Reopening after 3 years & the amendment by the Finance Act-2022
In a latest judgment of Rajasthan HC on initiation of reassessment proceedings under section 149(1)(b)of Income-tax Act, 1961, it has been held that the reopening after 3 years possible only if the AO is able to establish that income escaped is more than Rs. 50 Lakh
It is held that in order to initiate reassessment proceedings under section 147 after lapse of 3 years from the end of the relevant assessment year, AO not only has to prove that there is material available on record which shows that income chargeable to tax has escaped assessment but he also has to prove that there is material available on record which shows that income chargeable to tax which has escaped assessment is amounting to ₹50 lakh or more.
If the AO is not in possession of material which shows that the income chargeable to tax which has escaped assessment is amounting to ₹50 lakh or more then initiation of reassessment proceedings after expiry of 3 years from the end of relevant assessment year is not valid in law.
In other words, initiation of reassessment proceedings on the basis of mere surmise of the Assessing Officer that the assessee may be in possession of accounts which would reflect that income escaping assessment is ₹50 lakh or more is not sustainable.
There are a lot of cases in the latest time when the reopening has been initiated without income exceeding Rs. 50 Lakh. All such cases will be benefitted by this judgement. Taxpayers may further note that all the cases opened till 31.03.2022 of a period earlier than 3 years will have to further pass the test of Rs. 50 Lakh being represented by an asset.
All the reopening done after 31.03.2022 of period earlier than 3 years will have to further pass the test of Rs. 50 Lakh being represented by (i) an asset; (ii) expenditure in respect of a transaction or in relation to an event or occasion; or (iii) an entry or entries in the books of account.
If the test is not passed then the reopening proceeding is liable to be quashed.
The amended section 149 prescribing the timeline for issue of notice U/s 148 as amended by FA -2022 is as under:
Time limit for notice.
- (1) No notice under section 148 shall be issued for the relevant assessment year,—
(a) if three years have elapsed from the end of the relevant assessment year, unless the case falls under clause (b);
5[(b) if three years, but not more than ten years, have elapsed from the end of the relevant assessment year unless the Assessing Officer has in his possession books of account or other documents or evidence which reveal that the income chargeable to tax, represented in the form of—
(i) an asset;
(ii) expenditure in respect of a transaction or in relation to an event or occasion; or
(iii) an entry or entries in the books of account,
which has escaped assessment amounts to or is likely to amount to fifty lakh rupees or more:]
Provided that no notice under section 148 shall be issued at any time in a case for the relevant assessment year beginning on or before 1st day of April, 2021, if 6[a notice under section 148 or section 153A or section 153C could not have been issued at that time on account of being beyond the time limit specified under the provisions of clause (b) of sub-section (1) of this section or section 153A or section 153C, as the case may be], as they stood immediately before the commencement of the Finance Act, 2021:
Provided further that the provisions of this sub-section shall not apply in a case, where a notice under section 153A, or section 153C read with section 153A, is required to be issued in relation to a search initiated under section 132 or books of account, other documents or any assets requisitioned under section 132A, on or before the 31st day of March, 2021:
Provided also that for the purposes of computing the period of limitation as per this section, the time or extended time allowed to the assessee, as per show-cause notice issued under clause (b) of section 148A or the period during which the proceeding under section 148A is stayed by an order or injunction of any court, shall be excluded:
Provided also that where immediately after the exclusion of the period referred to in the immediately preceding proviso, the period of limitation available to the Assessing Officer for passing an order under clause (d) of section 148A is less than seven days, such remaining period shall be extended to seven days and the period of limitation under this sub-section shall be deemed to be extended accordingly.
Explanation.—For the purposes of clause (b) of this subsection, “asset” shall include immovable property, being land or building or both, shares and securities, loans and advances, deposits in bank account.
7[(1A) Notwithstanding anything contained in sub-section (1), where the income chargeable to tax represented in the form of an asset or expenditure in relation to an event or occasion of the value referred to in clause (b) of sub-section (1), has escaped the assessment and the investment in such asset or expenditure in relation to such event or occasion has been made or incurred, in more than one previous years relevant to the assessment years within the period referred to in clause (b) of sub-section (1), a notice under section 148 shall be issued for every such assessment year for assessment, reassessment or recomputation, as the case may be.]
(2) The provisions of sub-section (1) as to the issue of notice shall be subject to the provisions of section 151.]
