Dr. Rakesh Gupta & Adv (CA) Somil Agarwal – [2024] 163 taxmann.com 499 (Article)
Finance Act, 2021 has brought out sea changes in the scheme of reassessment. Justice Shah termed the new scheme of reassessment in the famous case of Ashish Agrawal as ‘game changer’. Position of law in the matter of reopening which more or less came to be settled over the years by the law expounded & enunciated by Hon’ble Supreme Court, has come back once again in fluid situation because of these wholesale changes made in the scheme of reassessment. Our legislature is known for such kind of ‘adventures’.
One of the most notable changes made by the Finance Act, 2021 in the scheme of reassessment is by way of omission of an important phrase ‘reason to believe’ which used to act as a check & bulwark against the arbitrary use & exercise of the vast powers of the reassessment enjoyed by the assessing officer. Law has always attached great sanctity to the finality of an assessment and therefore, the legislature had ensured that such finality of an assessment should not be allowed to be disturbed by mere whim and fancy of the Assessing Officer. Pursuant to this basic jurisprudential philosophy, the expression ‘reason to believe’ in section 147 had always controlled the powers of the Assessing Officer in the matter of reopening of the concluded assessment. This phrase though has not been defined under the Act but came to be interpreted by Hon’ble Courts to mean that there must be material before the assessing officer before forming the belief of escapement of income and further that, material must have live nexus with the belief of escapement of income. Hon’ble Courts have held that though such material may not be required to be conclusive but, in any case, such material must be more than mere gossip, rumor or hunch. Therefore, whenever the belief of the Assessing Officer based upon which the finality of an assessment was sought to be disturbed by reopening the assessment, Hon’ble Courts, when called upon, used to see based upon the ‘reason’ recorded as to whether there was any material or not and in case there was absence of material, Hon’ble Courts would quash such reopening of the assessment. Even in those cases where material was there, Hon’ble Courts used to examine whether such material had live nexus with the belief of escapement of income. Hon’ble Courts held consistently that the though belief is subjective, but such belief was to be based on objective considerations. To that extent Hon’ble Courts found that the ‘reason to believe’ formed by the Assessing Officer was justiciable to this limited extent.
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