The tax assessment process follows a sequential flow, beginning with return filing and potentially extending to scrutiny or reassessment, depending on the nature of the case.
The process starts when a taxpayer files an income tax return for a given financial year within the prescribed deadlines. Typical tax filing deadlines are as follows:
Individuals: July 31
Companies / audited cases: October 31
Automated tax assessment
Once filed, the return is first subjected to automated processing by the Central Processing Center. This stage involves system-based checks of arithmetical accuracy, tax credits such as tax deducted at source (TDS), and consistency with available data sources like annual information statements. The timeline is generally within 9 months from the end of the tax year.
For the majority of taxpayers, this stage concludes the assessment process, resulting in either a confirmation, a minor adjustment, or a refund or demand.
Selection for scrutiny (risk based)
A subset of returns is selected for further examination based on risk parameters. These parameters typically include:
High-value transactions,
Significant deductions,
Inconsistencies in reporting, or
Unusual financial patterns.
When a return is flagged, the taxpayer receives a formal notice initiating scrutiny. This notice must be issued within a prescribed timeframe, i.e., within three months from the end of the filing year, failing which the return is generally treated as accepted, subject to reopening provisions.
Once scrutiny is initiated, the tax authorities conduct a detailed review of the return. This involves examining supporting documents, financial records, and explanations provided by the taxpayer. The process is completed within 12 months and allows the taxpayer to respond to queries before a final assessment order is passed. The outcome may either confirm the original return or result in adjustments to income, tax liability, or losses.
Initiating reassessment
Even after an assessment is completed, the law permits reopening of cases under specific conditions. If the tax authorities subsequently receive credible information indicating that income has escaped assessment, they may initiate reassessment proceedings. This is subject to strict procedural safeguards and time limits, ensuring that such powers are exercised judiciously
Under the updated framework, reassessment can generally be initiated within three years from the end of the relevant tax year. In cases involving noteable undisclosed income (above the prescribed threshold), the time limit may extend to up to five years.
Key Tax Timelines in India at a Glance
Stage
Timeline
ITR filing
July–October
Processing
Within 9 months
Scrutiny notice
Within 3 months
Scrutiny completion
Within 12 months
Reassessment window
Up to 3-5 years
Rectification
Up to 4 years
Regulatory framework governing assessments
The legal foundation for income tax assessments lies in the Income-tax Act, 2025, supported by procedural rules under the Income-tax Rules, 2026. Together, they establish a system that balances administrative efficiency with taxpayer rights.
A defining feature of the current framework is the emphasis on procedural fairness. Tax authorities are required to follow a structured approach that includes issuing notices, providing opportunities for explanation, and passing reasoned orders. At the same time, the law prescribes clear timelines for each stage, ensuring certainty and limiting prolonged disputes.
Faceless and digital assessment model
One of the most transformative changes in India’s tax administration has been the shift to a fully digital, faceless assessment system. Under this model, taxpayers no longer interact directly with assessing officers; everything is handled online through the centralized system of the IT department.
Cases are allocated electronically to assessment units, and all communications, whether notices, responses, or orders, are exchanged through the designated tax portal.
Behind the scenes, the system is designed to be collaborative. Assessment units can seek support from:
Verification units for fact-checking and enquiries
Technical units for specialized matters such as valuation or transfer pricing
This integrated approach ensures that assessments are technically robust.
Use of data and technology
The assessment processes tax information from sources such as TDS filings, the Annual Information Statement (AIS), and other third-party databases consolidated to verify taxpayer disclosures.
This data-centric approach enables risk-based selection of cases and allows authorities to rely on updated information during ongoing assessments. For taxpayers, this means that consistency across financial records and disclosures has become more important than ever.
Reassessment proceedings for businesses, foreign companies, and NRIs
Under the new tax laws, the reassessment framework has been structured to ensure transparency, procedural fairness, and targeted enforcement—essential for businesses, multinational enterprises, and non-resident taxpayers with India-linked income.
1. When can a business or NRI be subject to reassessment?
Reassessment may be initiated where the tax authorities have credible information indicating that income chargeable to tax has not been reported or has been underreported.
For businesses and foreign entities, such triggers typically include the following:
Risk flags generated through data analytics systems
Audit objections or inconsistencies in filed returns
Information received under international tax treaties or exchange agreements
Findings from surveys, investigations, or transfer pricing reviews
Directions or observations from courts, tribunals, or regulatory authorities
For NRIs and foreign companies, reassessment is particularly relevant in cases involving cross-border transactions, permanent establishment risks, or transfer pricing adjustments.
2. Step-by-step reassessment procedure
The law prescribes a structured process before reopening any completed assessment:
Step 1: Identification of information: The Assessing Officer (AO) must possess specific and verifiable information suggesting income has escaped assessment. Mere suspicion is not sufficient.
