Reopening Of Income Tax Assessments : Supreme Court Refuses To Interfere With Delhi High Court's Guidelines To Tax Dept

The Supreme Court has refused to interfere with a 2017 Delhi High Court judgment which issued a set of guidelines to the Income Tax Department regarding the reopening of assessments.

A bench comprising Justice PS Narasimha and Justice Aravind Kumar dismissed a Special Leave Petition filed by the Income Tax Department in 2018 against the 2017 High Court verdict.

The Delhi High Court bench of Justice S. Muralidhar and Justice Prathiba M. Singh issued the guidelines to ensure that the Department did not repeat mistakes while reopening the assessment.

The following guidelines were issued : 

Firstly, while communicating the reasons for reopening the assessment, the copy of the standard form used by the AO for obtaining the approval of the Superior Officer should be provided to the Assessee. This would contain the comment or endorsement of the Superior Officer with his name, designation and date. In other words, merely stating the reasons in a letter addressed by the AO to the Assessee is to be avoided.

Secondly, the reasons to believe ought to spell out all the reasons and grounds available with the AO for re-opening the assessment - especially in those cases where the first proviso to Section 147 is attracted. The reasons to believe ought to also paraphrase any investigation report which may form the basis of the reasons and any enquiry conducted by the AO on the same and if so, the conclusions thereof.

Thirdly, where the reasons make a reference to another document, whether as a letter or report, such document and/ or relevant portions of such report should be enclosed along with the reasons.

Lastly, the exercise of considering the Assessee's objections to the reopening of assessment is not a mechanical ritual. It is a quasi- judicial function. The order disposing of the objections should deal with each objection and give proper reasons for the conclusion. No attempt should be made to add to the reasons for reopening of the assessment beyond what has already been disclosed.

“The assessment proceedings, especially those under Section 143 (3), have to be accorded sanctity and any reopening of the same has to be on a strong and sound legal basis. It is well settled that a mere conjecture or surmise is not sufficient. There have to be reasons to believe and not merely reasons to suspect that income has escaped assessment,” the Apex court remarked.

The high court held that the AO did not make any inquiry or investigation, if these companies were in fact 'paper companies', and the apex court refused to interfere in the finding of the high court and dismissed the SLP filed by the department. 

Counsel For Petitioner: N Venkatraman

Counsel For Respondent:

Case Title: Asst. Commissioner Of Income Tax Versus Sabh Infrastructure Ltd.

Case No.: Petition(S) For Special Leave To Appeal (C) No(S). 20522/2018

Click Here To Read The Order