Date:15/09/2008 URL: http://www.thehindu.com/2008/09/15/stories/2008091550051500.htm

Business

Reassessment notice: not all may be valid

It has always been understood that where a regular assessment has been made, but the Income-tax Department has not chosen to take up the case for scrutiny by issue of notice under Sec. 143(2) within a year of filing a return, reassessment notice cannot be lightly issued unless there is some information indicating understatement of income for action within four years and where there is patent omission or concealment of income within six years. The professionals these days find that notices are issued for their clients in a routine manner on assumed omissions as in the case of certified reliefs or matters on which there can be more than one view. Are the present notices valid in law?

This situation is pointed out by a number of professionals, who have to deal with such notices after a regular assessment or where a regular assessment has not been considered necessary. Where no return is filed, any notice for the current assessment year and past six years cannot be questioned. But where a return is filed and the assessee discloses all the material facts necessary for assessment, but the assessing officer feels that the return requires verification or finds that there is a prima facie case for taking a different view as regards claims for deductions and reliefs, he is expected to take up the case for scrutiny and issue notice within a year. Only where there is some new information, or there is material for inference of concealment, like investments not disclosed in the return or in the enclosures, notice under Sec. 148 for the four or six immediately preceding years would be justified, but not where the assessing officer merely takes a different view than one adopted by the assessee. Assessment is not never-ending.

This is clearly the law in the plain language of law, Board Circular and the rulings of the Courts. The assessee may well question the validity of the notice, where it does not accord with the law.

The law provides for protection for the taxpayers from arbitrary and indiscriminate use or rather abuse of such powers to bring assessments back to life for back years by requiring reasons to be recorded for such notice, where the assessing officer considers such notice necessary and to get approval from specified higher authority before such issue. This protection provided in the statute is unfortunately not functional, since approvals are granted in a routine manner without application of mind on the part of the approving officer. If one were to ask for statistics on which approvals have not been granted, it would confirm the general belief that the protection intended by the statute is not available. Instances where such notices were found to be invalid are numerous indicating the failure of the protective provisions. The courts have come down heavily on such indifference in invoking the powers without justification.

Assessments and reassessments in pursuance of notices issued without observance of the above position of law has been found to be invalid in Vipan Khanna v CIT (2002) 255 ITR 220 (P&H). It has been followed by a number of decisions of various High Courts, but its impact on the working of the Income-tax Department is not felt by the taxpayers, since the flood of such notices has not shown any sign of abatement.

Anxiety of revenue is understandable in the context of the present system of random choice of scrutiny, which does not require the assessing officer to scan the return and decide for himself, whether such scrutiny is necessary, though the law gives the assessing officer a year’s time for such choice. Where the assessing officer issues notice on the basis of possible addition or disallowance noticed during later assessments or otherwise, he will be helpless against law.

The system requires review, so that cases for scrutiny are chosen after scanning the return, which require verification so as to protect revenue on the one hand and the taxpayers given peace after the time limit for scrutiny on the other, except where there is fraud on the part of the taxpayer.

S. RAJARATNAM