Step 2: Show-cause notice: Before issuing a formal reassessment notice, the AO must provide the taxpayer (company, foreign entity, or NRI) with an opportunity to explain why the case should not be reopened. This notice outlines the basis for the proposed action.
Step 3: Consideration of response: The taxpayer’s reply, along with supporting documentation (such as financial statements, transfer pricing reports, or transaction records), is carefully reviewed.
Step 4: Reasoned order with approval: The AO passes a reasoned order deciding whether reassessment is warranted. This step requires prior approval from a senior authority (such as an additional or joint commissioner), ensuring oversight.
Step 5: Issue of reassessment notice: If approved, a formal notice is issued to initiate reassessment proceedings.
3. Situations where pre-notice procedure may be skipped
In specific high-risk or data-driven scenarios, the AO may bypass the show-cause stage, such as:
Information received through automated or faceless data-collection systems
Directions from approving panels in anti-avoidance or tax planning cases
Findings arising from judicial or appellate orders
However, senior-level approval remains compulsory even in these cases.
4. Time limits for reassessment
The completion timeline is generally within one year from the end of the financial year in which the reassessment notice is issued. However, extensions may apply in cases involving litigation, transfer pricing references, or regulatory delays.
For businesses and foreign entities, this timeline is critical for planning compliance responses and documentation readiness.
5. Applicability of new vs old law
The reassessment provisions under the Income-tax Act, 2025 apply from tax year 2026-27 onwards
For earlier years, reassessment continues under the Income-tax Act, 1961
This creates a dual framework, especially relevant for companies with ongoing or legacy tax exposures.
6. Transitional and parallel proceedings
Ongoing tax reassessment cases initiated under the old law will continue under that framework, i.e., Income-tax Act, 1961.
Fresh reassessment for earlier years may still be initiated under the old law, subject to conditions. It is possible for:
Reassessment (old law) for earlier years, and
Regular assessment (new law) for later years to run simultaneously for the same taxpayer
This is particularly common for large businesses and multinational groups with multi-year tax positions.
7. Penalty Implications
For tax years prior to April 1, 2026, penalties continue under the Income-tax Act, 1961, whereas for Tax Year 2026-27 onwards, penalties are governed by the new Act.
For businesses and foreign entities, this distinction affects risk assessment and litigation strategy.
Key takeaways
Income tax assessment in India is now a structured, technology-driven process under the Income-tax Act, 2025, combining automation with risk-based scrutiny.
Strict timelines govern each stage, from filing and processing to scrutiny and reassessment, improving predictability for taxpayers.
The shift to a faceless, digital assessment system enhances transparency while reducing direct interaction with tax authorities.
Reassessment powers are targeted and time-bound, with safeguards such as prior notice, approval, and defined thresholds, particularly relevant for businesses, NRIs, and foreign entities.
A dual legal framework (old and new tax laws) may apply simultaneously, requiring careful compliance and documentation planning for multi-year exposures.
FAQ on the Tax Assessment Process in India
1. What is the tax assessment process?
The tax assessment process is a systematic evaluation of a taxpayer’s income tax return, which begins with the filing of the return and may extend to scrutiny or reassessment based on specific conditions.
2. What are the typical deadlines for filing income tax returns?
Individuals: July 31
Companies / audited cases: October 31
3. What is the role of the Central Processing Center in automated tax assessment?
The Central Processing Center performs automated processing of filed returns, checking for arithmetic accuracy, tax credits, and consistency with available data. This process typically concludes within 9 months from the end of the tax year for most taxpayers.
4. How are returns selected for scrutiny?
Returns are selected for scrutiny based on risk parameters, which may include high-value transactions, significant deductions, inconsistencies in reporting, or unusual financial patterns.
5. What is the time frame for issuing a scrutiny notice?
The scrutiny notice must be issued within three months from the end of the filing year. If not, the return is generally considered accepted, subject to reopening provisions.
6. How long does the scrutiny process take?
The scrutiny process is completed within 12 months, allowing taxpayers to respond to any queries before a final assessment order is passed.
7. What triggers a reassessment of an already completed assessment?
Reassessment may be initiated if the tax authorities receive credible information indicating that income has escaped assessment. This can occur up to three years after the relevant tax year, or up to five years for cases with notable undisclosed income.
8. What are the key timelines related to tax assessments?
Stage
Timeline
ITR filing
July–October
Processing
Within 9 months
Scrutiny notice
Within 3 months
Scrutiny completion
Within 12 months
Reassessment window
Up to 3-5 years
Rectification
Up to 4 years
9. What is the faceless and digital assessment model?
The faceless assessment model eliminates direct interactions between taxpayers and assessing officers by handling everything online through a centralized system, ensuring a collaborative approach to tax assessments.
10. How does data and technology play a role in the tax assessment process?
Data from sources like TDS filings and Annual Information Statements is used to verify taxpayer disclosures, enabling risk-based selection of cases and reliance on updated information during assessments.
