Section 148 of Income Tax Act: Understanding the Notice, Response and Consequences
Updated: Nov 16
The Income Tax Act 1961 is replete with provisions that empower tax authorities to ensure the accurate assessment of taxpayers' income. Among these, Section 148 holds a significant role, allowing Assessing Officers to send notices to taxpayers when there's a reason to believe that income has escaped assessment. This comprehensive guide aims to unravel the intricacies of Section 148, its essential components, and how taxpayers should respond when confronted with such notices.
Table of Content
Section 148: Unveiling the Basics:
Under Section 148 of the Income Tax Act 1961, an Assessing Officer can inform a taxpayer whose income has not been assessed correctly. This implies that if the Assessing Officer has cause to suspect that a taxpayer has withheld information about their income or provided a misleading account of it, they may initiate proceedings under this provision. The income tax officer may issue a Section 148 Notice, which is a request for a reassessment of the taxpayer's income tax return (ITR), if they believe that any income has not been properly assessed and they disagree with the taxpayer's assessment.
The Finance Act of 2022 included Section 148A. Before sending out a notice under Section 148, it requires the assessing officer to conduct an investigation and provide the taxpayer an opportunity to clarify their position. If the income tax officer has knowledge that the taxpayer has hidden income for a particular assessment year, they must provide the taxpayer a chance to clarify their position prior to notifying them. An officer hearing is entitled to the taxpayer. The assessing officer must give the taxpayer a notification under Section 148A(b) that contains information and adverse material that could suggest that income has escaped assessment. The taxpayer may respond by offering their own supporting documentation.
Reasons for Receiving a Notice under Section 148:
The issuance of a notice under Section 148 isn't arbitrary but follows a well-defined set of principles:
Substantial Evidence:
Before issuing a Section 148 notice, the Assessing Officer must have substantial evidence supporting the belief that taxable income has indeed escaped assessment. Mere suspicion isn't sufficient grounds for a notice.
Credible Link:
There should be a credible link between the material presented to the Assessing Officer and the belief that the taxpayer has attempted to evade tax for the specific assessment year.
Relevance of Information:
The information presented to the Assessing Officer should be directly relevant to the particular assessment year without any superficial or arbitrary connections.
Written Justification:
The Assessing Officer must provide in writing the reasons for believing that the taxpayer has evaded income assessment for the year in question.
Backed with Grounds, Not Mere Suspicion:
Simply stating a doubt or suspicion without backing it with proof and information is not a valid reason to issue a notice under Section 148.
New Information Requirement:
The Assessing Officer can issue a notice only when presented with new information not disclosed by the taxpayer during the original assessment.
Earlier Disclosures:
Even if the information comes to light later, if it relates to disclosures made in the original assessment, the Assessing Officer can issue a notice under Section 147/148.
Authorised Issuers of Section 148 Notices:
As per the regulations in Section 148 of the Income Tax Act 1961, specific individuals are authorised to issue notices under the following conditions:
No Assessing Officer below the rank of Assistant Commissioner or Deputy Commissioner can issue a Section 148 notice, particularly in cases where an assessment has been carried out for the relevant assessment year under Section 143 or Section 147. However, this limitation can be bypassed by a Joint Commissioner if they find the reasons provided by the Assessing Officer valid for issuing a notice.
Time Constraints: In general, no notice for an associate assessee can be issued beyond four years from the conclusion of the relevant assessment year. However, the Chief Commissioner or Commissioner can bypass this limitation if they believe that the reasons presented by the Assessing Officer justify issuing a notice.
Timeframe for Issuing Section 148 Notices:
Section 148 provides specific timeframes for the issuance of notices:
1. Normal Time Limit:
Notices can't be issued more than three years after the end of the relevant assessment year.
2. Specified Time Limit:
If three years have passed, but not more than ten years from the end of the relevant assessment year, a notice can be issued. This applies when the Assessing Officer has substantial evidence of unassessed income exceeding Rs. 50 lakhs.
A notice under Section 148 is issued for the relevant assessment year when the following conditions are met:
The taxpayer has submitted their returns as per Section 139.
After receiving a notice under Section 142 or Section 148(1), the taxpayer has not filed their returns.
