7.10. For the same reasons as discussed in paragraph 7.7 ante, the Amending Act, 1987, has substituted a new section 151, which contains substantially changed provisions. The issuing or sanctioning authorities will now depend upon whether the case is scrutiny case (i.e., where an assessment order has been passed under section 143(3) or section 147) or a non-scrutiny case, and also the period after which the case is being opened or reopened. Thus, a scrutiny assessment will not be reopened by an Assessing Officer of the rank below the rank of an Assistant Commissioner. After the expiry of four years from the end of the relevant assessment year, a scrutiny assessment can be reopened only with the approval of the Chief Commissioner or Commissioner. A non-scrutiny case can be opened or reopened by any Assessing Officer and after the expiry of four years from the end of the relevant assessment year it can be opened or reopened with the approval of the Deputy Commissioner However, where the Assessing Officer is the Deputy Commissioner himself, no sanction of the higher authority will be necessary for opening or reopening a non-scrutiny case. 7.11. The new provisions of section 149(1) regarding time limits and section 151 regarding issuing and sanctioning authorities for the issue of a notice under section 148 are explained in the following chart: Sl. No Up to four years Beyond four years but up to seven years Beyond seven years but up to ten years (1) (2) (3) (4)

1. Scrutiny cases, i.e., (where an assessment order has beets passed under, section 143(3) or 147). (i) Assessment can be reopened only by an Assessing Officer of the rank of an Assistant Commis sioner or Deputy Commissioner. (i) Same as (i) in column (2). (i) Same as (i) in column (2). 2.Non-scrutiny cases (i.e., where no assessment order has been passed under section 143(3) or 147). (ii) Assessment can be reopened whatever be the amount of income which has escaped assessment. (ii) Assessment can be reopened only if the income which has escaped assessment is Rs.50,000 or more for that year. (ii) Assessment can be reopened only if the income which has escaped assessment is Rs.l lakh or more for the year. (i) Any assessing Officer can reopen an assessment himself. (iii)Assessment can be reopened only with the approval of the Chief Commis sioner or Commissioner. (iii) Same as (iii) in column (3). (ii) Assessment can be reopened what ever be the amount of income which has escaped assessment. (i) Same as (i) in column (2). (i) Same as (i) in column (2). (ii) Assessment can be reopened only if the income which has escaped assessment is Rs.25,000 or more for that year. (ii) Assessment can be reopened only if the income which has escaped assessment is Rs.50,000 or more for that year. (iii)Assessment can be reopened by the Assessing Officer below the rank of Deputy Commissioner only with the approval of the Deputy Commissioner. (iii) Same as (iii) in column (3). 7.12 Consequential amendment to section 152(2).

The Amending Act, 1987, had made an amendment of consequential nature in subsection (2) of section 152, containing a provision for dropping a reopened assessment under certain circumstances, pursuant to the merger of clauses (a) and (b) of the old section 147 into a single new section 147. 7.13 Amendments to have retrospective effect.

These amendments come into force with effect from the 1st day of April, 1989. However, it may be clarified that since the provisions of sections 147 to 152 lays down procedural law, these have retrospective effect, unless the amending statute provides otherwise. Therefore, the amendments made to these sections by the Amending Acts, 1987 and 1989, discussed in the preceding paragraphs, which came into force with effect from 1st April, 1989, will be retrospective in the sense that these will apply to all matters which were pending on 1st April, 1989, and had not become closed or dead on this date. 7.14. Thus, from 1st April, 1989, onwards, any action for opening or reopening an assessment for the assessment year 1988-89, and earlier assessment years will have to be taken in accordance with the amended provisions. The following examples will clarify the position:

(i) No notice under section 148 can now be issued for the assessment years 1973-74 to 1978-79, even if the escaped income is Rs.50,000 or more in each year, although under the old provisions this could have been done with the Board's approval. (ii) Notice under section 148 can now be issued for any of the assessment years 1979-80 to 1981-82, if the following conditions are fulfilled:

