How To Deal With Notices under Section 148A And under section 148 of Income Tax Act, 1961 As Amended By Finance Act, 2022
Finance Act, 2021 introduced major changes to the provisions of reopening of assessment of an assessee for previous assessments years. Erstwhile Sections 147 to 151 were replaced with amended Sections 147, 148, 148A, 149, 150 and 151 respectively, with effect from 1 April 2021.
Thus, any notice for re-opening of assessments issued after 1 April 2021 will be governed by the new provisions contained in amended sections 147 to 151 as upheld by Hon’ble Supreme Court of Indian in the matter of Union of India & Ors. Appellant (S) Vs. Ashish Agarwal.
Section 148A was introduced by Finance Act, 2022 requiring the Assessing Officer to conduct inquiry, providing opportunity before issue of notice under section 148.
DISTINCTION BETWEEN OLD AND NEW PROVISIONS
Under the erstwhile regime, the Assessing Officer (AO) used to issue notices u/s 148, requiring the assessee to file Income Tax Returns for a particular Assessment Year without disclosing the reasons for re-opening of assessment. The assessee was obliged to file the return in response to the said notice U/s 148 of erstwhile regime and thereupon they used to file an application with the AO to ascertain the reasons for re-opening and satisfaction recorded by the AO for re-opening of the Assessment Proceedings. The assessee used to file objections against the reasons for reopening of assessment proceedings and satisfaction recorded by AO (if any) and the AO was obliged to dispose-off the objections of the assessee by way of a speaking order as stipulated by Hon’ble Supreme Court of India in the Case of GKN Driveshafts (India) Ltd vs Income Tax Officer and Ors.
Lot of litigations used to take place on account of either non-supply of reasons for re-opening, satisfaction notes and sanctions obtained u/s 151 by the Assessing Officer or Assessing Officers making assessments without passing speaking orders in respect disposing the objections filed by the assessee.
Hence, a new regime for re-opening of the assessment proceedings was envisaged in Finance Act, 2021 whereby the section 148 was given a “New Avtaar”.
The legislatures amended the provisions of section 148 w.e.f 1 April 2021 making it mandatory to follow the procedures as stipulated U/s 148A, prior to issue of notice U/s 148. Under the new regime, an opportunity is provided by the revenue to the assessee by issuing a notice u/s 148A, which requires the assessee to explain his case and to get the proceedings dropped with the satisfaction of the AO.
Under the new regime, it is obligatory for the AO to Issue Notice U/s 148A(b) to the assessee, containing the information alongwith adverse material purporting escapement of income, which can be countered by the assessee by way material and evidences available with him. This is a major change qua the old provisions in which this information (reasons for re-opening and satisfaction recorded) was made available to the assessee after issuance of notice U/s 148 of the erstwhile regime and filing of return of the Income by the assessee.
DISECTION OF SECTION 148A
The provisions of section 148A as introduced by the Finance Act 2021 as amended by Finance Act 2022 are reproduced as under;
“Conducting inquiry, providing opportunity before issue of notice under section 148.
