Income tax Reassessment: An Analysis of Amendments by Finance Act, 2024

1. INTRODUCTION

Significant amendments have been made to Sections 148 to 151 of the Income-tax Act, 1961 by the Finance (No.2) Act, 2024, marking another major overhaul of the reassessment regime. These changes come in continuation of a series of substantial legislative reforms.

Initially, the Finance Act, 2021 substituted the entire reassessment framework with effect from 1st April 2021, aiming to streamline the process and bring in greater accountability and transparency. However, the new regime led to widespread confusion and a spike in litigation. The interpretation and procedural aspects of the new provisions were frequently challenged, causing a lack of clarity.

Recognizing these concerns, the reassessment provisions were revisited by the Finance Act, 2022, and again by the Finance Act, 2023, introducing various clarificatory and procedural amendments. Despite these efforts, issues persisted. To further rationalize and simplify the mechanism, the Finance (No.2) Act, 2024   has now substituted sections 148, 148A, 149, and 151 once again with new provisions aimed at ensuring a more robust, litigation-resistant reassessment proceedings.

This paper aims to:

1.Compare the latest amendments introduced by the Finance (No.2) Act, 2024   with the law that existed previously;

2. Analyze the intent and rationale behind the legislative changes;

3. Discuss the practical scope and implications of the new provisions on reassessment proceedings.

2. SECTION 147: INCOME ESCAPING ASSESSMENT – THE UNCHANGED FOUNDATION

Section 147 of the Act, which gives the basic empowerment to assess or reassess the income that has escaped assessment, has not been amended by the Finance (No.2) Act, 2024   and remains unchanged. The basic premises to initiate reassessment proceedings remain the same, namely:

1.The Assessing Officer (AO) should have information,

2. Which suggests

3. Such income chargeable to tax has escaped assessment.

The shift from the era of “Reasons to believe” to “Information which suggests” (introduced by Finance Act, 2021) was a crucial change. This raises the question of what exactly “information which suggests” means and its impact. Does the bar and threshold laid down in the erstwhile regime still exist with the removal of “if the AO has reasons to believe” and its substitution?

The first proviso to Section 148, as substituted by the Finance Act, 2021, mandates that a notice under Section 148 cannot be issued unless the Assessing Officer possesses “information” which “suggests” that income chargeable to tax has escaped assessment. Furthermore, the assessing officer is required to obtain prior approval from the specified authority, incorporating internal checks for objectivity.

Interestingly, the phrase “in consequence of information in his possession” is not new. A similar expression was present in Section 147 prior to its substitution by the Finance Act, 1987. That amendment had removed “reason to believe,” only for it to be reintroduced in 1989. Thus, the Finance Act, 2021 appears to revert to the pre-1987 regime’s language, albeit with a more defined procedural framework.

2.1. The enduring principle: Nexus and credible information

Despite legislative changes, a consistent principle governs reassessment:
There must be a nexus or live link between the information and the formation of belief that income chargeable to tax has escaped assessment.

Even under the substituted section 147, the Assessing Officer cannot reopen an assessment unless there is credible “information” suggesting escapement of income. Therefore, the information in the Assessing Officer’s possession must not be vague, generic, or speculative, but must be:

1.Concrete,

2. Credible, and

3. Capable of being objectively linked to the conclusion that income has escaped assessment.

This sets a high threshold, aligning with the judicial view that mere suspicion or change of opinion is insufficient to invoke reassessment.

Key judicial pronouncements that continue to guide interpretation include:

• CIT v. Kelvinator of India Ltd. [320 ITR 561 (SC)]: Reassessment cannot be a review of the earlier order; there must be tangible material.
• CIT v. Chandball Rice Mills (P) Ltd. [203 ITR 368 (Cal)]: Reassessment must be based on new information, not a reappraisal.
• Hemjay Construction Co. Pvt. Ltd. v. ITO [419 ITR 39 (Guj)]: Information must have a direct nexus to the belief of escaped income.
• M.R. Organisation v. ITO [431 ITR 528 (Guj)]: Emphasized objective information; disapproved vague notices.
• Rakesh Gupta v. CIT [405 ITR 213 (P&H)]: Reassessment must be based on material indicating escapement, not audit objections or internal discussions.
• Chetan Sabharwal v. ACIT [310 CTR 690 (Del)]: AO must establish a live link between material and escaped income.
• AMSA India Pvt. Ltd. v. CIT [393 ITR 157 (Del)]: Information must not be based on conjecture or pre-existing scrutinized facts.
• BPTP Ltd. v. PCIT [185 DTR 372 (Del)]: Rejected reassessment based on non-verifiable information or mechanical satisfaction.

The removal of “reason to believe” and introduction of “information suggesting escapement” has not diluted the rigor. Statutory safeguards like prior approval and objective information arguably make the new regime more stringent and protective of taxpayer rights. Both practitioners and revenue authorities must treat “information” with legal precision, ensuring reassessment addresses genuine escaped income, not as a tool for review.

