Section 148A of the Income Tax Act. Newly inserted section 148A now specifically requires the Assessing Officer to issue a notice if they decide to initiate reassessment. Therefore, a procedure has been laid down for the Assessing Officer under section 148A, which must be adhered to after 1st April 2021.
What is section 148A, and what does it mean for taxpayers?
In Budget 2021, the government introduced Section 148A in the Income Tax Act. Suppose the income tax officer has information that the taxpayer has escaped income for any assessment year on which tax is payable. In that case, the new provision requires that the income tax officer provide a chance for the taxpayer to explain their case before issuing notice. Under section 148A, the assessee gets a chance to be heard by the officer.
An assessing officer has to give not less than seven days but not more than 30 days to the assessee for furnishing his explanation.
After assessing the taxpayer’s reply, the income tax officer shall decide whether it is a fit case to issue notice for income escaping assessment. If the income tax officer decides to reopen the case, a copy of the order and a notice (under Section 148) must be issued to the taxpayer.
As per the time limitation clause, a notice cannot be issued in normal scenarios if three years have elapsed since the end of the relevant assessment year. However, notice beyond three years can be taken up only if there is evidence that the taxpayer has evaded an assessment of taxable income of at least Rs 50 lakh. However, notice can be issued beyond three years but not after 5 years from the end of the relevant assessment year.
The income tax officer shall obtain the approval of specified authority before conducting any such enquiries, providing an opportunity to the taxpayer, or passing such an order.
However, none of the above is applicable in search or requisition cases.
How is Section 148A different from Section 148 of the IT Act?
Section 148 requires that the income tax officer issue a notice to the taxpayer if there is a ‘reason to believe’ by the income tax officer that the taxpayer has escaped reporting any income in the relevant assessment year. After issuing the notice, the income tax officer may assess or reassess or re-compute the total income for such a year under Section 147 of the Income Tax Act.
However, with effect from 1st April 2021, the income tax officer shall now follow the procedure prescribed under the new provision Section 148A before issuing such notice. The new provision requires that the income tax officer conduct an inquiry or provide the taxpayer with an opportunity to be heard in relation to the information that indicates that the income chargeable to tax has escaped assessment. The income tax officer must obtain prior approval of a specified authority before issuing such notice.
Sr. No. | Income tax notice | Income tax provision |
1. | Notice issued for defective income tax return. | Section 139(9) |
2. | Notice for initial enquiry before assessment. The income tax officer may ask for documentary proof to verify your claim in ITR. | Section 142(1) |
3. | Notice for scrutiny of ITR (detailed scrutiny). The Assessing Officer may issue such notice to confirm the genuineness and correctness of various exemptions, deductions, and other claims made by the taxpayer in the income tax return or follow up on the notice issued under Section 142(1). | Section 143(2) |
4. | Notice for reassessment if the income tax officer disagrees with the previous assessment of the ITR of the taxpayer and believes that the income has escaped the assessment. | Section 148 |
5. | Notice of demand for any tax, penalty, or other amounts due from the taxpayer. | Section 156 |
6. | This notice is issued when the income tax refund (full/partial) for an assessment year is adjusted against the taxpayer’s tax demand due(of any previous year). | Section 245 |
What Taxpayers Must Be Aware of Regarding Section 148A
If the income tax department decides to conduct a reassessment under section 148, the taxpayer may face additional penalties, taxes, and interest on income that was not disclosed. It is essential for every taxpayer to be aware of the following points:
1. The Income Tax Department must have a valid justification to believe that income has escaped assessment. This implies that it cannot reopen an assessment case based solely on suspicion.
2. The issuance of the notice must occur within the specified time limit. If the department does not issue the notice in time, the case will not be considered for reassessment.
3. The taxpayer has the option to reply to the notice. If the income tax department isn’t satisfied with the response, they can choose to reopen the assessment.
4. If the assessment is reopened, the taxpayer can challenge it.
5. When the income tax department believes a taxpayer has knowingly avoided paying taxes, they can initiate prosecution, which could lead to fines and a imprisonment.
Section 148A of the Income Tax Act is a crucial section that empowers taxpayers to provide an explanation to the income tax department regarding any income that escaped assessment. While it safeguards the rights of taxpayers, it also grants the assessing officer the authority to reopen cases.
Budget 2025 Update
- It was proposed that no updated return can be filed by a person for whom a notice to show-cause under section 148A was issued after the expiry of 36 months from the end of the relevant assessment year.
- However, an updated return can be filed upto 48 months from the end of the relevant assessment year if it is found that there is no fit case to issue a notice under section 148 of the Act.
Time Limit to Issue a Notice Under Section 148
No notice under Section 148 will be issued for the relevant assessment year after:
a) Normal time limit: 3 years from the end of the relevant assessment year.
b) Specified time limit: If 3 have passed but not 10 years from the end of the relevant assessment year and the Assessing Officer has evidence of income amounting to Rs 50 lakhs or more that has not been taxed.
The Assessing Officer will issue a notice only if the following conditions are met for the relevant assessment year:
– The taxpayer has filed their returns under Section 139.
– The taxpayer failed to file their returns after receiving a notice under Section 142 or Section 148(1).
– The taxpayer should have provided complete and accurate information required for completing the assessment of that relevant year.
Replying to Notice Under Section 148
The key thing to bear in mind is to not to take the notice lightly. In case you receive the notice under section 148, please follow the below-mentioned pointers:
- Firstly, check the notice for reasons to believe which are recorded by the assessing officer for issuing the notice under section 148. If the notice doesn’t include the reasons, then you could request the assessing officer to send a copy of the recorded reasons.
