Income Tax Notice Under Section 148 of the Income Tax Act: Assessing Officer’s Authority and Taxpayer’s Rights

TAX RELATED UPDATES & NEWS

(11th July 2024)

Income Tax Notice Under Section 148 of the Income Tax Act: Assessing Officer’s Authority and Taxpayer’s Rights 

As per the provisions of section 148 of the Income Tax Act 1961, it gives authority to the Assessing Officer to send notice to a taxpayer whose income has not been properly assessed. 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.

A Section 148 notice issued by the income tax officer to reassess the taxpayer’s income tax return (ITR) if they disagree with the taxpayer’s assessment and believe that some income has not been properly assessed.

Finance Act 2022 introduced Section 148A, which requires the assessing officer to conduct an inquiry and give the taxpayer an opportunity to explain their case before issuing a notice under Section 148.

The assessing officer must issue a notice to the taxpayer under Section 148A(b), providing information and adverse material suggesting that income has escaped assessment. The taxpayer can respond with their own material and evidence.

In the 2021 budget, the government introduced Section 148A in the Income Tax Act. If the income tax officer has information that the taxpayer has undisclosed income for a specific assessment year, the officer must give the taxpayer a chance to provide an explanation before issuing a notice. The taxpayer has the right to be heard by the officer.

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.

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. 

Normally, a notice cannot be issued if three years have passed since the end of the relevant assessment year. However, if there is evidence of tax evasion of at least Rs 50 lakh, a notice can be issued beyond three years but within 10 years from the end of the relevant assessment year.

Before conducting any inquiries, providing opportunities to the taxpayer, or making any orders, the income tax officer must obtain the approval of the specified authority.

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 emphasised 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:

a. Normal time limit: 3 years from the end of the relevant assessment year.

b. Specified time limit: If 3 have passed but not 10 years from the end of the relevant assessment year and the Assessing Officer has evidence of income amounting to Rs 50 lakhs or more that has not been taxed.

The Assessing Officer will issue a notice only if the following conditions are met for the relevant assessment year:

i.   The taxpayer has filed their returns under Section 139.

ii.  The taxpayer failed to file their returns after receiving a notice under Section 142 or Section 148(1).

iii. The taxpayer should have provided complete and accurate information required for completing the assessment of that relevant year. 

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. 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.

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

1. The assessee must fulfill the duty of filing tax returns for any income considered as “Income Escaping” for the relevant assessment year.

2. Once the returns are filed, the assessee has the right to request a copy of the notice, which outlines the reasons behind the Assessing Officer’s decision to issue the notice under Section 148.

3. 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.

4. It is essential for the assessee to provide valid reasons while raising objections and questioning the lawfulness of the notice issued under Section 148.

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. Even after the assessment is completed and the matter is under appeal, the assessee still has the right to file a writ petition with the relevant High Court, questioning the legality and validity of the notice under Section 148.