2.2. The Karnataka High Court’s interpretation in Smt. Vasanthi Ramdas Pai

The recent judgment of the Karnataka High Court in Smt. Vasanthi Ramdas Pai v. ITO [2024] 159 taxmann.com 392 (Karnataka) provides a detailed interpretation of the new reassessment regime (post-Finance Act, 2021), offering clarity on the transition from “reason to believe” to the “information suggesting escapement” framework. Key points include:

1.Jurisdictional preconditions for reassessment

a) Assessing Officer must have “information suggesting escapement of income” to invoke Section 147.

b) In the absence of such jurisdictional fact, proceedings under section 148A or 148 cannot be initiated.

2. Definition and nature of ‘Information’

The court has elaborately discussed what qualifies as “information” under the new reassessment scheme. It held that:

a) A mere relook or reconsideration of material already available on record does not constitute ‘information’.

b) Information must be new, credible, and external, and must suggest escapement of income. Reliance was placed on earlier precedents to support this position.

c) Facts already disclosed in the return or available during the original assessment cannot later be termed as information to justify reassessment.

3. Explanation 1 to section 148- exhaustive definition

a) The definition is exhaustive (means definition)

b) Information must fall within the six categories listed in Explanation 1 (post 1.09.2024)

c) Return filed by the assessee cannot itself constitute information under Explanation 1.

4. Rebuttal to Department’s argument: ‘No reason needed’

The revenue argued that since the phrase “reason to believe” has been omitted from the new section 147, there is no requirement to establish a reason. The Court categorically rejected this contention:

a) It clarified that the new regime substitutes a subjective ‘reason to believe’ with an objective ‘information’ standard, thereby raising the threshold.

b) The burden is now higher, as the assessing officer must demonstrate that there exists a concrete piece of information, which creates a live link with the conclusion that income has escaped assessment.

c) The Court observed that earlier, “reason to believe” allowed for some element of subjectivity. Under the amended law, the standard is stricter and evidence-driven.

5. Threshold under new law Is higher, not lower

The judgment importantly holds that:

• “Information suggesting escapement of income” is not a lower standard, but a higher threshold when compared to “reason to believe.”
• It must be shown that information (X) exists, which directly connects to the assessment record or return, demonstrating escapement of income.

6. Assessment based on same return is impermissible

The Court addressed the situation where the Assessing Officer tries to reopen the assessment by picking up a transaction already disclosed in the original return:

• It held that if the transaction was fully disclosed in the return, and the AO failed to act during the original scrutiny (u/s 143(3)), he cannot now use the same return to reopen assessment under Section 147.
• Permitting such action would effectively bypass the scrutiny process and convert reassessment into a second round of assessment, which is legally impermissible.

7. Reassessment ≠ Reassessment in disguise

The Court emphasized:

• Section 147 does not empower the Assessing Officer to revisit or redo the original assessment under the garb of reassessment.
• Reassessment can only be initiated where there is fresh, tangible information that clearly indicates escapement of income, and not as a second attempt to re-evaluate previously accepted positions.
• It sets clear procedural and legal boundaries for initiating reassessment under the new law.
• It clarifies the meaning of ‘information’, differentiates it from previously available facts, and rejects any attempt to use reassessment as a tool for regular assessment extensions.
• It raises the bar for Revenue, ensuring that reassessment is objective, evidence-backed, and procedurally sound.

The Supreme Court in Larsen and Toubro Limited vs State of Jharkhand and others [CAN 5390/2007] explained ‘information’ as “facts told, heard or discovered about somebody/something,” or “instruction or knowledge derived from an external source concerning facts or parties or as to law.” It comprehends information from external sources and discovery of new facts not previously noticed or investigated. A mere change of opinion on the same facts does not constitute ‘information’. Information has to be gathered from other sources; otherwise, it tantamount to a change of opinion.

The term “information” under Section 148 must be:

• Factual and credible, not vague or assumptive.
• Backed by evidence, enabling the Assessing Officer to form a belief that income has escaped assessment.
• Subject to the Assessing Officers’s independent judgment before initiating reassessment proceedings.This principle is upheld by the Supreme Court in:
• CIT v. A. Raman & Co. [67 ITR 11 (SC)]
• Maharaj Kumar Kamal Singh v. CIT [35 ITR 1 (SC)]

If reopening is based on incorrect or vague facts, it can be legally challenged. Earlier judicial precedents remain relevant. Key decisions reinforcing that reassessment requires concrete, specific, and credible information—not suspicion—include:

• PCIT v. RMG Polyvinyl (P) Ltd [396 ITR 5 (Del)]
• Sagar Enterprises v. ACIT [257 ITR 335 (Guj)]
• PCIT v. G & G Pharma [384 ITR 147 (Del)]
• Chhugamal Rajpal v. S.P. Chaliha [79 ITR 603 (SC)]
• Sheo Nath Singh v. AACIT [82 ITR 147 (SC)]

In Castrol India Ltd. v. Deputy Commissioner of Income-tax [2024] 161 taxmann.com 75 (Bombay), where adequate disclosures regarding CSR expenditure and section 80G deductions were made and considered during the original assessment, subsequent reopening by the Assessing Officer was treated as a change of opinion as the belief so formed lacked fresh tangible materials.

