The Finance Act 2021 introduced significant changes to the assessment and reassessment procedures under the Income-tax Act, effective from April 1, 2021. Key amendments include modifications to sections 148, 148A, and 149, along with the introduction of a new section 148A. These changes aim to streamline the issuance of notices for assessment or reassessment by specifying detailed procedures for the Assessing Officer (AO), including conducting inquiries and obtaining approval before reopening cases. The amendments also redefine what constitutes actionable ‘information’ for issuing notices and set specific time limits based on the nature and amount of income under scrutiny. The reforms are expected to reduce ambiguity and litigation surrounding the interpretation of these provisions, providing clarity and efficiency in tax administration. Scheduled to take effect from September 1, 2024, these revisions are poised to enhance compliance and facilitate smoother operations for taxpayers and tax authorities alike.
Budget 2024: Rationalisation of provisions relating to assessment and reassessment under the Act
The Finance Act, 2021 amended the procedure for assessment or reassessment of income in the Act with effect from the 1st April, 2021. The said amendment modified, inter alia, section 148, section 149 and also introduced a new section 148A in the Act.
2. The existing provisions of section 148 of the Act provide the procedure for issuance of notice to initiate assessment or reassessment or recomputation under section 147 of the Act. The existing provisions of the said section also provide details of what constitutes ‘information’ for the purposes of issuance of notice. The said section further provides the instances in which the Assessing Officer (AO) would be deemed to have information in order to initiate the assessment or reassessment proceedings.
3. The existing provisions of section 148A of the Act provide the procedure to be followed by AO before issuance of notice under section 148 of the Act, including conducting inquiry, providing an opportunity of being heard to the assessee, and passing an order prior to reopening of a case. The said section also provides the circumstances in which such procedure does not apply.
4. Further, the existing provisions of section 149 of the Act provide the time limits 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 to obtain sanction from the specified authority, for issuance of notice under section 148 or section 148A of the Act.
5. In this regard, multiple suggestions have been received regarding the considerable litigation at various fora arising from the multiple interpretations of the provisions of aforementioned sections. Further, representations have been received to reduce the time-limit for issuance of notice for the relevant assessment year in proceedings of assessment, reassessment or recomputation.
6. Hence, it is proposed to rationalize the aforementioned reassessment provisions. It is expected that the new system would provide ease of doing business to taxpayers as there is a reduction in time limit by which a notice for assessment or reassessment or re-computation can be issued. The salient features of the proposed amendments are as follows:-
(i) It is proposed to substitute section 148 of the Act so as to provide that before making the assessment, reassessment or recomputation under section 147 and subject to the provisions of section 148A, the Assessing Officer shall issue a notice to the assessee, along with a copy of the order passed under sub-section (3) of section 148A determining it to be a fit case, requiring him to furnish within such period as may be specified, not exceeding a period of three months from the end of the month in which such notice is issued, a return of his income or the income of any other person in respect of whom he is assessable under this Act. Further, it is proposed to provide 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.
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 to the definition of ‘information’ with the Assessing Officer which suggests that the income chargeable to tax has escaped assessment.
It is further proposed to provide that where the Assessing Officer has received information under the scheme notified under section 135A, no notice under section 148 shall be issued without prior approval of the specified authority.
(ii) It is further proposed to substitute the section 148A so as to provide that 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 shall be accompanied by the information which suggests that income chargeable to tax has escaped assessment in his case for the relevant assessment year. Thereafter, on receipt of notice under sub-section (1), the assessee may furnish his reply, within such time, as may be specified in such notice.
The Assessing Officer shall, on the basis of material available on record and taking into account the reply of the assessee furnished under subsection (2), if any, pass an order with the prior approval of the specified authority under sub-section (3) of section 148A, determining whether or not it is a fit case to issue notice under section 148.
It is further proposed that the provisions of this section shall not apply in the case of an assessee where the Assessing Officer has received information under the scheme notified under section 135A pertaining to income chargeable to tax escaping assessment for any assessment year in his case.
(iii) The time limitation for issuance of notice under section 148A and section 148 of the Act is proposed to be provided in section 149 of the Act as follows:
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- in normal cases, no notice under sections 148A shall be issued if three years have elapsed from the end of the relevant assessment year. Notice beyond the period of three years from the end of the relevant assessment year can be taken only in a few specific cases;
- in normal cases, no notice under section 148 shall be issued if three years and three months have elapsed from the end of the relevant assessment year. Notice beyond the period of three years and three months from the end of the relevant assessment year can be taken only in a few specific cases;
- in specific cases, where as per the information with the Assessing Officer, the income escaping assessment amounts to or is likely to amount to fifty lakh rupees or more, notice under section 148A can be issued beyond the period of three years but not beyond the period of five years from the end of the relevant assessment year;
- in specific cases, where the Assessing Officer has in his possession books of account or other documents or evidence related to any asset or expenditure or transaction or entry (or entries) which reveal that the income chargeable to tax, which has escaped assessment amounts to or is likely to amount to fifty lakh rupees or more, notice under section 148 can be issued beyond the period of three years and three months but not beyond the period of five years and three months from the end of the relevant assessment year.