11. What should businesses and NRIs be aware of regarding reassessment?
For businesses and NRIs, reassessment is relevant when income has not been reported or has been underreported, especially concerning cross-border transactions and transfer pricing.
12. What is the process for initiating reassessment?
Identification of credible information suggesting income has escaped assessment.
Issuance of a show-cause notice to the taxpayer.
Consideration of the taxpayer’s response.
Passing a reasoned order with senior authority approval.
Issuance of a formal reassessment notice.
13. Are there any situations where pre-notice procedures can be skipped?
In specific high-risk scenarios, the assessing officer may bypass the show-cause stage but must still obtain senior-level approval.
14. What are the implications of new versus old tax laws?
The new reassessment provisions under the Income-tax Act, 2025, apply from the tax year 2026-27 onwards, while earlier years continue under the old law (Income-tax Act, 1961). This creates a dual framework for compliance.
15. How do penalties differ between the old and new tax laws?
Penalties for tax years prior to April 1, 2026, are governed under the Income-tax Act, 1961, while penalties for the Tax Year 2026-27 onwards are governed by the new Act, affecting risk assessments and strategies.
Overview of Section 148 of the Income Tax Act 1961
Section 148 of the Income Tax Act 1961 empowers the Assessing Officer to issue a notice to a taxpayer whose income has not been accurately assessed. This provision is activated if the officer believes that the taxpayer has either not disclosed their complete income or has provided inaccurate information.
What is a Section 148 Notice?
A Section 148 Notice is issued by the income tax officer to reassess a taxpayer’s income tax return (ITR) when there is disagreement with the original assessment, leading the officer to suspect that some income has been overlooked.
Introduction of Section 148A
The Finance Act 2022 introduced Section 148A, necessitating an inquiry by the Assessing Officer before issuing a reassessment notice. This section mandates that the taxpayer be given an opportunity to explain their position before a Section 148 notice is served.
The officer must issue a notice under Section 148A(b) detailing the adverse information suggesting that income escaped assessment. Taxpayers can provide their own evidence in response.
Following the 2021 budget, if the officer has information indicating undisclosed income for a specific assessment year, they must allow the taxpayer to explain before proceeding with a notice. Taxpayers are entitled to be heard.
A minimum notice period of seven days and a maximum of thirty days must be provided for the taxpayer’s explanation.
After reviewing the taxpayer’s response, the income tax officer will determine whether to issue a notice for reassessment. If they choose to proceed, the officer must provide the taxpayer with a copy of the order and a Section 148 notice.
Time Limits for Issuing a Notice Under Section 148
A notice under Section 148 cannot be issued beyond:
Normal time limit: 3 years from the end of the relevant assessment year.
Specified time limit: If three years have passed but not more than ten years since the end of the relevant assessment year, and there is evidence of tax evasion exceeding Rs 50 lakh.
Requirements for Issuance of Notice
To issue a notice, the following conditions must be satisfied for the relevant assessment year:
The taxpayer must have filed their returns under Section 139.
The taxpayer must not have filed their returns after receiving a notice under Section 142 or Section 148(1).
The taxpayer must have furnished complete and accurate information required for assessing that year.
Responding to a Notice Under Section 148
It’s crucial to take a Section 148 notice seriously. Follow these guidelines if you receive one:
Examine the notice for the reasons that prompted the Assessing Officer to issue it. If the reasons are not included, request them from the officer.
Respond within the specified timeframe—typically 30 days—by either filing a return or providing a written explanation along with evidence.
If the listed ‘reasons to believe’ are acceptable, submit the return as soon as possible. If you’ve already filed, send a copy to the assessing officer.
Ensure due diligence when filing your return in response to the notice. Missing income or expenses can lead to penalties.
If you believe the notice is invalid, challenge it before the Assessing Officer or higher authorities. If successful, your assessment proceedings may be halted.
If your challenge is unsuccessful, the Assessing Officer may continue with the reassessment.
Consequences of Not Responding to Section 148
Failure to respond to a Section 148 notice gives the Assessing Officer the authority to carry out the assessment using available information. They can estimate your income and expenses based on their judgment. If you disagree with their assessment, you may file an appeal with the Commissioner of Income Tax (Appeals) or the Income Tax Appellate Tribunal.
Who Can Issue a Notice Under Section 148?
According to Section 151(1) of the Income Tax Act, 1961, the following rules apply for issuing a notice:
No notice will be issued by an Assessing Officer under Section 148 after three years from the end of the relevant assessment year, unless certain high-level officials are satisfied that it is warranted based on the Assessing Officer’s recorded reasons.
For officers below the rank of a Joint Commissioner, no notice can be issued unless a Joint Commissioner agrees that it’s justified based on recorded reasons.
