(2020) 424 ITR 607 (SC)
Income escaping assessment; reassessment notice; time limit for notice
No. The taxpayer must be told the provision and the basis on which the extended period is invoked. A notice cannot be sustained on a ground never put to the taxpayer, though on the facts the reopening survived within the ordinary period.
May the Revenue support a reassessment notice on a ground not stated in it, in order to bring the case within an extended limitation period?
The assessee had raised funds through a step-down subsidiary incorporated abroad, and the Revenue formed the view that the arrangement had been used to bring undisclosed funds into the group. A reassessment notice was issued beyond the ordinary period. In the proceedings the Revenue sought to justify the notice by reference to the extended limitation available where income in relation to an asset located outside India has escaped assessment, although the notice itself had not invoked that provision or put the taxpayer on notice of it.
The Delhi High Court upheld the reopening. The assessee appealed to the Supreme Court, which examined both the validity of the reasons and the Revenue's attempt to rely on the extended period.
For the assessee
A notice invoking an extended limitation period must say so and must state the basis, because the taxpayer must know the case it has to meet on limitation, which is a jurisdictional matter. Permitting the Revenue to invoke a different provision for the first time in argument deprives the taxpayer of the opportunity to respond.
For the Revenue
The material disclosed that income relating to an asset abroad had escaped assessment, and the extended period was available on the facts. A notice ought not to fail merely because the provision was not expressly cited, where the substance is made out.
The Court examined the recorded reasons and held that they disclosed sufficient material for the officer to form the belief that income had escaped assessment, so the reopening was valid within the ordinary period. On the attempt to rely on the extended limitation, however, it held firmly against the Revenue. Limitation is a jurisdictional matter, and a taxpayer is entitled to know not merely that its assessment is being reopened but the period relied on and the basis for invoking it. The notice and the reasons had not put the assessee on notice that the extended period relating to foreign assets was being invoked, and the Revenue could not supply that foundation for the first time in argument. The Court held that the assessee must be given an opportunity to meet the case on that footing, and that a notice cannot be sustained by reference to a ground never communicated. It accordingly upheld the reopening only to the extent it was sustainable on the grounds actually stated.
Applies to Sections 279, 280 and 282 of the IT Act 2025. The procedural protection it insists on has been reinforced by the inquiry procedure, under which the information relied on must be supplied to the taxpayer before a notice issues. The decision is regularly invoked where the Revenue seeks to justify a time-barred notice on grounds developed after the event.