Union Budget 2024 – Rationalization of provisions relating to re-assessment under Income-tax Act, 1961
Introduction
The Finance Act, 2021 had amended the provisions for re-assessment of income in the Income-tax Act, 1961 [hereinafter referred to as “the Act”] with effect from 01st April, 2021. The said amendment had modified, inter alia, section 148, section 149 and also introduced a new section 148A in the Act.
The existing provisions of section 148 of the Act provides for the procedure of issuance of notice to initiate assessment or reassessment or re-computation under section 147 of the Act. The existing provisions of the said section also provides details of what constitutes ‘information’ for the purpose of issuance of notice. The said section further provides the instances in which the Assessing Officer would be deemed to have information in order to initiate the assessment or reassessment proceedings.
The existing provisions of section 148A of the Act provides for the procedure to be followed by the Assessing Officer before issuance of notice under section 148. The procedure comprises of conducting enquiry, providing an opportunity of being heard to the assessee and passing an order prior to reopening of an assessment. The said section also provides the circumstances in which such procedure does not apply.
Further the existing provisions of section 149 of the Act provides for the period of limitation for issuance of notice under section 148 and computation of the period of limitation under various circumstances. Furthermore, the existing provisions of section 151 of the Act mandates for the Assessing Officer to obtain sanction from the specified authority for issuance of notice under section 148 or section 148A.
The Finance (No.2) Bill, 2024 proposes to rationalize the new reassessment scheme introduced in the Act by Finance Act, 2021. The salient features of the proposed amendments are as follows.
Section 148A – Procedure before issuance of notice under section 148
Existing Provisions
148A. The Assessing Officer shall, before issuing any notice under section 148,—
(a) conduct any enquiry, if required, with the prior approval of specified authority, with respect to the information which suggests that the income chargeable to tax has escaped assessment;
(b) provide an opportunity of being heard to the assessee, by serving upon him a notice to show cause within such time, as may be specified in the notice, being not less than seven days and but not exceeding thirty days from the date on which such notice is issued, or such time, as may be extended by him on the basis of an application in this behalf, as to why a notice under section 148 should not be issued on the basis of information which suggests that income chargeable to tax has escaped assessment in his case for the relevant assessment year and results of enquiry conducted, if any, as per clause (a);
(c) consider the reply of assessee furnished, if any, in response to the show-cause notice referred to in clause (b);
(d) decide, on the basis of material available on record including reply of the assessee, whether or not it is a fit case to issue a notice under section 148, by passing an order, with the prior approval of specified authority, within one month from the end of the month in which the reply referred to in clause (c) is received by him, or where no such reply is furnished, within one month from the end of the month in which time or extended time allowed to furnish a reply as per clause (b) expires:
Provided that the provisions of this section shall not apply in a case where,—
(a) a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A in the case of the assessee on or after the 1st day of April, 2021; or
(b) the Assessing Officer is satisfied, with the prior approval of the Principal Commissioner or Commissioner that any money, bullion, jewellery or other valuable article or thing, seized in a search under section 132 or requisitioned under section 132A, in the case of any other person on or after the 1st day of April, 2021, belongs to the assessee; or
(c) the Assessing Officer is satisfied, with the prior approval of the Principal Commissioner or Commissioner that any books of account or documents, seized in a search under section 132 or requisitioned under section 132A, in case of any other person on or after the 1st day of April, 2021, pertains or pertain to, or any information contained therein, relate to, the assessee; or
(d) the Assessing Officer has received any information under the scheme notified under section 135A pertaining to income chargeable to tax escaping assessment for any assessment year in the case of the assessee.
Explanation. — For the purposes of this section, specified authority means the specified authority referred to in section 151.
New Provisions
148A. (1) Where the Assessing Officer has information which suggests that income chargeable to tax has escaped assessment in the case of an assessee for the relevant assessment year, he shall, before issuing any notice under section 148 provide an opportunity of being heard to such assessee by serving upon him a notice to show cause as to why a notice under section 148 should not be issued in his case and such notice to show cause shall be accompanied by the information which suggests that income chargeable to tax has escaped assessment in his case for the relevant assessment year.
(2) On receipt of the notice under sub-section (1), the assessee may furnish his reply within such period, as may be specified in the notice.
(3) The Assessing Officer shall, on the basis of material available on record and taking into account the reply of the assessee furnished under sub-section (2), if any, pass an order with the prior approval of the specified authority determining whether or not it is a fit case to issue notice under section 148.