Duties and Rights of the Assessee after Receiving a Notice Under Section 148
The assessee must file tax returns for any “Income Escaping” for the relevant assessment year.
The assessee has the right to request a copy of the notice, including the reasons for its issuance.
If dissatisfied with the reasons, the assessee can challenge the validity of the notice.
It’s imperative to provide valid reasons when questioning the notice’s legality.
If the Assessing Officer dismisses the claims, the assessee can request further clarification on the dismissal.
The assessee may file a writ petition with the appropriate High Court, even before the assessment is finalized.
This option remains available even after the assessment is concluded and is under appeal.
Reopening Income Tax Assessment Cases
The Union Budget of 2021 reduced the timeframe for reopening income tax assessments from six years to three, although cases of substantial tax evasion may be revisited for up to ten years if undisclosed income exceeds Rs. 50 lakh.
Considerations When Responding to a Notice Under Section 148
Understand the reasons that led to the notice. If not included, ask for them.
If the reasons are valid, file tax returns promptly to avoid complications. If already filed, provide a copy to the officer.
Be meticulous and accurate when filing returns to avoid legal repercussions.
Familiarize yourself with Section 148’s provisions to navigate the process smoothly. Ensure to get assessed annually to remain compliant.
Ultimately, Section 148 of the Income Tax Act 1961 is crucial for the accurate assessment of taxpayers. It’s essential to take any notice received seriously and respond promptly with complete and correct information regarding your income. Not responding in time can lead to assessments made at the officer’s discretion, which may not be favorable. Compliance with the requirements will facilitate a fair assessment of your tax obligations.
Common Questions
Is it possible to issue a notice under Section 148 for an assessment year after ten years?
No, a notice under Section 148 can only be issued within three or ten years, depending on the amount of escaped income, from the end of the relevant assessment year.
Can a notice under Section 148 be issued if the taxpayer has already submitted a return?
Yes, a notice under Section 148 can be issued even if the taxpayer has filed an ITR.
What happens if the Assessing Officer conducts a best judgment assessment?
In such a case, the officer will estimate your income and expenses based on available information. If you disagree, you can appeal to the Commissioner of Income Tax (Appeals) or the Income Tax Appellate Tribunal. It is advisable to respond to a Section 148 notice with all necessary details to avoid complications.
What is the penalty under Section 148?
Section 148 does not impose specific penalties, but failure to respond may lead to penalties under Section 271(1)(b) for concealing income or Section 271(1)(c) for providing inaccurate particulars.
What is the time limit to issue a notice under section 148?
A notice can be issued within three years for undisclosed income below Rs. 50 lakh, or within ten years if the undisclosed income exceeds that amount.
Every taxpayer has to furnish the details of his income to the Income-tax Department. These details are to be furnished by filing up his return of income. Once the return of income is filed up by the taxpayer, the next step is the processing of the return of income by the Income Tax Department. The Income Tax Department examines the return of income for its correctness. The process of examining the return of income by the Income- Tax department is called as “Assessment”. Assessment also includes re-assessment and best judgment assessment under section 144.
Under the Income-tax Law, there are four major assessments given below:
Assessment under section 143(1), i.e., Summary assessment without calling the assessee.
Assessment under section 143(3), i.e., Scrutiny assessment.
Assessment under section 144, i.e., Best judgment assessment.
Assessment under section 147, i.e., Income escaping assessment.
Assessment under section 143(1)
This is a preliminary assessment and is referred to as summary assessment without calling the assessee (i.e., taxpayer).
Scope of assessment under section 143(1)
Assessment under section 143(1) is like preliminary checking of the return of income. At this stage no detailed scrutiny of the return of income is carried out. At this stage, the total income or loss is computed after making the following adjustments (if any), namely:-
any arithmetical error in the return; or
an incorrect claim (*), if such incorrect claim is apparent from any information in the return;
disallowance of loss claimed, if return of the previous year for which set-off of loss is claimed was furnished beyond the due date specified under section 139(1); or
disallowance of expenditure indicated in the audit report but not taken into account in computing the total income in the return; or
disallowance of deduction claimed u/s 10AA, 80IA to 80-IE, if the return is furnished beyond the due date specified under section 139(1); or
addition of income appearing in Form 26AS or Form 16A or Form 16 which has not been included in computing the total income in the return. However, no such adjustment shall be made in relation to a return furnished for the assessment year 2018-19 and thereafter.
However, no such adjustment shall be made unless an intimation is given to the assessee of such adjustment either in writing or in electronic mode. Further, the response received from the assessee, if any, shall be considered before making any adjustment, and in case where no response is received within 30 days of the issue of such intimation, such adjustments shall be made.
