Section 148 of Income Tax Act: Notice Under Assessment or Reassessment
Under Section 147 of the Income Tax Act, 1961, the Income Tax Department holds the authority to reassess an individual's previously filed income tax returns. The Assessing Officer may select a return for reassessment based on specific predefined criteria by issuing a notice under Section 148 for Income Escaping Assessment.
What is 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 adequately assessed. This means that if the Assessing Officer suspects that a taxpayer has either not fully disclosed their income or has misrepresented it, they can initiate reassessment proceedings under this section.
A Section 148 Notice is issued by the Income Tax Officer when they believe that certain income has not been properly assessed in the taxpayer’s return. This notice allows the department to reassess the taxpayer’s income tax return (ITR).
With the introduction of Section 148A under the Finance Act 2022, the Assessing Officer is now required to conduct an inquiry and provide the taxpayer with an opportunity to explain their case before issuing a notice under Section 148.
As per Section 148A(b), the Assessing Officer must issue a notice to the taxpayer, detailing the adverse material that suggests income has escaped assessment. The taxpayer is then allowed to respond by submitting supporting documents and evidence.
The 2021 budget introduced Section 148A in the Income Tax Act, making it mandatory for the officer to provide the taxpayer an opportunity to explain if they have undisclosed income for a specific assessment year. The taxpayer also has the right to be heard by the officer.
The Assessing Officer is required to grant the taxpayer a minimum of seven days and a maximum of 30 days to submit their explanation.
After reviewing the taxpayer’s response, the Income Tax Officer will decide whether to proceed with reassessment. If the case is reopened, the officer must provide the taxpayer with a copy of the order along with the notice under Section 148.
A notice under Section 148 cannot usually be issued if more than three years have passed since the end of the relevant assessment year. However, if there is evidence of tax evasion of ₹50 lakh or more, a notice can still be issued within 10 years from the end of the relevant assessment year.
Before initiating inquiries, granting an opportunity to the taxpayer, or issuing any orders, the Income Tax Officer must first obtain approval from the specified authority.
The Assessing Officer must furnish the taxpayer with all the materials and information relied upon when issuing a notice under Section 148A or a Show Cause Notice.
There must be substantial evidence to suggest that income has escaped assessment. A mere assertion of "reason to believe" is not sufficient to justify issuing a notice under Section 148A.
The Assessing Officer is also required to consider the taxpayer’s response to the Show Cause Notice issued under Clause (b) of Section 148A.
If a taxpayer requests a personal hearing, cross-examination of a third party, or a third-party statement, the Assessing Officer must provide it, subject to approval from the specified authority.
Any Section 148 notice issued after the introduction of Section 148A—without following its prescribed procedure, including giving the taxpayer an opportunity to be heard—will be considered invalid and in violation of the Income Tax Act.
Courts have consistently ruled that the procedure outlined in Section 148A must be strictly followed in line with the legislative intent behind its introduction.
Once the taxpayer receives the order and the Section 148 notice, they must file their income tax return for the relevant assessment year within the specified time frame and undergo the reassessment process.
Time Limit to Issue a Notice Under Section 148
A notice under Section 148 cannot be issued for a particular assessment year after the following time limits:
a) Standard Time Limit: A notice must be issued within 3 years from the end of the relevant assessment year.
b) Extended Time Limit: If more than 3 years but less than 10 years have passed from the end of the relevant assessment year, a notice can only be issued if the Assessing Officer has evidence indicating that income of ₹50 lakhs or more has escaped taxation.
The Assessing Officer can issue a notice only if one of the following conditions is met for the relevant assessment year:
The taxpayer has filed their income tax return under Section 139.
The taxpayer failed to file a return even after receiving a notice under Section 142 or Section 148(1).
The taxpayer was required to furnish complete and accurate details for the proper assessment of that year but failed to do so.
Replying to a Notice Under Section 148
It is crucial not to ignore a notice under Section 148. If you receive one, follow these steps carefully:
Review the Notice: Check whether the notice includes the "reasons to believe" recorded by the Assessing Officer for issuing the notice. If the notice does not include the reasons, you can request a copy of the recorded reasons from the Assessing Officer.
Respond Within the Given Time Frame: The response must be submitted within 30 days. You can either:
File a revised income tax return in response to the notice, OR
Submit a written reply along with relevant documents and proofs supporting your case.
Filing a Return: If you agree with the reasons provided by the Assessing Officer, file the return as soon as possible. If a return has already been filed, send a copy to the Assessing Officer.