The taxpayer should have furnished comprehensive and precise information necessary for concluding the assessment for that particular year.
Responding to Section 148 Notices:
When an assessee receives a notice under Section 148, several steps need to be followed to address the situation:
File a Return:
The initial step is to file a return for the relevant assessment year as indicated in the notice.
Request Reasons:
The assessee should request a copy of the reasons recorded for issuing the notice under Section 148.
File Objections:
Following this, the assessee can file objections to the issuance of the notice, challenging its validity.
Seek a Speaking Order:
It's advisable to request the Assessing Officer to pass a speaking order by disposing of the objections. This practice aligns with the Supreme Court's guidance in the GKN Driveshafts (India) Ltd vs. ITO (2003) case.
File Writ Petition:
If the assessment order is passed. The matter is under appeal. The assessee still has the right to file a writ petition in the High Court challenging the legality of the Section 148 notice and the subsequent assessment, provided the procedure laid out in the GKN Driveshafts (India) Ltd case is not followed.
Things to Keep in Mind While Responding to a Notice Under Section 148
Whie responding to a notice under Section 148 of the Income Tax Act of 1961, the following things should be kept in mind:
To start, learn why the Assessing Officer (AO) sent the notice in the first place. You have the right to obtain a copy of the notice if the reasons are not stated in it.
If the notice's justifications are upheld, it is imperative that tax returns be filed as soon as possible to prevent any possible legal issues. If you have previously filed tax returns under Section 148, ensure that the AO receives a copy of the returns.
Be careful and thorough when you file your income tax returns. Penalties may be imposed by law for any omissions or inaccurate reporting of income or spending. Making sure that all pertinent data is appropriately reported is crucial.
To avoid any legal hassles, be aware of the provisions specified in Section 148. Also, to stay tax compliant and prevent any problems, you must get your income examined each assessment year.
Consequence of Not Responding to a Notice Under Section 148
The Assessing Officer may utilize the available information to go ahead with the assessment if do not reply to a notice issued under Section 148. To the best of their ability, they can, in essence, estimate and assess your revenue. You can file an appeal with the Income Tax Appellate Tribunal or the Commissioner of Income Tax (Appeals) if you don't agree with their assessment.
The consequence of not filing a Return
If the assessee doesn't furnish the income tax return within the timeframe specified in the notice under Section 148, interest may be levied under Section 234(3) for late filing. The interest is applicable for late filing or non-filing if the income has already been determined under Section 143(1), 144, or 147.
Duties and Rights of an Assessee After Receiving a Notice Under Section 148
For any income deemed to be "income escaping" for the applicable assessment year, the assessee is required to file tax returns.
Following the return filing, the assessee is entitled to get a copy of the notice, which includes the rationale for the 148 notice-issuing decision by the Assessing Officer.
The assessee can file an objection objecting the legality of the notice if they believe the justifications provided in the copy are inadequate or without merit.
The assessee must give good cause when objecting to and contesting the legality of the notification given in accordance with Section 148.
The assessee is entitled to request the presentation of distinct reasons for the dismissal in the event that the Assessing Officer rejects the assessee's claims.
The assessee may also consider contesting the legitimacy and legality of the notice given under Section 148 by submitting a writ petition to the appropriate High Court. This can be completed even before the assessment or reassessment is concluded .
The assessee may still file a writ petition to contest the legitimacy and validity of the notice with the appropriate High Court, even after the assessment is completed and the case is on appeal.
The assessee needs to present proof of the following:a. Asking for a copy of the AO’s justification for sending out the notice.b. Submitting a protest against the Assessing Officer's justifications.d. Making an Assessment Requestd. Contesting the legality of the distribution of the notice.
Reopening Income Tax Assessment Cases
As part of the Union Budget 2021, a decision has been made to reduce the time frame for revisiting income tax assessment cases. It used to last six years, but now it will only last three. However, in cases of significant tax evasion, assessments may be reopened for a maximum of ten years—but only if the undisclosed income exceeds Rs. 50 lakh. Officer to provide justification for rejecting the assessee's arguments.
Conclusion
In essence, Section 148 empowers tax authorities to issue notices for the reassessment of income when there is credible evidence of underreporting. These notices are not arbitrary but must adhere to stringent conditions, ensuring the integrity of the assessment process.
