What are the Provisions for Re-opening an Assessment

Section 147 of the Income Tax Act authorizes the Assessing Officer to re-assess the income chargeable to tax, in cases where he has reason to believe that any income has not been assessed. This is called the power of reassessment. In other words reassessment can be allowed only for a change of opinion on behalf of the Assessing Officer.

New provision for Re-opening an Assessment:

The provision of law regarding power of reassessment has been substituted by the Direct Tax Laws (Amendment) Act, 1987 having an effect from 1^st April, 1989. The new provisions give the Assessing Officer jurisdiction to reopen the reassessment.

According to the new provisions, the power of reassessment cannot be allowed after four years from the end of the assessment year in question where the assessment is made under section 143(3) or section 147, unless the income which should have been taxed tax has escaped assessment due to the failure on the part of an assessee to make return under section 139 or due to his failure to disclose any material fact needed for the assessment.

According to the old provisions, an Assessing Officer had the power to reassess if on account of any information he received, he had reason to believe that any income has escaped assessment which should have been charged to tax, even in cases of no failure by the assessee.

Comparison between the two provisions – old and new:

As per the old provisions two conditions were essential for reopening of assessment, such as

(i)                  The Assessing Officer should have reason to believe that any income has not been assessed which should have been taxed, and

(ii)                The income has escaped due to failure to disclose any material fact by the assessee,

As per the new provisions only one condition is essential for starting the reassessment proceedings, that is,  the Assessing Officer should have reason to believe that any income has not been assessed which should have been taxed.

In many cases, reassessment proceedings are started due to any kind of change of opinion on any issue already decided during the original assessment. In such cases, the issue has come up before the Courts as to whether, now the Assessing Officer has the jurisdiction to start reassessment proceedings for his change of opinion. The Courts are of the view that reassessment proceedings should not be started due to just a change of opinion. But the process is still in practice. The re-assessment proceedings are taking place only on account of any change of opinion by giving any justified reason by the Assessing Officer.

The Supreme Court has recently held that the power of re-assessment has been given by the Legislature not to enable the Assessing Officer to reopen a decision made in earlier proceedings by applying unlimited power of review depending on change in mood.