Thursday, June 12, 2014

Reopening of Assessments - guidelines

*S. 147: Strict guidelines laid down to streamline procedure for reopening
of assessments*

(i) In large number of cases pertaining to reopening of assessments, we
have noticed that different stages of the assessees demanding reasons
recorded by the AO, supplying of such reasons, the assessees raising
objections and the AO disposing of such objections, consume considerable
time. In many cases, the last stage of disposing of the objections raised
by the assessee is reached only a few weeks, and in some cases even days,
before the assessment would be time-barred. This situation is quite
unsatisfactory, both from the point of the assessee as well as the
department. In the last minute rush, the AO frames assessment in a most
hurried manner. In the process, important and valid grounds raised by the
assessee are often times lost sight of. Additions are thus made which could
have been avoided forcing the assessee to prefer appeal which could have
been avoided, further creating needless strain on the system. On the other
hand, some times additions were made without full and proper scrutiny. The
additions which should have otherwise stood the test of appellate scrutiny
fail the test.

(ii) It can thus be seen that there are four important stages once the AO
issues notice for reopening of the assessment. Such stages are: (i) the
assessee if he so wishes, may demand the reasons recorded by the AO after
filing return in response to notice u/s 148 of the Act, (ii) the AO
supplying such reasons to the assessee, (iii) the assessee raising
objections to the notice for reopening and (iv) the AO disposing of the
objections raised by the assessee. With a view to streamlining this
procedure, and to ensure, as far as possible, the AO is not faced with the
unenviable task of completing the assessment proceedings in a few days left
before the same became time barred, we would like to give certain
directions of general implication which, we would expect, are followed by
all concerned. While doing so, we are conscious that these stages are
provided by the Supreme Court in *GKN Driveshafts (India) Ltd* 259 ITR 19
and we would be giving directions only to the extent the said judgment
already does not provide for. We have noticed that considerably long time
is consumed sometimes by the assessee demanding the reasons recorded by the
Assessing Officer and sometimes the AO complying with such a request of the
assessee. It is an accepted proposition that the reasons recorded by the AO
are not confidential and the assessee whose assessment is being reopened
has a right to know such reasons. We therefore thought that these two
stages can be substantially eliminated by giving suitable directions. The
further stage is of the assessee raising objections which often times is
done after much delay and the last stage comes where the AO deals with such
objections. This is yet another problem area where unduly long time is
consumed by the AO. Under the circumstances, following directions are
issued:

(1) Once the AO serves to an assessee a notice of reopening of assessment
u/s 148 of the Income-tax Act, 1961, and within the time permitted in such
notice, the assessee files his return of income in response to such notice,
the AO shall supply the reasons recorded by him for issuing such notice
within 30 days of the filing of the return by the assessee without waiting
for the assessee to demand such reasons.

(2) Once the assessee receives such reasons, he would be expected to raise
his objections, if he so desires, within 60 days of receipt of such reasons.

(3) If objections are received by the AO from the assessee within the time
permitted hereinabove, the AO would dispose of the objections, as far as
possible, within four months of date of receipt of the objections filed by
the assessee.

(4) This is being done in order to ensure that sufficient time is available
with the AO to frame the assessment after carrying out proper scrutiny. The
requirement and the time-frame for supplying the reasons without being
demanded by the assessee would be applicable only if the assessee files his
return of income within the period permitted in the notice for reopening.
Likewise the time frame for the AO to dispose of the objections would apply
only if the assessee raises objections within the time provided
hereinabove. This, however, would not mean that if in either case, the
assessee misses the time limit, the procedure provided by the Supreme Court
in GKN Driveshafts (India) Ltd would not apply. It only means that the time
frame provided hereinabove would not apply in such cases.

(5) In the communication supplying the reasons recorded by the AO, he shall
intimate to the assessee that he is expected to raise the objections within
60 days of receipt of the reasons and shall reproduce the directions
contained in sub-para 1 to 4 hereinabove giving reference to this judgment
of the High Court.

(6) The Chief Commissioner of Income Tax and Cadre Controlling Authority of
the Gujarat State, shall issue a circular to all AOs for scrupulously
carrying out the directions contained in this judgment.

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