Specifying the 'Reasons to Believe' mandatory for Re-Assessment: Bombay HC lays Down Guidelines to be 'Strictly Followed' by Income Tax Dept [Read Judgment]

The Bombay High Court has heavily criticized the Income Tax Department for not being transparent with taxpayers in sharing the requested information basis of reopening action.

The division bench of Justice N.J.Jamadar and Justice K.R.Shriram relied on the judgment of the Delhi High Court in the case of Sabh Infrastructure Ltd. vs. Assistant Commission of Income Tax wherein the guidelines have been laid down on reopening cases for assessing officers (AO) for strict compliance. As per the guidelines, while communicating the reasons for reopening the assessment, the copy of the standard form used by the Assessing Officer for obtaining the approval of the Superior Officer should itself be provided to the assessee.

The petitioner, Tata Capital Limited is required to comply with the directions issued by RBI from time to time to all NBFCs. The petitioner received a notice under Section 148 of the Act stating that there are reasons to believe that petitioner's income chargeable to tax for A.Y. 2013-14 has escaped assessment within the meaning of Section 147 of the Act. By a letter, the petitioner filed its objections to the said notice. Thereafter, the petitioner received reasons for reopening. In the objections to the re-opening, the petitioner raised various points including the fact that interest and other charges on NPA ought to be taxed on an actual realization basis and not on an accrual basis.

The petitioner requested the Assessing Officer to provide photocopies of documents evidencing the request sent by the Assessing Officer to the Principal Chief Commissioner of Income Tax/Chief Commissioner/Principal Commissioner/ Commissioner in terms of Section 151(1) of the Act for obtaining approval for re-opening of the assessment for the year under consideration and documents evidencing the approval received from the Principal Chief Commissioner of Income Tax/Chief Commissioner/Principal Commissioner/ Commissioner. However, the Assessing Officer instead of providing these documents simply dismissed the petitioner's request by saying it is purely an administrative matter and all correspondence has been made through the system.

The court noted that the Assessing Officer was duty-bound to provide all the documents called for by the petitioner and his reluctance to provide these documents only would make the court draw adverse inference against the department. "The matter is remanded for denovo consideration. The concerned officer shall keep in mind that the exercise of considering the assessee's objections to the reopening of assessment is not a mechanical ritual but a quasi-judicial function. The order to dispose of the objections should deal with each objection and give proper reasons for the conclusion. He shall also grant a personal hearing to the petitioner and the notice of personal hearing shall be communicated at least seven working days in advance," the court added.

The Court laid down the following directions to the department;

1. While communicating the reasons for re-opening the assessment, a copy of the standard form/request sent by the Assessing Officer for obtaining approval of the Superior Officer should itself be provided to the assessee. This would contain comment or endorsement of the Superior Officer with his name, designation and date. The Assessing Officer shall not merely state the reasons in the letter addressed to the assessee.

2. If the reasons make reference to any other document or a letter or a report, such document or letter or report should be enclosed to the reasons. Such portion as it does not bear reference to the assessee concerned could be redacted.

3. The order disposing the objections should deal with each objections and give proper reasons for the conclusion.

4. A personal hearing shall be given and minimum seven working days advance notice of such personal hearing shall be granted.

5. If the Assessing Officer is going to rely on any judgment/order of any Tribunal or Court reference/ citation of these judgment/orders shall be provided along with notice for personal hearing so that the assessee will be able to deal with/distinguish these judgments/ orders.

A copy of this order is placed before the members of the Central Board of Direct Taxes who shall issue guidelines to all its officers based on the directions given above with clear instructions that they shall be strictly followed. We only hope that, this will reduce the same errors being repeated by the concerned revenue authorities and will not drive the assessee to rush to the court. Thereby, the burden on the court will also get reduced.

Tata Capital Financial Services Limited VS Assistant Commissioner of Income Tax Circle 1(3)(1) and Ors.

CITATION: 2022 TAXSCAN (HC) 153

To Read the full text of the Judgment CLICK HERE

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