This article is limited to assessment and reassessment orders under section 148 and 148A of the Income Tax Act, 1961.
Introduction
In 2020 by the power vested under section 3 of the Relaxation Act, 2020 the Central government issued a notification extending the timelines prescribed under section 149 for issuing reassessment notice till 30.06.2022. Meanwhile the Parliament through Finance Act, 2021 introduced reformative changes to sections 147-151 of the Income Tax Act, 1961 governing reassessment proceeding. The substituted section 147-149 and section 151 were applicable form 01.04.2021. But even after the amendment of Finance Act, 2021 the revenue department issued approximately 90,000 reassessment notices under the erstwhile provisions. These reassessment notices became subject matter of multiple writ petitions before various high courts. The respective high court held that reassessment orders issued after 01.04.23021 which are not in compliance to newly substituted section are bad in law and set aside.
Being aggrieved by such orders the department approached the Supreme Court in the case of Union of India v. Ashish Agarwal Civil Appeal No. 3005 of 2022. Wherein the Supreme Court held that-
- The notices issued under unamended section 148 of IT Act which were the subject matter of the writ petitions before various High Courts will be deemed to be issued under section 148A of IT Act as amended by Finance Act, 2021 and will be treated as show cause notice in terms of section 148A(B) and provide concerned assesses to file their reply to show cause notices.
- Holding inquiry with prior approval of specified authority is not mandatory but it is for the concerned Assessing Officer to hold inquiry if required.
- All the defenses which may be available to the assesses shall continue to be available which includes–a. Defenses under section 149 of the IT Act i.e. notices are time barred b. Defenses under Finance Act, 2021[1]
What is Reassessment Notice?
As per the Income Tax Act, 1961 when the Assessing Officer has a reason to believe that any income which is chargeable to tax has escaped assessment for any assessment year, he has the power to reassess such income and any other income which comes to his notice subsequently in course of the proceeding[2]. And for carrying out such reassessment a notice must be issued to the assesses which is known as Reassessment Notice as per section 148-151 of the IT Act, 1961.
Cases where it is deemed that income chargeable to tax has escaped assessment
For the purpose of this section there are certain cases when income chargeable to tax is deemed to be escaped and reassessment notices can be issued under such circumstance –
- When no return is filed by the assesses even though his total income is exceeds the maximum amount which is not chargeable to income tax.
- When return is furnished but no assessment is made and AO notices that assesses has understated the income or has claimed excessive loss, deduction, allowance or relief in return.
- When the assesses fails to submit a report in respect of international transaction as required under section 92E
- When income chargeable to tax has been under assessed, assessed at loo low rate or excessive loss or depreciation allowance has been computed.
- Where a person is found to have assets outside India.[3]
When Can Reassessment be initiated?
According to section 147 of the IT Act, if the Assessing Officer has a reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may assess or reassess such income[4]. It has been a well settled principle that reasons which led to the formation of opinion or belief that the assesses income chargeable to tax has escaped assessment should be inextricably connected i.e. the reason for formation of opinion should have a rational connection with the formation of belief that there has been escapement of income.[5]
It must be noted that “reason to believe” is stronger that word satisfied, the process of reassessment cannot be triggered based on mere suspicion. The expression “reason to believe” under section 147 of the Act, does not have same connotation as “reason to suspect”. The material brought to the knowledge of assessing officer should have a nexus with the formation of beliefs that taxable income has escaped assessment. Further, it is mandatory for Assessing Officer to record reasons before issuing notice to the assesses under section 148A. [6] Hence, there must me prima facie some material on the basis of which the Department can reopen the assessment. [7]
What is the Current Process of Reassessment?
Earlier prior to making any assessment, reassessment or precomputations under section 147 the Assessing officer was only required to issue a notice requiring the assesses to furnish a return of their income within the period as specified in the notice[8]. It must be noted the earlier the Assessing Officer was bound to follow the procedure as prescribed by the Supreme Court in GKN Driveshafts (India) Ltd. v. Income Tax Officer But after the amendment of 2021 the process of issuing reassessment notices under section 148 was streamlined and issued after following the procedure as prescribed in section 148A of the act[9].
