Income Escaping Assessment & Related Sections: Income Tax Act 2025

Summary: The provisions governing Income Escaping Assessment empower the Assessing Officer to assess, reassess, or recompute income, losses, depreciation, or deductions where taxable income has escaped assessment, subject to Sections 280 to 286 of Income Tax Act 2025. Before initiating reassessment, the Assessing Officer must ordinarily issue a show cause notice, provide the information relied upon, consider the assessee’s reply, obtain prior approval from the specified authority, and thereafter issue a notice requiring the filing of a return. However, the prior opportunity requirement does not apply in specified cases involving notified information, Approving Panel directions, or judicial and appellate findings. Reassessment proceedings can also cover additional issues discovered during the proceedings. Notices may be issued only where information suggests escaped income and must comply with prescribed limitation periods, generally ranging from four years to six years depending on the amount and nature of escaped income. Special provisions govern cases arising from appellate or judicial orders, sanctioning authorities, tax computation, and circumstances requiring reassessment proceedings to be dropped.

Section 279 – Income Escaping Assessment

Section 279 provides that where, in the case of an assessee, any income chargeable to tax has escaped assessment for any tax year (hereinafter referred to as the “relevant tax year”), the Assessing Officer may, subject to the provisions contained in Sections 280 to 286, assess or reassess such income or recompute the loss, depreciation allowance, or any other allowance or deduction for the said relevant tax year.

Further, as per sub-section (2), for the purposes of such assessment, reassessment or recomputation, the Assessing Officer shall be empowered to assess or reassess any issue which has escaped assessment and which comes to his notice subsequently during the course of proceedings under this section, notwithstanding that the provisions of Section 281 have not been complied with in respect of such issue.

Section 280 – Issue of Notice Where Income Has Escaped Assessment

Section 280(1) stipulates that before making any assessment, reassessment, or recomputation under Section 279, the Assessing Officer shall, subject to the provisions of Section 281, issue a notice to the assessee along with a copy of the order passed under sub-section (3) of Section 281.

Clause (b) of sub-section (1) further provides that such notice shall require the assessee to furnish, within such period as may be specified therein, a return of income in respect of the relevant tax year, and such period shall not exceed three months from the end of the month in which the notice is issued.

Sub-section (2) provides that such return shall be furnished in the prescribed form and manner and shall be treated as if it were a return furnished under Section 263.

Sub-section (3) lays down that any return furnished after the expiry of the time specified in the notice shall not be deemed to be a valid return under Section 263.

Sub-section (4) mandates that no notice under this section shall be issued unless the Assessing Officer possesses information which suggests that income chargeable to tax has escaped assessment.

Sub-section (5) further requires that prior approval of the specified authority shall be obtained before issuing such notice in cases involving specified categories of information, including information received under a notified scheme, directions of the Approving Panel, or findings or directions of appellate authorities, Tribunal, or courts.

Sub-section (6) elaborately defines the expression “information which suggests that income chargeable to tax has escaped assessment” to include information arising from risk management strategy, audit objections, information received under international agreements, data made available under notified schemes, survey proceedings, and findings or directions of judicial or quasi-judicial authorities.

Section 281 – Procedure Before Issuance of Notice

Section 281(1) provides that where the Assessing Officer has in his possession information suggesting that income chargeable to tax has escaped assessment, he shall, prior to issuing any notice under Section 280, provide the assessee with an opportunity of being heard by serving a notice to show cause as to why such notice under Section 280 should not be issued.

Sub-section (2) requires that such show cause notice shall be accompanied by the information relied upon by the Assessing Officer, and the assessee shall be permitted to furnish his reply within the time specified therein.

Sub-section (3) provides that the Assessing Officer shall, after considering the material available on record and the reply furnished by the assessee, if any, and with the prior approval of the specified authority, pass an order determining whether it is a fit case for issuance of notice under Section 280.

Sub-section (4) carves out exceptions to the applicability of this section and provides that the procedure of prior opportunity shall not apply in cases where the Assessing Officer has received information under a notified scheme, directions from the Approving Panel, or findings or directions contained in orders of appellate authorities, Tribunal, or courts.

Section 282 – Time Limit for Issue of Notice

Section 282(1) provides that no notice under Section 280 shall be issued after the expiry of four years and three months from the end of the relevant tax year, unless the case falls within clause (b), where such period may extend up to six years and three months, provided that the escaped income amounts to or is likely to amount to fifty lakh rupees or more and is represented in the form of an asset, expenditure, transaction, or entry.

Sub-section (2) similarly prescribes that no notice under Section 281 shall be issued after four years from the end of the relevant tax year, extendable up to six years where the escaped income exceeds the prescribed threshold of fifty lakh rupees or more.

Sub-section (3) further provides that no notice under either Section 280 or Section 281 shall be issued within a period of one year from the end of the relevant tax year.

Section 283 – Cases Pursuant to Appellate or Judicial Orders

Section 283(1) provides that notwithstanding anything contained in Section 282, a notice under Section 280 may be issued at any time for the purpose of making an assessment, reassessment, or recomputation in consequence of or to give effect to any finding or direction contained in an order passed by any authority, Tribunal, or court, or pursuant to directions issued by the Approving Panel.

However, sub-section (2) imposes a limitation to the effect that such extended power shall not apply where, at the time when the original order subject to appeal or reference was made, the reassessment would have already been barred by limitation under the applicable provisions.

 Section 284 – Sanction for Issue of Notice

Section 284 provides that the specified authority for the purposes of granting approval under Sections 280 and 281 shall be the Additional Commissioner, Additional Director, Joint Commissioner, or Joint Director, as the case may be.

Section 285 – Other Provisions Relating to Reassessment

Section 285(1) provides that where an assessment or reassessment is made under Section 279, the tax shall be levied at the rate or rates which would have been applicable had such income not escaped assessment in the relevant tax year.

Sub-section (2) provides that the reassessment proceedings shall be dropped where the assessee establishes that even after including the alleged escaped income, the tax liability would not exceed the amount originally assessed, and the assessee has not challenged the original assessment order under the relevant appellate provisions.

Sub-section (3) further provides that where such a claim is made and accepted, the assessee shall not be entitled to reopen matters which have been concluded by orders passed under specified provisions of the Act, thereby ensuring finality of concluded proceedings.