Applicability under Income escaping assessment [Section 147] :

(1) If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153 assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the relevant assessment year.

(2) Where an assessment under section 143(3) or 147 has already been made by the Assessing Officer for the relevant assessment year, then, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year .

The exception would be in cases where any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139, or in response to a notice issued under section 142(1) or section 148 or to disclose, fully and truly, all material facts necessary for his assessment for that assessment year.

The above time limit shall also not apply in a case where income chargeable to tax, in relation to an asset (including financial interest in an entity) located outside India, has escaped assessment for any assessment year. In effect, in such cases, the Assessing Officer can initiate assessment proceedings under section 147 even after the expiry of 4 years inspite of the assessee having –

(i) duly furnished his return of income and

(ii) fully and truly disclosing all material facts necessary for his assessment for that assessment year.

It is also clarified that, the above provision shall also be applicable for any assessment year beginning on or before 01.04.2012.

The Assessing Officer must have ‘reason to believe‘ that income chargeable to tax had escaped assessment. The belief which prompts an Income-tax Officer to apply section 147 to any particular case must be that of an honest and reasonable person based upon reasonable grounds, and that the Assessing Officer may act under this section on direct or circumstantial evidence but not on a mere suspicion, gossip or rumor. The powers of the Assess ing Officer are wide, but not plenary in nature. Care must be taken to note that the words used in the section are “reason to believe” and not ‘reason to suspect‘. The expression ‘reason to believe‘ does not, however, mean a purely subjective satisfaction on the part of the Assessing Officer. The belief must be held in good faith. It cannot be a mere pretence. It is open to the Court to examine whether the reasons for the belief have a rational connection or a relevant bearing to the formation of the belief and are not extraneous or irrelevant to the purpose of the section. There is no requirement in any of the provisions of the Act or under any section laying down as a condition for the initiation of the proceeding that the reasons which induced the Assessing Officer, to issue the notice must also be communicated to the assessee. Therefore, the Assessing Officer need not communicate to the assessee the reasons, which led him to initiate the proceedings under section 147.

(3) The Assessing Officer may assess or reassess an income which is chargeable to tax and has escaped assessment other than the income involving matters which are the subject matter of any appeal, reference or revision.

Where reassessment is made under section 147 in respect of income which has escaped tax, the Assessing Officer’s jurisdiction is confined to only such income which has escaped tax or has been underassessed and does not extend to revising, reopening or reconsidering the whole assessment or permitting the assessee to reagitate questions which had been decided in the original assessment proceedings. It is only the underassessment which is set aside and not the entire assessment when reassessment proceedings are initiated. The Assessing Officer cannot make an order of reassessment inconsistent with the original order of assessment in respect of matters which are not the subject matter of proceedings under section 147. An assessee cannot resist validly initiated reassessment proceedings under this section merely by showing that other income which had been assessed originally was at too high a figure except in cases under section 152(2). The words “such income” in section 147 clearly refer to the income which is chargeable to tax but has “escaped assessment” and the Assessing Officer’s jurisdiction under the section is confined only to such income which has escaped assessment. It does not extend to reconsidering generally the concluded earlier assessment.

(4) It has been clarified that production before the Assessing Officer of account books or other evidence from which material evidence could evidence with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure.

(5) For the purpose of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment:

(i) Where no return of income has been furnished by the assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax.

(ii) Where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return.

(iii) where the assessee has failed to furnish a report in respect of any international transaction which he was so required under section 92E. (It is further clarified that this provision shall also be applicable for any assessment year beginning on or before 01.04.2012).

(iv) Where an assessment has been made but:

(a) income chargeable to tax has been under-assessed

(b) such income has been assessed at too low a rate

(c) such income has been made the subject of excessive relief under this Act

(d) excessive loss or depreciation or any other allowance under this Act has been computed.

(v) where a person is found to have any asset (including financial transaction in any entity) located outside India. (It is further clarified that this provision shall also be appli cable for any assessment year beginning on or before 01.04.2012).

(6) The Assessing Officer may assess or reassess the income in respect of any issue (which has escaped assessment) which comes to his notice subsequently in the course of proceedings under this section, even though the reason for such issue does not form part of the reasons recorded under section 148(2).