The Finance Bill, 2024, has introduced significant changes to the provisions governing assessment & reassessment under IT Act. These amendments aim to simplify the process, reduce litigation & align time limits with international best practices.
We narrate detailed analysis of the pre-budget provisions and proposed amendments & their implications post-budget.
Analysis of Old Provisions and Need for Change
Section 148: Issue of Notice
- Pre-Budget Provision: The Assessing Officer (AO) could issue a notice for income escaping assessment without stringent requirements for prior approval or detailed inquiries
- Problems: This led to arbitrary notices and a higher volume of litigation due to varying interpretations and a lack of a standardized procedure.
Section 148A: Procedure Before Issuance of Notice
- Pre-Budget Provision: Introduced in 2021, this section required the AO to conduct an inquiry, provide an opportunity to the assessee to be heard, pass an order prior to reopening a case.
- Problems: While it added a layer of protection for taxpayers, it also led to procedural complexities and delays in the assessment process.
Section 149: Time Limits for Issuance of Notice
- Pre-Budget Provision: This section provided the time limits for issuance of notices under Section 148, with varying limits based on the nature of the information.
- Problems: The extended time limits for certain cases led to prolonged periods of uncertainty for taxpayers and increased administrative burdens.
Section 151: Sanction for Issuance of Notice
- Pre-Budget Provision: Required sanction from specified authorities for issuing notices under Sections 148 or 148A.
- Problems: The lack of clarity on the specified authority and the process for obtaining sanctions contributed to delays and increased litigation.
Rationale for Changes
Existing provisions led to considerable litigation due to multiple interpretations. There were also representations to reduce the time-limit for issuance of notices to provide ease of doing business for taxpayers. The changes aim to streamline procedures, reduce litigation, and ensure timely assessments.
Proposed Amendments in Finance Act, 2024
Section 148: Issue of Notice
- Post-Budget Provision: Before making an assessment, reassessment, or recomputation under Section 147, the AO shall issue a notice to the assessee along with a copy of the order passed under sub-section (3) of Section 148A. The notice shall require the assessee to furnish a return within three months from the end of the month in which the notice is issued.
- Effect: Ensures that notices are issued based on verified information, reducing arbitrary and frivolous notices.
Section 148A: Procedure Before Issuance of Notice
- Post-Budget Provision: The AO must provide an opportunity of being heard to the assessee by serving a notice to show cause why a notice under Section 148 should not be issued. This notice must be accompanied by the information suggesting that income chargeable to tax has escaped assessment.
- Effect: Adds a layer of protection for taxpayers while ensuring that the AO has substantial grounds before issuing a notice.
Section 149: Time Limits for Issuance of Notice
- Post-Budget Provision: No notice under Section 148 shall be issued if three years and three months have elapsed from the end of the relevant assessment year, unless the case involves income escaping assessment amounting to fifty lakh rupees or more, in which case the limit is extended to five years and three months.
- Effect: Reduces the period of uncertainty for taxpayers and aligns the time limits with international best practices.
Section 151: Sanction for Issuance of Notice
- Post-Budget Provision: The specified authority for issuing notices under Sections 148 or 148A shall be the Additional Commissioner, Additional Director, Joint Commissioner, or Joint Director.
- Effect: Clarifies the process and authority for obtaining sanctions, reducing delays and ensuring timely assessments.
Comparative Analysis: Pre-Budget vs. Post-Budget Provisions
| Section | Pre-Budget Provision | Post-Budget Provision | Effect |
| 148 | AO could issue notice without stringent requirements | Notice issued with a copy of the order passed under 148A and within three months | Reduces arbitrary notices, ensures verified information |
| 148A | Inquiry and hearing required before reopening a case | Opportunity to be heard with notice to show cause and accompanying information | Adds protection for taxpayers, ensures substantial grounds |
| 149 | Varied time limits for issuance of notices | Notices not issued after three years and three months unless income escaping assessment is fifty lakh or more, then five years and three months | Reduces uncertainty, aligns with best practices |
| 151 | Sanction required from specified authorities | Specified authority clarified as Additional Commissioner, Additional Director, Joint Commissioner, or Joint Director | Reduces delays, ensures timely assessments |
Relevant Provisions from Finance Bill 2024
Section 148(3) Amendment:
Before making an assessment, reassessment, or recomputation under Section 147, the AO shall issue a notice along with a copy of the order passed under sub-section (3) of Section 148A. The notice shall require the assessee to furnish a return within three months from the end of the month in which the notice is issued.
Section 148A Amendment:
The AO must provide an opportunity of being heard to the assessee by serving a notice to show cause why a notice under Section 148 should not be issued. This notice must be accompanied by the information suggesting that income chargeable to tax has escaped assessment.
Section 149 Amendment:
No notice under Section 148 shall be issued if three years and three months have elapsed from the end of the relevant assessment year, unless the case involves income escaping assessment amounting to fifty lakh rupees or more, in which case the limit is extended to five years and three months.
Section 151 Amendment:
The specified authority for issuing notices under Sections 148 or 148A shall be the Additional Commissioner, Additional Director, Joint Commissioner, or Joint Director.
These amendments are expected to take effect from 1st September 2024, providing a more streamlined and efficient process for assessment and reassessment under the Income Tax Act.
By addressing the procedural inefficiencies and reducing the scope for arbitrary notices, these changes are poised to provide greater clarity and certainty for taxpayers, thereby promoting ease of doing business and reducing litigation.
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