2.3. Omission of “and also any other income…” from section 147

In the pre-amended section 147, the law allowed the Assessing Officer to assess or reassess the recorded escaped income and also any other income that came to light during reassessment proceedings. However, this phrase has been omitted in the newly substituted section.

As per earlier judicial interpretation, if reopening was based on income “A”, and during reassessment the Assessing Officer found income “B” had also escaped:

• Income B could not be added unless Assessing Officerr made an addition for income A (the recorded reason).
• This was based on the conjunctive phrase “and also”—meaning both conditions must be met.Thus, no addition could be made for other issues (B) unless the original reason (A) survived.

To override earlier court rulings, Explanation 3 to Section 147 was inserted via the Finance Act, 2009. It allowed the AO to assess other escaped income found during reassessment, even if not mentioned in the original reasons.
However, in CIT v. Jet Airways (331 ITR 236 Bom), the Bombay High Court ruled:

• Explanation 3 does not override section 147’s core requirement.
• Assessing Officer must first add the income for which reopening was done.
• If Assessing Officer drops the original reason, other income cannot be added without a fresh notice.Similar views were taken in:
• Ranbaxy Laboratories Ltd. (336 ITR 136 Del)
• ICICI Bank Ltd. (349 ITR 482 Bom)
• Cheil Communications (354 ITR 549 Del)
• Living Media India Ltd. (359 ITR 106 Del)

But the Karnataka High Court in N. Govindaraju ruled otherwise: Assessing Officer can add other income even if the original issue is not added.
To resolve the conflict, the Finance Act, 2021 omitted the phrase “and also any other income…” in the new section 147. This indicates legislative intent to allow AO to assess any escaped income found during reassessment—regardless of the original reason.

2.4. Primary condition for reopening U/S 148: escapement of income

• Profit Element, Not entire sale consideration: “income chargeable to tax” is the profit element, not the entire sale consideration or bank deposit. If actual escaped income (profit) is below the threshold (e.g., ₹50 lakhs for reopening beyond three years), reopening may be invalid. (NITIN NEMA V. PCCIT – [2023] 155 taxmann.com 276/458 ITR 690 (Madhya Pradesh)).
• Net income from share transactions: Only net income from buy/sell transactions is taxable, not total transaction value. (RAM NEBHNANI v. ITO – 2023(11) TMI 544).
• Capital gains computation (Section 48): Income chargeable as capital gains is computed per section 48 (full consideration less cost/indexed cost, and transfer expenses), not entire sale proceeds. (MR. SANATH KUMAR MURALI v. ITO – [2023] 152 taxmann.com 231 (Karnataka)).

3. CHANGES UNDER THE FINANCE (NO.2) ACT, 2024

3.1. Section 148: Issue of notice where income has escaped assessment
This section outlines the procedure for an AO to issue a notice when they believe income has escaped assessment.

1. Notice Issuance:

• • Before making an assessment, reassessment, or recomputation under Section 147, the Assessing Officer must issue a notice to the assessee.
  • This notice is issued subject to the provisions of section 148A (which typically involves a preliminary inquiry as the precedent suggests although the word conducting inquiry, if any, has been removed).
  • A copy of the order passed under section 148A(3) (deciding whether to proceed with reassessment) must be provided along with this notice.
  • The notice requires the assessee to furnish a return of their income (or income of another person for whom they are assessable) for the relevant assessment year.
  • The assessee must furnish this return within the period specified in the notice, which cannot exceed three months from the end of the month in which the notice is issued.

2. Prerequisites for issuing notice:

• • Information suggesting escaped Income: No notice under this section can be issued unless the Assessing Officer possesses “information…which suggests that the income chargeable to tax has escaped assessment.”
  • Approval for section 135A information: If the Assessing Officer has received information under a scheme notified under section 135A (e.g., e-verification scheme), no notice can be issued without the prior approval of the specified authority.

3. Nature of the return furnished:

• • The return must be in the prescribed form, verified as required, and include prescribed particulars.
  • The provisions of the Act will apply to this return as if it were a return furnished under Section 139.
  • Important: If this return is furnished after the expiry of the period specified in the notice, it will not be deemed to be a return under Section 139 (which can have implications for things like loss carry-forward, etc.).

4. Definition of “Information suggesting escaped income” (for Sec 148 & 148A): This term is defined to include:

• • (i) Information based on the Board’s risk management strategy.
  • (ii) An audit objection indicating the assessment was not done according to the Act.
  • (iii) Information received under tax treaties (Section 90 or 90A).
  • (iv) Information made available to the AO under a scheme notified under Section 135A.
  • (v) Information requiring action due to a Tribunal or Court order.
  • (vi) Information from a survey conducted under Section 133A (excluding specific types like TDS/TCS surveys) on or after September 1, 2024.

