Section 147 — Income Escaping Assessment

Section 147 of the Income-tax Act, 1961 empowers the Assessing Officer to reassess income that has escaped assessment. This provision is invoked when the officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year. The significance of this section lies in its ability to ensure that all taxable income is duly assessed and taxed, thereby preventing revenue loss to the government. The statutory test requires the officer to have 'reason to believe' that income has escaped assessment, which must be based on tangible material. The burden of proof initially lies with the Assessing Officer to justify the reopening of the assessment. Practically, this section is crucial for maintaining the integrity of the tax system by allowing the tax authorities to revisit past assessments and correct any omissions or errors.

Common Litigation Flashpoints

1. Validity of the 'reason to believe' for reopening assessment
2. Time limits for issuing notice under Section 147
3. Adequacy of tangible material to justify reassessment
4. Change of opinion versus new information leading to reassessment

Judgments on Section 147 — Income Escaping Assessment

• Dy. CIT Central Circle – 1(4), Kolkata vs Femina Stock Management Company Ltd. — ITAT,
  The assessee successfully discharged its burden of proof under Section 68 by providing sufficient evidence of the identity, creditworthiness, and genuineness of the share applicants.
• Rambagh Palace Hotels Private Limited vs Deputy Commissioner of Income Tax — HC,
  A complaint filed by a director alleging financial irregularities can constitute tangible material for reopening assessments under Section 148.
• Voltas Limited vs Assistant Commissioner of Income Tax Circle -8(3) (1), Mumbai — HC, 2022
  Reopening of assessment based solely on a change of opinion is impermissible under the Income Tax Act.
• DCIT (Central Circle-1) vs Shree Ganesh Edibles Pvt. Ltd. — ITAT,
  Once the assessee furnishes identity, creditworthiness, and genuineness of the lender, the onus shifts to the AO to prove otherwise.
• Commissioner of Income Tax, Karnataka vs M/S Bedi & Company Private Limited — SC,
  The High Court rightly held that the circumstances did not justify the conclusion that the amount was not received as a loan.
• Arya Roadways Company Pvt. Ltd. vs I.T.O., Ward-12(1), Kolkata — ITAT,
  The case was remanded to ensure a fair opportunity for the assessee to substantiate its claims regarding the expenditure.
• Pawan Sachdeva vs Income-Tax Officer, Ward 19(3), Delhi & Anr. — HC,
  Issuance of notice within the limitation period is sufficient for jurisdiction, even if the service occurs later or with errors.
• The Deputy Commissioner of Income Tax, LTU, Bangalore vs M/s. Biocon Limited — ITAT,
  The provisions of Section 10B are exemption provisions, and profits of the eligible unit should not be set off against losses of non-eligible units.
• Union of India & Ors. vs Rajeev Bansal — SC,
  Reassessment notices issued under the old regime are deemed valid under the new regime due to the application of TOLA and judicial directions.
• Commissioner of Income Tax, Delhi vs M/s. Kelvinator of India Limited — SC,
  The concept of 'change of opinion' remains an in-built test to prevent abuse of power by the Assessing Officer.
• Chhugamal Rajpal vs S. P. Chaliha & Ors. — SC,
  A notice under Section 148 cannot be issued without the Income-tax Officer having prima facie grounds and the Commissioner's satisfaction based on recorded reasons.
• Nuclear Power Corporation of India Ltd. vs Deputy Commissioner of Income-tax — HC,
  Reopening of assessment based on a change of opinion without new tangible material is not justified.
• Union of India & Ors. vs Rajeev Bansal — SC,
  Reassessment notices issued after 1 April 2021 should be treated as issued under the new regime, with TOLA extending the time limits for compliance.
• Principal Commissioner of Income Tax, Central-3 vs Abhisar Buildwell P. Ltd. — SC,
  In the absence of incriminating material, the AO cannot assess or reassess completed/unabated assessments under Section 153A.
• Union of India & Anr. vs M/s. Ganpati Dealcom Pvt. Ltd. — SC,
  The 2016 Amendment Act cannot be applied retrospectively as it creates new offences and substantive changes, which cannot be applied to past transactions.
• Chhugamal Rajpal vs S. P. Chaliha & Ors. — SC,
  The Income-tax Officer must have prima facie grounds and record reasons before issuing a notice under Section 148, and the Commissioner must apply his mind before granting sanction.
• Anand Education Society vs Asstt. Director of Income Tax(E) — ITAT,
  The AO must substantiate claims of excessive payments to relatives with evidence of unreasonableness compared to market standards.
• Commissioner of Income Tax (Central)-III vs Kabul Chawla — HC,
  Additions to income under Section 153A can only be made based on incriminating material found during the search.
• Ananta Landmark Pvt. Ltd. vs Deputy Commissioner of Income Tax — HC,
  Reopening of assessment after four years requires both conditions of income escaping assessment and failure to disclose material facts to be satisfied.
• Mon Mohan Kohli vs Assistant Commissioner of Income Tax & Anr — HC,
  The government cannot extend the applicability of statutory provisions through notifications without explicit legislative authority.
• ITO, Ward 13 (1) vs M/s. Navodaya Castles Pvt. Ltd. — ITAT,
  The AO must independently apply his mind to the information received before initiating proceedings under Section 147/148.
• Union of India & Ors. vs Ashish Agarwal — SC,
  Reassessment notices issued under the unamended Section 148 post-01.04.2021 are deemed valid under Section 148A of the Finance Act, 2021.