About Assessment under section 147
The Finance Act of 2021 has brought about significant changes in the assessment proceedings related to Income escaping assessment and search-related cases. The existing sections 147, 148, 149, and 151 have been replaced, and a new section 148A has been inserted. The new provisions related to re-assessment state that if any income of an assessee has escaped assessment for any assessment year, the Assessing Officer may assess or reassess such income and any other income that comes to his notice subsequently. The officer can also recompute the loss or depreciation allowance or any other allowance for that assessment year.
It is essential to note that once the assessment, reassessment, or re-computation has started, the Assessing Officer has the power to assess or reassess the income that has escaped assessment and which comes to his notice subsequently during the proceedings, regardless of whether the procedure prescribed in new section 148A was followed before issuing such notice for the income.
These changes provide more power to the Assessing Officer in carrying out assessments and reassessments of income that has escaped assessment. It is important for taxpayers to be aware of these changes and to ensure that they comply with all relevant tax laws to avoid any potential issues. The new provisions ensure that the authorities can carry out their duties effectively and efficiently, which is essential for maintaining a fair and just taxation system.
The process for conducting an assessment or re-assessment by the Assessing Officer is outlined below:
1. Issue of Notice Under Section 148
The Assessing Officer is obligated to issue a notice under Section 148 to the assessee, along with a copy of the order passed under clause (d) of section 148A. The notice will require the assessee to furnish a return of income, or the income of any other person for whom they are assessable under the Income-tax Act, for the previous year that corresponds to the relevant assessment year. The notice will be issued in the prescribed form, and it should be verified in the prescribed manner, providing other particulars as required by the relevant provisions. The Income-tax Act shall apply to such a return as it would apply to a return required under Section 139. In other words, the notice serves as a formal request to the assessee to file an income tax return, which will be processed by the Assessing Officer in accordance with the procedures outlined in the Income-tax Act.
2. Circumstances in which notice under section 148 can be issued
The issuance of notice by the Assessing Officer is contingent upon the existence of information that suggests the chargeable income has escaped assessment. Before serving such a notice, the Assessing Officer must obtain the prior approval of the specified authority. Nevertheless, if the Assessing Officer has already passed an order under Section 148A(d) stating that the income is escaping assessment with prior approval of the specified authority, no prior approval is required for issuing the notice.
3. When it shall be deemed that Income has escaped Assessment?
In cases other than Search, Survey or Requisition
The expression “information suggesting that the income chargeable to tax has escaped assessment” has been defined to include various types of information as follows:
(a) Any information noted in the case of the assessee for the relevant assessment year under the ‘Risk Management Strategy’ formulated by the Central Board of Direct Taxes (CBDT) from time to time;
(b) Any objection raised during an audit that the assessment of the assessee for the relevant assessment year was not conducted in accordance with the provisions of the Income-tax Act;
(c) Any information received by the Assessing Officer under an agreement referred to in section 90 or section 90A;
(d) Any information provided to the Assessing Officer under the Scheme notified under section 135A; or
(e) Any information that necessitates action following the order of a Tribunal or a Court.
In search, survey or requisition cases
From 1st April 2021, in search, survey, or requisition cases, the Assessing Officer shall be deemed to have information suggesting that the income chargeable to tax has escaped assessment in the case of the assessee for the three assessment years immediately preceding the relevant assessment year in certain situations. These situations are as follows:
(a) if a search is initiated under Section 132 or if books of account, assets, or other documents are requisitioned under Section 132A on or after 1st April 2021 in the case of the assessee.
(b) if a survey is conducted under Section 133A in the case of the assessee.
(c) if the Assessing Officer is satisfied, with the prior approval of the Principal Commissioner of Income Tax (PCIT) or Commissioner of Income Tax (CIT), that any money, bullion, jewelry, or other valuable article or thing seized or requisitioned in the case of any other person on or after 1st April 2021 belongs to the assessee.
(d) if the Assessing Officer is satisfied, with the prior approval of the PCIT or CIT, that any books of account or documents seized or requisitioned in the case of any other person on or after 1st April 2021 pertain to, or contain information related to, the assessee.
4. Procedure before Issuance of Notice under section 148
In cases other than search, survey or requisition, the Assessing Officer shall be required to follow the procedure as laid down in Section 148A before issuing a notice under new Section 148.
- An enquiry may be conducted by the Assessing Officer (AO) with the prior approval of a specified authority if information suggests that income chargeable to tax has escaped assessment.
- The AO shall provide the assessee with an opportunity to be heard by serving a notice to show cause. This notice must specify a time period not less than 7 days but not exceeding 30 days from the date of issuance. The time period can be extended based on an application by the assessee.
- The notice to show cause is related to the new Section 148, which is based on information suggesting that income chargeable to tax has escaped assessment in the relevant assessment year and results of an enquiry conducted, if any.
- The AO shall consider the reply furnished by the assessee in response to the show-cause notice.
- Based on the material available on record, including the reply of the assessee, the AO will decide whether or not to issue a notice under new Section 148. The decision must be passed with the prior approval of a specified authority within one month from the end of the month in which the reply of the assessee is received by him, or within one month from the end of the month in which time or extended time allowed to furnish a reply expires if no reply is furnished.
5. Time limit for Issuance of Notice Under Section 148
The Time Limit for Issuing a Notice under Section 148 of the Income-tax Act:
- If 3 years have elapsed from the end of the relevant assessment year, no notice shall be issued.
- However, if the Assessing Officer has in their possession books of account or other documents or evidence that reveal that the income chargeable to tax has escaped assessment in the form of an asset, expenditure in relation to a transaction or event, or an entry in the books of account, and this amount is likely to be Rs. 50 lakhs or more, a notice may be issued. In such cases, the notice can be issued beyond the 3 year period, but not beyond 10 years from the end of the relevant assessment year.
6. Notice can be issued if incomes escaping assessment spread over more than 1 year
The Income-tax Act allows the issuance of a notice under Section 148 within a period of 3 to 10 years if the escaped income is of Rs. 50 lakhs or more and represented in the form of an asset, expenditure, or entry. The Finance Act, 2022 added a new sub-section (1A) to section 149, effective from Assessment Year 2022-23, which states that if the escaped income represented in the form of asset or expenditure in respect of a transaction, event or occasion is spread over multiple years and the total amount exceeds Rs. 50 lakhs, then the Assessing Officer has the jurisdiction to issue a notice under Section 148 for all those years.
We welcome you to contact us at mail@nbaoffice.com to discuss the notice and explore options for resolving it. Our team is available to provide guidance and support to help address your concerns.