(4) The provisions of this section shall not apply to income chargeable to tax escaping assessment for any assessment year in the case of an assessee where the Assessing Officer has received information under the scheme notified under section 135A.
Explanation. — For the purposes of this section and section 148, “specified authority” means the specified authority referred to in section 151.
Comparison – Existing vs. New Provisions
The substituted section 148A has done away with the prerequisite of conducting an enquiry with respect to the information suggesting escapement of income chargeable to tax from assessment prior to issuance of show cause notice under the said section. The said prerequisite was incorporated under clause (a) of existing provisions section 148A.
Under the existing provisions of section 148A, there was no prerequisite for the show cause notice to be accompanied by the information suggesting escapement of income chargeable to tax from assessment. Now, the substituted section 148A makes it mandatory that the show cause notice issued under the said section should be accompanied by the information suggesting escapement of income chargeable to tax from assessment.
Under the existing provisions of section 148A, in the clause (c), the time limit to furnish reply by the assessee in response to show cause notice was not less than 7 days but not exceeding 30 days from the date on which the notice was issued. Whereas, the substituted section 148A provides that assessee may furnish his reply within such period as may be specified in the notice.
The existing provisions of section 148A were not made applicable to following cases:
(a) Search initiated under section 132 or books of accounts, documents, assets requisitioned under section 132A in the case of the assessee on or after 01st April 2021; or
(b) Any money, bullion, jewellery or other valuable article or thing seized in a search under section 132 or requisitioned under section 132A in the case of any other person on or after 1st April, 2021 belongs to the assessee; or
(c) Any information contained in the books of accounts or documents seized in a search under section 132 or requisitioned under section 132A in case of any other person on or after 01.04.2021 pertains to the assessee or
(d) The Assessing Officer has received any information under the scheme notified under section 135A pertaining to escapement of income chargeable to tax from assessment in the case of the assessee
In other words, in aforesaid cases it was not obligatory on the part of the Assessing Officer to follow the procedure of existing section 148A i.e. issuance of show cause notice, asking for the reply from the assessee and passing the order before issuance of notice under section 148.
The substituted section 148A only carves out the case as is mentioned in point (d) above as an exception wherein the Assessing Officer is not required to follow the procedure of issuing show cause notice, asking for reply from the assessee and passing of order enshrined in the said section.
Section 148: Issue of notice where income has escaped assessment
Existing Provisions
148. Before making the assessment, reassessment or recomputation under section 147, and subject to the provisions of section 148A, the Assessing Officer shall serve on the assessee a notice, along with a copy of the order passed, if required, under clause (d) of section 148A, requiring him to furnish within a period of three months from the end of the month in which such notice is issued, or such further period as may be allowed by the Assessing Officer on the basis of an application made in this regard by the assessee, a return of his income or the income of any other person in respect of which he is assessable under this Act during the previous year corresponding to the relevant assessment year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed; and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139:
Provided that no notice under this section shall be issued unless there is information with the Assessing Officer which suggests that the income chargeable to tax has escaped assessment in the case of the assessee for the relevant assessment year and the Assessing Officer has obtained prior approval of the specified authority to issue such notice:
Provided further that no such approval shall be required where the Assessing Officer, with the prior approval of the specified authority, has passed an order under clause (d) of section 148A to the effect that it is a fit case to issue a notice under this section:
Provided also that any return of income, required to be furnished by an assessee under this section and furnished beyond the period allowed shall not be deemed to be a return under section 139.
Explanation 1.—For the purposes of this section and section 148A, the information with the Assessing Officer which suggests that the income chargeable to tax has escaped assessment means,—
(i) any information in the case of the assessee for the relevant assessment year in accordance with the risk management strategy formulated by the Board from time to time; or
(ii) any audit objection to the effect that the assessment in the case of the assessee for the relevant assessment year has not been made in accordance with the provisions of this Act; or
(iii) any information received under an agreement referred to in section 90 or section 90A of the Act; or
(iv) any information made available to the Assessing Officer under the scheme notified under section 135A; or
(v) any information which requires action in consequence of the order of a Tribunal or a Court.