(a) In a scrutiny case (i.e., were an assessment order had been passed under section 143(3) or 147), if the escaped income Rs. 1 lakh or more in each year and approval of the Chief Commissioner or Commissioner has been obtained. (b) In a non-scrutiny case, if the escaped income is Rs.50,000 or more in each year, and approval of the Deputy Commissioner has been obtained. (Under the old provisions, there was no distinction between a scrutiny and a non-scrutiny case. Action could have been taken in respect of both types of cases for the assessment year 1981-82, with the approval of the Chief Commissioner or Commissioner, whatever be the amount of escaped income, while for the assessment years 1979-80 and 1980-81, action could have been taken with the Board's approval if the escaped income was Rs.50,000 or more in each year. These old provisions, however, have no application now from 1st April, 1989, onwards). (iii) Notice under section 148 can now be issued for any of the assessment years 1982-83 to 1984-85, if the following conditions are fulfilled:

(a) In a scrutiny case, if the escaped income is Rs.50,000 or more in each year and approval of the Chief Commissioner or Commissioner has been obtained. (b) In a non-scrutiny case, if the escaped income is Rs.25,000 or more in each year and approval of the Deputy Commissioner has been obtained. (Under the old provisions, action could have been taken for these assessment years, in respect of both types of cases, with the approval of the Chief Commissioner or Commissioner, whatever be the amount of escaped income. These old provisions, however, have no application now from 1st April, 1989, onwards.) (iv) Notice under section 148 can now be issued for any of the assessment years 1985-86 to 1988-89, whatever be the amount of income which has escaped assessment, if the Assessing officer has reason to believe that any income chargeable to tax has escaped assessment. (Under the old provisions action could have been taken for these assessment years, if the circumstances mentioned in clause (a) or (b) of the old section 147 were satisfied. These old provisions, however, have no application now from 1st April, 1989, onwards). (v) a scrutiny assessment for any assessment year cannot be reopened now by an Assessing Officer below the rank of an Assistant Commissioner; under the old provisions, there was no such restriction. (Sections 54 to 58 of the Amending Act, 1987) (Sections 23 and 24 of the Amending Act, 1989) Time limit for completion of assessments end reassessments. 8.1. Time limit for completion of assessment under section 143(3) or section 144 (subsection (1) of section 153).

Under the old provisions of subsection (1) of section 153 of the Income-tax Act, various time limits were laid down for completion of an assessment under section 143(3) or under section

144. The old subsection (1) consisted of four clauses (a) to (d) and clause (a) consisted of three sub-clauses (i) to (iii). The general time limit for completion of an assessment, as laid down in sub-clause (iii) of clause (a), was two years from the end of the assessment year in which the income was first assessable. 8.2 The Amending Act, 1987, has substituted a new subsection (1) in section

153. The provisions of all the clauses and sub-clauses of the old of subsection (1), except the provisions of sub-clause (iii) of clause (a), have been omitted, because either these provisions have become redundant or they were impractical and were not being used in practice. Therefore, the new subsection (1) of section 153, substituted by the Amending Act, 1987, is much shorter and provides that no order of assessment under section 143 or section 144 shall be made after the expiry of two years from the end of the assessment year in which the income was first assessable. Note.

