Summary: Assessment proceedings under Section 147 of the Income Tax Act, 1961, involve reopening past assessments when the Assessing Officer (AO) has reasons to believe that income has escaped taxation. This process begins with obtaining information from sources like audit reports or data mining, which must establish a clear link to income escapement. The AO must secure prior approval from specified authorities before issuing a notice under Section 148, especially for cases involving significant time lags or income amounts. Notices are generally issued within three years of the relevant assessment year, extendable to ten years in cases of substantial tax evasion. The assessee is entitled to know the reasons for reopening, which must be furnished within a reasonable time upon request. After receiving the notice, the assessee must file a return of income, either fresh or based on the original filing, disclosing all income. The assessee can challenge the reopening by filing objections, which the AO must address with a reasoned order. Assessment proceedings may involve issuing further notices or conducting inquiries, allowing the assessee to present their case. In the absence of cooperation, the AO may complete the assessment using best judgment under Section 144. The final assessment order determines the total taxable income, tax liabilities, and penalties, taking into account the assessee’s submissions and evidence. A demand notice follows, specifying the amount payable and the due date. If unpaid, recovery proceedings may be initiated. The assessee retains the right to appeal against the order with the Commissioner (Appeals) or the Income Tax Appellate Tribunal (ITAT) within prescribed timelines and procedural requirements.
1. Information Leading to Belief of Escapement:
Information received by the Assessing Officer (AO) suggesting that income chargeable to tax has escaped assessment. Section 148, Explanation 1 & 2 * Information can be from various sources (e.g., audit reports, information from other departments, data mining). * “Reason to believe” is crucial; mere suspicion is insufficient. * Information must establish a nexus between the information and escapement of income. No specific time limit for receiving information.
2. Obtaining Approval for Issuance of Notice : The AO must obtain prior approval from specified authorities before issuing a notice under Section 148. Section 151 * For cases where 3 years have expired from the end of the relevant assessment year, approval of specified higher authorities is required. * Approval depends upon the amount of escaped income. Varies based on the time elapsed and amount of escaped income.
3. Issuance of Notice under Section 148 :The AO issues a notice to the assessee requiring them to file a return of income. Section 148 * Notice must be served within the prescribed time limit. Must state the reasons for reopening the assessment. Must be served properly. * Generally, 3 years from the end of the relevant assessment year. * Up to 10 years in cases of serious tax evasion involving Rs. 50 lakh or more.
4. Providing Reasons Recorded : The AO must provide the reasons recorded for reopening the assessment to the assessee. Supreme Court Judgements and principles of Natural Justice Assessee has the right to know the reasons for reopening. Reasons must be furnished within a reasonable time. Reasonable time after notice is served and demand is made by Assessee.
5. Filing of Return of Income : The assessee files a return of income in response to the notice under Section 148. Section 139 Assessee can file a fresh return or adopt the original return filed. Must disclose all income, including the income that allegedly escaped assessment. As specified in the notice under Section 148.
6. Objections by the Assessee :The assessee may file objections against the reasons recorded for reopening the assessment. Principles of Natural Justice Assessee can challenge the validity of the reopening. AO must dispose of the objections by a speaking order. Reasonable time after receiving the reasons recorded.
7. Disposal of Objections :The AO disposes of the objections raised by the assessee. Principles of Natural Justice AO must pass a speaking order dealing with each objection. Order must be communicated to the assessee. Reasonable time after receiving the objections.
8. Assessment Proceedings: The AO conducts assessment proceedings to determine the escaped income. Section 143(3), 142, 144 AO may issue notices for further information or documents. Asessee has the opportunity to present their case. AO can pass a best judgment assessment under Section 144 if the assessee fails to cooperate. Varies depending on the complexity of the case.
9. Passing of Assessment: Order The AO passes an assessment order determining the total income and tax payable. Section 143(3) read with Section 147 Order must be in writing and state the reasons for the additions made. Must consider the assessee’s submissions and evidence. Must specify the tax, interest, and penalty payable. Within 12 months from the end of the financial year in which the notice under section 148 is served.
10. Demand Notice and Recovery: The AO issues a demand notice for the tax, interest, and penalty payable. Section 156 Specifies the amount payable and the due date for payment. Recovery proceedings can be initiated if the assessee fails to pay after passing the assessment order.
11. Appeal The assessee can file an appeal against the assessment order. Section 246A, 253 Appeal can be filed with the Commissioner (Appeals) or the Income Tax Appellate Tribunal (ITAT). Assessee must pay the prescribed fees and comply with the procedural requirements, within the prescribed time limit.
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