For the above purpose “an incorrect claim apparent from any information in the return” means a claim on the basis of an entry in the return:-
of an item which is inconsistent with another entry of the same or some other item in such return;
in respect of which the information is required to be furnished under the Act to substantiate such entry and has not been so furnished; or
in respect of a deduction, where such deduction exceeds specified statutory limit which may have been expressed as monetary amount or percentage or ratio or fraction;
Procedure of assessment under section 143(1)
After correcting arithmetical error or incorrect claim (if any) as discussed above, the tax and interest and fee*, if any, shall be computed on the basis of the adjusted income.
Any sum payable by or refund due to the taxpayer shall be intimated to him.
An intimation shall be prepared or generated and sent to the taxpayer specifying the sum determined to be payable by, or the amount of refund due to the taxpayer.
An intimation shall also be sent to the taxpayer in a case where the loss declared in the return of income by the taxpayer is adjusted but no tax or interest is payable by or no refund is due to him.
The acknowledgement of the return of income shall be deemed to be the intimation in a case where no sum is payable by or refundable to the assessee or where no adjustment is made to the returned income.
*As per section 234F, a fee shall be levied where the return of income is not filed within the due dates prescribed under section 139(1). Fee for default in furnishing return of income shall be Rs. 5,000 if return has been furnished after the due date prescribed under section 139(1). However, it shall be Rs. 1,000 if the total income of an assessee does not exceed Rs. 5 lakh.
Time-limit
Assessment under section 143(1) can be made within a period of 9 months from the endof the financial year in which the return of income is filed.
Assessment under section 143(3)
This is a detailed assessment and is referred to as scrutiny assessment. At this stage a detailed scrutiny of the return of income will be carried out is to confirm the correctness and genuineness of various claims, deductions, etc., made by the taxpayer in the return of income.
Scope of assessment under section 143(3)
The objective of scrutiny assessment is to confirm that the taxpayer has not understated the income or has not computed excessive loss or has not underpaid the tax in any manner.
To confirm the above, the Assessing Officer carries out a detailed scrutiny of the returnof income and will satisfy himself regarding various claims, deductions, etc., made by the taxpayer in the return of income.
Procedure of assessment under section 143(3)
If the Assessing Officer considers it necessary or expedient to ensure that the taxpayer has not understated the income or has not computed excessive loss or has not underpaid the tax in any manner, then he will serve on the taxpayer a notice requiring him to attend his office or to produce or cause to be
To carry out assessment under section 143(3), the Assessing Officer shall serve such notice in accordance with provisions of section 143(2).
Notice under section 143(2) should be served within a period of six months from the end of the financial year in which the return is filed.
The taxpayer or his representative (as the case may be) will appear before the Assessing Officer and will place his arguments, supporting evidences, etc., on various matters/issues as required by the Assessing Officer.
After hearing/verifying such evidence and taking into account such particulars as the taxpayer may produce and such other evidence as the Assessing Officer may require on specified points and after taking into account all relevant materials which he has gathered, the Assessing Officer shall, by an order in writing, make an assessment of the total income or loss of the taxpayer and determine the sum payable by him or refund of any amount due to him on the basis of such assessment.
Faceless Assessment [Section 144B]
Faceless assessment means the assessment proceedings conducted electronically in “e- proceeding” facility through assessee’s registered account in the designated portal. Designated portal means the web portal designated as such by the Principal Chief Commissioner or Principal Director General, in charge of the National Faceless Assessment Centre.
The CBDT had issued the instructions, guidelines and notice formats for conducting scrutiny assessments electronically.
Scope of faceless assessment
The provision provides that the assessment, re-assessment or recomputation under Section 143(3), Section 144, or Section 147 shall be made in a faceless manner in respect of the specified territorial areas, persons, income or class of cases.
Authorities to conduct the faceless assessment
For the purpose of faceless assessment, the CBDT is empowered to set up the following centres and units by specifying their respective jurisdiction:
A. National Faceless Assessment Centre (NFAC);
b. Assessment Units (AU);
c. Verification Units (VU);
d. Technical Units (TU); and
e. Review Units (RU).
National Faceless Assessment Centre
The purpose of this centre is to facilitate the conduct of faceless assessment proceedings in a centralized manner.
Assessment Units
It shall perform the function of making the assessment, which includes identification of points or issuing material for the determination of any liability (including refund) under the Act, seeking information or clarification on points or issues so identified, analysis of the material furnished by the assessee or any other person, and such other functions as may be required for making the faceless assessment.
The term “assessment unit”, wherever used in this provision, shall refer to an Assessing Officer having powers so assigned by the Board
Verification Units
It shall perform the function of verification, which includes enquiry, cross verification, examination of books of accounts, examination of witnesses and recording of statements, and such other functions as may be required for the purposes of verification.
The function of the verification unit under this section may also be performed by a verification unit located in any other faceless centre set up under the provisions of this Act or under any scheme notified under the provisions of this Act. The request for verification may also be assigned by the NFAC to such a verification unit.
