The Income Tax Department is empowered under Section 147 of the Income Tax Act, 1961 to reassess an individual’s previously filed income tax returns. The Assessing Officer could pick your income tax return for reassessment subject to some predefined criteria by sending a notice under section 148 for income Escaping Assessment.
According to Section 148 of the Income Tax Act, any income tax computation that has not been recomputed or reassessed will receive a notice from the Income Tax department. This section further mentions that an Assessing officer will get in touch with the assessee. Section 148 of the Income Tax Act deals with the issuance of a notice wherein any income has escaped recomputation or assessment. This section states that an Assessing Officer will intimate the assessee in question by serving him or her a notice wherein he or she will be required to provide his or her income returns, the income returns of a person other than the assessee in question, who is deemed to be assessable as per the provisions of this Act during the year prior to the assessment year of relevance.
Prior to the issuance of a notice to an assessee based on the provisions under Section 148, an Assessing Officer should possess concrete evidence that the assessee in question has evaded assessment of income for the relevant assessment year. In other words, the Assessing Officer cannot issue a notice to an assessee based on mere suspicion.
A solid link must be presently linking the information or material that has been presented to the Assessing Officer with the reason to believe that the assessee has escaped income assessment over the duration of an assessment year.
The information or data provided to the Assessing Officer must be of utmost relevance to the case, and must not possess any superficial facts or figures.
Prior to the issuance of any notice to an assessee under Section 148, the Assessing Officer will be compulsorily required to record and provide reasons in written form stating why he or she is of the belief that the assessee is escaping assessment of income.
Simply stating that the assessee has concealed a large amount of income or that the assessee is to be investigated in further detail, with no material or information to back up these claims, will not be considered to be a definite reason to issue a notice to the assessee under Section 148. Such reasons will be termed to be ambiguous and vague.
Unless new and relevant information or material is presented to the Assessing Officer, he or she cannot issue a notice to an assessee merely based on a difference in perspective or opinion. The Assessing Officer will have no reason to believe or suspect an assessee if the assessee in question has provided disclosure regarding all relevant particulars in relation to his or her taxable income, as well as disclosed and provided factual information and data, which has led to the completion of his or her assessment or reassessment.
The Assessing Officer cannot issue a notice to an assessee simply by reaching a new conclusion based on documents and factual information that has already been provided by the assessee over the duration of the assessment. Issuance of notice can only take place if new information or material has been presented to the Assessing Officer.
However, if any information or particulars have either been concealed or not been disclosed by the assessee in question, and such action has come to the notice of the Assessing Officer at a later time, then the Assessing Officer will have complete authority to issue a notice to the offending assessee under Section 147 or 148.
The Supreme Court in the case of GKN Drive Shafts India Ltd. vs. ITO (2003) 259 ITR 19 framed the procedure to be followed after issuance of notice under Section 148. Five steps have been laid down by the Apex Court.
Firstly, the assessee can file a fresh return declaring the true income in compliance with the notice. Income may be the same or more than what the assessee declared in the original return.
Secondly, the assessee may write to AO that returns already filed under section 139(1) may be treated as a return filed in compliance to notice under section 148.
Thirdly, after filing a return assessee should ask for a supply of reasons for the issue of notice under section 148.
If a copy of the reasons is not given to the assessee, the whole assessment proceedings and assessment order passed can be quashed as laid down by the Delhi High Court in the case of CIT v. Jagat Talkies Distributors [2017].
Fourthly, assessees may file objections to the issue of notice, and AO is bound to dispose of the same by a speaking order as held by the Gujarat High Court in SimabenVinodraiRavani v. ITO [2017].
If objections are not accepted by AO, he shall not proceed further for a period of four weeks so that the assessee has sufficient time to take remedial actions to challenge the order of rejection as held by the Bombay High Court in HDFC Ltd v. CIT [2007].
If AO does not dispose of the objections by a speaking order and start assessment proceedings then the assessee may file an application under section 144A before the Additional/Joint Commissioner.
If an application under section 144A is rejected then the assessee may file a writ in the High Court.
Lastly, the assessee may assist in assessment proceedings with a note of dissent and may go in appeal before the Commission (Appeals) against the order of assessment. Commissioner (Appeals) may be requested to decide the issue of the validity of assessment first as held by Delhi High Court in Makhan Singh Gurucharan Singh (HUF) v. CIT [2002].
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