From newspaper reports, it seems that a proposal is going to be placed that would allow the tax department to reopen cases for sixteen years instead of the present limit of six years. Reopening of assessments has been the subject of much litigation. Except in cases where assessment has not been done, the law requires an Assessing Officer to have reason to believe that income has escaped assessment in order to reopen past assessments. Assessees have often challenged reopening of past assessments on the ground that the Assessing Officer merely had reason to suspect escapement of income and not a reason to believe the same. Courts have held that a mere suspicion not based upon information (even prima facie information) does not warrant reopening and have struck down reopening in such cases.
The power given to an Assessing Officer to reopen must not be unfettered. If that were so, then there is no control over proper and justifiable use of the power. It is for this reason that the law has built in controls that seek to ensure that reopening happens only in deserving cases. Six years may be considered quite reasonable for this purpose. A proposal to allow the tax department to reopen cases for sixteen years raises the following questions: 1) What is sacrosanct about sixteen? Why not fifteen or twenty six? 2) What about the cost of data retention for sixteen years? 3) Will stricter provisions be brought about to ensure that the taxpayer is not caused undue harassment?
It is a sad fact that Assessing Officers are often responsible for gross misuse of official power. In our view, if power is to be given to an Officer to reopen cases for the last sixteen years, the burden of proof that ought to be placed on the Officer should also be high. Maybe the information that would be required should be more than just prima facie information. Perhaps there could be a Committee set up in each Commissionerate that would examine each such case on merit before sanctioning such reopening. Maybe the Committee should give a reasoned order for reopening which should be provided to the taxpayer.
In any event, we shall follow this report and update you as and when things develop.
Added disclaimer below on December 27, 2011
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