Section 148A of Income Tax Act: All You Need To Know

The Income Tax Department reserves the right to scrutinise income tax filings by taxpayers and order the reopening of assessments if they suspect escaped income from assessment. The recently added Section 148A of the Income Tax Act adds more transparency to this process by allowing assessees to be heard. Sec 148A requires assessing officers to issue a notice to the taxpayer when they decide to reassess returns. In this article, we learn all about Section 148A and its new provisions.

Budget 2021 added Section 148A to the Income Tax Act . This Section pertains to the procedures Assessing Officers must follow when issuing notices to taxpayers on suspicion of income escaping assessment in any given assessment year.Effective from 1st April 2021, if an Assessing Officer (AO) suspects that a taxpayer’s income has escaped assessment, she/he can issue a notice to the taxpayer informing them of a reassessment. According to the recently added Section 148A of the Income Tax Act, AOs have to follow certain procedures when sending this notice. Sec 148A states that AOs must offer the taxpayer an opportunity to explain their case before the issue of the notice. Essentially, it allows the taxpayer to be heard before the official notice is issued.Earlier, reassessment procedures solely relied on the opinion of the AO, without taking the assessee’s view into account. According to the provisions outlined in Section 148A, assessing officers must grant the assessee a chance to present their case. Section 148A of the Income Tax Act states that AOs can grant anywhere between a minimum of 7 days to a maximum of 30 days to the concerned taxpayer to furnish an explanation. The concerned income tax assessing officer will review the reply and decide if the case qualifies for income escaping assessment. If the AO decides to reopen the case, a notice u/s 148, along with the copy of the order is sent to the taxpayer.

According to Section 148A of the Income Tax Act, the assessing officer must complete the following steps before issuing a notice u/s 148:

Step 1: Conduct an Inquiry

Before issuing a notice under Sec 148A, an assessing officer may conduct an inquiry if there is information suggesting taxable income has escaped assessment. Such an inquiry requires the prior approval of the specified authority.

Step 2: Offer an Opportunity to be Heard

The assessing officer must then formulate a notice under Section 148A of the Income Tax Act, notifying the taxpayer to show cause of escaped income. This notice must highlight the time limit granted (7 days to 30 days), within which the assessee must respond. Moreover, this response period can also be extended, provided the taxpayer makes an application requesting the same.

Step 3: Consider the Assessee’s Reply

The assessing officer concerned must consider the assessee’s reply to understand if there is cause for reassessing the case. This step is included to give due weightage to the assessee’s view in the decision-making process.

Step 4: Formulate a Decision

The assessing officer in-charge must make a decision on the basis of the material available on record - including the taxpayer’s response. The order containing this decision must be passed with the approval of the specified authority within 1 month from the end of the month in which she/he receives the taxpayer’s reply. Also Read: Tax Deducted At Source: Meaning, Returns, Filing And Due Dates

Under the provisions outlined in Section 148, an income tax officer can issue a notice to an assessee if there is ‘reason to believe’ that the assessee has escaped in reporting some income in the relevant assessment year. Once the notice has been issued, the total income of the concerned assessee can be reassessed by the assessing officer under Section 147 of the IT Act.Section 148A of the Income Tax Act, on the other hand, states that the assessing officer must follow certain new procedures outlined in this section before issuing any such notices. Section 148 A of the Income Tax Act mandates that the AO provide the concerned taxpayer an opportunity to be heard. It offers a step prior to issuing of notices to help the taxpayer clarity on the income suspected to have escape assessment.

If the Income Tax Department is not satisfied with the taxpayer’s response under Sec 148A, the assessing officer can open the case for reassessment. In this case, the concerned assessee may have to:

• Undergo a lengthy and time-consuming assessment process.
• Pay additional tax, fines, penalties, and interest on income that failed to be assessed in the preceding years.
• Face severe penalties, including imprisonment in extreme cases if the AO believes that this was a deliberate attempt at tax evasion.

Time Limit for Reopening Assessment

While Section 148A of the Income Tax Act allows the taxpayer to be heard, the preceding section also imposes certain time limits on reopening of cases. The IT Department cannot issue a notice if 3 years have passed from the end of the relevant assessment year. However, a notice can be issued after 3 years -but within 10 years - from the end of the relevant assessment year, if escaped taxable income amounts to Rs. 50 Lakhs or more. Also Read: What is Advance Tax Payment? - Guide to Advance Tax in India

Section 148A of the Income Tax Act was added to infuse better transparency and accountability in the way in which escaped tax is identified. The inclusion of this Section provides the taxpayer an opportunity to clarify their tax filing details. Therefore, assessees should understand the procedures covered under Section 148A and be mindful of their own rights to make the most out of this provision.Ready to make the most of your money? Start your tax planning journey now!