Section 20 of the Finance Act, 1989, has further amended the said subsection (1) of section 153 to provide for transitory provisions whereby an exception is made in the case of a return or a revised return filed under subsection (4) or (5) of section 139 relating to the assessment year 1988-89, or any earlier assessment year. In such a case, assessment can be completed before the expiry of one year from the end of the financial year in which the said return or revised return is filed. 8.3 Time limit for completion of assessment, reassessment or recomputation under section 147 (subsection (2) of section 153).-- Under the old provisions of subsection (2) of section 153, different time limits were laid down for completion of assessment, reassessment or recomputation under section 147 depending upon whether the case fell under clause (a) or clause (b) of the old section 147. Normally, the time limit, in a case falling in clause (a), was four years from the end of the assessment year in which the notice under section 148 was served and in a case falling in clause (b), the same was four years from the end of the assessment year in which the income was first assessable. 8.4. Consequent upon the merger of clauses (a) and (b) into a single new section 147, the Amending Act, 1987, has substituted a new subsection (2) in section 153, which provides a uniform time limit for completion of assessment, reassessment, etc., under subsection 147. The limit is two years from the end of the financial year in which notice under section 148 was served. Thus, the time allowed for completion of all assessments under section 147 has now been reduced to two years to facilitate quicker assessments. 8.5. As a transitory measure, an exception has been made in cases where notice under section 148 was served on or before 31st March, 1987. In such cases, order of assessment, reassessment or re-computation can be made up to 31stMarch, 1990. This would help to tide over the difficulties during the transitional period while switching over from the earlier four years limit to the new two years limit. 8.6. Consequential amendment in Explanation 1 to section 153.

The Amending Act, 1987, has amended Explanation 1 to section 153 by omitting clause (iv) of the said Explanation, which provided an extended time limit in a case referred to the Inspecting Assistant Commissioner under section 144-B. This is consequent to the deletion of section 144-B itself. 8.7. These amendments come into force with effect from the 1st April, 1989. [Section 59 of the Amending Act, 1987]" In the case of the assessee, the power could have been exercised under the repealed section as well as the amended section. The matter with regard to the applicability of the repealed section is merely an academic argument; however, in view of the fact that the power of reopening was existing in respect of escaped assessment prior to April 1, 1989, therefore, it cannot be said that any new right has been acquired by the Income-tax Officer or the said amendment has affected any vested right of the assessee. The object of reassessment is to assess the correct income and is a matter of procedure. The provisions of section 148, therefore, have to be considered as procedural in nature. A charge in the procedure may be by way of limitation or otherwise does not affect the vested right and as such I am of the opinion that the Income-tax Officer was competent to invoke the provisions after April 1, 1989, in accordance with the amended law in respect of previous years, which have not become time-barred. The Income-tax Officer would be free to take the proceedings in accordance with law. It may also be observed that the initial assessment in this case was made under section 143(1) and not under section 143(3) of the Income-tax Act, and, therefore, the contention of learned counsel for the petitioner that the proceedings of reassessment are based on change of opinion has no force. The jurisdiction under Article 226 of the Constitution while examining the validity of the notice issued under section 148 is very limited. The Court has to see as to whether the notice issued by the taxing Authorities is on the basis of the reasons which have been recorded by them. If the reasons are in existence then the sufficiency thereof even could not be examined. The assessee was informed vide letter, dated June 14, 1991, that the investment allowance is admissible only on machinery and plant used in the business of manufacture, production or construction of any article or thing which could not have been claimed in the return submitted by the assessee. Even if it is considered that at the time when the notice under section 148 was issued, the judgment of the apex Court was not pronounced, it will not make any difference because the apex Court only interprets the lava as stated above and, therefore, the legal position as explained by the Apex Court has to be considered as always in existence. Besides this, it was also informed to the assessee that the investment allowance reserve made in the assessment year 1987-88 has been transferred to the capital account of the assessee in the assessment year 1988-89 and in accordance with the provisions of section 155(4-A) of the Income-tax Act and the same has to be added because the reserve could have been utilised for the specified purpose after the expiry of 10 years. The basis, which was taken by the Income-tax Officer for assuming the jurisdiction under section 148, therefore, is well- founded. The initiation of proceedings cannot be termed without jurisdiction. The assessee has always a remedy of filing an appeal and the Act has provided efficacious machinery. The existence of reasons, a copy of which has already been provided to the petitioner are sufficient for invoking the jurisdiction for assessment. The writ petition having no force is accordingly dismissed. C.M.A./1750/FC Petition dismissed