Section 148A Notice: Dangerous as Ak-47 Riffle in the hands of AO - Beware

In continuation to educate the assessee on IT notices and warn them to avoid easy-going and errors while filing responses, this article is written to create awareness.

Among various notices, Section 148A is an important tool for the IT Department to call for information and make an assessment. 

Section 148A of the Income Tax Act, 1961, pertains to the issuance of notices for assessment or reassessment in certain cases. It is as dangerous as the AK-47 rifle in the hands of the Department if we wrongly respond to this notice. Be Careful!

• History: Section 148A was inserted into the Income Tax Act, 1961, by the Finance Act, 2021. It was introduced as a new provision to empower the Income Tax Department to issue notices for assessment or reassessment beyond the prescribed time limit in certain cases where income has escaped assessment. The Finance Act, which typically introduces amendments to various tax laws, including the Income Tax Act, is passed annually by the Indian Parliament and comes into effect from the beginning of the financial year specified in the Act, generally from April 1st of the relevant year. Therefore, Section 148A became effective from the financial year 2021-2022 onwards.
• Purpose: The provision enables the Income Tax Department to issue notices for reassessment or assessment beyond the prescribed time limit in certain cases.
• Applicability: It applies when the assessing officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year.
• Time Limit: The notice under Section 148A can be issued within 16 years from the end of the relevant assessment year.

Conditions for Issuance

The income escaped assessment should exceed Rs. 1 lakh for each assessment year.

The reassessment should be done with the approval of the principal commissioner or commissioner.

Procedure

The assessing officer must have tangible reasons to believe that income has escaped assessment. The reasons for such beliefs must be recorded in writing. A notice should be served to the assessee specifying the reasons for issuing such notice. The assessee has the right to challenge the notice and can file objections against it.

Consequences of Non-Compliance

If the assessee fails to comply with the notice, penalties or prosecution may be initiated.

Conclusion

Based on my experience, the assessee does not understand the seriousness of this notice. Instead of approaching qualified and experienced CAs, they will respond to notices in a vague manner and file ITRs with dummy amounts. Dummy amounts mean without any proof or documents. It results in huge tax liabilities, interest, and penalties under Sections 147 and 271 of the IT Act. In one case, the assessee received an IT assessment order of Rs 60 lakh for the wrong disclosure of a capital gain of Rs 1.4 crore. In addition, the department had initiated 271 penalties of 100% tax. This equates to almost Rs 1.2 crore in taxes and penalties. Be careful and avoid easygoing if noticed under Sec. 148A. 

Section 148A of the Income Tax Act provides the Income Tax Department with the authority to reassess income that has escaped assessment. It is important for taxpayers to understand their rights and obligations regarding such notices and seek professional advice if necessary to ensure compliance with the law.