Procedure for Reassessment of Income under Income Tax Act, 1961 has been provided under Sec 147 to 153, wherein Assessing Officer (AO) can reassess the Income which has escaped assessment done earlier. These provisions of reassessment has been revamped by Finance Act, 2021.
Prior to 1.4.2021, u/s 147 of the Act, the power to assess or reassess the income escaping the assessment could be exercised by the AO, when he has “reason to believe” that any income which is chargeable to tax has escaped assessment for the relevant assessment year and Sec 148(2) required to record the reasons in writing. However, after amendment in Finance Act, 2021, no notice u/s 148 can be issued unless there is “information with the AO” which suggests that the income has been escaped assessment for relevant AY.
Now it is mandatory for the AO to comply with the procedures as mentioned in Sec 148A (introduced w.e.f 1.4.2021) and AO has to pass order as to how the information suggests that income has escaped assessment. Sec 148A provides for conducting inquiry, providing opportunity before issue of Notice u/s 148 reproduced as under :
“Conducting inquiry, providing opportunity before issue of notice under section 148.
148A. The Assessing Officer shall, before issuing any notice under section 148,—
- conduct any enquiry, if required, with the prior approval of specified authority, with respect to the information which suggests that the income chargeable to tax has escaped assessment;
- provide an opportunity of being heard to the assessee, by serving upon him a notice to show cause within such time, as may be specified in the notice, being not less than seven days and but not exceeding thirty days from the date on which such notice is issued, or such time, as may be extended by him on the basis of an application in this behalf, as to why a notice under section 148should not be issued on the basis of information which suggests that income chargeable to tax has escaped assessment in his case for the relevant assessment year and results of enquiry conducted, if any, as per clause (a);
- consider the reply of assessee furnished, if any, in response to the show-cause notice referred to in clause (b);
- decide, on the basis of material available on record including reply of the assessee, whether or not it is a fit case to issue a notice under section 148, by passing an order, with the prior approval of specified authority, within one month from the end of the month in which the reply referred to in clause (c) is received by him, or where no such reply is furnished, within one month from the end of the month in which time or extended time allowed to furnish a reply as per clause (b) expires:
Provided that the provisions of this section shall not apply in a case where,—
(a) a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A in the case of the assessee on or after the 1st day of April, 2021; or
(b) the Assessing Officer is satisfied, with the prior approval of the Principal Commissioner or Commissioner that any money, bullion, jewellery or other valuable article or thing, seized in a search under section 132 or requisitioned under section 132A, in the case of any other person on or after the 1st day of April, 2021, belongs to the assessee; or
(c) the Assessing Officer is satisfied, with the prior approval of the Principal Commissioner or Commissioner that any books of account or documents, seized in a search under section 132 or requisitioned under section 132A, in case of any other person on or after the 1st day of April, 2021, pertains or pertain to, or any information contained therein, relate to, the assessee; or
(d) the Assessing Officer has received any information under the scheme notified under section 135A pertaining to income chargeable to tax escaping assessment for any assessment year in the case of the assessee.]
Explanation.—For the purposes of this section, specified authority means the specified authority referred to in section 151.]
“After perusal of above provision, it is pertinent to note that reassessment of Income can be initiated on the basis of “Information with the AO that suggests that Income has been escaped and Explanation 1 to Sec 148 stipulates “information” as under :
“Explanation 1.—For the purposes of this section and section 148A, the information with the Assessing Officer which suggests that the income chargeable to tax has escaped assessment means,—
(i) any information in the case of the assessee for the relevant assessment year in accordance with the risk management strategy formulated by the Board from time to time;*or
[(ii) any audit objection to the effect that the assessment in the case of the assessee for the relevant assessment year has not been made in accordance with the provisions of this Act; or
(iii) any information received under an agreement referred to in section 90 or section 90A of the Act; or
(iv) any information made available to the Assessing Officer under the scheme notified under section 135A; or
(v) any information which requires action in consequence of the order of a Tribunal or a Court.]
“Hence under sec 148A, the following procedures needs to be followed, before issuing notice u/s 148 :
- Issue Show cause notice u/s 148A(b) asking for clarification within 7 to 30 days from the date of such notice that why Notice under sec 148 should not be issued.
- Consider the reply filed by the assessee
- Issue Order u/s 148A(d) stating whether or not the case is a fit case to issue Notice u/s 148
With no corresponding amendment in Sec 246A for making order u/s 148A appealable before Income Tax authorities, the assesee may resort to filing a writ petition before Hon. High Court in cases where AO has grossly exceeded his jurisdiction in exercise of powers u/s 147.
Procedure u/s 148A need not to be followed in following cases if:
- A search is initiated under section 132 on or after the 1st day of April, 2021 in the case of the assessee or
- Books of account, other documents or any assets are requisitioned under Section 132A, on or after the 1st day of April, 2021 or
- AO is satisfied that Assets seized or requisitioned during search belongs to assesses or
- Assessing Officer has received any information under the scheme notified under section 135A
In short, introduction of sec 148A provides for enquiry and opportunity to the assessee of being heard in respect of income escaping assessment and any notice issued to the assessee u/s 148 after 1.4.2021 without following the procedure under Section 148A (i.e. without giving an opportunity of being heard) would be invalid and contrary to the provisions of the Income Tax Act.