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Published on:

January 3, 2025

Alankar Mishra

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Notice under Assessment - Section 148 of Income Tax Act

The 1961 Act also makes provisions for the reconciliation of all the taxable income on the returns filed in India. For instance, Section 148 regards the question of the legitimacy of notices for a re-assessment or o r income escaping assessment. If any KP believes that some income hasn’t been reported or has escaped assessment then this officer under section 148 has the power to issue a notice to the taxpayer requiring him to re-assess his income.

What is Section 148 of the Income Tax Act?

As per Section 148, the AO is empowered to issue notice to taxpayers if they have any grounds to believe that any income which may be chargeable to tax and which was not assessed during that past year, might have escaped assessment. The purpose of the notice is to touch base with the taxpayer and re-open the assessment to establish the correct taxable income.

This is well part of the procedure under the framework of Section 147 as the ‘Income Escaping Assessment’ process justifies why a reassessment is needed.

‍Purpose of Section 148

The higher purpose of Section 148 is to cater the situations where:

The taxpayers have not declared their entire income.

There is proof of non-payment of tax.

The tax was not fully assessed, or only partially assessed because of some oversight or fraud.

Key Provisions of Section 148

1. Who Can Issue Notice?

To make a long story short only the appropriate Assessing Officer (AO) responsible for a given taxpayer has the power to issue notice under section 148.

2. Time Limit for Issuance of Notice

The time limit for issuing notice under section 148, is as below:

1. 3 Years from the End of the Relevant Assessment Year: For income escaping assessment up to 50 lakh.

2. 10 Years from the End of the Relevant Assessment Year: For income escaping assessment exceeding 50 lakh.

3. Reason to Believe

The AO should have a tangible material circumstance in his possession, to guide him to the conclusion that there was ‘reason to believe’ that the income had escaped assessment.

Procedure for Issuing Notice Under Section 148

Two aspects stand out from this process; recording reasons, and issuing a notice. With that in mind, the issuance of a notice under Section 148 is accompanied by the following procedural steps:

1. Recording of Reasons (Section 147)

The preceding step is communication which must be done before a notice comes out. This communication would be in terms of writing specifically detailing all relevant factors that exhibit why the AO believes that income has escaped assessment.

2. Approval from Higher Authorities

Approval should be obtained by justifying the reasons for obtaining the approval. In determining such time elapsed, factors such as the last notice issued on the tax returns ought to be considered:

For cases within 3 years: A Joint Commissioner or such higher authority.

For cases beyond 3 years: A Principal Commissioner or Commissioner.

3. Issuance of Notice

This is where a notice gets issued and it gets displayed in the public domain, which is necessary as it allows for a wider circulation of the notice requiring compliance. Specifically, no less than an AO was the one who was under the published notice; he was the one declaring that the taxpayer must furnish his return for the particular year in question under rule 148.

4. Filing the Return

This is where the taxpayer negotiates on the amount owed up until the time mentioned in the notice, to settle that amount the taxpayer will have to file a return.

5. Assessment or Reassessment

This comes to the fore after filing the return, because before filing the return there was no ‘true’ or defined amount owed in taxes. This brings sense to the idea of being tax compliant because AOs must guarantee any returned sum qualified for the right level of tax under regulation 132.

Amendments and Updates to Section 148

Changes to the Finance Act, 2021

The Finance Act of 2021 modified several provisions of tax legislation, including that of the reassessment process, and these changes became effective from 1st April 2021:

Limitation Reduced: Previously, the AO would, in cases where prosecutions were initiated, issue notices for a maximum of six years. This time has now been reduced to three years. However, cases where there is an income of more than ₹50 lakh are exempted from this limit.

Preliminary Enquiry: The AO must perform a preliminary investigation, and such information or evidence must be shared with the taxpayer before a notice is issued.

Rights and Obligations of Taxpayers

1. Right of Hearing Reason

It is the right of the taxpayers to demand from the AO the reasons for the issuance of the notice.

2. Onus to Reply

When the taxpayer receives a notice under Section 148, he is required to:

1. Submit the income return at the prescribed time.

2. Assist the AO in the process of reassessment.

3. Right to Object to the Notice

In case the taxpayer feels that the notice cannot be justified, he may object to such notice by:

1. Filing objections with the AO.

2. Making complaints to the higher tax authorities or courts.

Common Scenarios Leading to Section 148 Notices

1. Undisclosed Income: Income may be omitted from reporting, for example, incomes from investments, freelancing business, etc.