Technical Units
It shall perform the function of providing technical assistance, which includes any assistance or advice on legal, accounting, forensic, information technology, valuation, transfer pricing, data analytics, management, any other technical matter or an agreement entered into under Section 90 or Section 90A which may be required in a particular case or a class of cases, under this section.
Review units
It shall perform the function of the review of the Income Determination Proposal, which includes checking the following:
Whether the relevant and material evidence has been brought on record;
Whether the relevant points of fact and law have been duly incorporated in the proposal;
Whether the issues requiring addition or disallowance have been incorporated in the proposal;
Arithmetical correctness of modifications proposed, if any; and
Any other functions required for the purposes of review.
The term ‘review unit’, wherever used in this provision, shall refer to an Assessing Officer having powers so assigned by the Board.
Time-limit
As per Section 153, the time limit for making assessment under section 143(3) is:-
Within 21 months from the end of the assessment year in which the income was first assessable. [For assessment year 2017-18 or before]
18 months from the end of the assessment year in which the income was first assessable. [for assessment year 2018-19]
12 months from the end of the assessment year in which the income was first assessable [Applicable for assessment year 2019-20]
18 months from the end of the assessment year in which the income was first assessable [Applicable for assessment year 2020-21]
Within 9 months from end of the assessment year in which income was first assessable. [Applicable for assessment year 2021-22 and onwards]
Note:
If reference is made to TPO, the period available for assessment shall be extendedby 12 months.
If return has been furnished under section 139(8A), the order of assessment shall be passed within 9 months from the end of financial year in which such return was furnished.
Assessment under section 144
This is an assessment carried out as per the best judgment of the Assessing Officer on the basis of all relevant material he has gathered. This assessment is carried out in cases where the taxpayer fails to comply with the requirements specified in section 144.
Scope of assessment under section 144
As per section 144, the Assessing Officer is under an obligation to make an assessment to the best of his judgment in the following cases:-
If the taxpayer fails to file the return required within the due date prescribed under section 139(1) or a belated return under section 139(4) or a revised return under section 139(5), or an updated return under section 139(8A).
If the taxpayer fails to comply with all the terms of a notice issued under section 142(1).
Note: The Assessing Officer can issue notice under section 142(1) asking the taxpayer to file the return of income if he has not filed the return of income or to produce or cause to be produced such accounts or documents as he may require and to furnish in writing and verified in the prescribed manner information in such form and on such points or matters (including a statement of all assets and liabilities of the taxpayer, whether included in the accounts or not) as he may require.
If the taxpayer fails to comply with the directions issued under section 142(2A).
Note : Section 142(2A) deals with special audit. As per section 142(2A), if the conditions justifying special audit as given in section 142(2A) are satisfied, then the Assessing Officer will direct the taxpayer to get his accounts audited from a chartered accountant nominated by the principal chief commissioner or Chief Commissioner or Principal Commissioner or Commissioner and to furnish a report of such audit in the prescribed form.
If after filing the return of income the taxpayer fails to comply with all the terms of a notice issued under section 143(2), i.e., notice of scrutiny assessment.
If the assessing officer is not satisfied about the correctness or the completenessof the accounts of the taxpayer or if no method of accounting has been regularly employed by the taxpayer.
From the above criteria, it can be observed that best judgment assessment is resorted to in cases where the return of income is not filed by the taxpayer or if there is no cooperation by the taxpayer in terms of furnishing information / explanation related to his tax assessment or if books of accounts of taxpayer are not reliable or are incomplete.
Procedure of assessment under section 144
If the conditions given above calling for best judgment are satisfied, then the Assessing Officer will serve a notice on the taxpayer to show cause why the assessment should not be completed to the best of his judgment.
No notice as given above is required in a case where a notice under section 142(1) has been issued prior to the making of an assessment under section 144.
If the Assessing Officer is not satisfied by the arguments of the taxpayer and he has reason to believe that the case demands a best judgment, then he will proceed to carry out the assessment to the best of his knowledge.
If the criteria of the best judgment assessment are satisfied, then after taking into account all relevant materials which the Assessing Officer has gathered, and after giving the taxpayer an opportunity of being heard, the Assessing Officer shall make the assessment of the total income or loss to the best of his knowledge/judgment and determine the sum payable by the taxpayer on the basisof such assessment.
Time-Limit
As per Section 153, the time limit for making assessment under section 144 is:-
Within 21 months from the end of the assessment year in which the income wasfirst assessable. [For assessment year 2017-18 or before]
18 months from the end of the assessment year in which the income was first assessable. [for assessment year 2018-19]
Within 12 months from end of the assessment year in which income was first assessable. [Applicable for assessment year 2019-20]
Within 18 months from end of the assessment year in which income was first assessable [Applicable for assessment year 2020-21]
Within 9 months from end of the assessment year in which income was first assessable. [Applicable for assessment year 2021-22 and onwards]
Notes:
If reference is made to TPO, the period available for assessment shall be extended by 12 months.
