Income Tax Act Section 148: Assessment or Reassessment

Income Tax Act Section 148 permits the Income Tax Department to reopen assessments if there is a suspicion of inaccurate income reporting or some income has escaped assessment in the last ITR Filing. For a taxpayer, a notice under section 148 signals that the assessing office will reassess the taxpayer's Income tax return.

In this blog, we will explore Section 148 of the Income Tax Act in detail and outline the importance of staying tax compliant.

What is Section 148 of the Income Tax Act?

According to this section, the assessing officer has the authority to send a legal notice to a taxpayer whose income has not been assessed accurately. This means that the officer has suspected that the taxpayer might not have disclosed their completed income or might have provided a false representation of it, and the authorities can commence proceedings under this section.

Key Aspects Included In This Section

Reassessment Condition: Under this condition, an Income tax reassessment, Section 148 of the previously filed ITR, can only be initiated if there is credible evidence indicating that the taxpayer has underreported or concealed their potential income.

Section 148A: This section acts as a safeguard, and according to this section, the AO issues an inquiry where the taxpayer has the chance to respond and explain their case before any notice is issued under section 148.

Legal Compliance: The taxpayer must ensure that they respond to the section 148 notice to avoid any further penalties or legal complications.

What Does the Section 148 Income Tax Act Notice Say?

The note under this section highlights the alleged difference in the income reported by the taxpayer. The notice further details the entire assessment year (AY), the reasons why this reassessment has been issued, and the areas where the income may have been underreported or concealed.

For instance, a notice can request clarification on a significant bank deposit or a high-value cash transaction.

The notice further states that the documents required and a time limit under which the taxpayer must respond to the notice.

What are the Provisions for the Issuance of Section 148 Notice?

To issue a notice under section 148, there is a structured process:

1. The Assessing officer has to first initiate an inquiry and then give a chance to the taxpayer to respond.
2. The notice is issued when the assessing officer is satisfied with the evidence that income has been escaped from the assessment.
3. In return for the notice, the taxpayer will file a return response and will provide a clarification for the discrepancies.

Reasons to Issue a Notice Under Section 148?

There are various reasons under which a notice is issued, some of which are stated below.

Not Disclosing Taxable Income: A notice under this reason will be issued when a taxpayer fails to disclose a portion of their income on their ITR. For example, suppose a person has an additional income source, such as earnings from freelancing, and fails to report it to the tax authorities. In that case, the tax authorities might issue a notice to reassess the individual's entire income again.

Suppression of Financial Transactions: When an individual fails to record or underreports a significant transaction, it raises suspicions about the accuracy of their reported income in the ITR. For instance, a business was unable to report substantial cash sales in its records. Such a situation triggers a review under section 148 to reassess these omissions.

Unexplained High-Value Transaction or Major Cash Deposits: If bank statements of a taxpayer reveal a major cash deposit that does not sit consistent with the income evaluated in the ITR, then in such cases, authorities may suspect the case of concealed earnings.

For example, sudden significant bank deposits without a clear basis or justification would trigger a notice under Section 148 by the assessing officer.

Information from other Government Agencies Suggesting Tax Evasion: The ITR department often receives confidential data from external agencies that highlight discrepancies in the financial dealings of the taxpayer. Such cases will result in a notice under Section 148.

Timeline To Issue a Notice Under Section 148

The time limit of Section 148 of the Income Tax Act is as follows.

How to Reply to The Income Tax Notice Under Section 148

The key things to keep in mind are that the taxpayer must not take this notice lightly and the response should be made within the specified timeline. Moreover, please follow the pointers below while replying to the notice:

• Upon receiving the notice, please check the reasons for which the notice has been issued. If the notice does not have any reasons, request the AO to send you a copy of the recorded reasons.
• The timeframe for responding to the notice is now 30 days, within which you must reply. There are two ways to respond: one is by providing a written reply to the AO along with all the proof filed with the return.
• If you have already filed a return, please send a copy to the assessing officer as soon as possible.
• If you are replying to the notice, ensure that you file it with proper accuracy and due diligence, and you must declare all your income and expenses clearly, because if you again misreport or conceal any income, then it could result in unnecessary penalties.
• If you believe the notice issued against you is invalid, you have the right to challenge its validity in court.
• If you win the case, the court will instruct the AO to halt all the reassessment procedures against you. If you lose it, the procedure will continue from where it stopped.

What Will Happen If you don't Respond to the Notice?

If a taxpayer does not respond to the notice within the timeframe, the assessing officer has the right to carry out the reassessment process using the information available to them. They can make their judgment and evaluate your ITR based on their understanding and the available information.

However, suppose the taxpayer disagrees with the result. In that case, they have an option to file an appeal with any of the Income Tax Appellate Tribunals and the Commissioner of Income Tax (Appeals).

Who has the Authority to Issue a Notice Under Section 148?

Income Tax Act Section 151(1) has the provision for the issue of the notice.

• No assessing officer is liable to issue a notice under section 148 of the Act unless instructed by the Principal Commissioner, the Chief Commissioner, the Principal Chief Commissioner, or the Commissioner to do so.
• The assessing officer can issue no notice under section 148 where the assessing officer is below the rank of a joint commissioner, unless the Joint Commissioner is satisfied with the reasons given by the AO. If the Joint Commissioner finds the evidence sufficient to issue a notice, a below-rank AO can issue it.

What are the Rights and Duties of the Assessee After Receiving the Notice?

• The Assessee must do their duty of filing the tax return for the relevant assessment years because a notice of Income escaping has been issued.
• Once the return has been filed, the assessee has the right to request a copy of the notice, which highlights the reason for which the assessing officer has issued the notice.
• If the assesses find the reason provided by the AO to be baseless and unjustified, then they can file the objection notice.
• For the assessee, it is important to provide all the valid information; however, they can raise questions and objections to the lawfulness of the notice.
• If the Assessing officer dismisses the claims made by the assessee, then the assessee can retain its right and request the provision of reasons for the dismissal of the claims.
• Assessee also has the right to file a write petition with the high court challenging the validity and the basis on which the notice has been issued under section 148. This can be done before the conclusion of the assessment and re-assessment.

Assessment Case Reopening

In the Union budget 2021, the decision has been made to shorten he time limit to income tax assessment cases. Previously, the period was six years, which has now been reduced to three years; however, in cases where the assessed concealed income exceeds Rs 50 Lakh, the assessment period can be extended up to 10 years due to significant tax evasion.

Need Expert Help With Revised Return?

Who wants a legal notice waiting for them in the mailbox because the heart does skip a beat or two while any such thing happens. However, section 148 of the Income Tax Act plays a vital role in ensuring that the taxpayer's income is assessed correctly. If you receive a notice under this section, then respond to it immediately and with due diligence.

Although it is advised to ask an expert for guidance in such legal matters, as they have the thorough knowledge of the Indian Income Tax Act, and can help you with the best financial advice. Hence, Savetaxs steps in. We have been assisting NRI taxpayers in resolving their complex legal issues and filing their ITR with utmost precision, thereby eliminating the risk of notices or enquiries.

For decades, we have been serving NRIs with a team of experts who have a knack for foreign and Indian taxation law, helping NRIs like you to stay tax-compliant. Connect with us today because we love to do the boring maths so that you don't have to stress about such legal notices.