As a taxpayer, it is mandatory to furnish your income details to the Income Tax Department. You can do this by filing your returns for each financial year. After you duly file your returns in the prescribed format, the Income Tax Department processes them.
It verifies your details for correctness and examines your returns correctly. This process of scrutinising your returns by the Income Tax Department is known as ‘Assessment.’ According to the Indian income tax law, there are four types of assessments, briefly mentioned below:
Assessment under Section 143 (1), known as the Summary assessment
Assessment under Section 143 (3), called the Scrutiny assessment
Assessment under Section 144, which is the Best judgement assessment
Assessment under Section 147, called the Income escaping assessment
With the Finance Act 2021 bringing about various amendments, there have been a few changes in the 147 section too. Read on to understand more about assessments under Section 147 and the essential pointers you must know as a taxpayer.
The Finance Act 2021 has changed the assessment proceedings related to Sec 147 of the Income Tax Act. Furthermore, all Sections from 153A to 153C have been combined under Section 147.
As mentioned, Sec 147 focuses on income escaping assessment. This gives the Assessing Officer (AO) the power to reopen the assessment proceedings. Whenever the AO finds that the income has escaped assessment, they can reopen the proceeding at any time.
Section 147 of the Income Tax Act resembles Section 263, wherein the Commissioner can reopen the assessment hearing when they feel proceedings were prejudicial to the interest of revenue.
The only differentiating feature between the two sections is that the former involves an AO, while a Commissioner is involved in the assessment proceedings of the latter.
Simply put, Section 147 of the Income Tax Act empowers AO to reopen the assessment proceedings when they understand either a part or the whole income is not considered during the assessment.
However, before an AO can reopen the assessment proceeding per Section 147, there must be a proper reason to believe that either a whole or a part of the income has escaped assessment.
Another point to consider is that AO has to verify if the income has escaped assessment after the closure of assessment proceedings. For instance, during the initial proceeding, the AO may have failed to consider the depreciation factor or a specific income portion.
All these reasons can lead to wrong assessment. Under such circumstances, AO can reopen the assessment proceeding and examine it again. This is where Section 147 of the Income Tax Act becomes applicable.
However, there may be instances wherein the income was under-assessed. This simply means the income has been assessed at very low rates. Again, the Section 147 is applicable here, and the AO can reopen the proceedings.
The main agenda of an AO reopening the assessment proceedings is to bring the taxable income within the taxation bracket, which may not have been assessed or taxed for whatever reason.
Simply put, this section comes into force when your taxable income has escaped the original assessment. Here are a few situations wherein your income may have escaped assessment during the initial assessment proceedings.
One instance is when your total income for the previous financial year is within the taxable range and you have not filed your income tax returns for the same.
In another instance is when you may have filed your returns accurately, but no assessments have been conducted for your income. Hence, while scrutinising, the AO figures out that you have claimed excess loss or shown less income than what you have earned.
Under all these circumstances, Section 147 of the Income Tax Act stays applicable per the scope of assessment.
The process of assessment is straightforward and transparent. First, the AO issues notice to you, per Section 148. You may have to provide your income details for the relevant assessment year.
The AO issues the notice in a prescribed format by mentioning all particulars. However, before giving the notice, AO has to conduct an inquiry to conclude that the income has escaped assessment.
Furthermore, you are granted an opportunity to be heard within 7-30 days from when the notice has been issued. Then, the AO verifies whether or not the income has been assessed.
Finally, the reassessment of the income is completed. During the reassessment process under Section 147 of the Income Tax Act, AO may consider depreciation, loss, allowance and other factors.
The assessment under Section 147 of the Income Tax Act must be completed within 9 months. This timeline starts from the end of the financial year from when the notice was issued, per Section 148 of the Income Tax Act.
While maintaining the timeline is crucial, it is vital to consider the AO notice seriously. Firstly, analyse the reasons mentioned in the notice and check if the income has escaped assessment.
However, if you find that reasons are missing, you may always contact the AO to send you a copy of the reasons. After you are satisfied with the reasons mentioned, the best thing would be to file your returns as soon as possible.
In case you filed your returns already, send a copy of the same to the AO. However, if you file your returns after the notice issuance, file them diligently by correctly declaring your expenses and income.
Any deviation from this can result in huge penalties. Contrary to the above, if you feel the reasons are invalid, you can even challenge the notice before the AO. In such cases, a higher authority may scrutinise your assessment proceedings.
Once you win, the court may halt the proceedings of your assessment. On the other hand, if the decision goes in favour of the AO, they may continue the reassessment process.
A taxpayer must know the process and the provision of Section 147. You can get additional details regarding various sections of the Income Tax Act on Bajaj Markets.
If the income that has escaped the assessment is ₹50 Lakhs for a particular assessment year, then AO can reopen the case even after three years.
Only an AO who holds power equal to the rank of a Deputy or Assistant Commissioner can send the notice under Section 147.
The Income Tax Department can examine your returns within six months from the end of the relevant financial year.
Yes, you can appeal against the notice issued for reassessment if you are not satisfied with the reasons mentioned.