Draft Reply to letter u/s 148A(b) regarding 148 in consequence to Hon’ble Supreme Court Order dated 4.5.2022.

 

Date: ……..2022

To

The Income Tax officer,

Range ………….

…………………

…………………

Assessee                    :

PAN                          :  XXXX0000X

Assessment year    :  0000-00

 

Subject: Objection to proceeding proposed U/s 148A of the Income Tax Act-1961 in consequence to Hon’ble Supreme Court Order dated 4.5.2022.

 

Reference: Your Notice No…………. U/s 148A(b) of the Income Tax Act-1961 Dated ….

Respected Team

1. The assessee was served with a notice u/s 148 of the Income Tax Act, 1961 {hereinafter referred to as the Act} bearing DIN: ITBA/AST/F/148//2021-22/0000000000 dated 00.00.2021 requiring to deliver to you a return of income for the purpose of assessing / reassessing our income for the above captioned assessment year.
2. In this context in the case of Union of India & Others  vs. Ashish Agarwal in Civil Appeal No. 3005/2022, Hon’ble Supreme Court, vide its order dated 4.5.2022, held as follows:

(i)        The impugned section 148 notices issued to the respective assessees which were issued under un-amended section 148 of the IT Act, which were the subject matter of writ petitions before the various respective High Courts shall be deemed to have been issued under section 148A of the IT Act as substituted by the Finance Act, 2021 and construed or treated to be show cause notices in terms of section 148A(b). The assessing officer shall, within thirty days from today provide to the respective assessees information and material relied upon by the Revenue, so that the assesees can reply to the show cause notices within two weeks thereafter;

(ii)       The requirement of conducting any enquiry, if required, with the prior approval of specified authority under section 148A(a) is hereby dispensed with as a onetime measure vis à vis those notices which have been issued under section 148 of the un-amended Act from 01.04.2021 till date, including those which have been quashed by the High Courts. Even otherwise as observed hereinabove holding any enquiry with the prior approval of specified authority is not mandatory but it is for the concerned Assessing Officers to hold any enquiry, if required;

(iii)      The assessing officers shall thereafter pass orders in terms of section 148A(d) in respect of each of the concerned assessees; Thereafter after following the procedure as required under section 148A may issue notice under section 148 (as substituted);

(iv) All defenses which may be available to the assessees including those available under section 149 of the IT Act and all rights and contentions which may be available to the concerned assessees and Revenue under the Finance Act, 2021 and in law shall continue to be available.

3. Accordingly, now the assessee has been served with the above captioned letter bearing subject “Subsequent proceedings with reference to section 148(b) in consequence to Hon’ble SC Order dated 04.05.2022 – Letter”, requiring to furnish the desired reply within 2 weeks (i.e. by 03.06.2022) through e-filing module of the Income Tax Department, regarding why reassessment u/s 147 of the I. T. Act shall not be made in our case.
4.         With the letter under reply an unsigned sheet is appended bearing following text, purportedly the information / material referred to in para ….. of the said letter:

“…………………………………………………………………………………………………………………………………………………………………………….”

5.         The letter under reply has been served through mail dated 00.00.2022 delivered at 0000.
6. From the conjoint reading of the statements mentioned in the information and analysis, it transpires that following have been alleged:

“………………………………………………………………………………………………………………………………………………”

7. The main thrust of the information purportedly in your possession and the allegation is  –

“……………………………………………………………………………………………………………………………………”

8. The source of information in your possession is mentioned as follows:

“………………………………………………………………………………………………………………………………………………………..”

9. In the information, the reasons for suggestion of escapement of income are given as follows:

“………………………………………………………………………………………………………………………………

10. Under the caption “Analysis of information regarding escapement of Income” it is also mentioned as follows:

“……………………………………………………………………………………………………………………………………..”

Appreciation of the relevant law

11. Before adverting and responding to the letter under reply it may be pertinent to mention the law which is relevant to the issue, because neither any tax can be levied / assessed nor can it be collected without authority of law.
12. Article 265 of the Constitution of India provides as follows:

“265. Taxes not to be imposed save by authority of law No tax shall be levied or collected except by authority of law.”

