Income Escaping Assessment [Section 147]

If the Assessing Officer has reason to believe that any income, chargeable to tax, has escaped assessment for any assessment year, he may subject to provisions of sections 148 to 153:

(a)        assess or reassess such income which has escaped assessment;

(b)   recompute the loss or depreciation allowance or any other allowance as the case may be, for the assessment year concerned i.e., the relevant assessment year.

During the course of proceedings under section 147, if any other income chargeable to tax has also escaped assessment for the relevant assessment year and it comes to the notice of the Assessment Officer, he can assess or reassess that income also.

(1)  Reassessment can be done for any income other than income involving matters which are the subject matter of appeal reference or revision [Proviso 3 to Section 147] :

The Assessing Officer may assess or reassess such income, other than the income involving matters which are the subject matter of any appeal, reference or revision, which is chargeable to tax and has escaped assessment.

In other words, the matters/issues which have gone for appeal or revision cannot be reopened under section 147 but for all other matters/issues the Assessing Officer can reopen the assessment under section 147.

This affirms the concept of partial merger of matters/issues as against the complete merger.

(2)  Deemed Cases of Escapement:

Explanation 2 of section 147 clarifies that the following shall also to be deemed to be cases where income chargeable to tax has escaped assessment namely:

(a)        where no return of income has been furnished by the assessee and no assessment has been made although:

(i)         his total income; or

(ii)        the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income- tax:

(b)        where a return of income has been furnished by the assessee but no assessment (scrutiny/best judgment assessment) has been made and it is noticed by the Assessing Officer that the assessee:

(i)         has understated the income; or

(ii)        has claimed excessive loss, deduction, allowance or relief in the return;

(ba)      where the assessee has failed to furnish a report in respect of any international transaction which he was so required under section 92E.

(c)        where assessment under section 143(3) or 144 has been made whether return of income has or has not been furnished but:

(i)         income chargeable to tax has been under-assessed; or

(ii)        income chargeable to tax has been assessed at too low a rate; or

1.  income chargeable to tax has been made the subject of excessive relief under the Income- tax Act; or

(iv)       excessive loss or depreciation allowance or any other allowance under the Income-tax Act has been computed.

(Ca)      where a return of income has not been furnished by the assessee or a return of income has been furnished by him and on the basis of information or document received from the prescribed income-tax authority, under section 133C (2). it is noticed by the Assessing Officer that the income of the assessee exceeds the maximum amount not chargeable to tax, or as the case may be. the assessee has understated the income or has claimed excessive loss. deduction, allowance or relief In the return;

(d)        where a person is found to have any asset (including financial interest in any entity) located outside India.

(3)  Issue of Notice where Income has Escaped Assessment [Section 148]

Before making the assessment / reassessment or re-computation under section 147, the Assessing Officer shall serve on the assessee a notice requiring him to furnish a return of his income or income of any person in respect of which he is assessable during the previous year corresponding to the relevant assessment year [even though it has already been furnished earlier under section 139 or 142(1)] within such period as may be specified in the notice.

The return filed in response to notice under section 148(1) shall be treated as if such return was a return required to be furnished under section 139 and therefore the Assessing Officer shall have to serve a notice under section 143(2) within a period of 6 months from the end of the financial year in which the return is furnished by the assessee to make the assessment under section 147 read with section 143(3).

As per section 148(2), before issuing notice under section 148, the Assessing Officer is required to record his reasons for doing so.

(A)   Reassessment of income can be done even for an issue for which reason not recorded [Explanation 3 to section 147]:

For the purpose of assessment or reassessment under this section, the Assessing Officer may assess or reassess the income in respect of any issue, which has escaped assessment, and such issue comes to his notice subsequently in the course of the proceedings under this section, notwithstanding that the reasons for such issue have not been included in the reasons recorded under section 148(2).

The above explanation has been inserted because some courts have held that the Assessing Officer has to restrict the reassessment proceedings only to issues in respect of which the reasons have been recorded for reopening of assessment.

(B)   Separate notice under section 148 has to be given for each assessment year for which income has escaped assessment:

For making assessment or re-assessment under section 147 a separate notice under section 148 is required to be issued by the Assessing Officer for each assessment year for which the income has escaped assessment.