(iv) It is proposed to substitute the section 151 so as to provide that 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.
(v) It is proposed to amend the section 152 of the Act so as 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.
(vi) It is also proposed to amend the section 152 of the Act so as 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.
7. This amendment will take effect from the 1st day of September, 2024.
[Clauses 44, 45, 46 & 47]
Proposed Amendment of section 148 of Income Tax Act, 1961 vide Finance Bill, 2024
For sections 148 of the Income-tax Act, the following sections shall be substituted with effect from the 1st day of September, 2024, namely:––
‘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 subsection (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.
Proposed Amendment of section 148A of Income Tax Act, 1961 vide Finance Bill, 2024
For sections 148A of the Income-tax Act, the following sections shall be substituted with effect from the 1st day of September, 2024, namely:––
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.’.
Proposed Amendment of section 149 of Income Tax Act, 1961 vide Finance Bill, 2024
For section 149 of the Income-tax Act, the following section shall be substituted with effect from the 1st day of September, 2024, namely:––
Time limit for notices under sections 148 and 148A.
“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.
Proposed Amendment of section 151 of Income Tax Act, 1961 vide Finance Bill, 2024
Sanction for issue of notice.
For section 151 of the Income-tax Act, the following section shall be substituted with effect from the 1st day of September, 2024, namely:––
“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.”.
Proposed Amendment of section 152 of Income Tax Act, 1961 vide Finance Bill, 2024
In section 152 of the Income-tax Act, after sub-section (2), the following sub-sections shall be inserted with effect from the 1st day of September, 2024, namely:––
(3) 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) of the said section], on or after the 1st day of April, 2021 but before the 1st day of September, 2024, the provisions of sections 147 to 151 shall apply as they stood immediately before the commencement of the Finance (No. 2) Act, 2024.
(4) 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 immediately before the commencement of the Finance (No. 2) Act, 2024.”.
Extract of Clause 44 of Finance Bill 2024
Clause 44 of the Bill seeks to substitute sections 148 and 148A of the Income-tax Act relating to issue of notice where income has escaped assessment and conducting inquiry, providing opportunity before issue of notice under section 148, respectively.
The existing provisions of the said section, inter alia, provides that before making the assessment, reassessment or recomputation under section 147 the Assessing Officer shall serve on the assessee a notice, along with a copy of the order passed.
It is proposed to substitute the said section so as to provide that if there is any information as to the escaped assessment, the Assessing Officer before making the assessment, reassessment or recomputation shall 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, not exceeding a period of three months from the end of the month in which such notice is issued, a return of his income or the income of any other person in respect of whom he is assessable under this Act.
It further provides that the return of income required to be furnished under sub-section (1) shall be furnished in the such form and verified in such manner and setting forth such other particulars as may be provided by rules, and the provisions of this Act shall apply accordingly as if such return were a return required to be furnished under section 139.
It is also proposed to provide that where the Assessing Officer has received information under the scheme notified under section 135A, no notice shall be issued under section 148 without prior approval of the specified authority.
It also provides that any return of income required to be furnished by an assessee under this section and furnished beyond the period specified in the notice under sub-section (1), shall not be deemed to be a return under section 139.
It also clarifies the information with the Assessing Officer about the income chargeable to tax which has escaped assessment.
The existing provisions of the section 148A, inter alia, provides certain procedures to be followed by Assessing Officer before issuing notice under section 148.
It is proposed to substitute the said section so as to provide that 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 who shall furnish his reply, within such time, as may be specified in such notice.
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.
It also proposed that the provisions of the section 148A 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.
It also provides to insert an Explanation to explain the expression “specified authority”. These amendments will take effect from 1st September, 2024.
Extract of Clause 45 of Finance Bill 2024
Clause 45 of the Bill seeks to substitute section 149 of the Income-tax Act relating to time limit for notice.
The existing provisions of the said section, inter alia, provides the time limit for the issuance of notice under section 148.
It is proposed to substitute the said section to provide the time line beyond which notice under section 148 and notice to show cause under section 148A shall not be issued by the Assessing Officer in respect of income chargeable to tax, which has escaped assessment.
This amendment will take effect from the 1st September, 2024.
Extract of Clause 46 of Finance Bill 2024
Clause 46 of the Bill seeks to substitute section 151 of the Income-tax Act relating to sanction for issue of notice.
Section 151 provides the specified authority for the purpose of sanction.
It is proposed to substitute the said section so as to provide that specified authority for the purposes of section 148 or 148A shall be the Additional Commissioner or the Additional Director or the Joint Commissioner or the Joint Director, as the case may be.
This amendment will take effect from 1st September, 2024.
Extract of Clause 47 of Finance Bill 2024
Clause 47 of the Bill seeks to amend section 152 of the Income-tax Act relating to other provisions.
It is proposed to insert a new sub-section (3) in the said section so as 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 sections 147 to 151 shall apply as they stood immediately before the commencement of the Finance (No. 2) Act, 2024.
It is further proposed to insert a new sub-section (4) in the said section so as 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 immediately before the commencement of the Finance (No. 2) Act, 2024.
These amendments will take effect from 1st September, 2024.