13. In the context of Income Tax Act, 1961, such authority is provided in section 4(1) read with section 2(45) of the Act.
14. Under the Income Tax Act, tax is to be levied and collected either on the basis of a return of income furnished by an assessee, and in case return of income is not furnished, on the basis of the provisions of the Act.
15. However, all such actions are subject to the provisions of limitations provided under the Act, because as a corollary law of nature, nothing is infinite and everything must be taken to its logical end.
16. In the context of an assessment of income, it attains its finality on expiry of limitations provided under the Act. It can be re-opened only under exceptional circumstances on fulfillment of certain conditions imposed under the Act. In addition, for re-opening of an assessment of income certain safeguards are provided under the Act to protect the interest of an assessee.
17. In this context it is submitted that an assessee has all rights under the law to see whether the proceedings have been initiated in accordance with law or not, because in the case of ITO, Ward 1, Distt. VI, Calcutta and others vs. Lakhmani Mewal Dass (1976) 103 ITR 437 (SC) Hon’ble Supreme Court has held that –

(i)  reopening of the assessment after the lapse of many years is a serious matter;

(ii) the provisions of the Act in this respect departs from the normal rule “that there should be, subject to right of appeal and revision, finality about orders made in judicial and quasi-judicial proceedings”;

(iii) the powers of Assessing Officer to reopen assessment, though wide, are not plenary;

(iv)  it is, therefore, essential that before such action is taken, the requirement of law should be satisfied;

18. In this regards it may be imperative to draw your kind attention towards the judgment of Hon’ble Supreme Court in the case of GKN Driveshafts (India) Ltd vs.  ITO and others (2003) 259 ITR 19 (SC), wherein the Hon’ble Apex Court has laid down following procedure in this regards:

(i) when a notice under Section 148 of the Income tax Act is issued, the proper course of action for the noticee is to file return and if he so desires;

(ii)  to seek reasons for issuing notice.

(iii) The assessing officer is bound to furnish reasons within a reasonable time.

(iv) On receipt of reasons, the noticee is entitled to file objections to issuance of notice and

(v)  the assessing officer is bound to dispose of the same;

(vi)  by passing a speaking order;

(vii) before proceeding with the assessment..

19. Now, the procedure laid down by Hon’ble Apex Court in the case of GKN Driveshafts (India) Ltd. (supra) has been codified by the Parliament in section 148A as inserted by the Finance Act, 2021 w.e.f. 1.4.2021.
20. In the context of section 148A of the Act, recently Hon’ble Supreme Court in the case of Union of India & Others  vs.  Ashish Agarwal in Civil Appeal No. 3005/2022, vide its order dated 4.5.2022, observed as follows:

“6.       It cannot be disputed that by substitution of sections 147 to 151 of the Income Tax Act (IT Act) by the Finance Act, 2021, radical and reformative changes are made governing the procedure for reassessment proceedings. Amended sections 147 to 149 and section 151 of the IT Act prescribe the procedure governing initiation of reassessment proceedings. However, for several reasons, the same gave rise to numerous litigations and the reopening were challenged inter alia, on the grounds such as –

(1)       no valid “reason to believe”,

(2)       no tangible / reliable material / information in possession of the assessing officer leading to formation of belief that income has escaped assessment,

(3)       no enquiry being conducted by the assessing officer prior to the issuance of notice; and reopening is based on change of opinion of the assessing officer and

(4)       lastly the mandatory procedure laid down by this Court in the case of GKN Driveshafts (India) Ltd. vs. Income Tax Officer and Ors; (2003) 1 SCC 72, has not been followed.

6.1       Further pre Finance Act, 2021, the reopening was permissible for a maximum period up to six years and in some cases beyond even six years leading to uncertainty for a considerable time. Therefore, Parliament thought it fit to amend the Income Tax Act

*             simplify the tax administration,

*          ease compliances and

*          reduce litigation.

Therefore, with a view to achieve the said object, by the Finance Act, 2021, sections 147 to 149 and section 151 have been substituted.

6.2       Under the substituted provisions of the IT Act vide Finance Act, 2021, no notice under section 148 of the IT Act can be issued without following the procedure prescribed under section 148A of the IT Act. Along with the notice under section 148 of the IT Act, the assessing officer (AO) is required to serve the order passed under section 148A of the IT Act. Section 148A of the IT Act is a new provision which is in the nature of a condition precedent. Introduction of section 148A of the IT Act can thus be said to be a game changer with an aim to achieve the ultimate object of –

*          simplifying the tax administration,

*          ease compliances and

*          reduce litigation.