If return has been furnished under section 139(8A), the order of assessment shall be passed within 9 months from the end of financial year in which such return was furnished.
Assessment under section 147
The Finance Act, 2021 has substituted the existing sections 147, 148, 149 and 151 and also inserted a new section 148A making a complete change in the assessment proceedings related to Income escaping assessment and search-related cases. The new provisions related to re-assessment are as follow:
If any income of an assessee has escaped assessment for any assessment year, the Assessing Officer may, subject to the new provisions of sections 148 to 153, assess or reassess such income and also any other income which has escaped assessment and which comes to his notice subsequently in the course of the proceedings, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for such assessment year
It is imperative to note that once assessment or reassessment or re-computation has started, the Assessing Officer is empowered to assess or reassess the income which has escaped assessment and which comes to his notice subsequently in the course of the proceeding under this procedure notwithstanding that the procedure prescribed in new section 148A was not followed before issuing such notice for such income
The Assessing Officer is required to make an assessment or re-assessment as per the following procedures:
Issue of Notice
The Assessing Officer shall serve on the assessee a notice under Section 148 along with a copy of the order passed under clause (d) of section 148A, requiring him to furnish within return of his income or the income of any other person in respect of which he is assessable under this Act during the previous year corresponding to the relevant assessment year.
The notice shall be issued in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed; and the provisions of Income-tax Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139.
Circumstances in which notice can be issued
Notice is required to be issued only when information with the Assessing officer suggests that the income chargeable to tax has escaped assessment. Prior approval of specified authority is also required to be obtained before issuing such notice by the Assessing Officer.
However, no such prior approval is required if the Assessing Officer has passed an order under Section 148A(d) with prior approval of the specified authority stating that the income is escaping assessment.
When it shall be deemed that Income has escaped Assessment?
In cases other than Search, Survey or Requisition
a) The information suggesting that the income chargeable to tax has escaped assessment means any information flagged in the case of the assessee for the relevant assessment year as per the ‘Risk Management Strategy’ formulated by the CBDT from time to time;b
b) Any audit objection to the effect that the assessment in the case of the assessee for the relevant assessment year has not been made in accordance with the provisions of the Income-tax Act;
c) Any information received under an agreement referred to in section 90 or section 90A;
d) Any information made available to the Assessing Officer under the Scheme notified under section 135A; or
e) Any information which requires action in consequence of the order of a Tribunal or a Court.
In search, survey or requisition cases
In search, survey or requisition cases initiated or made or conducted, on or after 1st April 2021, it shall be deemed that the Assessing Officer has information which suggests that the income chargeable to tax has escaped assessment in the case of the assessee for the 3 assessment years immediately preceding the assessment year relevant to the previous year in the following cases:
a) A search is initiated under Section 132 or books of account, other documents or any assets are requisitioned under Section 132A, on or after the 1st day of April 2021, in the case of the assessee;
b) A Survey is conducted under section 133A in the case of the assessee;
c) The Assessing Officer is satisfied, with the prior approval of P CIT or CIT, that any money, bullion, jewellery or other valuable article or thing, seized or requisitioned in case of any other person on or after the 1st day of April 2021, belongs to the assessee; or
d) The Assessing Officer is satisfied, with the prior approval of P CIT or CIT, that any books of account or documents, seized or requisitioned in case of any other person on or after the 1st day of April 2021, pertains or pertain to, or any information contained therein, relate to, the assessee.
Procedure before Issuance of Notice
The Assessing Officer shall be required to follow the below procedure as laid down in Section 148A before issuing a notice under new Section 148 in cases other than search, survey or requisition.
Conducting Inquiry
The Assessing Officer shall conduct an enquiry, if required, with the prior approval of specified authority, concerning the information which suggests that income chargeable to tax has escaped assessment.
Granting an opportunity of being heard
The Assessing Officer shall provide an opportunity of being heard to the assessee, by serving upon him a notice to show cause within such time, as may be specified in the notice, being not less than 7 days but not exceeding 30 days from the date on which such notice is issued, or such time, as may be extended by him based on an application in this behalf, as to why a notice under new Section 148 should not be issued based on information which suggests that income chargeable to tax has escaped assessment in his case for the relevant assessment year and results of an enquiry conducted, if any.
Consider Reply of Assessee
The Assessing Officer shall consider the reply furnished by the assessee furnished, if any, in response to the show-cause notice issued by AO.
Passing an Order
The Assessing Officer shall decide, based on material available on record including reply of the assessee, whether or not it is a fit case to issue a notice under new Section 148, by passing an order, with the prior approval of specified authority, within 1 month from the end of the month in which the reply of the assessee is received by him, or where no such reply is furnished, within 1 month from the end of the month in which time or extended time allowed to furnish a reply expires.