148A. The Assessing Officer shall, before issuing any notice under section 148, —
(a) conduct any enquiry, if required, with the prior approval of specified authority, with respect to the information which suggests that the income chargeable to tax has escaped assessment;
(b) provide an opportunity of being heard to the assessee, by serving upon him a notice to show cause within such time, as may be specified in the notice, being not less than seven days and but not exceeding thirty days from the date on which such notice is issued, or such time, as may be extended by him on the basis of an application in this behalf, as to why a notice under section 148 should not be issued on the basis of information which suggests that income chargeable to tax has escaped assessment in his case for the relevant assessment year and results of enquiry conducted, if any, as per clause (a);
(c) consider the reply of assessee furnished, if any, in response to the show-cause notice referred to in clause (b);
(d) decide, on the basis of material available on record including reply of the assessee, whether or not it is a fit case to issue a notice under section 148, by passing an order, with the prior approval of specified authority, within one month from the end of the month in which the reply referred to in clause (c) is received by him, or where no such reply is furnished, within one month from the end of the month in which time or extended time allowed to furnish a reply as per clause (b) expires:
Provided that the provisions of this section shall not apply in a case where, —
(a) a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A in the case of the assessee on or after the 1st day of April, 2021; or
(b) the Assessing Officer is satisfied, with the prior approval of the Principal Commissioner or Commissioner that any money, bullion, jewellery or other valuable article or thing, seized in a search under section 132 or requisitioned under section 132A, in the case of any other person on or after the 1st day of April, 2021, belongs to the assessee; or
(c) the Assessing Officer is satisfied, with the prior approval of the Principal Commissioner or Commissioner that any books of account or documents, seized in a search under section 132 or requisitioned under section 132A, in case of any other person on or after the 1st day of April, 2021, pertains or pertain to, or any information contained therein, relate to, the assessee; or
(d) the Assessing Officer has received any information under the scheme notified under section 135A pertaining to income chargeable to tax escaping assessment for any assessment year in the case of the assessee.
Explanation. —For the purposes of this section, specified authority means the specified authority referred to in section 151]”
For better understanding, lets split the provision of section 148A in following steps:
|>||Power of AO u/s 148A – Clause (a) ……………………………||1|
|>||How such powers are used by the AO? – Clause (b)…..|
|>||Response of the Assessee, obligation of AO to considers it–Clause(c)…………………………………………………….|
|>||Final Order to be passed by the AO – Clause (d)………..|
|>||Can an Appeal be filed against the Order u/s 148A?….|
|>||When a notice u/s 148 can be issued without following the procedure as envisaged u/s 148A of the Income Tax Act?…………………………………………………………………………………|
|>||Time Limits for issuing of notice u/s 148A?……………….|
Under the new provisions, before issuing notice, AO is required to comply with procedure laid down under Section 148A.
1 – Power of AO
SECTION 148A(A): TO CONDUCT ENQUIRY
Section 148A – The Assessing Officer Shall, before issuing any notice u/s 148:
What kind information may suggest that income has escaped assessment?
|(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;|
|(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.]|
Procedure / guidelines for enquiry not issued under the Act. Will lead to litigation in future if only information in possession is passed on to the assessee without making any enquiry. Conducting any enquiry, with respect to the information which suggests that the income chargeable to tax has escaped assessment is a must.
2 – Use of Power by AO
SECTION 148A(b): Show Cause Notice to Assessee
The entire material and information relied upon by the Assessing Officer needs to be supplied to the assessee alongwith the notice u/s 148A/ Show Cause Notice.
There must be some material supporting allegation of escapement of income. A bald assertion about escapement of income is not sufficient to validate issuance of notice u/s 148A.
Therefore, wherever AO receives information about a transaction of sale of immovable property, mere fact of sale of immovable property will not lead to inference that such transaction is of income character and that it was chargeable to tax. The AO will have put some material after conducting enquiry into the transaction to conclude that the income has escaped assessment.
3 – Response of Assessee
SECTION 148A(c): AO to consider reply of Assessee
The Law makes it obligatory for the AO to necessarily consider the reply and submissions filed by the assessee and discuss the same in the body of order passed u/s 148A(d) of the Act.
Though, it’s a new provision but then also courts are being flooded with the Writ Petitions on non-consideration of replies filed by the assessee u/s 148A(c) of the Act.
On the basis of reply of the assessee
– either, the purposed re-opening of assessment shall be dropped or
– re-opening of assessment u/s 147 shall be made by way of issuing a notice u/s 148 of the Income Tax Act to the assessee.
– one month from the end of month in which the reply referred in Clause(c) is received by the Assessing Officer or
– where no such reply is furnished, within one month from the end of month in which time or extended time was allowed to furnish a reply as per Clause (b) expires.