Explanation 2.—For the purposes of this section, where,—
(i) a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A, on or after the 1st day of April, 2021, in the case of the assessee; or
(ii) a survey is conducted under section 133A, other than under sub-section (2A) of that section, on or after the 1st day of April, 2021, in the case of the assessee; or
(iii) the Assessing Officer is satisfied, with the prior approval of the Principal Commissioner or Commissioner, that any money, bullion, jewellery or other valuable article or thing, seized or requisitioned under section 132 or section 132A in case of any other person on or after the 1st day of April, 2021, belongs to the assessee; or
(iv) the Assessing Officer is satisfied, with the prior approval of Principal Commissioner or Commissioner, that any books of account or documents, seized or requisitioned under section 132 or section 132A in case of any other person on or after the 1st day of April, 2021, pertains or pertain to, or any information contained therein, relate to, the assessee,
the Assessing Officer shall be deemed to have information which suggests that the income chargeable to tax has escaped assessment in the case of the assessee where the search is initiated or books of account, other documents or any assets are requisitioned or survey is conducted in the case of the assessee or money, bullion, jewellery or other valuable article or thing or books of account or documents are seized or requisitioned in case of any other person.
Explanation 3.—For the purposes of this section, specified authority means the specified authority referred to in section 151.
New Provisions
148. (1) Before making the assessment, reassessment or recomputation under section 147, the Assessing Officer shall, subject to the provisions of section 148A, issue a notice to the assessee, along with a copy of the order passed under sub-section (3) of section 148A, requiring him to furnish, within such period as may be specified in the notice, not exceeding three months from the end of the month in which such notice is issued, a return of his income or income of any other person in respect of whom he is assessable under this Act during the previous year corresponding to the relevant assessment year:
Provided that no notice under this section shall be issued unless there is information with the Assessing Officer which suggests that the income chargeable to tax has escaped assessment in the case of the assessee for the relevant assessment year:
Provided further that where the Assessing Officer has received information under section 135A, no notice under this section shall be issued without prior approval of the specified authority.
(2) The return of income required under sub-section (1) shall be furnished in such form and verified in such manner and setting forth such other particulars, as may be prescribed, and the provisions of this Act shall, apply accordingly as if such return were a return required to be furnished under section 139:
Provided that any return of income required under sub-section (1), furnished after the expiry of the period specified in the notice under the said sub-section, shall not be deemed to be a return under section 139.
(3) For the purposes of this section and section 148A, the information with the Assessing Officer which suggests that the income chargeable to tax has escaped assessment means,—
(i) any information in the case of the assessee for the relevant assessment year in accordance with the risk management strategy formulated by the Board from time to time; or
(ii) any audit objection to the effect that the assessment in the case of the assessee for the relevant assessment year has not been made in accordance with the provisions of this Act; or
(iii) any information received under an agreement referred to in section 90 or section 90A of the Act; or
(iv) any information made available to the Assessing Officer under the scheme notified under section 135A; or
(v) any information which requires action in consequence of the order of a Tribunal or a Court; or
(vi) any information in the case of the assessee emanating from survey conducted under section 133A, other than under sub-section (2A) of the said section, on or after the 1st day of September, 2024.
Comparison – Existing vs. New Provisions
Any information in the case of the assessee emanating from survey conducted under section 133A, other than under sub-section (2A) of the said section, on or after the 1st day of September, 2024, is proposed to be added within the ambit of the information suggesting escapement of income chargeable to tax from assessment as is defined in sub-section (3) of substituted section 148.
Further, where the Assessing Officer has received information under the scheme notified under section 135A, notice under section 148 shall be issued only with the prior approval of the specified authority. Under the existing provisions of section 148, the Assessing Officer was not required to obtain prior approval of the specified authority before issuance of notice under section 148 where the information was received under the scheme notified under section 135A.
Section 149: Time limit for notice.
