Notice under Section 148 of the Income Tax Act: Assessment or Reassessment Notice u/s148

Under Section 147 of the Income Tax Act, the Income Tax Department has the authority to reassess previously filed returns if certain conditions are met. If the Assessing Officer (AO) believes that some income has escaped assessment, they may initiate reassessment by issuing a notice under Section 148. This notice is subject to specific pre-defined criteria. In this guide, we’ll look at the common reasons for receiving a notice under Section 148 and how you should respond.

Before proceeding with an assessment, reassessment, or recomputation, the Assessing Officer is required to serve a notice to the assessee, directing them to furnish a return of income within the time specified in the notice. This return may relate to the assessee’s own income or the income of any other person for whom the assessee is assessable under the Act. If the assessee is required to submit the return on behalf of another assessable person, it must be provided in the prescribed format along with all necessary details and supporting information as required under the Act. Notably, the Assessing Officer is not obligated to disclose the reasons for issuing the notice at the time it is served.

What is Section 148?

Section 148 of the Income Tax Act empowers the Income Tax Department to issue a notice to a taxpayer if the Assessing Officer has reason to believe that any income has escaped assessment. In such cases, the officer may reopen the case by sending a notice under this section, allowing for reassessment of the taxpayer’s income.

Why Do You Receive a Notice Under Section 148 of the Income Tax Act?

A notice under Section 148 is issued when the Assessing Officer (AO) has reason to believe that income chargeable to tax has escaped assessment. However, such action must be backed by strong evidence and follow specific conditions. Below are key reasons and requirements for issuing this notice:

• The AO must possess credible and relevant information suggesting that income has been underreported or omitted, and the belief must be based on tangible material, not mere suspicion.
• There must be a clear and direct connection between the evidence received and the AO’s belief that the taxpayer attempted to evade tax in the relevant assessment year.
• The information relied upon must be substantial and specific, not based on vague assumptions or general observations.
• Before issuing the notice, the AO must record the reasons in writing, clearly outlining why they believe income has escaped assessment.
• A mere suspicion or claim—such as alleging that the assessee is holding unaccounted cash without proper supporting evidence—does not justify issuing a notice under Section 148.
• The AO cannot issue a notice solely based on a difference in interpretation or understanding of facts if the assessee has fully disclosed all relevant details of their income in the original return.
• A notice cannot be issued merely by re-examining documents already filed by the assessee. It must be triggered by new or additional information that was not previously available or considered.
• If new facts or material relevant to the assessment come to light later—even if originally disclosed—the AO can still issue a notice under Section 147/148 based on such fresh insight.

What is the Time Limit to Issue a Notice to an Associate Assessee Under Section 148?

According to the provisions of Section 149 of the Income Tax Act, the time limits for issuing a notice under Section 148 are as follows:

• Normal Time Limit:
  A notice under Section 148 can be issued within 3 years from the end of the relevant assessment year.
• Extended Time Limit (Up to 10 Years):
  If more than 3 years but not more than 10 years have passed since the end of the relevant assessment year, a notice can only be issued if the Assessing Officer has in possession books of accounts, documents, or other evidence that clearly reveal income chargeable to tax has escaped assessment, and such income is:
  • Represented in the form of an asset, or
  • In the form of expenditure related to a transaction, event, or occasion, or
  • Reflected through entries in books of account,

and the amount involved is ₹50 lakh or more.

These conditions ensure that reassessment notices are issued only in cases where there is significant tax evasion, backed by concrete evidence.

The Assessing Officer can issue a notice only if there is clear evidence that taxable income has escaped assessment for the relevant year, based on the following conditions:

• The assessee has filed their return of income under Section 139.
• The assessee failed to file a return even after receiving a notice under Section 142(1) or Section 148.
• The assessee is expected to have made a full and accurate disclosure of all necessary facts, information, and particulars required for completing the assessment for that year.

What Happens Under Section 148 if the Assessee Fails to File an Income Tax Return?

If the assessee fails to file the Income Tax Return within the time specified in the notice issued under Section 148 by the Assessing Officer, they may be liable to pay interest under Section 234(3) for late filing or non-filing—provided the income has already been determined under Section 143(1), or an assessment has been completed under Section 144 or Section 147.

However, if no return has been filed by the assessee for a particular assessment year and no assessment has been made under Section 144 for that year, then interest for late filing of the return in response to the notice under Section 148 will be levied under Section 234(1) instead of 234(3).

Duties and Rights of The Assessee After the Receipt of Notice Under Section 148

Duties of the Assessee:

• File a return: The assessee must file an income tax return for the relevant assessment year, declaring all income, including any that may have escaped assessment, within the time specified in the notice.
• Provide accurate information: The return must be complete and accurate, as any omission can lead to penalties or adverse assessment.

Rights of the Assessee:

• Request reasons for notice: After filing the return, the assessee has the right to request a copy of the reasons recorded by the Assessing Officer for issuing the notice under Section 148.
• File objections: If the assessee finds the reasons unsatisfactory or believes the notice is invalid, they can file objections challenging the validity of the notice. These objections must be supported by valid reasons.
• Request a speaking order: The assessee can request the Assessing Officer to pass a speaking order (a reasoned order) on the objections, as per Supreme Court guidelines.
• Seek separate reasons for dismissal: If objections are dismissed, the assessee can request the Assessing Officer to provide separate reasons for the dismissal.
• Right to be heard: The assessee can request a personal hearing or cross-examination of third parties if necessary; the AO must provide this with approval from the specified authority.
• Challenge in High Court: The assessee may file a writ petition in the High Court to challenge the legality and validity of the notice, either before or after the assessment is completed, even if the matter is under appeal.

Reopening of Income Tax Assessment Cases

As part of the Union Budget 2021, a significant amendment was introduced regarding the time limit for reopening income tax assessment cases. Previously, the window for reopening assessments was six years, but it has now been reduced to three years. However, in cases where there is a suspicion of substantial tax evasion, the reassessment period can be extended up to ten years, provided the concealed income exceeds ₹50 lakh.

If an assessee raises objections to the reassessment notice, the Assessing Officer is required to provide detailed reasons for rejecting those objections. This provision ensures transparency and helps the taxpayer understand the basis for the reassessment.

The move to reduce the reopening period is aimed at streamlining tax administration, improving compliance, and offering greater clarity and certainty to taxpayers. At the same time, the extended period for serious cases of tax evasion ensures that individuals or entities attempting to avoid taxes can be effectively held accountable.

Overall, these changes are designed to promote fairness, efficiency, and integrity in the reassessment process while safeguarding the interests of both taxpayers and the Income Tax Department.