The issue of a notice under section 148 of the Income-tax Act, (‘the Act’) calling upon the Taxpayer to file a return of income for the year specified in the notice is the starting point of the Re-assessment (Re-audit) proceedings.
A Re-assessment proceeding – also referred as “re-opening” of the assessment – is initiated by the “assessing officer” when he has “reasons to believe” that income of a Taxpayer has “escaped” assessment for any year.
A notice can be issued even if a Return has already been filed for the year and the same has also been scrutinized / audited. However, the notice has to be in accordance with the parameters laid down under the law –within the prescribed time-limit and supported by ‘valid reasons’.
A Taxpayer who feels aggrieved by the issuance of a notice and believes that the proceedings are unwarranted has a right to object to the same by challenging the issue of Notice.
Generally speaking, whether a tax-payer has a “good case” to challenge the re-assessment would depend on a) whether he has already been subjected to a scrutiny or not and b) the time elapsed.
Recording of the reasons for the issuance of the notice and a Tax payer’s right to know what those reasons are, is an important part of the procedural law relating to re-assessments. There is some difference in the practice followed in this respect – while some officers would supply a copy of the reasons along with the Notice, others would not. Whether or not the reasons have been communicated, the Taxpayer always has the right to obtain a copy of the reasons recorded in the files and object to the issue of Notice if no reasons have been recorded or if he can demonstrate that Notice is not based on ‘valid reasons’.
The procedural aspect of the law to be followed by a Tax payer objecting to a notice issued under section 148 in his case – in essence, objecting the initiation of a Re-assessment / audit, has been laid down by the Honorable Supreme Court in judicial rulings. The typical list of next steps to be followed is set out below.
- At the first instance, the Taxpayer has to comply with the Notice and file a Return of Income. Avoid the tendency to make the most common mistake in responding to a 148 notice.
- After having filed the Return of Income, the Tax payer can ask for a copy of the reasons recorded for issuing the notice and place on record his objections for initiating the proceeding. There is no prescribed format for filing of the objections – a brief guide on the essential points to cover in the communication challenging the notice can be found on above link.
- The assessing officer has to supply the reasons for the re-opening within a reasonable time of the request being made by the Taxpayer. What is “reasonable time” – the Honourable Gujarat High Court has spelled out an indicative time-frame in this regard.
- After receiving a copy of the reasons recorded, the Taxpayer can supplement his objections filed earlier with specific reference to the reasons recorded to show why the reasons do not support a valid inference of escapement of income.
- Assessing Officer has to pass an order disposing the objections raised by the Taxpayer -and only then can he proceed further with the assessment / audit
In practice, unfortunately, the assessing officers have a tendency to brush aside the objections raised by the Taxpayer and proceed with the reassessment, irrespective of how good the objections raised by the Taxpayer are. Nevertheless, the Taxpayer could do well to utilize the above process to build a case for challenge the proceedings in the higher judicial fora, should he so desire.
The Taxpayer has the following two choices for pursuing further challenge to the notice:
a) He can file a writ petition before the jurisdictional High Court challenging the order of the assessing officer
b) He can participate in the proceedings and continue to agitate the ground relating to the jurisdiction in further appeals
As to which of the above two actions would be better suited would depend to a large degree on a qualitative evaluation of each case.