Comparing S.148 old provision vs new provision (Finance (No.2) Act, 2024)

S.No	Feature	Old provision (Post FA 2021)	New provision (Finance (No.2) Act, 2024  )	Implication of change
1.	Accompaniment to S.148 notice	Copy of order u/s 148A(d) to be attached if required.	Notice u/s 148 shall be accompanied by a copy of the order u/s 148A(3). This is a mandatory procedure.	Increases efficiency and transparency; assessee knows grounds for reassessment from the outset.
2.	Time to furnish return	Within 3 months from end of month of notice.	Within period specified in notice, not exceeding 3 months from end of the month of notice.	Minor flexibility in specifying period, but overall timeline similar.
3.	Extension for furnishing return	AO could grant extension based on assessee’s application.	No extension shall be granted.	Stricter deadlines, speeding up the process. Removes AO discretion for extensions.
4.	Prior approval for S.148 notice	Required from specified authority.	Required from specified authority only if information is under scheme notified u/s 135A i.e Faceless collection of information(for S.148 notice without S.148A process). For S.148A(3) order, approval is requried.	Clarifies when S.151 approval directly applies to S.148 notice (cases bypassing S.148A).
5.	Exemption from prior approval	Not needed if AO passes the order u/s 148A(d) with prior approval of specified authority.	This specific exemption wording removed as S.148A(3) order itself requires approval.	Streamlines wording, as S.148A(3) approval inherently covers the decision to proceed.
6.	New information source (for “escaped income”)	(Not explicitly listed in S.148 itself)	S.148(3)(vi) [likely referring to Expl. 1 to S.148]: Information from survey u/s 133A (other than (2A)) considered information suggesting escaped income.	Codifies survey findings (non-TDS/TCS specific) as a valid basis for “information.”

3.2. Section 148A: Procedure before issuance of notice under section 148

1. Opportunity to be heard (show-cause notice):

•  If the Assessing Officer has “information which suggests that income chargeable to tax has escaped assessment,” he must first issue a show-cause notice (SCN) to the assessee.
•  This SCN must ask the assessee why a notice under section 148 should not be issued in their case.
• Crucially, this SCN must be accompanied by the specific information that suggests income has escaped assessment.

2.  Assessee’s reply:

•  Upon receiving the SCN, the assessee may furnish a reply within the period specified in the notice.

3.  Assessing Officer’s order (Decision on fitness for section 148 notice):

• After considering the material on record and the assessee’s reply (if any), the Assessing Officer must pass an order.
• This order will determine whether or not it is a “fit case” to issue a notice under section 148.
• This order must be passed with the prior approval of the “specified authority” (as defined in section 151).

4. Exception to this procedure:

• The entire procedure outlined in section 148A (show-cause notice, reply, order) does not apply if the Assessing Officer has received information under a scheme notified under section 135A (e.g., e-Verification Scheme). In such cases, the Assessing Officer can proceed towards issuing a section 148 notice more directly (though still subject to approvals mentioned in section 148 itself for such information).

Comparing S.148A old provision vs new provision (Finance (No.2) Act, 2024  )

S.No	Feature	Old provision (Post FA 2021 – S.148A)	New provision (Finance (No.2) Act, 2024   – S.148A)	Implication of change
1.	Enquiry by AO	S.148A(a): AO shall conduct enquiry, if required, regarding information suggesting escapement.	This specific sub-clause (a) regarding conducting any enquiry is removed. The process now starts with issuing SCN if information is available.	Removes explicit mandate for a preliminary enquiry before SCN. AO proceeds if “information” exists. Focus shifts to information analysis.
2.	Opportunity to be heard (Time for SCN)	S.148A(b): Notice to show cause within not less than 7 days and not exceeding 30 days from notice issue.	S.148A(2): Assessee may furnish reply within period specified in notice after receiving SCN. No specific minimum/maximum deadlines mentioned here.	Removes rigid 7-30 day window for SCN reply within S.148A itself. Reply time specified in notice. (Note: Other general principles of natural justice regarding reasonable time would still apply).
3.	Extension for SCN reply	AO shall allow more time based on application.	No extension shall be granted by the AO.	Drastic change. No extensions for SCN reply. Assessee must adhere to initial timeline.
4.	Information with SCN	Notice to show cause was not explicitly required to be accompanied by information, though CBDT instructions later mandated it.	S.148A(1): Notice to show cause shall be accompanied by the information which suggests income chargeable to tax has escaped assessment.	Codifies a crucial taxpayer right. Ensures assessee to know the basis of SCN for effective reply. Strengthens reassessment regime.
5.	Consideration of reply	S.148A(c): AO shall consider reply before passing order u/s 148A(d).	This specific sub-clause (c) removed. S.148A(3) states AO shall pass an order “after considering the reply, if any, furnished by the assessee…”	The essence of considering the reply is retained in S.148A(3), though the distinct sub-clause is removed.
6.	Timeline for Order u/s 148A(d)	Within one month from end of the month in which the reply is received, or where no reply is received within  from end of the month in which time expired.	No such timeline fixed to pass an order under S.148A(3). (Note: S.149 provides overall limit for issuing S.148 notice, indirectly controlling S.148A process).	Significant change. Removes specific deadline for S.148A order. AO has more flexibility, but S.149 overall limits for S.148 notice remain the final check.