- You will need to respond to the notice within the given time frame, which is usually 30 days. You can respond to the notice either by filing a return or by providing a written reply to the Assessing Officer along with all the details and proofs.
- In case you’re satisfied with ‘reasons to believe’ which was recorded by the assessing officer, file the return at the earliest. In the case already filed, send the copy to the assessing officer.
- In case you’re filing the income tax return in response to notice issued under section 148, ensure that you file it after performing proper due diligence that you declare all your income and expenses carefully. In case you miss reporting any of your income correctly then it could result in unnecessary penalties.
- If you believe that the notice served is not valid or reasons provided by the assessing officer for opening assessment under section 147 aren’t valid, then you could challenge the validity of such notice before the assessing officer or higher authorities.
- In case you win your case, the Court would halt your assessment proceedings. However, in case the decision doesn’t go in your favour, then the assessing officer could proceed with the reassessment.
What Happens if you Do Not Respond to Section 148?
If you don’t respond to a notice under Section 148, the Assessing Officer has the authority to carry out the assessment using the information at hand. Basically, they can make an estimate of your income and evaluate it to the best of their judgment. In case you disagree with their assessment, you have the option to file an appeal with either the Commissioner of Income Tax (Appeals) or the Income Tax Appellate Tribunal.
Who Can Issue a Notice Under Section 148
Section 151(1) of the Income Tax Act, 1961 contains the provisions for issue of notice:
- No notice would be issued by an Assessing Officer under section 148, after expiry of three years from the end of relevant AY (assessment year), unless Principal Chief Commissioner or Principal Commissioner or Chief Commissioner or Commissioner is satisfied, on reasons recorded by the AO, that it’s a fit case for issuing such notice.
- In cases other than the one mentioned above, no notice would be issued by an Assessing Officer under section 148, where AO is below the rank of a Joint Commissioner unless Joint Commissioner is satisfied, on reasons recorded by such AO, that it’s a fit case for issuing such notice.
- For the purposes of above (1) and (2), Principal Chief Commissioner or the Principal Commissioner or the Chief Commissioner or the Joint Commissioner the Commissioner, depending on the case, being satisfied on reasons recorded by AO about the fitness of the case for issuing notice under section 148 of the Income Tax Act, need not issue the notice by himself.
Duties and Rights Of The Assessee After The Receipt Of Notice Under Section 148
1. The assessee must fulfill the duty of filing tax returns for any income considered as “Income Escaping” for the relevant assessment year.
2. Once the returns are filed, the assessee has the right to request a copy of the notice, which outlines the reasons behind the Assessing Officer’s decision to issue the notice under Section 148.
3. If the assessee finds the reasons provided in the copy unsatisfactory or baseless, they have the right to file an objection challenging the validity of the notice.
4. It is essential for the assessee to provide valid reasons while raising objections and questioning the lawfulness of the notice issued under Section 148.
5. In case the Assessing Officer dismisses the assessee’s claims, the assessee retains the right to request the provision of separate reasons for the dismissal.
6. The assessee also has the option to file a writ petition with the appropriate High Court, challenging the legality and validity of the notice issued under Section 148. This can be done even before the assessment or re-assessment is concluded.
7. Even after the assessment is completed and the matter is under appeal, the assessee still has the right to file a writ petition with the relevant High Court, questioning the legality and validity of the notice under Section 148.
8. The assessee must provide evidence of the following actions:
a. Requesting a copy of the reasons stated by the Assessing Officer for issuing the notice under Section 148.
b. Filing an objection to the reasons presented by the Assessing Officer.
c. Requesting the Assessing
d. Challenging the lawfulness of the notice’s issuance.
Reopening of Income Tax Assessment Cases
As part of the Union Budget 2021, a decision has been made to reduce the time limit for reopening income tax assessment cases. Previously set at six years, it will now be shortened to three years. However, in situations involving significant tax evasion, assessments may be reopened for a period of up to ten years, but only if the concealed income exceeds Rs. 50 lakh. Officer to provide reasons for rejecting the assessee’s objections.
Things to Consider While Replying to a Notice Under Section 148
When responding to a notice issued under Section 148 of the Income Tax Act, 1961, it is important to consider the following factors:
1. Begin by understanding the reasons that prompted the Assessing Officer (AO) to send the notice. If the reasons are not provided in the notice, individuals have the right to request a copy of the same.
2. If the reasons provided in the notice are found to be justifiable, it is crucial to promptly file tax returns to avoid any potential legal complications. If tax returns have already been filed under Section 148, individuals should ensure to submit a copy of the returns to the AO.
3. Exercise caution and diligence while filing income tax returns. Any omission or incorrect reporting of expenses or income could result in legal penalties. It is important to ensure that all relevant information is accurately reported.
4. Familiarize yourself with the provisions outlined in Section 148 of the Income Tax Act to prevent any legal complexities. However, it is advisable for individuals to get their income assessed each assessment year in order to remain tax compliant and avoid any inconveniences.
By considering these factors, individuals can appropriately respond to a notice issued under Section 148 and effectively navigate the income tax assessment process.
Section 148 of the Income Tax Act 1961 plays a significant role in ensuring proper assessment of taxpayers whose income has not been appropriately evaluated. It is vital to take any notice received under this section seriously and respond promptly by providing accurate and complete information about your income and expenses. Failing to respond within the specified timeframe may lead to an assessment based on the Assessing Officer’s discretion, which may not be favorable to you. Therefore, it is important to comply with the requirements and cooperate with the authorities to ensure a fair and lawful assessment of your tax liabilities.
