Section 148 of the Income Tax Act: Notices for Unassessed Income

Section 148 of the Income Tax Act: Notices for Unassessed Income

The Income Tax Department in India has the authority to reassess a taxpayer's previously filed income tax returns (ITRs) under Section 147 of the Income Tax Act. This reassessment can be initiated if the department suspects income has escaped assessment. To formalize this process, the department issues a notice under Section 148.

What is Section 148?

Section 148 empowers the Income Tax Department to notify taxpayers about any income that has not been included in a previous assessment. This notification serves as an official intimation that the department is initiating proceedings to reassess the taxpayer's income.

Why Issue a Notice Under Section 148?

The Income Tax Department will not issue a notice under Section 148 based on mere suspicion. There must be concrete evidence suggesting that taxable income has been omitted from the taxpayer's ITR. This evidence could include:

• Information received from third-party sources, such as banks or other financial institutions.
• Discrepancies identified during tax audits.
• Mismatches between income reported and expenses incurred.
• Information obtained through international tax treaties.

Important Points About Section 148 Notices

• Time Limits for Issuing Notices: Under Section 148, it typically falls within four years after the close of the relevant assessment year. However, there are some exceptions.
• For income exceeding Rs. 1 lakh that escaped assessment, the notice can be issued within six years, subject to certain conditions outlined in Section 151 of the Income Tax Act.
• If the unassessed income involves assets located outside India, the department has up to 16 years from the assessment year to issue the notice.
• Providing Information: Upon receiving a Section 148 notice, the taxpayer is required to furnish specific information to the Assessing Officer within a stipulated timeframe (usually one month). This information may include:
• Their own income tax returns for the relevant assessment year.
• ITRs of other individuals who may be liable to tax during that year.
• Responding to the Notice: Taxpayers should carefully review the reasons provided by the Assessing Officer for issuing the notice. If no reasons are provided, they can request a copy of the justification. Once they understand the basis for the reassessment, they can take the following steps:
• If they have already filed ITRs for the relevant year, they should submit copies to the Assessing Officer.
• If they haven't filed ITRs, they should file them now, ensuring accurate disclosure of all income and expenses. Under-reporting or misreporting income can lead to penalties.
• If they believe the notice is invalid or issued without proper grounds, they can challenge it before higher authorities.

Benefits of Understanding Section 148

Being familiar with the provisions of Section 148 can help taxpayers effectively:

• Reduces Anxiety: Understanding the reasons behind the notice can alleviate unnecessary worry and confusion.
• Ensures Compliance: By responding promptly and accurately, taxpayers can fulfil their tax obligations and avoid potential penalties.
• Protects Rights: If the notice is issued incorrectly, taxpayers can exercise their right to challenge it through appropriate channels.

Recent Changes in the Reassessment Time Limits

The Union Budget of 2021 introduced a revision to the time frame for reopening income tax assessment cases. The standard time limit was reduced from six years to three years. However, for cases involving significant tax evasion (concealed income exceeding Rs. 50 lakhs), the assessment can still be reopened within ten years.

By understanding Section 148 and its implications, taxpayers can be better prepared to address any potential reassessment scenarios. Remember, timely and accurate filing of ITRs is the key to avoiding unnecessary scrutiny from the Income Tax Department.