Note:
The above provision shall not apply if the case where:
a) A search is initiated under Section 132 or books of account, other documents or any assets are requisitioned under Section 132A, on or after the 1st day of April 2021, in the case of the assessee;
b) A Survey is conducted under section 133A in the case of the assessee;
c) The Assessing Officer is satisfied, with the prior approval of PCIT or CIT, that any money, bullion, jewellery or other valuable article or thing, seized or requisitioned in case of any other person on or after the 1st day of April 2021, belongs to the assessee;
d) The Assessing Officer is satisfied, with the prior approval of PCIT or CIT, that any books of account or documents, seized or requisitioned in case of any other person on or after the 1st day of April 2021, pertains or pertain to, or any information contained therein, relate to, the assessee; or
e) The Assessing Officer has received any information under the scheme notified under section 153A pertaining to income chargeable to tax escaping assessment for any assessment year in the case of the assessee.
Approval of higher authorities to be obtained in Search, Survey and Requisition Cases
The Finance Act, 2022 has inserted a new Section 148B, w.e.f., Assessment Year 2022-23, to provide that no order of assessment or reassessment or recomputation under the Act shall be passed by an Assessing Officer below the rank of Joint Commissioner, in respect of an assessment year to which clause (i) or clause (ii) or clause (iii) or clause (iv) of Explanation 2 to section 148 apply except with the prior approval of the Additional Commissioner or Additional Director or Joint Commissioner or Joint Director.
The above mentioned four clauses of Explanation 2 to section 148 provide cases of deemed information. If situations, circumstances, or actions as described in these 4 clauses exist, then it will be a case of deemed information, and the AO can acquire jurisdiction to issue a notice under Section 148.
Time limit for Issuance of Notice
Time limit for issuance of notice under section 148 of the Income-tax act:
Particulars
Time Limit
In general
No notice shall be issued if 3 years have elapsed from the end of the relevantassessment year.
Where the Assessing Officer has in his possession books of account or other documents or evidence which reveals that the income chargeable to tax, represented in the form of: An Asset;Expenditure in respect of a transaction or in relation to an event or occasion; orAn entry or entries in the books of account. which has escaped assessment amounts to or is likely to amount to Rs. 50 lakhs or more.
Notice can be issued beyond a period of 3 years but not beyond the period of 10 years from the end of the relevant assessmentyear.
Notice under section 148 of the Income-tax Act cannot be issued at any time in a case for the relevant assessment year beginning on or before 1st day of April 2021, if a notice under sections 148, 153A, 153C couldn’t have been issued at that time on account of being beyond the time limit specified under the provisions section 149(1)(b) or section 153A or section 153C, as it stood immediately before the amendment of the Finance Act, 2021.
Further, to compute the period of limitation for issuance of notice under new section 148, the time or extended time allowed to the assessee in providing an opportunity of being heard or period during which such proceedings before issuance of notice under section 148 are stayed by an order or injunction of any court, shall be excluded. If after excludingsuch period, time available to the Assessing Officer for passing order, about fitness of a case for issue of 148 notice, is less than 7 days, the remaining time shall be extended to 7 days.
Notice can be issued if incomes escaping assessment spread over more than 1 year
A notice under Section 148 can be issued after 3 years but before 10 years if escaped income of Rs. 50 lakhs or more is represented in the form of an asset, expenditure, or entry.
The Finance Act, 2022 has introduced sub-section (1A) to section 149, w.e.f., Assessment Year 2022-23, to provide that if such escaped income, represented in the form of asset or expenditure in respect of transaction, event or occasion, is spread over more than 1 year and the total escaped income in all these years is Rs. 50 lakhs or more, then AO gets jurisdiction to issue a notice under Section 148 for all those years.
Faceless assessment of income escaping assessment [Section 151A]
With effect from 01-11-2020, the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 has inserted a Section 151A to empower the Central government to make a scheme to carry out the following functions in a faceless manner:
a) Assessment, reassessment or recomputation under Section 147 (‘re-assessment’);
b) Issuance of notice under section 148 for conducting re-assessment; or
c) Sanction under section 151 for the issue of notice under section 148 for conducting re-assessment.
Such a scheme is to be formed to impart greater efficiency, transparency and accountability by:
a) Eliminating the interface between the Income-tax authority and the assessee or any other person to the extent technologically feasible;
b) Optimising utilisation of the resources through economies of scale and functional specialisation; and
c) Introducing a team-based assessment, reassessment, re-computation or issuance or sanction of notice with dynamic jurisdiction.
W.e.f., Assessment Year 2021-22, the Finance Act 2021 amended the Section 151 to provide that conducting of enquiries or issuing show-cause notice or passing an order under new Section 148A (before issuance of notice under new Section 148) in a faceless manner shall be notified subsequently.
