Give robust response to Section 148A notice to avoid reassessment

The Income-Tax (I-T) Department is reviewing cases from assessment year (AY) 2018–19 for potential reopening, which may lead to a surge in tax notices. This action follows the Union Budget’s decision to reduce the tax reassessment window to five years. From September 1, assessments for AY 2018–19 will be time barred.

Changed timelines

The Finance Bill 2024 proposes amendments to Section 148A of the Income-Tax (I-T) Act, establishing new time limits for issuing notices. “For income escaping assessment of Rs 50 lakh or more, the Section 148A notice must be issued within five years from the end of the assessment year. Notices under Section 148, following a Section 148A notice, have a maximum time limit of five years and three months from the assessment year-end. These changes will take effect from September 1, 2024,” says Mumbai-based chartered accountant Suresh Surana.

 

Currently, the I-T Department can reopen assessments under Section 148A for up to 10 years (11 financial years) if income exceeds Rs 50 lakh. For income below Rs 50 lakh, the limit is three years (four financial years). Budget 2024 proposes reducing the 10-year limit to five years (six financial years) for income over Rs 50 lakh, while keeping the limit unchanged for lower-income cases.

For AY 2018–19, if the income escaping assessment is Rs 50 lakh or more, the deadline to issue a notice under Section 148 or an order under Section 148A is August 31, 2024.

According to experts, streamlining reassessment procedures is a positive development. “It will reduce the harassment of genuine taxpayers,” says Pallav Pradyumn Narang, partner, CNK.

“Taxpayers will no longer need to keep books of accounts for more than six years,” adds Nikhil Kabra, partner, Ved Jain and Associates. 

What is Section 148A?

According to Section 148A (introduced in Budget 2021), when an assessing officer has information regarding escaped income, he must, before issuing a notice under Section 148, provide the assessee an opportunity to be heard by serving a show cause notice as to why a notice under Section148 should not be issued. On receiving such  a notice, the assessee must submit a reply within a specified time period.

They can raise preliminary objections against the reopening of their case for income-escaping assessment. The tax authorities must address these objections through a speaking order.  

“This provision follows court rulings, including by the Supreme Court, which mandated that reassessment should only occur in exceptional cases with evidence of income escaping assessment,” says Kunal Savani, partner, Cyril Amarchand Mangaldas.

How to respond

If someone receives a notice under Section 148A, they should check whether it has been issued within the stipulated time limit. The notice must be accompanied by the relevant incriminating material or information that was relied upon for issuing it. It must come from the National Faceless Appeal Centre (NFAC, the faceless wing) and not the jurisdictional assessing officer.

“File all the supporting documents in response to the allegation since there is a possibility of the proceedings getting dropped at that stage only if the reply is satisfactory,” says Kabra.

Taxpayers should, in the first place, file accurate returns annually, declaring income from all sources. “Provide correct disclosures and quote PAN as required by law,” says Alay Razvi, partner, Accord Juris.

Finally, Adithya Reddy, international tax lawyer, says taxpayers must understand their right to appeal an assessment.