Description

Section 148 of the Income Tax Act, 1961 empowers the Assessing Officer (AO) to issue a notice to the taxpayer if they have reason to believe that income has escaped assessment. This notice is an essential step in initiating re-assessment under Section 147. The purpose of the notice under Section 148 is to inform the taxpayer about the re-opening of their assessment and to allow the taxpayer an opportunity to respond or defend the claim of escaped income.

Key Points of Section 148:

1. Circumstances for Issue of Notice:

• Reason to Believe: The AO must have a valid reason to believe that income has escaped assessment. This could be due to:
  • Omission or failure to disclose income,
  • Incorrect treatment or classification of income,
  • Discovery of new facts or information indicating escaped income.
• Escaped Income: This refers to income that was either not included or was underreported in the original return of income, leading to a lower tax liability than what should have been assessed.

2. Procedure for Issuing the Notice:

• Section 148 empowers the AO to issue a notice to the taxpayer under this section after forming the belief that income has escaped assessment.
• The AO must issue the notice in writing and it should be served on the taxpayer, typically in Form 7. The notice must be issued within the time limits prescribed under the law.

3. Time Limit for Issuing Notice:

• The time limit for issuing notice under Section 148 depends on the period in which the income has escaped assessment.
  • 4 years from the end of the relevant assessment year if the escaped income is less than or equal to Rs. 1 lakh.
  • 6 years from the end of the relevant assessment year if the escaped income exceeds Rs. 1 lakh.
  • In cases involving fraud or willful concealment of income, the AO can issue the notice up to 16 years from the end of the assessment year.

4. Contents of the Notice:

• The notice under Section 148 should include:
  • A statement of the reason to believe that income has escaped assessment.
  • A request for the taxpayer to file a return of income for the relevant assessment year, even if a return has already been filed.
  • The notice typically refers to Section 147 as the legal basis for re-opening the assessment and should provide adequate details of the escaped income.

5. Response to the Notice:

• Once the notice is issued under Section 148, the taxpayer has the opportunity to:
  • File a return of income: The taxpayer must file a return of income for the relevant assessment year as if the notice were a new assessment.
  • Provide evidence or explanation: The taxpayer may submit any documents, evidence, or explanations to support their position and explain why the income has not escaped assessment.
  • File objections: The taxpayer can file objections with the AO if they believe the notice is unjustified. If the taxpayer disagrees with the AO’s reasons to believe that income has escaped assessment, they can challenge the reopening process in court.

6. Re-assessment After Notice:

• After the notice is issued and the taxpayer files a return, the AO will proceed with the re-assessment under Section 147. The AO will assess the income of the taxpayer in light of the new information or facts leading to the reopening of the assessment.

7. Limitations on Re-Assessment:

• Section 148 places certain limitations on the AO’s ability to issue a notice. The AO cannot re-assess the income based on a mere change of opinion. They must have valid reasons supported by facts or evidence to believe that income has escaped assessment.
• The notice can be challenged by the taxpayer if they believe that the reopening is done without proper justification or is merely a change of opinion.

8. Assessment After Notice Under Section 148:

• If the AO determines that income has indeed escaped assessment after receiving the taxpayer's explanation, the AO will re-assess the income and pass a fresh assessment order under Section 143(3) or Section 144 (depending on whether a regular assessment or best judgment assessment is made).

9. Notice for Re-assessment in Case of Non-Disclosure of Income:

• If the taxpayer fails to disclose income under Section 139, or if they conceal income or provide false information while filing their return, the AO can issue a notice under Section 148 to initiate re-assessment of that year’s income.

Punishment

Penalty for Concealment of Income (Section 271(1)(c)):

• If it is found that the taxpayer concealed or misrepresented their income in their original return or failed to disclose income leading to the reopening of assessment, a penalty can be levied under Section 271(1)(c), ranging from 100% to 300% of the tax sought to be evaded.

Prosecution for Willful Evasion of Tax (Section 276C):

• If willful concealment of income or tax evasion is detected during the re-assessment, prosecution under Section 276C can result in:
  • Imprisonment for up to 7 years,
  • A fine.

Failure to Comply with Notice (Section 271F):

• If the taxpayer fails to comply with the notice under Section 148 or does not file the return as directed, a penalty of Rs. 5,000 may be imposed under Section 271F.