If the Assessing Officer is dis-satisfied with the submissions filed by the assessee, then he shall pass an order under clause (d) of section 148A and thereafter issue a notice u/s 148 for the relevant assessment year, directing assessee to file return of income for the relevant assessment year.
After receiving the aforesaid order and notice u/s 148 the assessee needs to file the return of income for the relevant assessment year within time prescribed in the notice u/s148 and proceedings for reassessments shall start.
In earlier regime the power of Assessing Officer to make the scrutiny was confined upto the points / reasons and satisfaction recorded by the AO, based on which the assessment was re-opened (Limited Scrutiny) but in new regime the powers of the Assessing Officers have widened and he can make Full Scrutiny of the case under reference while making assessment u/s 148.
Order issued U/s 148A(d) is void-ab-initio if the procedure laid down U/s 148A is not duly followed by the AO. Various High Courts across India have quashed impugned orders issued U/s 148A and Notice issued U/s 148 which have not followed the mandatory procedures laid down U/s 148A or where the response filed by Assessee to the Show Cause Notice has not been delt with in the orders passed U/s 148A(d).
5 – WHETHER ORDERS U/S 148A(b) ARE APPEALABLE ORDERS
CAN AN ASSESSEE FILE AN APPEAL AGASINT THE ORDER PASSED UNDER CLAUSE(d) OF SECTION 148A OF THE INCOME TAX ACT?
The Appeals against the orders can be filed only against those orders which are contemplated u/s 246 of the Income Tax Act, known as Appealable Orders.
Orders passed under Clause(d) of section 148A are not covered under the list of appealable orders as envisaged u/s 246 of the Act. Hence no appeal can be filed against such orders.
An assessee who is aggrieved on account of non-following of procedure laid under the provisions of the Income Tax Act, in respect of section 148A or Orders u/s 148A(d) passed in violation of Jurisdiction, time limitation or principle of natural Justice can approach the respective High Court and file a Writ Petition against such impugned orders passed u/s 148A (d) of the Act.
6 – Notice U/s 148 without following procedure
When can a notice u/s 148 of the Income Tax Act, be issued, without following the procedure laid u/s 148 of the Income Tax Act?
The Provisions of Section 148A shall not apply in case where;
i. a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A, on or after the 1st day of April, 2021, in the case of the assessee; or
ii. a survey is conducted under section 133A, other than under sub-section (2A) of that section, on or after the 1st day of April, 2021, in the case of the assessee; or
iii. the Assessing Officer is satisfied, with the prior approval of the Principal Commissioner or Commissioner, that any money, bullion, jewellery or other valuable article or thing, seized or requisitioned under section 132 or section 132A in case of any other person on or after the 1st day of April, 2021, belongs to the assessee; or
iv. the Assessing Officer is satisfied, with the prior approval of Principal Commissioner or Commissioner, that any books of account or documents, seized or requisitioned under section 132 or section 132A in case of any other person on or after the 1st day of April, 2021, pertains or pertain to, or any information contained therein, relate to, the assessee,
For search and survey taking place on or after 1st April, 2021, in which any incriminating document is made available to the AO which leads to discovery of any income which has escaped assessment, in such cases the AO will directly issue notice u/s 148 without following the procedure as envisaged u/s 148A of the Act. Please note that in such cases, the assessee needs to file return of income and thereafter make a request to the AO for providing the complete reasons and satisfaction note as was practiced in the erstwhile regime.
7 – Time Limits to Issue Orders and Notice
Section 149 of the Income Tax Act 2022, prescribes the time limits for issue of notice:
No notice under section 148 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 ten years, have elapsed from the end of the relevant assessment year unless the Assessing Officer has in his possession books of account or other documents or evidence which reveal that the income chargeable to tax, represented in the form of—
(i) an asset;
(ii) expenditure in respect of a transaction or in relation to an event or occasion; or
(iii) an entry or entries in the books of account,
which has escaped assessment amounts to or is likely to amount to fifty lakh rupees or more.
