24 Dec 2021
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 The Income Tax Act, 1961 is the primary law that lays down the rules and regulations of direct taxes on income in India. It is a comprehensive act that has around 298 sections to cover taxes on various kinds of income. One of these sections is Section 147 of the Income Tax Act, which deals with the reopening of assessment proceedings under the act. Here is everything you need to know about Section 147 of the Income Tax Act, 1961.

What is Section 147 of the Income Tax Act?

The income a taxpayer earns during the previous year is assessed during the corresponding assessment year. Occasionally, some heads of income may escape assessment. In case a scenario like this occurs, and if the Assessing Officer(AO) finds that some income that is actually chargeable to tax has not been assessed, the officer can reassess the individual’s income tax returns as per Section 147 of the Income Tax Act.

Now that you know the meaning of this act, let’s look at what an Assessing Officer can do in case he becomes aware of income-escaping assessment. The officer can issue a notice under Section 148 of the Income Tax Act.

The notice u/s 148 can be given subject to the following conditions:

 

  1. There is some information with the AO to suggest that some income chargeable to tax has escaped assessment.

  2. The AO takes approval from the certified head to issue the notice under this section.

Scope of assessment under Section 147

The scope of assessment under the provision of Section 147 of the Income Tax Act is clear. The AO carries out assessment under this section with one objective - to bring any taxable income within the scope of taxation, that may not have been assessed and duly taxed. So, the scope of Section 147 includes any taxable income that may have escaped original assessment.

And what does the term ‘original assessment’ mean? Well, it is simply the assessment of income carried out under sections like 143(1), 143(3), 144 and 147 of the Income Tax Act. Here is when an income is considered to have escaped assessment.

 

  • If your total income during the previous year exceeded the maximum amount not chargeable to tax, but you did not file your income tax return.

  • If you have filed your IT return, but no assessment has been made for the same, and the AO finds that you have either claimed excess loss, deduction or allowances, or shown less income than what you earned.

Procedure of assessment under Section 147

The procedure under the provision of Section 147 of the income tax is fairly simple and straightforward. Here are the details of the procedure-

  • To make an assessment under Section 147 of the Income Tax Act, the AO first issues a notice to the taxpayer u/s 148.

  • Then, the taxpayer is given an opportunity to be heard.

  • If the AO finds that some income has not been assessed, it is assessed or reassessed as needed.

  • The AO can also compute the loss, depreciation, allowance etc. again if need be.

The assessment under this section cannot be performed for any incomes which are the subject of any appeal or revision.

Time-limit for completion of assessment u/s 147

The law also gives a time limit for completing the assessment under Section 147 of the Income Tax Act time limit. This limit is given in Section 153 of the Act, according to which the AO must make the assessment u/s 147 within 1 year from the end of the financial year in which the notice u/s 148 is issued to the taxpayer.

So, for example, if the AO issued the notice u/s 148 to you on October 10, 2020, then they must complete the assessment Section 147 of the Income Tax Act within 1 year from the end of the FY 2020-21.

Also, the Assessing Officer can generally only issue a notice u/s 148 within four years from the end of the relevant assessment year if the income escaping assessment is Rs 1 lakh or lower. However, there are exceptions to this. In the following cases, this time limit is extended as given.

 

  • If the income-escaping assessment is higher than ₹1 lakh, the time limit is 6 years.

  • If the income-escaping assessment is related to assets located outside India, the time limit is 16 years.

Conclusion

So, in case you receive a notice under Section 148 of the Income Tax Act, you know now that it pertains to assessment under Section 147. Take a look at the income that may have escaped assessment as per the AO’s notice, and if you have a genuine reason or explanation for this, ensure that you communicate it to the Assessing Officer as per the due procedure.