6.3       But prior to pre Finance Act, 2021, while reopening an assessment, the procedure of giving the reasons for reopening and an opportunity to the assessee and the decision of the objectives were required to be followed as per the judgment of this Court in the case of GKN Driveshafts (India) Ltd. (supra).

6.4       However, by way of section 148A, the procedure has now been streamlined and simplified. It provides that before issuing any notice under section 148, the assessing officer shall

(i)                 conduct any enquiry, if required, with the approval of specified authority, with respect to the information which suggests that the income chargeable to tax has escaped assessment;

(ii)              provide an opportunity of being heard to the assessee, with the prior approval of specified authority;

(iii)            consider the reply of the assessee furnished, if any, in response to the show cause notice referred to in clause (b); and 3

(iv)             decide, on the basis of material available on record including reply of the assessee, as to whether or not it is a fit case to issue a notice under section 148 of the IT Act and

(v)               the AO is required to pass a specific order within the time stipulated.

6.5       Therefore, all safeguards are provided before notice under section 148 of the IT Act is issued. At every stage, the prior approval of the specified authority is required, even for conducting the enquiry as per section 148A(a). Only in a case where, the assessing officer is of the opinion that before any notice is issued under section 148A(b) and an opportunity is to be given to the assessee, there is a requirement of conducting any enquiry, the assessing officer may do so and conduct any enquiry. Thus if the assessing officer is of the opinion that any enquiry is required, the assessing officer can do so, however, with the prior approval of the specified authority, with respect to the information which suggests that the income chargeable to tax has escaped assessment.

6.6       Substituted section 149 is the provision governing the time limit for issuance of notice under section 148 of the IT Act. The substituted section 149 of the IT Act has reduced the permissible time limit for issuance of such a notice to three years and only in exceptional cases ten years. It also provides further additional safeguards which were absent under the earlier regime pre Finance Act, 2021.

7.         Thus, the new provisions substituted by the Finance Act, 2021 being remedial and benevolent in nature and substituted with a specific aim and object to protect the rights and interest of the assessee as well as and the same being in public interest, the respective High Courts have rightly held that the benefit of new provisions shall be made available even in respect of the proceedings relating to past assessment years, provided section 148 notice has been issued on or after 1st April, 2021. We are in complete agreement with the view taken by the various High Courts in holding so.”
8. In view of above it is most respectfully submitted that w.e.f. 1.4.2021 action of assessment / re-assessment u/s 147 of the Act is still governed by ratios of law laid down by Hon’ble Supreme Court in the case of Lakhmani Mewal Dass (supra) and GKN Driveshafts (India) Ltd. (supra).
9. In view of above it is further most respectfully submitted that since the Apex Court has opined that the section 148A is the benevolent and beneficial provision and the substituted section 147, 148, 148A 149 and 151 safeguards the interest of the assessee, therefore, it is requested that the spirit and objectives of these sections should be observed, because re-opening an assessment is a serious matter. Since the objectives of section 148A are to –

*          simplifying the tax administration,

*          ease compliances and

*          reduce litigation.

23. A notice u/s 148 may be issued only in water tight case where an income has really escaped assessment.

Adverting to the letter under reply and request for supply of material relied upon following the mandatory directions of Hon’ble Supreme Court (supra)

24. As per para 10 of the Supreme Court Order (supra) the assessing officer shall, within thirty days from today (4.5.2022) provide to the respective assessees information and material relied upon by the Revenue, so that the assesees can reply to the show cause notices within two weeks thereafter.
25. This has been admitted in para ….. of the letter under reply, which reads as follows:

            “In this regards, in compliance with the subject order of the Apex Court, you are hereby provided with the information / material relied upon by this office for issue of the show cause notice as above. Information is attached with the letter.”

26. From the sheet appended with the letter under reply, purportedly the information, it is clear that for issuing the letter under reply reliance has been placed on the following:

(a)    ……………………………………………….

(b)   ………………………………………………..

(c)   …………………………………………………

on the basis of which conclusion has been made that the this is a case of income escaped for assessment.