Ensure Accuracy: When filing a return in response to Section 148, carefully report all income and expenses. Any misreporting or omission could lead to penalties and further scrutiny.
Challenging the Notice: If you believe that the notice is invalid or that the reasons provided for reassessment are unjustified, you can challenge its validity before the Assessing Officer or higher authorities.
Legal Recourse:
If the court rules in your favor, the reassessment proceedings will be stopped.
If the decision does not favor you, the Assessing Officer may proceed with the reassessment.
What Happens if You Do Not Respond to a Notice Under Section 148?
Failing to respond to a Section 148 notice gives the Assessing Officer (AO) the authority to assess your income based on the available information. In such cases, the officer may estimate your income and conduct an assessment to the best of their judgment.
If you disagree with the assessment, you have the right to appeal before either the Commissioner of Income Tax (Appeals) or the Income Tax Appellate Tribunal.
Reasons for Receiving a Notice Under Section 148 of the Income Tax Act
A taxpayer may receive a notice under Section 148 of the Income Tax Act if the tax authorities suspect that certain income has escaped assessment. Some of the key reasons include:
Underreported Income: If the tax authorities believe that a taxpayer has not disclosed their full income in their tax return.
Omitted Financial Information: If certain financial details or sources of income were not reported in the filed return.
Data Discrepancies: If there are inconsistencies between the taxpayer’s reported income and data available with the tax department (such as bank statements, investment records, or third-party reports).
Reassessment of Past Returns: If an earlier assessment failed to capture the taxpayer’s complete taxable income, authorities may re-examine the case.
Third-Party Information: If the tax department receives inputs from external sources, such as banks, financial institutions, or informants, indicating unreported income.
Findings from Audits: If an audit of a taxpayer’s previous returns reveals errors, omissions, or potential tax liabilities.
Suspicion of Tax Evasion: If the authorities have reason to believe that the taxpayer is intentionally concealing income to evade taxes.
Changes in Tax Laws: If amendments to tax laws lead to a retrospective review of past returns to ensure compliance.
Failure to Respond to a Notice Under Section 148
If a taxpayer does not respond to a Section 148 notice, the Assessing Officer (AO) has the authority to proceed with the assessment based on available information. This means that the AO may estimate the taxpayer’s income and finalize the assessment using their best judgment.
If the taxpayer disagrees with the assessment, they have the right to file an appeal before the Commissioner of Income Tax (Appeals) within the prescribed time limit. Understanding these legal rights is crucial to ensuring that the taxpayer’s financial position is accurately represented and assessed fairly.
Who Can Issue a Notice Under Section 148?
As per Section 151(1) of the Income Tax Act, 1961, the authority to issue a notice under Section 148 is subject to certain conditions:
Beyond 3 Years: If more than three years have passed since the relevant assessment year, the Assessing Officer (AO) cannot issue a notice unless the Principal Chief Commissioner, Principal Commissioner, Chief Commissioner, or Commissioner is satisfied—based on recorded reasons—that it is a valid case for issuing the notice.
Cases Below Joint Commissioner Rank: In situations not covered above, an Assessing Officer below the rank of Joint Commissioner cannot issue a notice unless the Joint Commissioner is satisfied, based on recorded reasons, that it is a valid case for reassessment.
Authority to Approve Notices: The Principal Chief Commissioner, Principal Commissioner, Chief Commissioner, Commissioner, or Joint Commissioner (depending on the case) must be satisfied with the reasons recorded by the Assessing Officer. However, they are not required to issue the notice themselves.
Duties and Rights of the Assessee After Receiving a Notice Under Section 148
Duty to File Tax Returns: The assessee must file a tax return for any income categorized as "Income Escaping Assessment" for the relevant assessment year.
Right to Request a Copy of the Notice: Once the return is filed, the assessee has the right to obtain a copy of the notice, which includes the reasons recorded by the Assessing Officer for issuing it.
Right to Challenge the Notice: If the assessee finds the reasons unsatisfactory or baseless, they can file an objection questioning the validity of the notice.
Obligation to Provide Valid Reasons: The assessee must provide justifiable reasons when raising objections and challenging the legality of the notice under Section 148.
Right to Receive Reasons for Dismissal: If the Assessing Officer rejects the assessee's objection, the assessee has the right to request separate reasons explaining the dismissal.
Right to File a Writ Petition: The assessee can file a writ petition before the appropriate High Court to challenge the legality and validity of the Section 148 notice, even before the assessment or reassessment is completed.
