income tax escaping assessment
Income Escaping Assessment: The IT department may issue Income Escaping Assessment under 148, 148A if taxpayers omit to include specified income in their ITRs. Learn more

Income Escaping Assessment: The IT department may issue Income Escaping Assessment under 148, 148A if taxpayers omit to include specified income in their ITRs. Learn more

1. What is Assessment or Re-assessment?

Assessment or Re-assessment is a procedure adopted to determine the correctness of the income disclosed by the assessee and tax thereon. If the Assessing officer has reasons to believe that any income chargeable to tax has escaped assessment for any assessment year, he may subject to the provisions of Sec 148 to 153, assess or reassess such income and also any other income chargeable to tax which comes to his notice subsequently in the course of proceedings.

2. Issue of notice where income has escaped assessment u/s 148

  1. Conditions for issue of notice : The notice can be issued only when
    • There is information with the Assessing officer which suggests that the income chargeable to tax has escaped assessment for the relevant assessment year
    • The Assessing officer has obtained the prior approval of the specified authority to issue such notice.
  2. Information with the AO which suggest that the income chargeable to tax has escaped assessment.
    • Any information flagged in the case of taxpayer for the relevant assessment year in accordance with Risk management strategy formulated by board. (Most of the notices to taxpayers comes under this category)
    • Any audit objection to the effect that the assessment in the case of the taxpayer for the relevant assessment year has not been made in accordance with the provisions of the Income-tax Act.
    • Any information received under an agreement referred to in section 90 or section 90A
  3. The Assessing Officer will serve a notice on taxpayer to file his income tax return for relevant assessment year u/s 148 and serve further notices if he needs any further information to complete assessment.

3. Time Limit for issuance of Notice u/s 148

  1. General cases : Notice u/s 148 cannot be issued if 3 years have elapsed from the end of the relevant assessment year
  2. Asset, Expenditure in respect of a transaction or event
    S.NoParticularsTime Limit1In GeneralNotice u/s 148 cannot be issued if 3 years have elapsed from the end of the relevant assessment year2If the Assessing officer has the possession of books of accounts or other documents or evidence which reveals that the income chargeable to tax represented in the form of
    1. Asset (land, building, shares, deposits etc)Expenditure in respect of a transaction or in relation to an event or occasionEntries in the books of accounts
    Which has escaped assessment amounts to 50 lakhs or more Notice u/s 148 cannot be issued if 10 years have elapsed from the end of the relevant assessment year

Example : Mr Arjun has filed his income tax return for FY 2018-19 showing his Salary income in ITR 1. However he has sale of securities and interest income during FY 2018-19 (AY 2019-20) of around Rs 20 lakhs . Assessing officer has issued the notice u/s 148 on 10th Jan 2023. Is this a valid notice?

Ans : The time limit for issue of notice u/s 148 as Arjun’s income is less than 50 lakhs is within 3 years from the end of relevant assessment year. In this case, AO has time till 31st Mar 2023. As it is within time, it is a valid notice

NOTE : However if income escaped is more than 50 lakhs, the time limit is 31st Mar 2030

4. Procedure to be followed before issue of notice of Income escaping assessment u/s 148A

The Assessing officer (AO) needs to follow the below steps before issuing any notice u/s 148

  1. Conduct enquiry with respect to the income which has escaped assessment (prior approval of specified authorities might be required in some cases)
  2. Issue a show cause notice to the taxpayer and provide a reasonable opportunity of being heard within in the time specified in notice (7 to 30 days) and may be extended from time to time.
  3. Consider the reply of the taxpayer furnished in response to Point(b)
  4. Decide whether it is a fit case for issue of notice u/s 148 by passing an order with the prior approval of specified authority based on the evidence available and reply furnished by the taxpayer.

5. Time Limit for passing order u/s 148A

  1. If Reply is furnished by taxpayer in response to show cause notice : Within 1 month from the end of the month in which the reply is furnished by the taxpayer
  2. If Reply is not furnished by taxpayer in response to show cause notice : Within 1 month from the end of the month in which time allowed to taxpayer to furnish a reply expires

6. Time Limit for completion of Assessment by Assessing Officer

The time limit for completion of assessment by assessing officer in case of income escaping assessments is as follows

  1. If notice is served before 01/04/2019 : 9 months from the end of the financial year in which notice is served
  2. If notice is served on after 01/04/2019 : 12 months from the end of the financial year in which notice is served

In Above example, AO needs to complete the assessment by 31/03/2024

7. Circumstances when income is deemed to have escaped assessment

The following shall be deemed to be the cases where income chargeable to tax has escaped Assessment.

  • Where the total income of the assessee during the previous year has exceeded the maximum amount which is chargeable to income tax and no return of income has been furnished by the assessee.
  • Where the return of income has been furnished by the assessee and it is noticed by the AO that the assessee has understated the income, claimed the excessive loss, deduction, allowance or relief in the return and no assessment has been made.
  • The assessee has failed to furnish a report in respect of any international transaction u/s 92E.
  • It is noticed by the AO that the income of the assessee exceeds the basic exemption limit based on the information or document received u/s 133C(2) and the return of income has not filed.
  • It is noticed by the AO that the assessee has understated the income or claimed an excessive loss, deduction, allowance in case of return of income has been filed.
  • Where the return of income has been furnished by the assessee and assessment has been made and it is noticed by the AO that the assessee has understated the income, claimed the excessive loss, deduction, allowance or relief in the return.

8. AO’s Reasons to believe

The Assessing office must have reasons to believe to apply section 147 to any particular case. Section 147 should not be applied not merely on the basis of any reasons to suspect. A mere increase in turnover because of use of digital means of payment or otherwise in particular year cannot be the sole reason to believe that income has escaped assessment in earlier years. Past assessments cannot be reopened on the ground that the current year’s turnover has increased.

Frequently Asked Questions

What is the time limit for completion of assessment or reassessment?

The time limit for completion of assessment and reassessment is 9 months from the end of the financial year in which the notice was served.

Can notice for assessment and reassessment be made beyond 3 years?

Yes, between three to ten years from the relevant assessment year if the AO possesses the books of accounts or any evidence of income chargeable to tax amounting to Rs.50 lakhs or more.

What is the penalty for income escaping assessment?

The penalty for income escaping assessment is 30% of the undisclosed income if the assessee admits the undisclosed income along with the manner of deriving the same.

Can A.O. Commence reassessment Proceedings due to change of opinion?

For reopening of assessment AO needs to records valid reasons and all material facts necessary for the purpose of assessment or reassessment. But for Re-opening of the assessment without any basis/ gossips and merely change of opinion is not permissible while exercising powers under Section 147 read with Section 148 of the Act and If the assessing officer draws an inference which appears subsequently to be erroneous, mere change of opinion with regard to that inference would not justify initiation of action for reopening assessment.

What Happens if the A.O. Conducts a best judgement Assessment?

If the Assessing Officer conducts a best judgement assessment, they will estimate your income and expenses using the available information. In case you disagree with the assessment, you have the option to file an appeal with the Commissioner of Income Tax (Appeals) / the Income Tax Appellate Tribunal. It is always advisable to respond to a notice under Section 148 and provide all the important details of your income and expenses to avoid unnecessary complications.