27. In view of above, it is again most respectfully submitted that the said ……………………………., are the materials on which reliance has been placed in issuing the letter under reply.
28. Though in para ….. of the letter under reply it is mentioned that “in compliance with the subject order of the Apex Court, you are hereby provided with the information / material relied upon by this office for issue of the show cause notice as above. Information is attached with the letter”, however, only information has been provided and not the copies of the materials relied upon. It is gross violation of the Order of Supreme Court (supra.)
29. In this regards, your kind attention is also invited towards the instructions of CBDT u/s 119 of the Act bearing No. 01/2022 dated 22.5.2022, wherein while prescribing procedure to be followed by the Jurisdictional Assessing Offices / Assessing Officers, vide para 8.1, in compliance with the order of the Hon’ble Supreme Court, it is clarified that “within 30 days, i.e. by 2nd June, 2022, the Assessing Officer shall provide to the assessee, in remaining cases, the information and material relied upon for issuance of extended reassessment notices”.
30. Therefore, even as per CBDT Circular, it is obligatory on the part of the Assessing Officer to provide the material relied upon.
31. Therefore, as per the directions of Supreme Court (supra) copies of these materials including any other material incidental or related thereto must also have been mandatorily suo moto provided to the assessee along with the letter under reply within thirty  (30) days from 4.5.2020, which has not been done.
32. If all the information and material relied upon by the Revenue is not provided within the aforesaid period, it is evident from the Supreme Court order (supra) that no further proceedings can be pursued and the notice earlier issued u/s 148 of the erstwhile Act cannot be held to be notice under Section 148A(b) as substituted by the Finance Act, 2021, and the earlier notice and all proceedings shall lapse entirely.

Reckoning of two weeks, time to reply

33. Further, in the same para 8.1, it is further clarified that “the assessee has two weeks to reply as to why a notice u/s 148 should not be issued, on the basis of information which suggests that income chargeable to tax has escaped assessment in his case for the relevant assessment year”.
34. Further, in the same para 8.1, it is further clarified that “the time period of two weeks shall be counted from the date of last communication of information and material by the Assessing Officer to the assessee”.
35. The Board has consciously mentioned that the time period of two weeks shall be counted from the date of last communication of information and material by the Assessing Officer to the assessee, because in para 10(i) of its Order (Supra), Hon’ble Supreme Court has adjudicated as follows:

“The assessing officer shall, within thirty days from today provide to the respective

assessees information and material relied upon by the Revenue, so that the assesees

can reply to the show cause notices within two weeks thereafter”.

36. From the above it is clear that –

(i)                 The assessing Officer is obliged to provide within the stipulated time not only the information relied upon by the Revenue but also all the material on which the reliance has been placed by the revenue.

(ii)              The Assessing Officer shall then allow time of two weeks to reply the show cause notice.

(iii)            The two weeks’ time shall be counter thereafter.

37. The use of word “thereafter” refers to supply of information and material both.
38. In view of above it is again most respectfully submitted that the two weeks’ time shall be reckoned from the date when all the information and materials are provided to the assessee as discussed above i.e.:

(i)                 ………………………………………………………

(ii)              ……………………………………………………….

(iii)            ………………………………………………………….

(iv)             …………………………………………………………..

(v)               any other reports/documents incidental or related to the above, and

(vi)              any other information and material, if any, relied upon by the Revenue.

39. The above information and materials are germane to the issue involved in the letter under reply, which needs to be considered, discussed and addressed in the reply of the assessee to be submitted u/s 148A(b).
40. Therefore, the assessee shall submit appropriate reply u/s 148A(b) after the above materials are provided. However, the assessee reserves its right to furnish a further response to the letter under reply in case your goodself opts not to provide any further information or material.
41. It may not be out of place to mention that providing opportunity to the assessee to submit reply u/s 148A(b) is not a ritual. It is statutory provision based on the principle of natural justice and the judgment of Hon’ble Supreme Court in the case of f GKN Driveshafts (India) Ltd. (supra.)

