Gireesh Bhalla : Legal view relating to income escaping assessment

Income case of Haryana Acrylic Mfg. Co. vs. CIT 308 ITR 38, the assessee has challenged reopening of assessment by way of a write petition in the Hight Court.. 

One of the issues agitated before the Hon’ble High Court was that a notice u/s 148 of the Income Tax Act was served upon the assessee though witin 6 year from the end of the assessment year but it was not accompanied with the copy of the reasons recorded by the AO, then it would not be a valid service.  It was also submitted that if such notice was served beyond the period of 6 years then the asstt. would be construed as not reopened within the period of limitation provided u/s 149(1)(b) of the Income Tax Act.  The Hon’ble High Court has held that notice u/s 148 is to be served within 6 years and the reasons recorded by the AO would go hand in hand with such notice. 

If reasons are not supplied to the assessee within the period of 6 years then it would be construed that asstt. has not been validly reopened.  The Hon’ble High Court was considering the ratio laid down by the Hon’ble Supreme Court in the case of GKN Drive Shaft reported in 259   ITR 19. 

The Hon’ble High Court has observed that reasons are to be given in a reasonable time.

If it comes to the notice of Assessing Officer that any other item or items of income, other than item of escaped income for assessment of which assessment originally completed was reopened, also have escaped from original assessment, he is bound to assess such item or items of income also in course of reassessment under section 147-CIT vs. Best Wood Industries & Saw Mills [2011] 11 taxmann.com 278 (Ker.) (FB)

Where according to records, for assessment year 1995-96 the assessee had disclosed all material facts relating to valuation of closing stock and interest along with return and during the course of assessment proceeding which had been duly examined by the assessing authority while passing assessment order, notice dated 05.03.2002 issued under section 148, read with section 147 to reopen assessment for the assessment year 1995-96 was barred by limitation-Dhampur Sugar Mills Ltd. vs. Asstt. CIT [2011] 11 taxmann.com 170 (All.)

Reassessment proceedings cannot be initiated merely on basis of audit report; thus where assessee made complete disclosure of particulars before Assessing Officer in the proceedings of assessment under section 143(3), Assessing Officer was not justified in initiating reassessment proceedings after expiry of four years from the relevant assessment year merely on the basis of internal audit report-CIT vs. Simbhaoli Sugar Mills Ltd. [2011] 11 taxmann.com 192 (Delhi).