Right to File a Writ Petition Post-Assessment: If the assessment is completed and the matter is under appeal, the assessee still has the right to approach the High Court with a writ petition questioning the legality of the Section 148 notice.
Evidence of Actions Taken: The assessee must maintain records proving the following actions:
Requesting a copy of the reasons recorded by the Assessing Officer for issuing the notice.
Filing an objection against the recorded reasons.
Challenging the lawfulness of the notice's issuance.
Reopening of Income Tax Assessment Cases
As per the Union Budget 2021, the time limit for reopening income tax assessment cases has been reduced. Previously, assessments could be reopened within six years, but now this period has been shortened to three years.
However, in cases involving substantial tax evasion, the assessment can still be reopened for up to ten years, provided that the unreported income exceeds Rs. 50 lakh. Additionally, the Assessing Officer (AO) must provide valid reasons for rejecting any objections raised by the assessee.
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, keep the following key points in mind:
Understand the Basis of the Notice: Review the reasons that led the Assessing Officer (AO) to issue the notice. If the notice does not specify these reasons, you have the right to request a copy of the recorded reasons.
Timely Filing of Tax Returns: If the reasons stated in the notice are justified, file your tax returns promptly to avoid any legal repercussions. If you have already filed a return in response to the Section 148 notice, ensure that a copy is submitted to the AO.
Ensure Accuracy in Tax Returns: Exercise due diligence while filing your income tax returns. Any omission or misreporting of income or expenses could lead to penalties or legal consequences. It is crucial to report all financial details accurately.
Stay Informed About Legal Provisions: Having a clear understanding of Section 148 and its provisions can help avoid unnecessary legal complications. It is advisable to ensure tax compliance every year to prevent potential issues.
By keeping these points in mind, taxpayers can effectively respond to a Section 148 notice and smoothly navigate the income tax reassessment process.
Conclusion
Section 148 of the Income Tax Act, 1961 plays a crucial role in ensuring the proper assessment of taxpayers whose income may have been incorrectly reported or escaped assessment. It is important to take such notices seriously and respond within the specified time frame, providing complete and accurate information regarding your income and expenses.
Failure to respond may result in an assessment based on the AO’s judgment, which may not be in your favor. To avoid complications, ensure compliance with tax regulations and cooperate with the authorities for a fair and lawful assessment of your tax liabilities.
Section 148 of Income Tax Act: Notice Under Assessment or Reassessment
Under Section 147 of the Income Tax Act, 1961, the Income Tax Department holds the authority to reassess an individual's previously filed income tax returns. The Assessing Officer may select a return for reassessment based on specific predefined criteria by issuing a notice under Section 148 for Income Escaping Assessment.
What is 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 adequately assessed. This means that if the Assessing Officer suspects that a taxpayer has either not fully disclosed their income or has misrepresented it, they can initiate reassessment proceedings under this section.
A Section 148 Notice is issued by the Income Tax Officer when they believe that certain income has not been properly assessed in the taxpayer’s return. This notice allows the department to reassess the taxpayer’s income tax return (ITR).
With the introduction of Section 148A under the Finance Act 2022, the Assessing Officer is now required to conduct an inquiry and provide the taxpayer with an opportunity to explain their case before issuing a notice under Section 148.
As per Section 148A(b), the Assessing Officer must issue a notice to the taxpayer, detailing the adverse material that suggests income has escaped assessment. The taxpayer is then allowed to respond by submitting supporting documents and evidence.
The 2021 budget introduced Section 148A in the Income Tax Act, making it mandatory for the officer to provide the taxpayer an opportunity to explain if they have undisclosed income for a specific assessment year. The taxpayer also has the right to be heard by the officer.
The Assessing Officer is required to grant the taxpayer a minimum of seven days and a maximum of 30 days to submit their explanation.
After reviewing the taxpayer’s response, the Income Tax Officer will decide whether to proceed with reassessment. If the case is reopened, the officer must provide the taxpayer with a copy of the order along with the notice under Section 148.
A notice under Section 148 cannot usually be issued if more than three years have passed since the end of the relevant assessment year. However, if there is evidence of tax evasion of ₹50 lakh or more, a notice can still be issued within 10 years from the end of the relevant assessment year.
Before initiating inquiries, granting an opportunity to the taxpayer, or issuing any orders, the Income Tax Officer must first obtain approval from the specified authority.
The Assessing Officer must furnish the taxpayer with all the materials and information relied upon when issuing a notice under Section 148A or a Show Cause Notice.
There must be substantial evidence to suggest that income has escaped assessment. A mere assertion of "reason to believe" is not sufficient to justify issuing a notice under Section 148A.
