“Explore the amended provisions of reassessment in response to search/survey by the Income Tax Department. Learn how to navigate notices under section 148, the exceptions provided in Explanation-2, and the implications for taxpayers. Stay informed with expert insights. Source: Income Tax Act 1961, Amendments, Legal Analysis.”
Recently a spate of notices have been issued by the Income Tax Department directly u/s 148 of the Act, invoking the Explanation-2 to section 148 which provides for exception to the pre assessment procedure of section 148A. We provide herewith our take on how to deal with such notices:
The amendment to section 148 to section 151 of the Income Tax Act 1961 with effect from 01 April 2021 has codified the decision in the case of GKN Driveshafts reported in 259 ITR page 19. Consequently now prior to issuance of section 148 notice and initiating the reassessment the department has to issue a pre enquiry notice u/s 148A of the Act providing the assessee with the “information” and seeking his objection to proposed reopening. Thereafter the AO has to pass a speaking order with the approval of the specified authority popularly known as 148A(d) order followed by a notice u/s 148 seeking the assessee to file a return for the relevant assessment year.
The above procedure is exempted in certain situations as provided in the Explanation-2 to section 148 where the AO can directly issue notice u/s 148 without any pre issuance of notice u/s148A and order u/s 148A(d).
These exceptions as provided in section 148 are as under:
(i) Where a search action has been undertaken on the assessee on or after 01/04/2021
(ii) Where a survey action is undertaken u/s 133A other than TDS survey on or after 01/04/202
(iii) Where some money, bullion, jewllery etc is found with another person searched but belong to assessee
(iv) Where some books, documents or evidence of income is found with the person searched relating to the assessee
In all the above situations the legislature provides that 1 it shall be “deemed” that the AO has “information” of chargeable income having escaped assessment and therefore there is no requirement of S. 148A procedure. However, in the situations mentioned in (iii) and (iv) there are additional conditions of recording satisfaction by the AO and obtaining approval of PCIT before issuing notice u/s 148 of the Act.
Issue:
The question arises as to whether these exceptions especially under situation (iii) and (iv) have overturned the decision of GKN driveshafts in such cases. In other words, can the Revenue now contend that, now when exceptions have been provided and direct notice can be issued u/s148 the procedure as laid down by the SC in the case of GKN Driveshaft (supra) is no more applicable.
Authors Opinion:
To understand the above issue one has to consider and carefully read the Explanation-2 to the section 148 where the procedure for pre assessment as provided under section 148A is excepted. The said procedure in situation (iii) and (iv) specifically provides for:
a) the satisfaction of the AO coupled by
b) the approval of the PCIT
before a notice u/ 148 can be issued to an assessee. Now of course, the said satisfaction cannot be approved if it is not in writing containing all details and material and documents properly referred to by the AO. In fact, it has been held by the Courts in a number of cases that satisfaction has to be in writing so as to enable a judicial review of the said satisfaction.
Similarly the approval of the PCIT cannot be mechanical in nature. All past precedence which have been rendered in the erstwhile law of reassessment shall come into play on the quality of such approval.
This is where the decision of SC in the case of GKN driveshafts come into play. The said decision lays down that :
when a notice under Section 148 of the Income tax Act is issued, the proper course of action for the noticee is to file return and if he so desires, to seek reasons for issuing notices. The assessing officer is bound to furnish reasons within a reasonable time. On receipt of reasons, the noticee is entitled to file objections to issuance of notice and the assessing officer is bound to dispose of the same by passing a speaking order. In the instant case, as the reasons have been disclosed in these proceedings, the assessing officer has to dispose of the objections, if filed, by passing a speaking Order before proceeding with the assessment in respect of the abovesaid five assessment years.
There is no reason that the above observation and finding of SC should not be applied to the notice issued under section 148 even under amended law. Merely because a search has taken place and information is deemed in the case of the assessee, the AO still has to arrive at a satisfaction and also take approval of PCIT. Thus such satisfaction if incorrect or is dehors the material and documents on record or if the approval of PCIT is not proper can come up for judicial examination only if the AO provides a copy of the satisfaction note along with the copy of approval of the PCIT.
The next question to consider is at what stage such satisfaction and approval can be asked for by the assessee? Whether at the stage of receipt of notice or whether after complying to the said notice i.e. after filing the return of income. If one goes strictly by the decision of SC in GKN Driveshafts (supra) then the only conclusion is that first the assessee has to file the return of income for the relevant assessment year and thereafter ask for such satisfaction and approval. It’s a recommended course of action.
However, the authors advise that if the notice u/s148 is patently wrong due to time limitations as provided u/s149(1) or if approval copy of PCIT is not given then one can (and rather should) challenge the notice as interim objection.
There is one technical issue that arises when one tries to file the objection against 148 notice. The IT portal does not permit filing any letter against the said notice. Only return can be uploaded. So one can think of first filing the return and then apply for copy of satisfaction of AO and approval of PCIT. The other option is to email the objection to the concerned jurisdictional AO as his email id is available in the notice u/s 148.
Either ways, the author believes that the assessee do not lose their valuable right of agitating a matter merely because the portal is not permitting the assessee to adapt a particular course of action. We believe that the emailed letter to AO shall serve the same purpose and one must use that.
Conclusion: The above amendments were introduced to reduce litigation. However, considering the number of the writs being filed everyday in all High Courts of the Country coupled by the field officers acting only on information given on Insight Portal, has made reopening of assessment as normal scrutiny proceedings. It would be interesting to find the number of such notices being issued and the fate of these notices to understand the magnitude of malaise in the quality of “information” and illegality being carried out by the Revenue in the procedure.
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