Any type of income you earn in India is subject to income tax, and the authorities do not take tax evasion lightly. If an Assessing Officer (AO) finds that your taxable income has escaped assessment or requires reassessment, they can issue a notice.
You are then required to furnish documents to prove your tax compliance. In fact, 22,000 taxpayers received such notices from the Income Tax Department in 2023 alone. The reason for this was a discrepancy between their tax deductions and the information on Form 16.
Read on to know more about Section 148 of the Income Tax Act and notices issued under it, the allowed response window, and more.
The Income Tax Department holds the authority to reassess previously filed ITRs of taxpayers. If your filed return falls short upon scrutiny based on the predefined criteria, the AO can pick your income tax return for reassessment under Section 148 of the Income Tax Act.
Before sending a notice for ‘escaped assessment’ or ‘reassessment’ under Section 148, the AO has to conduct an inquiry and allow the taxpayer to explain their case. This is as per the stipulations in Section 148A of the Income Tax Act.
Upon issuance of the notice, the taxpayer must provide explanation within 7 to 30 days after receipt of the show cause notice. Based on this explanation, the income tax officer will decide whether to issue a notice for reassessment under Section 148 of the Income Tax Act.
If the officer decides to pursue the case, a reassessment notice under Section 148 of the Income Tax Act is sent to the taxpayer. Upon receipt, the taxpayer must reassess or re-compute the total income u/s 147 of the I-T Act and file the return accordingly.
An AO ranked below Deputy Commissioner or Assistant Commissioner cannot issue notice u/s 148 of the Income Tax Act. Additionally, the authorised AO can only issue such notices as per the stipulated time limit provisions. These are:
No notice can be issued if 3 years or less have elapsed from the relevant assessment year
If more than 3 years but less than 10 years have elapsed from the relevant assessment year, the AO can issue a notice. This happens if there is sufficient evidence revealing income chargeable to tax, which escaped assessment, amounts to ₹50 Lakhs or more, in the form of:
2. Expenditure in respect of a transaction or in relation to an event or occasion
3. An entry or entries in the books of account
Section 148A of the Income Tax Act was introduced in the Budget of 2021. Prior to the introduction of this section, the AO could issue a notice u/s 148 without disclosing the reasons or evidence for issuing the notice.
The taxpayer could access the reasons or evidence only after re-filing the return and requesting a copy for the same. After receiving the reasons, the taxpayer could object to the notice to which AO had to respond as per the provisions. This can lead to lengthy legalities.
However, under Section 148A of the Income Tax Act, the AO has to issue a notice that gives the taxpayer a chance to be heard before issuing notice u/s 148. Under Section 148A of the Income Tax Act, the taxpayer can accept or challenge the reason stated by the AO.
For this, the taxpayer will have to respond to the notice within the stipulated time period. Additionally, the AO has to obtain prior approval from relevant authorities before issuing notice u/s 148A.
Tax planning is extremely crucial to avoid receiving such notices and subsequent penalties from income tax authorities. A regular yearly income assessment is also beneficial to remain tax-compliant and avoid such inconveniences.
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An AO can issue such a notice for up to 3 years from the end of the assessment year in question. But if the escaped income is ₹50 Lakhs or more, the AO can issue notice for up to 10 years from the end of the relevant assessment year.
The AO must have evidence proving the same. Moreover, these notices are only valid provided that the taxpayer fails to submit ITR as per Section 139, 148 or 142(1). The notice will also be valid if the taxpayer neglects to disclose accurate information needed for the assessment of that relevant year.
If you do not respond to such notices in any manner, the AO can impose penalties u/s 271(1)(b) or Section 271(1)(c).
This section deals with the issuance of a notice for reassessment. As such, there is no specific penalty that can be imposed. However, if not resolved properly, the AO can impose penalties and legal implications as per other applicable sections.
Yes, you challenge the notice issued u/s 148A of the Income Tax Act before the Commissioner of Income Tax (Appeals) within 30 days. You can also file a writ petition before the High Court or Supreme Court.