What is the Procedure as prescribed under section 148A of IT Act?
Before issuing a notice under section 148 of the act the Assessing Officer may conduct an inquiry with the approval of a specified authority. As per the decision of the Supreme Court in Union of India v. Ashish Agarwal such inquiry is not mandatory and can be done if required.
Further, the Assessing Officer with the approval of specified is required to issue a show cause notice as to why a notice under section 148 of the act should not be issued. The assesses are required to send a reply of this show cause notice stating all the facts and circumstances as to how they are tax compliant and notice under section 148 should not be issued against them. Such a reply should be sent within a period of 30 days or as specified in the show cause notice[10].
The Assessing officer on the basis of the reply filed by the assesses against the show cause notice u/s 148A(b) and all the relevant material available of record shall decide whether it is fit case to issue the notice u/s 148 or not by passing an order with prior approval of specified authority[11].
What is the Procedure under section 148 of IT Act?
If the Assessing Officer after the approval from specified authority is of the opinion that the case is fit for issuing a notice under 148 of the acts, then it may issue and serve such notice along with the order passed under section 148A(d)[12].
What is the Limitation for issuing notice under section 148 of IT Act-
According to section 149 of the IT Act, the notice under section 148 cannot be issued if –
- Three years have elapsed from the end of the relevant assessment year
- If three have elapsed but not ten years have elapsed from the end of the relevant assessment year provided that the Assessing officer is in possession of books of account, other documents or any evidence which reveals that the income chargeable to tax has escaped assessment which amounts to Rs. 5,00,000/- or more.
- When a notice under section 153A or 153C r/w section 153A is required to be issued in relation to a search initiated under section 132A on or before 31st March 2021.
It must be noted that the limitation period for issuance of notice under section 148 as prescribed under section 149 commences from the date of its issuance and not from the date of service.[13]
What Remedy is Available to Assessee if Notice u/s 148 and Order under section 148A(b) has been passed?
In the case of Jeans Knit Private Limited v. The Deputy Commissioner of Income Tax the Hon’ble Supreme Court has already held that Writ Petition challenging the issuance of Notice under section 148 of Income Tax Act, 1961 are maintainable in High Courts the respective High Courts must decide the matter on merits. Hence, if Notice under section 148 and Order under section 148A(b) of IT Act, 1961 has been passed by the Assessing Officer such assesses can approach the Hon’ble High Court of their respective state setting aside such Notice and Order.
Conclusion
The object of this article was to inform every taxpayer about the recent development in the income tax system. As stated above the Revenue Department has already issued 90,000 notices hence, making it important for every taxpayer to have knowledge about the law and procedure which is followed under section 148, section 148A of Income Tax Act, 1961 and relief which is available to such assesses.
[1] Union of India v. Ashish Agarwal, Civil Appeal No. 3005 of 2022 available at: 32623_2021_12_1502_35515_Judgement_04-May-2022.pdf (sci.gov.in)
[2] Section 147 Income Tax Act, 1961.
[3] Id.
[4] Id.
[5] ITO v. Lakhmani Mewal Das, 1976 (3) SCC 757
[6] Synfonia Tradelinks Private Limited. v. Income Tax Officer, Writ Petition
[7] Raymond Wollen Mills Ltd v. ITO and Ors. (1999) 236 CTR SC 34.
[8] Union of India v. Ashish Agarwal, Civil Appeal No. 3005 of 2022 available at: 32623_2021_12_1502_35515_Judgement_04-May-2022.pdf (sci.gov.in)
[9] Id.
[10] Section 148A of Income Tax Act, 1961
[11] Id.
[12] Section 148 of Income Tax Act, 1961.
[13] R.K Upadhyay v. Shanab Bhai P. Patel (1987) 3 SCC 96.
