Section 148A of Income Tax Act- All about Section 148A

What is Section 148A?

Section 148A is a newly added section that was introduced in Budget 2021. Suppose the Income Tax officer suspects that the taxpayer has tried to escape any income for any assessment year; he/she can issue a notice to the taxpayer informing that there will be a reassessment.

Section 148A states that the income tax officer should provide the taxpayer with a chance to explain their case before issuing the notice. In other words, it provides the taxpayer with an opportunity to be heard.

The assessing officer can grant a minimum of 7 days and a maximum of 30 days to the taxpayer to furnish his/her explanation. If the income tax department still suspects tax evasion, then it can issue a notice under section 148, intimating the taxpayer about the reopening of the case.

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What is Notice Under Section 148?

Section 148 of the Income Tax Act in India allows the tax authorities to re-evaluate a taxpayer's income if they believe some income was not properly assessed for a specific year. Such notice is received if the income tax department suspects that there is some income that escaped assessment in previous assessment years.

The taxpayer can respond to the notice by providing documents and explanations to support their reported income. They can also challenge the notice if they think it's incorrect.

After considering the taxpayer's response, the tax authorities might reassess the taxpayer's income for that year. This could result in the taxpayer owing more taxes if additional income is found.

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How Does Section 148A Impact Taxpayers?

If the income tax department decides to open your case for reassessment even after analyzing your response to the notice, then you might have to -

• Pay additional tax, penalties, and interest on income that was not assessed in the previous years.
• You might have to undergo a time-consuming and lengthy assessment process that can cause a lot of inconvenience.
• You might also have to face severe consequences like penalties and imprisonment if the assessing officer believes that you have willfully evaded taxes.

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When can the Income Tax Department Reopen Assessment Under Section 148A?

The income tax department can reopen the assessment under section 148 if it believes that any income that was supposed to be charged to tax has escaped assessment or the taxpayer has knowingly tried to evade tax. These could be the reasons for such belief -

• If the taxpayer fails to file the income tax return.
• The income tax department has evidence or information that proves that the taxpayer’s income has escaped assessment.
• The income tax department has received income from the third party stating that the taxpayer’s income has escaped assessment in any of the previous years.

As per the time limitation rule, a notice cannot be issued under normal circumstances. However, if there is proof that the taxpayer has evaded income, then such notice can be issued.

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What is the Time Limit for Reopening Assessment Under section 148A?

The income tax department is allowed to reopen the assessment under section 148A within a time frame of 3 years from the end of the relevant assessment year in normal scenarios. However, the income tax officer may take up the notice if there is evidence that the taxpayer has evaded an assessment of at least Rs.50 lakhs. The notice can be opened after 3 years but not later than 10 years.

Budget 2024 Update

The time limit for reopening cases u/s 148A has been reduced. The updated time limit for reopening cases with income

Upto Rs.50 lakhs - The cases should not be reopened within 3 years from the end of the assessment year.

Above Rs.50 lakhs - The time limit for reopening cases u/s 148A has been reduced from the earlier 10 years to 5 years.

*The new rules will be applicable from October 1, 2024.

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What Taxpayers Should Know About Section 148A?

In case the income tax department opens a reassessment under section 148, the taxpayer might have to pay additional penalties, additional tax, and interest on the income that was not reported. However, there are a few things that every taxpayer must know -

• The Income Tax Department should have a valid reason to believe that the income has escaped assessment. In other words, it cannot reopen the case for assessment only on the basis of suspicion.
• The notice should be issued within the specified time limit. If the department fails to issue a notice within the time limit, the case cannot be considered for reassessment.
• The taxpayer can file a response to the notice. If the response is not found satisfactory, the income tax department can reopen the assessment.
• If the assessment is reopened, the taxpayer can challenge it.
• If the income tax department believes that the taxpayer has evaded tax willfully, it can also initiate prosecution proceedings leading to fines and imprisonment.

Section 148A of the Income Tax Act is a crucial section that empowers taxpayers to provide an explanation to the income tax department regarding any income that escaped assessment. While it safeguards the rights of taxpayers, it also grants the assessing officer the authority to reopen cases.

Taxpayers must be aware of the implications of Section 148A, as it can lead to additional tax liabilities, penalties, and even legal consequences if willful tax evasion is suspected. It underscores the importance of accurate and transparent income reporting. If you have also received an income tax notice and need help responding to it, Tax2win’s tax experts provide you with excellence, experience, and expertise. If you have already filed your ITR and received a notice, you can get expert help to respond to it. Book an expert now!

If you have not filed your ITR for FY 23-24 yet, you can still file a belated return. The last date to file ITR for 23-24 is 31st December 2024.

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