The Assessing Officer is also required to consider the taxpayer’s response to the Show Cause Notice issued under Clause (b) of Section 148A.
If a taxpayer requests a personal hearing, cross-examination of a third party, or a third-party statement, the Assessing Officer must provide it, subject to approval from the specified authority.
Any Section 148 notice issued after the introduction of Section 148A—without following its prescribed procedure, including giving the taxpayer an opportunity to be heard—will be considered invalid and in violation of the Income Tax Act.
Courts have consistently ruled that the procedure outlined in Section 148A must be strictly followed in line with the legislative intent behind its introduction.
Once the taxpayer receives the order and the Section 148 notice, they must file their income tax return for the relevant assessment year within the specified time frame and undergo the reassessment process.
Time Limit to Issue a Notice Under Section 148
A notice under Section 148 cannot be issued for a particular assessment year after the following time limits:
a) Standard Time Limit: A notice must be issued within 3 years from the end of the relevant assessment year.
b) Extended Time Limit: If more than 3 years but less than 10 years have passed from the end of the relevant assessment year, a notice can only be issued if the Assessing Officer has evidence indicating that income of ₹50 lakhs or more has escaped taxation.
The Assessing Officer can issue a notice only if one of the following conditions is met for the relevant assessment year:
The taxpayer has filed their income tax return under Section 139.
The taxpayer failed to file a return even after receiving a notice under Section 142 or Section 148(1).
The taxpayer was required to furnish complete and accurate details for the proper assessment of that year but failed to do so.
Replying to a Notice Under Section 148
It is crucial not to ignore a notice under Section 148. If you receive one, follow these steps carefully:
Review the Notice: Check whether the notice includes the "reasons to believe" recorded by the Assessing Officer for issuing the notice. If the notice does not include the reasons, you can request a copy of the recorded reasons from the Assessing Officer.
Respond Within the Given Time Frame: The response must be submitted within 30 days. You can either:
File a revised income tax return in response to the notice, OR
Submit a written reply along with relevant documents and proofs supporting your case.
Filing a Return: If you agree with the reasons provided by the Assessing Officer, file the return as soon as possible. If a return has already been filed, send a copy to the Assessing Officer.
Ensure Accuracy: When filing a return in response to Section 148, carefully report all income and expenses. Any misreporting or omission could lead to penalties and further scrutiny.
Challenging the Notice: If you believe that the notice is invalid or that the reasons provided for reassessment are unjustified, you can challenge its validity before the Assessing Officer or higher authorities.
Legal Recourse:
If the court rules in your favor, the reassessment proceedings will be stopped.
If the decision does not favor you, the Assessing Officer may proceed with the reassessment.
What Happens if You Do Not Respond to a Notice Under Section 148?
Failing to respond to a Section 148 notice gives the Assessing Officer (AO) the authority to assess your income based on the available information. In such cases, the officer may estimate your income and conduct an assessment to the best of their judgment.
If you disagree with the assessment, you have the right to appeal before either the Commissioner of Income Tax (Appeals) or the Income Tax Appellate Tribunal.
Reasons for Receiving a Notice Under Section 148 of the Income Tax Act
A taxpayer may receive a notice under Section 148 of the Income Tax Act if the tax authorities suspect that certain income has escaped assessment. Some of the key reasons include:
Underreported Income: If the tax authorities believe that a taxpayer has not disclosed their full income in their tax return.
Omitted Financial Information: If certain financial details or sources of income were not reported in the filed return.
Data Discrepancies: If there are inconsistencies between the taxpayer’s reported income and data available with the tax department (such as bank statements, investment records, or third-party reports).
Reassessment of Past Returns: If an earlier assessment failed to capture the taxpayer’s complete taxable income, authorities may re-examine the case.
Third-Party Information: If the tax department receives inputs from external sources, such as banks, financial institutions, or informants, indicating unreported income.
Findings from Audits: If an audit of a taxpayer’s previous returns reveals errors, omissions, or potential tax liabilities.
Suspicion of Tax Evasion: If the authorities have reason to believe that the taxpayer is intentionally concealing income to evade taxes.
Changes in Tax Laws: If amendments to tax laws lead to a retrospective review of past returns to ensure compliance.
Failure to Respond to a Notice Under Section 148
If a taxpayer does not respond to a Section 148 notice, the Assessing Officer (AO) has the authority to proceed with the assessment based on available information. This means that the AO may estimate the taxpayer’s income and finalize the assessment using their best judgment.
