In a recent ruling, the Delhi High Court provided clarity on the extended 10-year review period for Income-Tax (I-T) assessments. Justices Rajiv Shakdher and Girish Kathpalia emphasized that the 10-year review period applies only if the estimated undisclosed income exceeds Rs 50 lakh. They stated that in “normal cases,” no notice should be issued if income concealment is below Rs 50 lakh and three years have passed from the end of the relevant assessment year. As a result, the court quashed approximately 50 reassessment notices related to AY 2016-17 and 2017-18, where income concealment was below Rs 50 lakh.
Tax experts and practitioners have welcomed this decision, anticipating that it will empower them to challenge and dismiss unwarranted notices issued by the Income Tax department in the future. Vivek Jalan, Partner at Tax Connect Advisory, commented, “With this judgement, this jurisprudence should now slowly settle down as aberrations will continue to be quashed by courts.”
Regarding already-issued notices and ongoing proceedings, Yeeshu Sehgal, Head of Tax Market at AKM Global, stated that “Old notices issued under section 148 and ongoing proceedings will be dropped where income escaped is less than Rs 50 lakh.
The High Court’s order clarifies the important position of the law on time limits applicable to tax notices, supported by an exhaustive analysis of provisions of the old and new regime for re-assessment and notifications. This ruling grants substantial relief by quashing notices in cases where they were regularised after the Supreme Court judgement in Ashish Agrawal, falling beyond the threshold of three years and income escaped is less than Rs 50 lakh. Overall, it is a welcome ruling for the taxpayer.
Let’s read more about section 48 of the income tax act, under which notice for reassessment of income can be issued.
What is Section 148 of the I-T Act?
Under Section 148 of the Income Tax Act, 1961, a notice can be issued by the Assessing officer to reassess a taxpayer’s income tax return (ITR) if he has reason to believe that any income chargeable to tax has escaped assessment for any assessment year. Or in other words, the AO is of the view that the income tax payer has underreported or missed disclosing income in his return.
In such a situation, Section 148 gives authority to the AO to send a notice to a taxpayer for reassessment of income. However, normally, a notice cannot be issued if three years have passed since the end of the relevant assessment year. If there is evidence of concealment of income of at least Rs 50 lakh, a notice can be issued beyond three years but within 10 years from the end of the relevant assessment year.
Amendment in Section 148
In the Finance Act 2022, a novel sub-section 148A was incorporated, mandating the assessing officer to conduct an inquiry and afford the taxpayer an opportunity to present his/her case before issuing a notice under Section 148. The assessing officer is obligated to serve a notice to the taxpayer under Section 148A(b), furnishing relevant information and adverse material indicating potential income tax escape.
“It is important to note that the time limit of ten years can be invoked only in “serious tax evasion cases”, and that too, where evidence is found. A mere allegation that an evasion was more than Rs 50 lakh would not suffice. The AO has to have in his possession, evidence that escaped income amounted to Rs 50 lakh or more,” said Jalan.
While this law point was already enacted, “the field officers were issuing notices where suspected evasion was there and that too less than Rs 50 lakh. Sometimes the value of evasion was inflated to more than Rs 50 lakh without any evidence in the hands of the AOs,” alleged Jalan.
Upon receiving a notice under Section 148(b), the taxpayer has the opportunity to submit their own clarification and justifying documents within the specified timeframe. Usually, the time limit for responding to a notice under Section 148 is 30 days, unless a shorter period is specified in the notice.
After reviewing the taxpayer’s response, the income tax officer will determine whether to issue a reassessment notice or not. In the event of deciding to reopen the case, the officer is obligated to furnish the taxpayer with a copy of the order and a notice under Section 148.
When you receive a notice under Section 148 for reassessment, firstly check for the recorded reasons. If the reasons provided in the notice are deemed unsatisfactory or baseless as per the assessee, they possess the right to file an objection, challenging the notice’s validity. If the Assessing Officer rejects the objection, the assessee can alternatively file a writ petition with the High Court, even before the assessment or reassessment concludes.