3.3. Time limits for notices: Section 149

Section 149(1) after the Finance (No.2) Act,2024 has extended the deadlines for issuing notice under S.148 from three years to three years and three months, and in cases where the income chargeable to tax, which has escaped assessment, amounts to fifty lakhs or more, the deadline has been reduced from ten year to a period if  three years and three months but not more than five years and three months.

Amendment acts as a tool to ensure an orderly and timely completion of the reassessment proceedings.

Another important aspect to consider is the change in the provision related to the monetary threshold for reopening assessments beyond the standard three year period.

Under the earlier regime, aggregation of income was permitted. This meant that if, during the extended reassessment period (i.e., beyond three years but up to ten years), the escaped income in individual years was below ₹50 lakh — say, ₹30 lakh in one year and ₹25 lakh in another — but the aggregate across those years exceeded ₹50 lakh, reassessment could still be initiated. Similarly, in cases involving a series of transactions spread across multiple assessment years, if the total value of such transactions crossed ₹50 lakh, the condition for reopening could be deemed fulfilled, even though no single year independently breached the ₹50 lakh threshold.

However, under the amended law, no such aggregation is permitted. The Assessing Officer must independently satisfy the condition that the income escaping assessment exceeds ₹50 lakh in each individual assessment year for which reassessment is sought beyond the three-year period. Unless this specific threshold is met for a particular year, reassessment for that year cannot be initiated under the extended 10-year limit.

This change significantly tightens the scope for reopening assessments under the extended time frame, and particularly impacts cases where income was spread over several years or involved multiple smaller transactions.

Comparing S.149 old provision vs new provision (Finance (No.2) Act, 2024  )

S.No	Feature	Old Provision (Post FA 2021 – S.149)	New Provision (Finance (No.2) Act, 2024   – S.149)	Implication of Change
1.	Normal time limit (S.149(1)(a))	Notice u/s 148 not to be issued if 3 years elapsed from end of relevant AY (unless case falls under clause(b)).	Notice u/s 148 not to be issued if 3 years and 3 months elapsed from end of relevant AY (unless case falls under clause (b)).	Minor extension of  period by 3 months.
2.	Extended time limit (S.149(1)(b))	If 3 years, but not more than 10 years, elapsed, if escaped income (amounts to/likely to) ≥ ₹50 lakhs.	If 3 years and 3 months, but not more than 5 years and 3 months, elapsed, if escaped income (shown by specified evidence) (amounts to/likely to) ≥ ₹50 lakhs.	Significant reduction of extended period from 10 years to 5 years and 3 months. Stricter evidence criteria (asset/books of account). No aggregation allowed.
3.	Timeline for SCN u/s 148A	No specific deadlines for issuing SCN u/s 148A within S.149. S.149 governed the S.148 notice.	S.149(2) [new]: No SCN u/s 148A shall be issued if: (a) 3 years elapsed (unless   (b) applies); (b) if 3 years, but not more than 5 years, elapsed (unless escaped income ≥ ₹50 lakhs or more).	Introduces explicit time limits within S.149 for issuing the initial SCN u/s 148A, aligning with the new S.148 notice timelines.

Issue: Property acquired jointly, TDS deducted in one co-owner’s name. Is reopening by considering consolidated sale consideration in single co-owner’s hands valid under section 149(1)(b)?
Pramila Mahadev Tadkase v. Income Tax Officer (Karnataka) [158 taxmann.com 246]: Assessee and co-owner sold property (AY 2016-17) worth over ₹50 lakhs. Equal owners. Full TDS on assessee’s PAN, but consideration received by assessee < ₹50 lakhs. S.148A(b) notice in Jan 2023.
Conclusion: Reopening beyond 3 years (up to 10 years under old law) requires conditions of S.149(1)(b) to be met. Here, amount involved in case of assessee < ₹50 lakhs. Reopening by considering total TDS amount not valid.

3.4. Sanction for Issue of notice: Section 151

Newly substituted S.151: Specified authority shall be “the Additional Commissioner or the Additional Director or the Joint Commissioner or the Joint Director, as the case may be.”

• Earlier Law: Mandated prior approval from higher authorities (Principal Commissioner/Chief Commissioner) for reassessment.
• Amended Provision: Approval now only from “ the Additional Commissioner or the Additional Director or the Joint Commissioner or the Joint Director, as the case may be.This means AO can initiate S.148 proceedings with much lower oversight, especially within the three-year limit, potentially leading to misuse. Compounded by broadened “income escaping assessment” definition, it’s easier to frame allegations and issue S.148 notices often without substantial scrutiny. This shift may undermine previous checks and balances.

