Section 148 of Income Tax Act Notices Under Assessment or Reassessment

Section 147 of the Income Tax Act, 1961, grants the Income Tax Department the authority to reassess an individual’s previously filed income tax returns. This can be initiated through a notice under section 148 for Income Escaping Assessment, based on specific criteria.

Unveiling Section 148

Section 148 of the Income Tax Act 1961 empowers the Assessing Officer to issue a notice to a taxpayer whose income has not been correctly assessed. This essentially means that if there is suspicion regarding undisclosed or misrepresented income, proceedings can be initiated under this section.

The Section 148 Notice serves as a means for the income tax officer to reassess the taxpayer’s income tax return (ITR) when there is a dispute concerning the taxpayer’s assessment of income. It’s important to note that the Finance Act 2022 introduced Section 148A, which mandates an inquiry by the assessing officer and provides the taxpayer with an opportunity to present their case before a notice is issued under Section 148.

The assessing officer must issue a notice to the taxpayer under Section 148A(b), providing information and adverse material suggesting that income has escaped assessment, allowing the taxpayer to respond with their own material and evidence.

In addition, the assessing officer must obtain the specified authority’s approval before conducting any inquiries, providing opportunities to the taxpayer, or making any orders.

Time Limit for Section 148 Notice

A notice under Section 148 cannot be issued for the relevant assessment year after:

1. a) The normal time limitof 3 years from the end of the relevant assessment year.
2. b) The specified time limit, which allows for issuance of the notice within 10 years from the end of the relevant assessment year, provided there is evidence of at least Rs 50 lakh worth of undisclosed income.

The Assessing Officer can issue a notice only if certain conditions for the relevant assessment year are met:

• 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.

Responding to Section 148 Notices

Receiving a notice under Section 148 requires careful attention and action. Here are the key points to consider:

• Verify the recorded reasons by the assessing officer for issuing the notice.
• Respond within the specified timeframe, usually 30 days, with a return or a written reply to the assessing officer.
• Ensure that all income and expenses are accurately reported if filing a return under Section 148.
• Challenge the validity of the notice if necessary, and take appropriate steps based on the outcome.

Consequences of Non-response

Failure to respond to a notice under Section 148 allows the Assessing Officer to assess the income based on available information. Disagreements with the assessment can be appealed at higher tax authorities.

Who Can Issue a Notice under Section 148

The provisions of Section 151(1) lay out the conditions for issuing a notice under section 148.

Assessee’s Duties and Rights After Receiving Section 148 Notice

The assessee has several duties and rights upon receiving a notice under Section 148, including the obligation to file tax returns for any identified “Income Escaping,” and the right to challenge the validity of the notice if deemed necessary.

Reopening of Income Tax Assessment Cases

Changes in the Union Budget 2021 have decreased the time limit for reopening income tax assessment cases and introduced specific conditions for doing so.

Considerations When Responding to a Section 148 Notice

When responding to a notice under Section 148, it is crucial to understand the reasons behind the notice and the related implications.

By considering and acting upon these points, individuals can effectively navigate the procedures associated with a notice under Section 148 and ensure compliance with income tax regulations.

 

Key takeaway from the judgement of Hon’ble Supreme Court in regard to notice issued under Section 148
{HON’BLE SUPREME COURT OF INDIA}
Appellant: Union Of India
V/s
Respondent: Ashish Agarwal
Facts of the case:
The revenue has preferred the appeal against the order of Allahabad High Court and various other High Courts where the Hon’ble High Court quashed the reassessment notices issued by the Revenue under section 148 as per old provisions of the section. (Not considering provisions of Finance Act, 2021)
The Revenue issued approximately 90,000 reassessment notices to the respective assessee under the erstwhile section 148.
The respective High Courts have held that all the respective assessment notices issued under the erstwhile Sections 148 of the Act are bad in law as they were issued on or after 1st April, 2021. Consequently respective High Courts had set aside all the reassessment notices issued by the revenue.
Also, as per amended law, for issuing notice under section 148, AO has to follow the procedure of Section 148A which was not followed while issuing notice. It was giving rise to various litigations due to which the reopening was challenged on grounds of not following section 148A procedure.

Observation of the case:
As per Finance Act, 2021, for making assessment under section 147;
i. AO has to serve notice u/s 148 only after following the procedure given under section 148A.
ii. Notice under section 148 shall only be issued only where AO has information and material upon which he relied that income has been escaped by the assessee.
iii. Prior approval of specified authority is required for issuing notice.
As per Section 148A, before issuing a notice u/s 148, he shall provide an opportunity of being heard, with the prior approval of specified authority, by serving him a show cause notice.
On the basis of material available on record, including reply of the assessee, AO shall decide whether it is a fit case to issue notice u/s 148.
Decision (Arrangement) made by Hon’ble Supreme Court
(Date of Order: 4th May, 2022)
The reassessment notices issued u/s 148 from 1st April, 2021 to 4th May, 2022 are deemed to be show cause notices under clause (b) of Section 148A of the Act. Therefor all requirement of amended law shall be deemed to have been complied with.

The AO shall provide within 30 days from the date of order i.e. by 2nd June, 2022 the information and materials upon which he relied so that the assessee can reply on the notices within two weeks thereafter.
The assessee has two weeks to reply as why a notice u/s 148 should not be issued. The time period of two weeks shall be counted from the date of last communication of information and material by the AO to the assessee.
AO is required to pass order under clause (d) of section 148A. This order is required to be passed within one month from the end of the month in which reply is received by them from the assessee. In case no reply is received from the assessee, order is required to be passed within one month from the end of the month in which time or extended time allowed to furnish a reply expires.
The present order made by Hon’ble Supreme Court of India shall be applicable PAN India.