Issues of Re-Assessment Proceedings u/s 148 of Income Tax Act

Arjuna (Fictional Character): Krishna, there is too much discussion going on regarding the validity of notices issued u/s 148 of the Income Tax Act for reassessment proceedings.

Krishna (Fictional Character): Arjuna, the income tax department has issued notices u/s 148 for reassessment proceedings of previous financial years in the month of March-21. CBDT’s notification No. 20/2021, dated 31-03-2021, issued in exercise of the powers conferred by section 3(1) of the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TLA Act, 2020) extended the last for issuance of notice u/s 148 up to 30.06.2021. However, the validity of the notices issued after 31.3.2021 is challenged in many High Courts by filing a writ petition.

Arjuna: Krishna, please explain the provisions of section 148 of the Income Tax Act.

Krishna: Arjuna, Where the Assessing Officer has reason to believe that income assessable to tax has escaped assessment, he may reopen the relevant assessment, after recording his reasons for doing so, by issuing a notice u/s 148. The time limit for issuing such notice up to 31.3.2021 was 4 years from the end of the relevant assessment year if income escaping assessment is less than Rs.1 Lac and 6 years if income escaping assessment is Rs.1 Lac or more. 

However, the provisions of section 148 were substituted by the Finance Act, 2021 w.e.f 01-04-2021 according to which notice can be issued only after the Assessing Office has material in hand suggesting that income has escaped assessment and prior approval as mentioned in section 148A of the Act have been obtained by the Assessing Officer. Also, notice under section 148 has to be issued only before 3 years from the end of the relevant assessment year. However, the notice can be issued before 10 years only if the Assessing Officer has in his possession books of account or other documents or evidence which reveal that the income chargeable to tax, which has escaped assessment amounts to or is likely to amount to Rs.50 Lacs or more for that year.

Arjuna: Krishna, the validity of the notices issued u/s 148 has been challenged on which grounds?

Krishna: Arjuna, the validity of notices issued after 31.3.2021 have been challenged as the notices were issued under the old provisions of section 148 even though the provisions of section 148 were substituted by the Finance Act, 2021 w.e.f. 01-04-2021.Thus, notice under old provisions of section 148 can’t be issued on or after 01-04-2021. Further, the provisions of section 148A of the Act, which requires the assessing officer to conduct the inquiry and provide an opportunity of being heard, have not been done.

Arjuna: Krishna, Whether the taxpayers will get relief?

Krishna: Arjuna, many writ petitions have been filed in recent weeks to challenge the validity of notices issued by the department after 31-03-2021. The Department has sought time to file a reply in the matter. The decision of the Court will decide the matter.