  However, this is against the Finance Minister’s 2021 policy statement that reassessment proceedings beyond three years needs highest authority approval.

Issue: S.148A(b) notice (March 2022, AY 2018-19), S.148A(d) order (April 2022). Approval from Principal Commissioner. Since S.148A(d) order was after 3 years, approval needed from Principal Chief Commissioner (Sec 151(ii) old Act). Was S.148 notice based on Principal Commissioner’s approval valid?
Holiday Developers (P.) Ltd. v. ITO [2024] 159 taxmann.com 178 (Bombay)(HC) & Saraswat Co-operative Bank Ltd. Vs ACIT (Bombay High Court): Held order u/s 148A(d) and notice u/s 148 based on PCIT’s approval invalid. Proviso in S.151 (inserted by FA 2023) cannot apply retrospectively.
[2024] 162 taxmann.com 514 (Delhi) Ashok Kumar Makhija v. Union of India: Where reopening >3 years, approval for S.148 & S.148A(b) notice from PCIT/PDG. Approval from Principal CIT not valid.

3.5. Faceless assessment of income escaping assessment: Section 151A

Core Argument: S.148 notices must be issued by a Faceless Assessing Officer (FAO) through an automated allocation system (E-assessment of Income Escaping Assessment Scheme, 2022). Not byeJurisdictional Assessing Officer (JAO) are legally void.

Legal basis:

1.Section 151A: Empowers CBDT for faceless schemes (reassessment, Section.148 notice, Section.148A inquiries, Section 151 sanction) to enhance efficiency, transparency, accountability by:

• • Eliminating physical interface.
  • Optimizing resource utilization.
  • Introducing team-based work, dynamic jurisdiction.

2. CBDT Notification No. 18/2022 (S.O. 1466(E)) dated 29th March 2022: Introduced “e-Assessment of Income Escaping Assessment Scheme, 2022” under S.151A.

3. Paragraph 3 of the Scheme (29th March 2022): Issuance of notices “shall be through automated allocation system.” “Shall” implies mandatory procedure, no Departmental discretion.

Issue: Whether notice u/s.148 no  has to be be issued by Jurisdictional Assessing Officer (JAO) or National Faceless Assessment Scheme AO (FAO)?

• Supporting FAO (Faceless):
  • Kankanala Ravindra Reddy V. Income-tax Officer [2023] 156 taxmann.com 178 (Telangana): Mandatory faceless manner (relying on S.151A & Notification. No S.O. 1466(E)).
  • Hexaware Technologies Ltd. v. ACIT [2024] 162 taxmann.com 225 (Bombay) and Macleods Pharmaceuticals Ltd. v. ACIT [2024] 166 taxmann.com 284 (Bombay): Impugned notices by JAO (not FAO) quashed.
  • Sharda Devi Chhajer vs ITO (Judgment 19th March 2025, specific court not mentioned): FAO has exclusive jurisdiction for S.148 notices post 29.03.2022 Scheme.
• Contrary View (JAO has jurisdiction):
  • Triton Overseas (P.) Ltd. v. Union of India [2023] 156 taxmann.com 318 (Calcutta): Held JAO is not bereft of jurisdiction.

4. PROCEDURAL ASPECTS AND EMERGING ISSUES UNDER SECTION 148A (POST-FINANCE (NO.2) ACT, 2024.

4.1. Enquiry before show cause notice (SCN)

• Removal of Explicit Enquiry Mandate: Old S.148A(a) mandated enquiry if required. New S.148A(1) (substituting old S.148A) removes this, starts with SCN if information suggests escapement.
• Implicit need for preliminary assessment: Despite removal, crux remains: information must be shared. New Section.148A(1) mandates SCN “shall be accompanied by the information…” This implies AO must still undertake preliminary application of mind to identify such information before issuing SCN, even if not termed a formal “enquiry.”
  • Chotanagpur Diocesson Trust Asson. v. UOI [2023] 156 taxmann.com 273 (Jharkhand)
  • Champa Impex (P.) Ltd. v. Union of India – [2024] 158 taxmann.com 629 (Calcutta)
  • Satguru Sai Extrusions Pvt. Ltd. v. UOI – 2024 (2) TMI 50 – Bombay High Court
  • Popatlal Umedmalji Jain v. ITO – 2024 (2) TMI 344 – Bombay High Court

4.2. Verification of information from insight portal

• CBDT Instruction No. 299/10/2022-Dir(Inv.I)/647 acknowledges ITD portal data may not be fully accurate. Due verification and opportunity of being heard are necessary.
• Courts affirmed: SR Cold Storage v. UOI – 2022 (8) TMI 806 (All HC); Narendra Kumar Shah v. ACIT & ORS. – 2023 (11) TMI 345 (Bom HC).