Existing Provisions
149. (1) No notice under section 148 shall be issued for the relevant assessment year,—
(a) if three years have elapsed from the end of the relevant assessment year, unless the case falls under clause (b);
(b) if three years, but not more than ten years, have elapsed from the end of the relevant assessment year unless the Assessing Officer has in his possession books of account or other documents or evidence which reveal that the income chargeable to tax, represented in the form of—
(i) an asset;
(ii) expenditure in respect of a transaction or in relation to an event or occasion; or
(iii) an entry or entries in the books of account,
which has escaped assessment amounts to or is likely to amount to fifty lakh rupees or more:
Provided that no notice under section 148 shall be issued at any time in a case for the relevant assessment year beginning on or before 1st day of April, 2021, if a notice under section 148 or section 153A or section 153C could not have been issued at that time on account of being beyond the time limit specified under the provisions of clause (b) of sub-section (1) of this section or section 153A or section 153C, as the case may be, as they stood immediately before the commencement of the Finance Act, 2021:
Provided further that the provisions of this sub-section shall not apply in a case, where a notice under section 153A, or section 153C read with section 153A, is required to be issued in relation to a search initiated under section 132 or books of account, other documents or any assets requisitioned under section 132A, on or before the 31st day of March, 2021:
Provided also that for cases referred to in clauses (i), (iii) and (iv) of Explanation 2 to section 148, where,—
(a) a search is initiated under section 132; or
(b) a search under section 132 for which the last of authorisations is executed; or
(c) requisition is made under section 132A,
after the 15th day of March of any financial year and the period for issue of notice under section 148 expires on the 31st day of March of such financial year, a period of fifteen days shall be excluded for the purpose of computing the period of limitation as per this section and the notice issued under section 148 in such case shall be deemed to have been issued on the 31st day of March of such financial year:
Provided also that where the information as referred to in Explanation 1 to section 148 emanates from a statement recorded or documents impounded under section 131 or section 133A, as the case may be, on or before the 31st day of March of a financial year, in consequence of,—
(a) a search under section 132 which is initiated; or
(b) a search under section 132 for which the last of authorisations is executed; or
(c) a requisition made under section 132A,
after the 15th day of March of such financial year, a period of fifteen days shall be excluded for the purpose of computing the period of limitation as per this section and the notice issued under clause (b) of section 148A in such case shall be deemed to have been issued on the 31st day of March of such financial year:
Provided also that for the purposes of computing the period of limitation as per this section, the time or extended time allowed to the assessee, as per show-cause notice issued under clause (b) of section 148A or the period during which the proceeding under section 148A is stayed by an order or injunction of any court, shall be excluded:
Provided also that where immediately after the exclusion of the period referred to in the immediately preceding proviso, the period of limitation available to the Assessing Officer for passing an order under clause (d) of section 148A does not exceed seven days, such remaining period shall be extended to seven days and the period of limitation under this sub-section shall be deemed to be extended accordingly.
Explanation.—For the purposes of clause (b) of this sub-section, “asset” shall include immovable property, being land or building or both, shares and securities, loans and advances, deposits in bank account.
(1A) Notwithstanding anything contained in sub-section (1), where the income chargeable to tax represented in the form of an asset or expenditure in relation to an event or occasion of the value referred to in clause (b) of sub-section (1), has escaped the assessment and the investment in such asset or expenditure in relation to such event or occasion has been made or incurred, in more than one previous years relevant to the assessment years within the period referred to in clause (b) of sub-section (1), a notice under section 148 shall be issued for every such assessment year for assessment, reassessment or recomputation, as the case may be.
(2) The provisions of sub-section (1) as to the issue of notice shall be subject to the provisions of section 151.
New Provisions
149. (1) No notice under section 148 shall be issued for the relevant assessment year,—
(a) if three years and three months have elapsed from the end of the relevant assessment year, unless the case falls under clause (b);
(b) if three years and three months, but not more than five years and three months, have elapsed from the end of the relevant assessment year unless the Assessing Officer has in his possession books of accounts or other documents or evidence related to any asset or expenditure or transaction or entries which show that the income chargeable to tax, which has escaped assessment, amounts to or is likely to amount to fifty lakh rupees or more.
(2) No notice to show cause under section 148A shall be issued for the relevant assessment year,—
(a) if three years have elapsed from the end of the relevant assessment year, unless the case falls under clause (b);
(b) if three years, but not more than five years, have elapsed from the end of the relevant assessment year unless the income chargeable to tax which has escaped assessment, as per the information with the Assessing Officer, amounts to or is likely to amount to fifty lakh rupees or more.
Comparison – Existing vs. New Provisions
Period of limitation for issuance of show cause notice under section 148A
The existing provisions of section 149 does not provide for the period of limitation for issuance of show cause notice under section 148A. Finance (No.2) Bill, 2024 has endeavoured to insert in section 149 the provisions in respect of the period of limitation for issuance of show cause notice under section 148A.
