Taxation laws always seemed to have struggled on this aspect of reopening of completed assessment. Why so? Aren't the statutes enough for providing reasonable grounds for reopening or is it that the statute branches out its arms for the courts to interpret them meaningfully to suit the needs of time? The article seeks to address and unfold the mystery behind the rationale of court in the case of Tumkur Minerals Pvt Ltd. v. Joint Commissioner of Income tax.[1]

Analysis Of The Judgment
In this case, the Petitioner challenged re-opening of the assessment by the assessing officer for the Assessment Year (AY) 2012-13 despite full disclosure of the material facts. The Assessing Officer issued the impugned notice dated 29.03.2019 under Section 148 of the Income Tax Act, 1961 (IT Act), seeking to reopen after expiry of four years from the relevant Assessment Year.

The assesse had sought reasons from the assessing officer by filing an objection which was deliberately brushed aside by the assessing officer by not stating the reasons on strong grounds. Therefore, the assessing officer in this case, clearly lacked the jurisdiction to reopen assessment after four years.

The striking features of this judgement is that it had lucidly explained the jurisdiction of assessing officer and had set an embargo upon the officer in using his powers arbitrarily. The case of Nagri Mills v. CIT Ltd[2] was brought into picture which emphasized that the assessing officer must not stress upon the year of assessment especially when the tax rates have remained uniform for the previous and relevant assessment years.

The practice which the court desires the assessing officer to stick to was that he must state the reasons in the notice for reopening of the assessment in a clear and unambiguous manner and that it must not suffer from any vagueness. The reasons recorded must clearly reflect the manifestation of his mind. The reasons not be such that it leaves the assesse guessing. It must be self-explanatory keeping in view the benchmark of understanding of a rational prudent person.

The necessity of stating and communicating the proper reasons more importantly reassessment after a period of four years from relevant assessment year has been highlighted in the case of Hindustan Lever Ltd. V/s. R.B. Wadkar[3] as follows:

"He must disclose in the reasons as to which fact or material was not disclosed by the assesse fully and truly necessary for assessment of that assessment year, so as to establish vital link between the reasons and evidence. That vital link is the safeguard against arbitrary re-opening of the concluded assessment."

The court further provides for strict vigilance by stating that the reasons communicated through notice cannot be supplemented by making oral submissions or by filing an affidavit.

By taking a lead from the case of Titanor Components Ltd. V/s. Assistant Commissioner of Income Tax[4] it was pointed out that there is a notable difference between a wrong claim by an assessee after disclosing the true and material facts and the wrong claim made by the assessee by withholding material facts fully and truly. Only in the latter case would the Assessing Officer be entitled to re-open the assessment after four years.

It is also to be noted that for reassessment, the definition of "tax" under section 2(43) does not include penalty or interest. Similarly, under section 156, it is provided that when any tax, interest, penalty, fine or any of other sum is payable in consequence of any order passed under this Act, the Assessing Officer shall serve upon the assessee a notice of demand as prescribed. The provisions for imposition of penalty and interest are distinct from the provisions for imposition of tax." was the interpretation given by the honorable court in the case of Arthur Anderson v. Assistant Commissioner of Income Tax[5]

Taking a cue from Commissioner of Income-Tax Versus Aditya Builders[6], more attention was paid towards the fact that reassessment cannot be conducted by assessing officer merely upon the ground of method of accounting specifically when a certain method of accounting was practiced by assesse for previous years according to the approved standards prescribed by law.

Conclusion
After thorough analysis, it could inferred that reopening would be permitted only on failure of assesse to disclose the material facts and not due to negligence on part of the assessing officer to assess the material facts fully. Therefore onus is placed upon the assessing officer to carry on the assessment with due care. Therefore before initiation of re assessment, the twin conditions to be fulfilled are:

1. Assessing officer has reason to believe that income chargeable to tax has escaped assessment.
2. Such failure was due to on part of the assesse in disclosing the material facts. Therefore in the present case Petition was allowed due to failure of officers in applying the principles of law.

For the purpose of application of Sec.148 of the Income tax Act, it is extremely necessary for the assesse that he should have filed return and must seek reasons for issuance of notice. On receipt of reasons, file an objection otherwise it would be liable to be dismissed as Pre mature writ petition as it was done in the case of Gkn Driveshafts (India) Ltd vs Income Tax Officer And Ors on 25 November, 2002. Therefore the courts have given preference to Interpretation fulfilling the object of the Act.


End-Notes:

1. Writ petition no. 1061 of 2019
2. (1958) 33 ITR 681 (Bom)
3. (2004) 137 Taxman 479 (Bom)
4. (2012) 20 taxmann.com 805 (Bombay)
5. (2010) 324 ITR 240
6. (2015) 378 ITR 75

Written By: Vaishnavi S, Student at V.M. Salgaocar College of Law, Goa