4.3. Show cause notice under section 148A(1): Key considerations.

• Provision of information (Mandatory): New S.148A sub-section (1) mandates SCN be accompanied by information. Aligns with CBDT Instruction No. 1 (11.05.2022) & Guidelines 299/10/2022-Dir (Inv.III)/611 (01.08.2022).
  • For “converted matters” (Ashish Aggarwal ruling), AO to provide info within 30 days.
  • For new regime notices, supply of material is necessary.
    • Lakhendra Kumar Raushan v. PCIT – [2023] 157 taxmann.com 248;
    • Alkem Laboratories Ltd. v. PCIT- [2023] 152 taxmann.com 133 (Patna).
    • Chotanagpur Diocesson Trust Asson. v. UOI – [2023] 156 taxmann.com 273 (Jharkhand)
    • Best Buildwell (P.)(Ltd.) v. ITO – 141 taxmann. com 558
• SCN vs. Questionnaire: SCN cannot be replaced by a questionnaire. It must embody material/grounds and disclose specific proposed action.
  • Swal Ltd. v. Union of India- [2022] 141 taxmann.com 523 (Calcutta);
  • Gorkha Security Services – 2014 (8) TMI 1081 (SC),
  • BT (INDIA) Pvt. Ltd. v. UOI & ANR. – 2023 (11) TMI 478 – Delhi High Court
• Opportunity of being heard vs. physical hearing: While section148A sub-Section(1) mentions “opportunity of being heard,” Dept. Instruction (Clause viii of F.No.299/10/2022-Dir (Inv.III)/611) suggests providing personal hearing if requested. Circulars are binding on Revenue.
  • MR. Beboy Joseph John v. ACIT – 2022 (12) TMI 1283 (Madras HC).
  • Babcock Borsig Limited v. Union of India – [2022] 141 taxmann.com 85 (Calcutta)
• Maintainability post-finance (No. 2) Act, 2024: In Ravish Rastogi v. Union of India (2025 SCC Online All 1043, 16-01-2025), Allahabad HC quashed S.148A(b) proceedings initiated prior to 01-09-2024 (effective date of Finance (Act No.2) of 2024 amendments) where Revenue conceded, in view of S.152(4) inserted by (Finance Act No.2) of 2024.
• Time limit for reply (Minimum 7 clear days): Old Section.148A(b) specified not less than 7 days (meaning 7 clear days, excluding issue/submission date). Violation vitiates. New Section 148A(2) states “within such period, as may be specified in the notice.” General principles of natural justice for reasonable time would apply.
  • Jindal Forgings v. Income Tax Department – 143 taxmann.com 263 (Jharkhand).
  • Srivenkateshwar Tradex (P.) Ltd. v. PCIT – [2023] 156 taxmann.com 496 (Delhi)
  • Satish Kumar v. PCCIT – 2023 (12) TMI 812 – Jharkhand High Court
• Time limit excluding holidays: SCN period must exclude holidays. Short period violates natural justice.
  • R.N. Fashion v. UOI – 139 taxmann.com 539 (Calcutta)
  • Girdhar Gopal Dalmia v. Union of India – [2022] 141 taxmann.com 251 (Calcutta)
  • Bird Worldwide Flight Services (I.) (P.) Ltd. v. DCIT – 144 taxmann.com 120 (Delhi)
  • PANJOS BUILDERS P LTD. v. PCCIT – 2024 (2) TMI 585 – Karnataka High Court

4.4. Order under section 148A(3): Consideration of assessee’s reply
This provision is pari pasu with earlier deleted Section.148A clause (c) & clause (d). Law mandates AO to consider reply/submissions; consideration must be explicitly discussed in Section.148A(3) order. Surge in Writ Petitions challenging non-consideration of replies.
G’S Departmental Store v. Income-tax Officer [2025] 173 taxmann.com 618 (Delhi): Where S.148A(d) order (old) on cash deposits during demonetization travelled beyond information in Sectionm.148A(b) notice, it could not be sustained.

4.5. Order u/s 148A(3) & Notice u/s 148: Timelines and Procedures
No specific time limit in S.148A for passing S.148A(3) order. However, Section 149 provides overall limits for issuing S.148 notice, which effectively gives a three-month window for S.148A process.
Example: AY 2019-20. Limitation (say, 5 years) expires 31st March 2025.

• SCN u/s 148A must be issued by 31st March 2025.
• AO must complete S.148A process (opportunity, reply, S.148A(3) order) by 30th June 2025.
• Outer limit for issuing S.148 notice for AY 2019-20 is 30th June 2025.No S.148 notice can be issued after 30th June 2025.

  Time to file return to S.148 notice: Max 90 days. If not filed in time, not valid S.139 return; S.143(2) notice requirement doesn’t arise.

