In the realm of tax law, the processing of an Income tax return under section 143(1) does not equate to an assessment of an opinion on the Income tax return filed by the taxpayer. This was highlighted in the case of Ernst & Young U.S. LLP v. ACIT (International Taxation), where the assessment of the taxpayer was completed under section 143(1). Later on, the Assessing Officer issued a reopening notice under section 148A(b) based on the grounds that income from professional services charged to a party had not been offered for taxation.
Subsequently, a reassessment order was passed under section 148A(d) making additions to the income of the taxpayer. The taxpayer argued that in the subsequent assessment year 2019-20, the revenue had accepted the taxpayer’s claim that the income was not taxable under the relevant DTAA’s Article 15. As a result, the taxpayer believed that a similar view should have been taken during the relevant assessment year. The taxpayer further argued that there was no new concrete material to form a belief that income had escaped assessment, and thus there was no need for reopening.
However, the Supreme Court in ACIT v. Rajesh Jhaveri Stock Brokers (P) Ltd. held that there is a distinction between “intimation” and “assessment” under sections 143(1) and 143(3) of the Act. The court also noted that when the original proceeding is completed under section 143(1), there is no need for fresh tangible material for reopening the assessment, and the doctrine of change of opinion does not arise since an intimation is issued, and no opinion is formed by way of the said order.
The Court also ruled that since the taxpayer did not provide any documents such as contract agreements or copies of original invoices to demonstrate that the services rendered during the instant assessment year were identical to those rendered in the subsequent assessment year 2019-20, the reassessment proceedings were justified. Thus, the Court ruled in favor of the revenue.
In conclusion, it is crucial for taxpayers to understand the nuances of tax law and the difference between intimation and assessment. While processing a return under section 143(1) does not amount to an assessment of opinion, it is still subject to scrutiny and can lead to reopening notices under section 148A(b) based on credible and tangible material. Thus, taxpayers should ensure that they have all necessary documents and information readily available to avoid any discrepancies and successfully navigate the tax system.
(Related Assessment year : 2018-19) – [Ernst & Young U.S. LLP v. ACIT (International Taxation) [2023] 146 taxmann.com 64 (Del.)]