Safeguards

42. The reply of the assessee is also not a formality. It is one of the safeguards provided by the Legislature to the assessee. Before issuing notice u/s 148, the Assessing Officer is obliged to pass an order u/s148A(d) of the Act, and before passing such order he is further obliged u/s 148A(c) to consider the reply of the assessee in response to the show-cause notice referred to in clause (b) of section 148A.
43. It is admitted fact that proceedings u/s 147 / 148 causes harassment to the assessee as a return of back year is reopened.
44. In this regards attention is invited towards the observation of Hon’ble Bombay High Court in the case of Svitzer Hazira (P) Ltd.  vs.  ACIT, in Writ Petition No. 3554 of 2019 dated 21.12.2021, wherein the Hon’ble Bombay High Court, vide para 11 of its Order, observed as follows:

            “It must be noted that section 147 and 148 grant power to Revenue to reopen the earlier assessment and therefore, the assessees are protected by safeguard against unnecessary harassment.”

45. Further, with reference to section 151 of the Act and in the context of “safeguards”, the Hon’ble Bombay High Court (supra), vide para 12 of the Order, further observed as follows:

            “The purpose of insertion of expression ‘no notice shall be issued’ before issuing of notice of re-assessment is to avoid harassment to taxpayers and the arbitrary exercise of the power to reopen the assessment. It is introduces as in-built by the Legislature.”

46. In this regards it may not be out of place to mention the following observations of ITAT, Agra Bench in the case of Bijendra Kumar, Mathura vs.  ITO-1(3)(1), Mathura, ITAT, Agra in I.T.A Nos.409 & 419/Agra/2017on 3.7.2018, wherein on the issue of safeguards Hon’ble ITAT observed as follows:

            “Sections 147 and 148 of the IT Act, it is trite, are charter to the Revenue to reopen completed assessments. Section 151 of the Act provides a safeguard that the sword of section 147 of the Act may not be used unless the competent statutory officer is satisfied that the AO has good and adequate reasons to invoke the reopening provisions. As per the mandate of section 151(2) of the Act, the Competent Authority has to examine the reasons, material or grounds on which the reopening is sought to be based and to judge as to whether they are sufficient and adequate to the formation of the necessary belief of escapement of income from taxation on the part of the AO. It is if and only if the Competent Authority, after applying his mind, is of the opinion that the AO’s belief is well reasoned and bonfide, that he will accord his sanction thereon.”

47. It may be reminded that in the case of Lakhmani Mewal Dass (supra) Hon’ble Supreme Court has observed that “reopening of the assessment after the lapse of many years is a serious matter”, because, as observed by ITAT, Agra in  Bijendra Kumar (supra), “section 147 is sword” and an assessee should be protected from its sharpness.
48. In continuation to above, it is submitted that section 148A(d) provides that the Assessing Officer shall, before issuing a notice u/s 148, decide, on the basis of –

(i)                 Material available on record

(ii)              including reply of the assessee,

whether or not it is a fit case to issue a notice u/s 148.

49. Use of words “fit case” means that notice u/s 148 is not to be issued in all cases where a show-cause notice u/s 148A(b) has been issued; on the contrary, such notice is to be issued only in such cases where the information and material suggests escapement of income after considering reply of the assessee. It may   not be out of place mention that while considering reply of the assessee, besides merits of the case, the Assessing Officer should also keep in mind the observation of Hon’ble  Supreme Court in the case of Union of India vs  Ashish  Agarwal (supra) that section 148A is benevolent and beneficial provision.
50. It means that before issue of notice u/s 148 the assessing Officer has to decide with proper application of mind whether it is a fit case to issue the notice or not, and this decision is to be taken on the basis of –

(i)                 Material available on record

(ii)              including reply of the assessee,

51. In case the Assessing Officer relies upon any material to take such decision, he is obliged to share such material with the assessee.
52. The assessee is free to reply the show-cause notice including reply to the information and all such material.
53. Therefore, no notice can be issued u/s 148 of the Act unless an order is passed u/s 148A(d) of the Act, and no order u/s 148A(d) can be passed unless the reply furnished by the assessee, if any, is considered, and for submitting the reply the assessee has right to take into consideration the information and all materials on which the Assessing Office has relied upon or proposes to rely upon.
54. It may be pertinent to mention that as pert Union of India vs.  Ashish  Agarwal (supra), the Assessing Officer is obliged to provide the information and material within 30 days from 4.5.2022, failing which the letter under reply shall be invalid.
55. Without prejudice to above, the assessee very strongly objects all the allegations and the proposed action.
56. Without prejudice to above it is also submitted that no notice u/s 148 be issued in this case.

Thanking you.

Yours faithfully

For Assessee