4.6. Key issues in S.148A(3) Orders / S.148 Notices

• Deviation from Prior Dropped Proceedings: Reopening on same facts where proceedings previously dropped for another year generally not permissible. Assessee deals with ITD as a whole. (Prem Kumar Chopra [TS-284-HC-2023(DEL)]).
• Alignment of SCN and Order: S.148A(3) order must align with S.148A(1) SCN issues. Cannot introduce new grounds. If foundational allegation missing in S.148A(b) notice, cannot be incorporated by supplementary notice post S.148A(d) order.
  • Catchy Pro-Build (P.) Ltd. v. Asstt. CIT [2022] 145 taxmann.com 510.
  • Usha Rani Gisdhar v. ITO – 146 taxmann.com 547
• Sharing copy of approval (S.151): Mandatory per CBDT Instruction No. 1 (11.05.2022).
  • Tia Enterprises Pvt. Ltd. v. ITO (2023 (10) TMI 1201, Del).
  • Gudwala And Sons v. ACIT – 2023 (10) TMI 139 – DELHI HIGH COURT
• Multiple/Contradictory approvals: Two different approvals for same AY are invalid. Non-application of mind by sanctioning authority. (Siemens Ltd. v. Deputy Commissioner of Income Tax [160 taxmann.com 243] (Bom HC)).
• Mechanical approval: Approval given mechanically without application of mind (e.g., incorrect form details) can lead to quashing. (Nikhil Chandrakant Dharia v. ITO – 2023(11)TMI 343 (Bom HC)).
• Approval for S.148A(b) notice (old) beyond 3 years must be from correct specified authority. (DCIT VS SS Jewellery[2025] 173 taxmann.com 189 (Mum – Trib.)).

5. OTHER MISCELLANEOUS ISSUES

a) Unsigned notice:

• Invalid: If unsigned digitally/manually and lacks name/designation of authority. Defect not curable u/s 292B.
• • Prakash Krishnavtar Bhardwaj v. ITO [2023] 150 taxmann.com 60 (Bom).
  • CIT v. Aparna Agency (P.) Ltd . [2004] 139 Taxman 132
  • Umashankar Mishra v. CIT – [1982] 11 Taxman 75 (MP)
  • Vikas Gupta v. Union of India [2022] 142 taxmann.com 253 (Allahabad)
• Valid: Digitally unsigned notice valid if contains name/office of authority printed/stamped/written (authentication per S.282A(2)).
  • Suman Jeet Agarwal v. ITO – [2022] 143 taxmann.com 11 (Del).

b) Communication of notice via email (Rule 127): Notice must be sent to email in ITR to which communication relates, or last return. Secondary email only if primary absent.

• Lok Developers v. DCIT – [2023] 149 taxmann.com 93 (Bom).
• GRS Hotel (P) Ltd. v. Union of India (Allahabad) [2024] [160 taxmann.com 125]
• Munjal BCU Centre of Innovation and Entrepreneurship (Punjab & Haryana) [160 taxmann. com 629]

c) Order in name of non-existent entity:

• Rajasthan Global Securities (P) Ltd. [146 Taxmann.com 512].
• Vijay Garg v. Income-tax Officer [2023] 146 taxmann.com 231 (Delhi)

6. INDICATIVE CHECKLIST FOR SECTION 148A PROCEEDINGS
(When a notice U/s 148 is received)

1.Has the JAO/FAO validly initiated proceedings under Section 148A?

2. Has prior approval u/s 148A(3) (via S.151) been obtained from the correct authority?

3. Is the S.148A notice within time limits per Section 149 (or time-barred)?

4. Has a valid and adequate SCN been issued u/s 148A(1), accompanied by all information?

5. Was the assessee given a fair and reasonable opportunity to respond to the SCN (principles of natural justice)?

6. Is information relied upon within scope of Expl. 1 to S.148? Full content disclosed for rebuttal?

7. Was assessee confronted with all underlying material (natural justice)?

8. Is cross-examination of witnesses required/provided if relied upon by Revenue?

9. Does assessee’s reply adequately address/rebut the information, both factually and legally?

10. Did JAO/FAO and approving authority properly consider assessee’s reply and material before passing reasoned order u/s 148A(3), especially for issuing S.148 notice?

CONCLUSION

The amendments by Finance (No.2) Act, 2024  , and preceding Acts reflect an ongoing legislative effort to refine reassessment, balancing revenue interests with taxpayer rights. While new provisions aim for greater clarity, consistency, and a streamlined process (e.g., mandatory information with SCN, stricter timelines for extended reopening), they also introduce new complexities and potential challenges (e.g., reduced oversight for approvals, removal of extensions for replies).

The core principles of “information suggesting escapement,” necessity of a live link, and adherence to natural justice remain paramount. Judicial precedents from the erstwhile regime will continue to be crucial. Taxpayers and professionals must remain vigilant, meticulously examining procedural compliance and the substantive basis for any reassessment. The effectiveness of these frequent amendments in creating a “litigation-resistant” process will only become evident over time, through application and judicial scrutiny.

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Disclaimer: The discussion herein focuses on key emerging and current issues under Section 148 to 151 of the Income Tax Act. Given the complexities and nuances of tax law, this information is for general awareness and not a definitive guide for action. It is imperative that assessees and their tax advisors apply their independent expert judgment and, where necessary, seek specialized advice before making decisions in any specific case.