Important Keyword: Income Tax, IT Notice, Notice u/s 148.

Section 148: Income Escaping Assessment

The taxes paid by individuals are vital for funding public services. However, there are instances where taxpayers might either intentionally or unintentionally fail to report certain portions of their income when filing their taxes. In response to this, tax authorities conduct thorough examinations to ensure accurate reporting of all income sources. In such situations, the Assessing Officer issues a notice under Section 148 for ‘Income Escapement Assessment’. The objective of this assessment is to uncover any concealed income, whether it was intentionally hidden or overlooked due to inadvertence.

Section 148 of the Income Tax Act

If upon reviewing the filed return, the Assessing Officer (AO) harbors doubts regarding the completeness of income disclosure by the taxpayer, they can initiate further assessment proceedings by issuing a notice under section 148.

In accordance with the Finance Act 2022, section 148A was introduced. In compliance with this section, the AO must conduct an inquiry and grant the taxpayer an opportunity to present their explanation before issuing a notice under section 148. The taxpayer must be allowed to provide their explanation within a timeframe of 7 days, which can be extended for up to 30 days.

The issuance of a Notice under Section 148 is subject to various conditions and terms as follows:

• The AO must have a valid reason to believe that taxable income has escaped assessment, supported by substantial evidence. Mere suspicion without evidence cannot be the basis for such a notice.
• The AO must provide the reasons in writing before issuing the notice under section 148. A mere change of opinion cannot constitute a reason to believe.
• The AO cannot issue a notice based on information provided by the taxpayer during the assessment.
• The AO can only issue a notice if they have received new information and not discovered it themselves by reading.
• The AO can issue a notice if previously disclosed relevant information comes to notice, even at a later time.

Furthermore, notice under section 148 can only be issued if the following conditions are satisfied:

• The taxpayer failed to file the return in response to the notice under section 142.
• The taxpayer filed the return under Section 139.
• The taxpayer is providing complete and accurate information for completing the assessment of the relevant Assessment Year.

The time limit for issuing a notice for income escaping assessment is provided under section 149 of the Income Tax Act. According to Section 149:

• The notice can be issued within 4 years from the end of the relevant assessment year.
• The AO can issue a notice up to 10 years from the end of the relevant assessment year if specific conditions are met.
• A notice for income escaping assessment related to assets located outside India can be issued within 16 years from the end of the relevant Assessment Year.

As for who can issue a notice under Section 148:

• An AO above the rank of Assistant Commissioner or Deputy Commissioner can issue a notice, provided the Joint Commissioner is convinced, with recorded justifications, that it is an appropriate case.
• The AO cannot issue a notice after 4 years from the end of the relevant assessment year, but higher authorities can issue it even after this period if valid reasons are found.

Regarding replying to the notice under Section 148:

• Upon receiving the notice, the taxpayer should review the recorded reasons for issuing the notice. If these reasons are not provided, the taxpayer must request the AO to furnish a copy of the recorded reasons.
• If the taxpayer agrees with the reasons given by the AO, they must respond within the stipulated time frame by either filing the requested return or providing the documents and information as requested.
• The taxpayer can dispute the validity of the notice before the AO or higher authorities if the notice is found to be invalid or if the reasons for initiating the assessment under section 147 are deemed inadequate.
• If the authority’s decision favors the taxpayer, assessment procedures can be suspended. However, if the authorities rule against the taxpayer, the AO can proceed with the reassessment.

Consequences of not responding to notice

In cases where a taxpayer fails to respond to the notice issued under section 148, the Assessing Officer (AO) has the authority to conduct the assessment based on the available information. This means they can estimate the taxpayer’s income and assess it to the best of their judgment under section 144 of the Income Tax Act.

If taxpayers disagree with the assessment made by the AO, they have the option to file an appeal. The appeal can be filed with either the Commissioner of Income Tax (Appeals) or the Income Tax Appellate Tribunal (ITAT). These are the next levels of authority where taxpayers can contest the assessment and present their case for review.

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Official Income Tax Return filing website: https://incometaxindia.gov.in/