2. Unexplained High-Value Transactions: During investigation, some large transactions or deposits are deemed suspicious.

3. Mismatch in TDS or Income Records: There are gaps between the taxpayer’s revenues and his/her Form 26AS.

4. Incorrect Deductions: Wrong Claims for deduction of non-allowable expenses or exemptions.

How to Respond to a Notice Under Section 148

Step 1: Understanding the Notice

First of all, check the assessment year and the reason for the notice.

Secondly, check the time limit and compliance period as indicated in the notice.

‍Step 2: Return Filing

Make sure the return for the relevant assessment year is available because if you consider that the notice was issued inappropriately the relevant return must be submitted.

‍Step 3: Request for the Reasons

In case adequate reasons for the issue of the notice are not provided, write to the AO requesting reasons for certain decisions taken.

‍Step 4: Objections (if Necessary)

After receiving the reasons, if in your opinion reasons provided are not sufficient or are unjustified, you first file objections with the AO.

‍Step 5: Cooperate with the AO

Accept and or do attend hearings and write letters or make other required documents or give evidence as required.

‍Step 6: Get Professional Help

The abovementioned scenario will only work if you hire an experienced tax consultant or a qualified chartered accountant.

Legal Precedents and Judicial Rulings

1. GKN Driveshafts (India) Ltd. v. Income Tax Officer

As the Supreme Court ruled, the taxpayers also have entitlement to the reasons for reopening the assessment and to file objections before the re-assessment is done.

2. Calcutta Discount Co. Ltd. v. Income Tax Officer

Concerning the documents available to the AO, he must produce an account of the basis for the decision “reason to believe” aside from just their assumptions of things.

Penalties for Non-compliance

The consequences of not complying with notice under section 148 attract serious penalties.

Penalty for Non-filing

In consideration of Section 271F, if one has failed to file a return then a penalty under this section may apply.

Interest on Tax Due

About failure in making payment or filing the required documents interest under Section 234 A/B/C may be charged.

Prosecution

In cases where there is not a lapse of time and tax evasion is included in the act then prosecution under Section 276 CC may commence.

Conclusion

The provisions of section 148 of the Income Tax Act allow the tax authorities to tackle income which has escaped assessment. Nonetheless, it also safeguards the rights of the taxpayers to contest excessive issuance of notices. By understanding the provisions, keeping proper documents, and engaging qualified professionals, the taxpayers will be able to deal with the reassessment and avoid penalties.

Taxpayers should take Section 148 notices seriously and comply with them within a reasonable time to protect their interests.

FAQs

What is Section 148 of the Income Tax Act?

If the tax authorities think that some income has escaped assessment, they are permitted to issue a notice for reassessment under Section 148 of the Income Tax Act.

When is a notice under Section 148 issued?

Section 148 issued a notice when the Assessing Officer has reason to believe that some income chargeable to tax has escaped assessment.

What is the time limit for issuing a Section 148 notice?

Notice under section 148, that the time limit for the issue depends on the amount of escaped income. Generally, it is three years from the close of the relevant assessment year but in cases where the escaped income is more than ₹50 Lakhs it can exceed 10 years.

Can I challenge a Section 148 notice?

If you feel the notice has no legal grounds, then yes, you are permitted to contest a Section 148 notice. However, in this scenario, it is wise to talk to a tax professional.

‍What is the process after receiving a Section 148 notice?

Once you get the Section 148 notice, you are required to comply with the notice in the manner mentioned and within the time prescribed and those are followed by the reassessment proceedings by the Assessing Officer.

What documents are required for compliance with an income tax reassessment under Section 148?

Additional necessary documents include but are not limited to, financial records, bank statements, tax returns, as well as all other evidence submitted in support of the claims made during the reassessment.

Can a Section 148 notice be issued without prior approval?

I don’t believe so. However, the earlier mention of there being a prior insistence that a Section 148 notice can be issued only after seeking the approval of prescribed higher authorities would ensure checks against indiscriminate issuance.

What happens if I fail to respond to a 148 notice within the time limit?

A response that is not addressed in a manner that satisfies the notice will attract penalties, interest, or even the best judgment assessment by the tax authorities.

What is the difference between Section 147 and Section 148 of the Income Tax Act?

The re-assessment process is dealt with in section 147, whereas section 148 outlines the way the re-assessment is triggered through the notice to the taxpayer.

Is the 148 notice time limit affected by amendments to the Income Tax Act?

Of course, the time limit for sending a notice under Section 148 can be adjusted through the Income Tax Act’s amendments, as is clear from the new law. Be sure to check the current documents or ask a specialist.