If the taxpayer disagrees with the assessment, they have the right to file an appeal before the Commissioner of Income Tax (Appeals) within the prescribed time limit. Understanding these legal rights is crucial to ensuring that the taxpayer’s financial position is accurately represented and assessed fairly.
Who Can Issue a Notice Under Section 148?
As per Section 151(1) of the Income Tax Act, 1961, the authority to issue a notice under Section 148 is subject to certain conditions:
Beyond 3 Years: If more than three years have passed since the relevant assessment year, the Assessing Officer (AO) cannot issue a notice unless the Principal Chief Commissioner, Principal Commissioner, Chief Commissioner, or Commissioner is satisfied—based on recorded reasons—that it is a valid case for issuing the notice.
Cases Below Joint Commissioner Rank: In situations not covered above, an Assessing Officer below the rank of Joint Commissioner cannot issue a notice unless the Joint Commissioner is satisfied, based on recorded reasons, that it is a valid case for reassessment.
Authority to Approve Notices: The Principal Chief Commissioner, Principal Commissioner, Chief Commissioner, Commissioner, or Joint Commissioner (depending on the case) must be satisfied with the reasons recorded by the Assessing Officer. However, they are not required to issue the notice themselves.
Duties and Rights of the Assessee After Receiving a Notice Under Section 148
Duty to File Tax Returns: The assessee must file a tax return for any income categorized as "Income Escaping Assessment" for the relevant assessment year.
Right to Request a Copy of the Notice: Once the return is filed, the assessee has the right to obtain a copy of the notice, which includes the reasons recorded by the Assessing Officer for issuing it.
Right to Challenge the Notice: If the assessee finds the reasons unsatisfactory or baseless, they can file an objection questioning the validity of the notice.
Obligation to Provide Valid Reasons: The assessee must provide justifiable reasons when raising objections and challenging the legality of the notice under Section 148.
Right to Receive Reasons for Dismissal: If the Assessing Officer rejects the assessee's objection, the assessee has the right to request separate reasons explaining the dismissal.
Right to File a Writ Petition: The assessee can file a writ petition before the appropriate High Court to challenge the legality and validity of the Section 148 notice, even before the assessment or reassessment is completed.
Right to File a Writ Petition Post-Assessment: If the assessment is completed and the matter is under appeal, the assessee still has the right to approach the High Court with a writ petition questioning the legality of the Section 148 notice.
Evidence of Actions Taken: The assessee must maintain records proving the following actions:
Requesting a copy of the reasons recorded by the Assessing Officer for issuing the notice.
Filing an objection against the recorded reasons.
Challenging the lawfulness of the notice's issuance.
Reopening of Income Tax Assessment Cases
As per the Union Budget 2021, the time limit for reopening income tax assessment cases has been reduced. Previously, assessments could be reopened within six years, but now this period has been shortened to three years.
However, in cases involving substantial tax evasion, the assessment can still be reopened for up to ten years, provided that the unreported income exceeds Rs. 50 lakh. Additionally, the Assessing Officer (AO) must provide valid reasons for rejecting any objections raised by the assessee.
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, keep the following key points in mind:
Understand the Basis of the Notice: Review the reasons that led the Assessing Officer (AO) to issue the notice. If the notice does not specify these reasons, you have the right to request a copy of the recorded reasons.
Timely Filing of Tax Returns: If the reasons stated in the notice are justified, file your tax returns promptly to avoid any legal repercussions. If you have already filed a return in response to the Section 148 notice, ensure that a copy is submitted to the AO.
Ensure Accuracy in Tax Returns: Exercise due diligence while filing your income tax returns. Any omission or misreporting of income or expenses could lead to penalties or legal consequences. It is crucial to report all financial details accurately.
Stay Informed About Legal Provisions: Having a clear understanding of Section 148 and its provisions can help avoid unnecessary legal complications. It is advisable to ensure tax compliance every year to prevent potential issues.
By keeping these points in mind, taxpayers can effectively respond to a Section 148 notice and smoothly navigate the income tax reassessment process.
Conclusion
Section 148 of the Income Tax Act, 1961 plays a crucial role in ensuring the proper assessment of taxpayers whose income may have been incorrectly reported or escaped assessment. It is important to take such notices seriously and respond within the specified time frame, providing complete and accurate information regarding your income and expenses.
Failure to respond may result in an assessment based on the AO’s judgment, which may not be in your favor. To avoid complications, ensure compliance with tax regulations and cooperate with the authorities for a fair and lawful assessment of your tax liabilities.