FAQs
Q1. What is Section 148 of the Income Tax Act?
Section 148 empowers the Income Tax Department to issue notices to reassess an individual's previously filed income tax returns if they suspect income has escaped assessment.
Q2. Why would I receive a Notice under Section 148?
You may receive a notice under Section 148 if the assessing officer believes your income has not been assessed correctly, potentially indicating that you haven't disclosed all your income.
Q3. Can the assessing officer issue a notice under Section 148 without evidence?
No, the assessing officer must have substantial evidence to believe that income has escaped assessment; mere suspicion is insufficient.
Q4. What should I do if I receive a Notice under Section 148?
If you happen to receive a Notice under Section 148, it is crucial to take swift action. You should promptly file your income tax return, inquire about the reasons behind the notice, and contemplate submitting an objection if you believe that the notice lacks justification.
Q5. Who can issue a notice under Section 148?
Notices under Section 148 can only be issued by certain authorised officers, typically ranked at or above the level of Assistant Commissioner or Deputy Commissioner.
Q6. In reassessment cases, does the taxpayer have the opportunity to correct any errors or discrepancies from the original assessment?
Yes, during the reassessment process, the taxpayer can provide additional information or correct any errors or discrepancies in the original assessment to ensure a fair and accurate reassessment.
Q7. How can professional tax advisors assist taxpayers in dealing with Section 148 notices and the subsequent assessment/reassessment process?
Tax advisors can help assess the validity of the notice, guide in filing objections, provide legal expertise, and represent the taxpayer's interests throughout the assessment or reassessment process. Their assistance can ensure the best possible outcome for the taxpayer.
Q8. Can the assessee challenge a Section 148 notice if I believe it's invalid?
Yes, you can challenge the validity of the notice by following the prescribed legal procedures and providing valid reasons.
Q9. Can the assessee file a writ petition if I disagree with the Section 148 notice?
Yes, if the assessee finds the notice or subsequent assessment unjust, you can file a writ petition with the High Court to challenge its legality.
Q10. What is the significance of providing reasons for the notice under Section 148?
The assessing officer must provide valid reasons for issuing the notice. These reasons form the basis for your ability to challenge the notice; without them, the notice may be invalid.
Q11. Can the Assessing Officer issue a notice based on previously submitted information?
The Assessing Officer can issue a notice under Section 148 only if new information or discrepancies arise, not based on previously submitted documents.
Q12. How do you cooperate with the authorities during the assessment process?
Yes, cooperation is vital. Providing accurate information and cooperating with the assessing officer can lead to a fair and lawful assessment.
Q13. Is it mandatory for the assessing officer to pass a speaking order in response to objections filed by the taxpayer?
Yes, the assessing officer should provide a reasoned order while disposing of the objections raised by the taxpayer, as per the Supreme Court's decision in GKN Driveshafts (India) Ltd vs. ITO (2003).
Q14. What is the penalty under Section 148?
When it comes to the issue of a notice for reassessment, Section 148 does not define a precise penalty. However, the Assessing Officer may apply penalties under Section 271(1)(b) for concealing income or Section 271(1)(c) for submitting false particulars of income if you do not reply to a notification given under Section 148. For this reason, in order to avoid fines or other legal issues, it is essential that you reply to a notice under Section 148 and give accurate information about your income and expenses.
Q15. What is the time limit for issuing notice under Section 148?
If the undisclosed income is less than or expected to be less than Rs. 50,000,000, the taxpayer may receive a notification under Section 148 within three years of the conclusion of the applicable assessment year. However, the notification might be sent out within ten years of the end of the relevant assessment year if the unreported income exceeds Rs. 50,000,000.
Q16. What happens when a best judgement assessment is conducted by an AO?
The Assessing Officer will use the information at hand to estimate your income and expenses if they perform a best judgement assessment. You can submit an appeal with the Income Tax Appellate Tribunal or the Commissioner of Income Tax (Appeals) if you disagree with the assessment. To prevent needless hassles, it is generally advisable to reply to a notice under Section 148 and include all pertinent information about your income and expenses.
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