How to respond to a notice for reassessment of income u/s 148A of I-T Act

Check the Relied Upon Documents, or RUDs, on the basis of which the assessing officer has started the reassessment proceedings

The Income Tax Department has started reopening old assessment cases with the help of an algorithm, according to media reports. The I-T Department is leveraging ‘INSIGHT’, a platform that throws the names of potential tax offenders after going through huge amounts of data. With the new algorithm, the tax department can issue as many as 50,000 letters under Section 148A of the Income Tax Act. It is important to know more about Section 148 A, and how to respond in case you do get a notice under this provision, around which there some confusion last year. 

What is Section 148A? 

It is a new section that the government introduced in Budget 2021. Where the income tax Assessing Officer (AO) has information that the taxpayer may have escaped income that is chargeable to tax for any assessment year, the new provision requires the income tax officer to provide an opportunity to the taxpayer to explain his case before the notice under the section is issued. 

Archit Gupta, chief executive officer, Clear (formerly ClearTax) says, "After considering the taxpayer's reply, the income tax officer shall decide whether or not it is a case fit to issue a notice for income-escaping assessment. If the income tax officer asks for the case to be reopened, a copy of the order and a notice (under Section 148) shall be issued to the taxpayer." 

The income tax officer has to obtain the approval of a specified authority, as the case may be, before conducting any such enquiries, providing an opportunity to the taxpayer to be heard, or passing such an order. Note, the new provision doesn't apply in search or requisition cases. The above procedure is to be followed in respect of notices issued on or after April 1, 2021.

Lokesh  Shah, partner, Saraf & Partners says, "Finance Bill 2022 sought the removal of the requirement to obtain prior approval of the specified authority at the stage of providing an opportunity of being heard to the taxpayer (this is aimed at avoiding repetitive approvals)."

What it means for tax payers 

It's a good thing for tax payers, say some experts. Suresh Surana, founder, RSM India says, "The taxpayers would have an opportunity to justify their positions by providing necessary information and reasons, in order to avoid further litigation."    

Taxpayers get an opportunity to explain and the AO is required to consider their responses before issuing notice under Section 148. Maneet Pal Singh, partner, IP Pasricha Co says, "The case may not be reopened if the taxpayer gives a satisfactory reply." This would cut down litigation and make doing business easier for taxpayers.

Ananya Gupta, associate, Victoriam Legalis-Advocates & Solicitors, says, "This was a much-needed change and is an important step, unlike previous ones where cases were reopened without informing the taxpayer."

Under what circumstances reassessment is done? 

There are predominantly two grounds on which the AO may frame his opinion for tax reassessment of a particular assessee. "The first," says Sameer Jain, managing partner, PSL Advocates & Solicitors, "is when a person is required to file a return and has not done so on time and consequently no assessment has been made; the second is where a return has been filed and assessment made, but later it comes to light that some income has escaped assessment."

What is Section 148 and what was the confusion about Section 148A? 

Section 148A of the Act introduced vide Union Budget 2021 was to come into effect on April 1, 2021. However, due to Covid-19, the Government extended the time limit for issue of reopening notices under the old procedure till June 30, 2021. Gopal Bohra, partner, NA Shah Associates, says, "This gave rise to confuion as to whether reopening notices issued after April 1, 2021 but under the older provisions were valid. Various High Courts, such as Delhi, Allahabad, Rajasthan, Bombay and Calcutta, in response to multiple writs filed by taxpayers, have upheld the contention of the taxpayers that reopening notices issued after April 1, 2021 under the older procedure are invalid." Being aggrieved by these verdicts, the Government moved the Supreme Court with a Special Leave Petition (SLP), which is pending for adjudication.

How to respond to the notice of 148A: 

Taxpayers must understand that a notice under Section 148A serves as a precursor to a notice under Section 148. In fact, a notice under Section 148 is contingent upon the taxpayer's response to the notice, making the Section 148A extremely crucial.  Pratyush Miglani, managing partner, Miglani Varma & Co-Advocates, Solicitors and Consultants, says, "The assessee must carry out thorough due diligence before replying to the notice. It will be in the best interest of the assessee to be upfront about how the income escaped assessment, and pay any additional tax that would be required to be paid at the relevant time." Furnishing wrong information or attempting to evade the notice where additional tax liability does indeed exist, may only open the assessee to further probes by the taxman.

Vivek Jalan of Tax Connect Advisory Service, says, "A minimum of seven days and a maximum 30 days is to be given to respond from date of notice; though the period can be extended further. This means that now assessees cannot go to the High Court alleging non-provision of adequate opportunity of being heard."

Should an assessee be issued a notice by an AO, and if he is confident that no income has escaped assessment, then at the Section 148A stage, the assessee has the right to file an objection challenging the issuance of such a notice. This would help in case an order is subsequently issued, alleging concealment of income.

Whenever a taxpayer receives a notice under section 148A, he must check what are the Relied Upon Documents, or RUDs, on the basis which the AO has formed his belief for initiating tax reassessment proceedings. In case the assessee is not in possession of the RUDs and the same also does not accompany the notice, the assessee must write to the department and request for a copy of these doocuments.

Thereafter, the notice should be carefully responded to without hiding any material fact. In case it comes to light that some income did escape assessment, the tax should be immediately paid to avoid penalty.

Keep in mind: 

The taxpayers should not miss out on the opportunity of filing their responses. It is also advisable that tax experts visit and meet personally with AOs where complex or debatable issues are involved. Gupta of Clear says, "Since the effective date of Section 148A is April 1, 2021, any notice issued to the taxpayer under Section 148 after that date, without following the procedure under Section 148A--that is, without giving an opportunity of being heard--would be contrary to the provisions of the Income Tax Act and would be invalid."

Table: Notices that the I-T Dept can issue under various provisions

Income tax notice	Provision
Notice issued for defective income tax return	Section 139(9)
Notice for preliminary enquiry before assessment. The income tax officer asks for documentary proof to verify your claim in ITR	Section 142(1)
Notice for detailed scrutiny. The income tax officer may issue such notice to follow up the notice issued under Section 142(1)	Section 143(2)
Notice for reassessment. If the income tax officer disagrees with the previous assessment of ITR of the taxpayer and believes that the income has escaped the assessment	Section 148
Notice of demand for any tax, penalty, or any other amount due from the taxpayer

Section 156 This notice is issued when the income tax refund (full/partial) for an assessment year is adjusted against the tax demand due(of any previous year) from the taxpayer Section 245

Source: Clear.in