Assessee must check the dates and the year mentioned in the notice qua time limits prescribed u/s 149.
In case the charge levied in the notice is in respect of income exceeding Rs.50,00,000/- or more, then the assessee needs to check whether that particular income as alleged by the AO is in the shape of any asset or expenditure or entry in books, which has not been declared in his financial statements filed with return of income for the relevant assessment year.
8 – STEPS TO BE TAKEN AFTER RECEIEVING NOTICE U/S 148A
The assessee may start his reply by stating:
a) That the notice issued u/s 148A(b) is bad in Law, being barred by limitation and jurisdictional conditions are not met.
b) In case the AO has not provided the information relied upon, i.e., adverse material available against the assessee, the assessee must ask for providing adverse material to him.
c) The assessee should co-relate the entire charges mentioned by the Assessing Officer in the notice/SCN issued u/s 148A and should file a detailed reply rebutting the charges / accusation made by the AO and submit entire material and evidences available with the assessee to counter the allegation / charges levied against him for escapement of income in the said notice issued u/s 148A.
d) The assessee should ask for providing statement of third party relied upon by the Assessing Officer alongwith enquiry made if any as well as prior approval of specified authority in this respect.
e) the assessee should ask for providing cross examination of the third party based on whose statements, the notice u/s 148A has been issued.
f) the assessee should deny all the allegations made against him for which he has counter replies and material available with him.
g) the assessee should ask for his personal hearing to the Assessing Officer.
h) the assessee must find out if minimum seven days’ time has been provided to him to make the compliance of notice u/s 148A served upon him.
i) In case the assessee has sought an adjournment on e-portal or by email or by sending adjournment application through Speed Post, well in advance then whether that adjournment has been granted to him or not.
j) In case the application for adjournment has not been considered by the Assessing Officer and he has passed the order u/s 148A(d) before the time sought by the assessee through adjournment application then the such order is bad in Law, ought to be quashed.
k) In case after examination and making thorough analysis of order passed u/s 148A(d) and finds that the proper procedure as envisaged u/s 148A has not been followed or the order is out of jurisdiction and time bared, then the assessee can file a Writ Petition against such order passed u/s 148A(d), since this is not only violative of principles of natural justice but it also violates the procedure as envisaged u/s 148A.
l) The Courts have held again and again that the procedure envisaged u/s 148A of the Act is sacrosanct and has to be strictly followed in line with the intentions of legislature for bringing new provisions u/s 148A of the act. It has been uniformly held by various High Courts and some of the landmark judgments are citied as under:
Hon’ble Finance minister while presenting Finance Bill 2021, stated in her speech in the Parliament, that proposed amendments in provisions relating to reopening of assessments are proposed which shall mitigate the complications, which an assessee has to undergo because of re-opening of completed assessments. The time period in terms of number of years to be reopened are being reduced under amended provisions as well and a new procedure is designed which shall enable the assessee to plead his case before reopening of assessment proceedings and get the proceedings dropped by bringing evidences to support his claims. This will reduce the litigations.
However, with increasing numbers of litigations in respect of subject matter, that too immediately after introduction of new regime of re-opening of assessments, are not going as per the intentions of legislatures as well as of Hon’ble Finance Minister of the country.
Let’s hope that the Assessing Officers shall follow the procedure laid under Section 148A in true spirit of law and hardship of assesses may be reduced and they are saved from going in for litigations.
DISCLAIMER: This article contains privileged/confidential information and is intended only for the use of the members of Sales Tax Bar Association, New Delhi. You may not copy or deliver this to anyone else. If you receive this article by mistake, please notify us immediately by telephone or mail. The views mentioned hereinabove are based on interpretation of Law by the author and are his personal views, without creating any privy between the reader and the author. Although every precaution has been taken in giving opinion, Consultant/Firm will not be responsible for any damage or loss in whatever manner consequent to any action taken on the basis of any content of this article.