The newly proposed provisions are as follows:
(a) Notice under section 148A shall be issued within 3 years from the end of the relevant assessment unless the case falls under clause (b)
(b) Notice under section 148A shall be issued within 5 years from the end of the relevant assessment year if income chargeable to tax escaping assessment amounts to or is likely to amount to Rs.50 lakh or more
Period of limitation for issuance of notice under section 148
The existing provisions of section 149 provides for the period of limitation for issuance of notice under section 148 as follows:
(a) Notice under section 148 shall be issued within 3 years from the end of the relevant assessment year unless the case falls under clause (b)
(b) Notice under section 148 shall be issued within 10 years from the end of the relevant assessment year if the Assessing Officer has in his possession books of accounts or other documents or evidence related to any asset or expenditure or transaction or entries which shows that the income chargeable to tax escaping assessment amounts to or is likely to amount to Rs.50 lakh.
Finance (No.2) Bill, 2024 has proposed to revise the provisions of section 149 in respect of the period of limitation for issuance of show cause notice under section 148.
The newly proposed provisions are as follows:
(a) Notice under section 148 shall be issued within 3 years and 3 months from the end of the relevant assessment year unless the case falls under clause (b)
(b) Notice under section 148 shall be issued within 5 years and 3 months from the end of the relevant assessment year if the Assessing Officer has in his possession books of accounts or other documents or evidence related to any asset or expenditure or transaction or entries which show that the income chargeable to tax escaping assessment amounts to or is likely to amount to Rs.50 lakh.
Section 151: Sanction for issue of notice
Existing Provision
151. Specified authority for the purposes of section 148 and section 148A shall be,—
(i) Principal Commissioner or Principal Director or Commissioner or Director, if three years or less than three years have elapsed from the end of the relevant assessment year;
(ii) Principal Chief Commissioner or Principal Director General or Chief Commissioner or Director General, if more than three years have elapsed from the end of the relevant assessment year:
Provided that the period of three years for the purposes of clause (i) shall be computed after taking into account the period of limitation as excluded by the third or fourth or fifth provisos or extended by the sixth proviso to sub-section (1) of section 149.
New Provision
151. Specified authority for the purposes of sections 148 and 148A shall be the Additional Commissioner or the Additional Director or the Joint Commissioner or the Joint Director, as the case may be.
Comparison – Existing vs. New Provisions
Under the existing provisions of section 151, the type of specified authority granting sanction was dependent upon the period of limitation for issuance of notice as was specified in section 149. However, under the substituted section 151 the specified authorities are same for both the periods of limitation.
Section 152: Other Provisions
Existing Provisions
152. (1) In an assessment, reassessment or recomputation made under section 147, the tax shall be chargeable at the rate or rates at which it would have been charged had the income not escaped assessment.
(2) Where an assessment is reopened under section 147, the assessee may, if he has not impugned any part of the original assessment order for that year either under sections 246 to 248 or under section 264, claim that the proceedings under section 147 shall be dropped on his showing that he had been assessed on an amount or to a sum not lower than what he would be rightly liable for even if the income alleged to have escaped assessment had been taken into account, or the assessment or computation had been properly made :
Provided that in so doing he shall not be entitled to reopen matters concluded by an order under section 154, 155, 260, 262, or 263.
Proposed Amendment
Clause – 47 of the Finance Bill seeks to insert sub-section (3) in section 152. The sub-section (3) seeks to provide that where a search has been initiated under section 132 or requisition is made under section 132A or a survey is conducted under section 133A [other than under sub-section (2A)] on or after the 1st day of April, 2021 but before the 1st day of September, 2024, the provisions of section 147 to 151 shall apply as they stood immediately before the commencement of the Finance (No. 2) Act, 2024.
Clause – 47 of the Finance Bill seeks to insert sub-section (4) in section 152. The sub-section (4) seeks to provide that where a notice under section 148 has been issued or an order under clause (d) of section 148A has been passed, prior to the 1st day of September, 2024, the assessment, reassessment or recomputation in such case shall be governed as per the provisions of sections 147 to 151, as they stood prior to their amendment by Finance (No. 2) Act, 2024.
Purpose of Amendment
The amendment is clarificatory in nature and is sought to be made with a view to expressly provide that the provisions in respect of re-assessment as stood amended by Finance (No.2) Act, 2024 would not apply to search initiated under section 132 or requisition made under section 132A or survey conducted under section 133A during the period starting from 01.04.2021 to 01.09.2024. The said provisions will also not apply to reassessment proceedings initiated under section 148 prior to 01.09.2024.
Effective Date
These amendments will take effect from the 1st day of September, 2024.
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