[Opinion] Is the Expression ‘Reason to Believe’ Still Valid for Initiation of Reassessment Proceedings?

CA V K Subramani – [2023] 156 taxmann.com 632 (Article)

Legal provisions intended to facilitate assessment or reassessment of income is challenged by the taxpayers even when there is an iota of error or technical breach therein. There is no scope for the tax administration to grieve about such legal provisions and may be, it could lead to an amendment in the subsequent Finance Act to set right the lacuna in law or make it to tilt in favour of Revenue. One glaring example of legal provision amended recently could be found in section 149 by prescribing the monetary limit for escapement of income in aggregate @ Rs.50 lakhs vide Finance Act, 2022 which, a year before was pegged with a monetary limit of Rs.50 lakhs per year.

In the CBDT Circular No.549 dated 31st October, 1989 (1990) 182 ITR (St.) 29 it was stated “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”.

Now the amendment to section 147 vide Finance Act, 2021 has omitted again the words “reason to believe” and section 148A(a) mandates enquiry based on the information which suggests that the income chargeable to tax has escaped assessment. Thus, the expression “reason to believe” got omitted once again after about 3 decades.

This refresher takes note of the amendments relating to reassessment and also to test whether the expression ‘reason to believe’ continues to be valid, in the light of changes made to the legal provisions.

Income escaping assessment- Section 147

This provision was substituted by the Finance Act, 2021 whereby if any income chargeable to tax has escaped assessment the Assessing Officer may subject to the provisions of sections 148 to 153 may assess or reassess the income or recompute the loss or the depreciation allowance or any other allowance or deduction for such assessment year.

There is no material difference between this provision and the earlier provision except the expression “has reason to believe” which was there previously and which does not find place in the newly substituted legal provision. Thus, the ‘reason to believe’ escapement of income which was in substance a subjective satisfaction got omitted and now the Assessing Officer cannot attribute ‘reason to believe’ for invoking section 147.

The Explanation to section 147 says that for assessment or reassessment or recomputation the Assessing Officer may assess or reassess the income in respect of any issue which has escaped assessment and such issue comes to his notice subsequently in the course of proceeding under this section irrespective of the fact that the provisions of section 148A have not been complied with. This Explanation opens floodgates for taxation of any other income which has escaped assessment and which comes to the notice of the Assessing Officer in the course of reassessment proceedings. Thus, it may impact court decisions such as CIT v. Jet Airways (India) Ltd. [2010] 195 Taxman 117/[2011] 331 ITR 236 (Bom.);

Section 147 after substitution is confined to give a direction for triggering the reassessment provisions contained in sections 148 to 153 of the Act. The language of section 147 read with section 148A would show that the Assessing Officer must make enquiry in respect of issues for which he has information and also afford an opportunity to the taxpayer to explain reasons to rebut escapement of income and thereafter take a call for issue of notice under section 148. Prima facie section 147 opens the gateway for triggering section 148A like limited scrutiny of information available with the Revenue and providing a fair opportunity to the taxpayer even before the issue of a notice under section 148, with inbuilt safeguards in passing an order under section 148A(d) and the specified authority in the loop to approve the issue of notice under section 148. It seems there are enough filters now for due diligence by the tax authorities.

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