Provisions with respect to reassessment of income contained in section 147 to 151 of the Income Tax Act, 1961 were substituted by the Finance Act 2021, with effect from 1st of April 2021. The said substitution resulted in complete chaos and litigation nightmare over the last few years. The said provisions were subsequently revisited by the Finance Act, 2022 and Finance Act, 2023 as well. Now the Finance Bill, 2024 again proposes to substitute Section 148, 148A, 149 & 151 with new provisions. Fortunately and for once at least, it appears that the concerned officials drafting the said provisions which are proposed to be enacted have done far better job than what was done earlier. Let us first of all examine as to what the proposed substituted sections contain and provide with respect to reassessment of income.
The basic empowerment to assess or reassess income which has escaped assessment contained in section 147 has not been substituted and remains unchanged. Whereas section 148, 148A, 149 and Section 151 are proposed to be substituted with entirely new drafted provisions. The basic premises to initiate the reassessment proceedings remain the same, namely;
(i) The assessing officer should have information,
(ii) which suggests,
(iii) that income chargeable to tax has escaped assessment.
In other words, the information suggesting that income has escaped assessment has to be with the assessing officer to initiate the process of reassessment in the case of an assessee and for this purpose all the three limbs have to be satisfied for a legally valid process of reassessment of income.
What constitutes the aforesaid information has also been defined in clause (i) to (vi) of the proposed Section 148(3).
The proposed enactment categorise the aforesaid ‘information’ into two categories and a different treatment has been proposed for each of them. In case the information to the assessing officer is in accordance with faceless collection of information provided for in section 135A, a simpler process to initiate the reassessment has been provided for in section 148. On the contrary, in such a situation the assessing officer has been empowered to issue notice under section 148 after obtaining the prior approval of the specified authority. In the case of any other information the assessing officer has to go through the process contained in section 148A and thereafter issue the notice u/s 148 to the assessee.
PROPOSED PROVISIONS UNDER THE FINANCE BILL, 2024
The proposed section 148A broadly provides as under:
In case of information other than information in accordance with Section 135A, the assessing officer has to provide an opportunity of being heard to the assessee, by serving him a show cause notice, along with the information, which is suggesting that income chargeable to tax has escaped assessment and which is being relied upon by the assessing officer to initiate the reassessment proceedings. The said notice under proposed section 148A(1) of the Act has to be issued within a period of 3 years from the end of the assessment year to which it pertains. In case the income which has escaped assessment amounts to or likely to amount to ₹ 50 lakh or more on the basis of certain evidences in the possession of the assessing officer, the said notice under section 148A(1) can be issued within a period of 5 years from the end of the relevant assessment year.
The assessee on receipt of the aforesaid notice to show cause is required to furnish his reply within such period as may be specified in the notice.
Thereafter, the assessing officer after considering the reply of the assessee, will pass an order, to decide whether a notice under section 148 is to be issued or not. This order in accordance with sub-section (3) of the proposed section 148A will have to be passed after taking prior approval of the specified authority.
As has already been mentioned, the process of evaluating the information and giving an opportunity to the assessee contained in the proposed section 148A need not be adopted by the assessing officer for information which he receives in accordance with section 135A of the Act.
The specified authority to give approval for passing orders under section 148A(3) or for issue of notice u/s 148 for information received in accordance with section 135A have been provided in section 151 of the Act, wherein a major change is proposed. It is proposed by the Finance Bill, 2024 that the specified authority to give the aforesaid approvals would be Additional or Joint Commissioner or Director as the case may be. In other words, the power of approval to initiate reassessment has been delegated to Additional or Joint Commissioner or Director as the case may be.
The proposed section 149 provides for timelines within which the notice under section 148 can be issued. Clause (a) of sub-section (1) of section 149 provides a timeline of 3 years and 3 months from the end of the relevant assessment year to initiate the reassessment proceedings. On the contrary, clause (b) of the said sub-section extends the timeline to 5 years and 3 months in case the income chargeable to tax which has escaped assessment amounts to or likely to amount to ₹ 50 lakh or more. The said income of ₹ 50 lakh or more which is purported to have escaped assessment should be in accordance with the books of accounts, or other documents or evidence relating to any asset or expenditure or transaction or entries, in the possession of the assessing officer. In other words, a normal timeline of 3 years which was there in the substituted section remains unchanged except for the fact that the said period has been increased by three months to make it 3 years and 3 months. Whereas the extended period of 10 years which was available to the assessing officer in the case of income having escaped assessment amounting to ₹ 50 lakhs or more has been reduced to 5 years and 3 months.