Section 148 of Income Tax Act: Notice Under Assessment or Reassessment

As per Section 147 of the Income Tax Act, 1961, the Income Tax Department has the power to reopen the returns of the assessee and reassess previously filed income tax returns. The department can exercise this power whether or not the returns are previously filed. If the assessing office has reasons to believe that you have not disclosed all your income and thereby escaped taxes, the department has the authority to carry-out income escaping assessment under section 147. The Assessing Officer could pick your income tax return for reassessment subject to some pre-defined criteria. Notice for this assessment is sent under section 148 of the act.

What is Section 148?

Section 148 of the Income Tax Act 1961 gives authority to the Assessing Officer to send notice to a taxpayer for income escaping assessment. This implies that if the Assessing Officer suspects that a taxpayer has not disclosed complete income or has provided an inaccurate representation of it, officers can commence proceedings under this section. Notice under this section can be issued irrespective of whether the assessee has previously filed returns or not, and irrespective of an assessment has happened previously or not. 

This notice is essentially requires the assessee to file a return of income under this section.

If the assessment involves search wherein income pertaining to more than one financial year are under consideration, block assessment scheme are followed covered under section 158B to 158BI of the Income Tax Act. Income escaping assessment provisions are not applicable to such search operations initiated from 01st September, 2024.

How a Notice u/s 148 is Issued?

• Notice under section 148 cannot be issued straight away by the assessing officer. Before issuing notice u/s 148, the assessing officer needs to conduct inquiry u/s 148A. 
• It is to be noted that inquiry can be conducted only with the prior approval of the specified authority.
• This inquiry is primarily conducted to provide a chance to the assessee for explanation before issuing a notice.
• The assessing officer issues a show cause notice to the taxpayer under Section 148A(b),with potential evidences that income has escaped assessment. The taxpayer can respond with their own material and evidence.
• The assessing officer must provide the taxpayer with all the material and information relied upon, along with the notice under Section 148A or the Show Cause Notice.
• The assessing officer must allow the taxpayer at least seven days but no more than 30 days to provide their explanation.
• After considering the taxpayer's response, the income tax officer will decide whether to issue a notice for reassessment. If the officer decides to reopen the case, they must provide a copy of the order and a notice under Section 148 to the taxpayer.
• Else, the case is closed at this point.

Therefore, the assessing officer seeks approval from required authority, conducts inquiry and then proceeds issuing notice under section 148.

Points to be noted for Notice u/s 148

• There must be supporting material to allege that income has escaped assessment. A simple assertion of ‘reason to believe’ is not enough to validate the issuance of a notice under Section 148A.
• The assessing officer is required to consider the taxpayer's reply to the notice referred to in Clause (b) of Section 148A, which is the Show Cause Notice.
• If the taxpayer requests a personal hearing, cross-examination of a third party, or a statement from a third party, the assessing officer must provide it with the approval of the specified authority.
• Any notice issued under Section 148 after that date without following the procedure under Section 148A (i.e., without giving an opportunity to be heard) would be invalid and against the provisions of the Income Tax Act.
• The courts have consistently emphasized that the procedure outlined in Section 148A must be strictly followed in accordance with the legislative intent of introducing the new provisions.
• After receiving the order and notice under Section 148, the taxpayer needs to file the income tax return for the relevant assessment year within the prescribed time mentioned in the notice and undergo the reassessment process.

Time Limit to Issue a Notice Under Section 148

No notice under Section 148 will be issued for the relevant assessment year after:

1. Normal time limit: 3 years and 3 months from the end of the relevant assessment year.
2. Specified time limit: If the Assessing Officer has evidence of income amounting to Rs 50 lakhs or more that has not been taxed - 5 years and 3 months from the end of the relevant assessment year

Note: The above are time limits for notice issued from 01-09-2024. Time limits differ for notices issued before 31-08-2024.

Replying to Notice Under Section 148

In case you receive the notice under section 148, please follow the below-mentioned pointers:

• Firstly, check the notice for reasons to believe which are recorded by the assessing officer for issuing the notice under section 148. If the notice doesn’t include the reasons, then you could request the assessing officer to send a copy of the recorded reasons.
• You will need to respond to the notice within the given time frame, which is usually 30 days. You can respond to the notice either by filing a return or by providing a written reply to the Assessing Officer along with all the details and proofs.
• In case you’re satisfied with 'reasons to believe' which was recorded by the assessing officer, file the return at the earliest. In the case already filed, send the copy to the assessing officer. 
• In case you’re filing the income tax return in response to notice issued under section 148, ensure that you file it after performing proper due diligence that you declare all your income and expenses carefully. In case you miss reporting any of your income correctly then it could result in unnecessary penalties.
• If you believe that the notice served is not valid or reasons provided by the assessing officer for opening assessment under section 147 aren’t valid, then you could challenge the validity of such notice before the assessing officer or higher authorities.
• In case you win your case, the Court would halt your assessment proceedings. However, in case the decision doesn’t go in your favour, then the assessing officer could proceed with the reassessment.

What Happens if you Do Not Respond to Section 148?

If you don't respond to a notice under Section 148, the Assessing Officer has the authority to carry out the assessment using the information at hand. Basically, they can make an estimate of your income and evaluate it to the best of their judgment. This is called best judgement assessment under section 144. In case you disagree with their assessment, you have the option to file an appeal with either the Commissioner of Income Tax (Appeals) or the Income Tax Appellate Tribunal.

Who can Issue a Notice Under Section 148?

Section 151(1) of the Income Tax Act, 1961 contains the provisions for issue of notice:

1. It is to be noted that there are various ranks of seniority among the assessing officers of the income tax department.
2. Notice under section 148 can be issued only by the assessing officer only with the prior approval of Joint Commissioner.
3. If the assessing officer is of rank Joint commissioner and above, no prior approval is required.
4. If notice is issued after expiry of three years from the end of relevant AY, the assessing officer should take prior approval of Principal Chief Commissioner or Principal Commissioner or Chief Commissioner or Commissioner of Income Tax.

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

1. Begin by understanding the reasons that prompted the Assessing Officer (AO) to send the notice. If the reasons are not provided in the notice, individuals have the right to request a copy of the same.
2. If the assessee finds the reasons provided in the copy unsatisfactory or baseless, they have the right to file an objection challenging the validity of the notice.
3. It is essential for the assessee to provide valid reasons while raising objections and questioning the lawfulness of the notice issued under Section 148.
4. If the assessee is satisfied that the notice issued is valid, he should file a return of income under this section, within the time limit set forth as the case may be.
5. In case the Assessing Officer dismisses the assessee's claims, the assessee retains the right to request the provision of separate reasons for the dismissal.
6. The assessee also has the option to file a writ petition with the appropriate High Court, challenging the legality and validity of the notice issued under Section 148. This can be done even before the assessment or re-assessment is concluded.
7. The assessee must provide evidence of the following actions:
   1. Requesting a copy of the reasons stated by the Assessing Officer for issuing the notice under Section 148.
   2. Filing an objection to the reasons presented by the Assessing Officer.
   3. Requesting the Assessing
   4. Challenging the lawfulness of the notice's issuance.

Conclusion

Section 148 of the Income Tax Act 1961 plays a significant role in ensuring proper assessment of taxpayers whose income has not been appropriately evaluated. It is vital to take any notice received under this section seriously and respond promptly by providing accurate and complete information about your income and expenses. Failing to respond within the specified timeframe may lead to an assessment based on the Assessing Officer's discretion, which may not be favorable to you. Therefore, it is important to comply with the requirements and cooperate with the authorities to ensure a fair and lawful assessment of your tax liabilities.

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