Issues of Re-Assessment Proceedings u/s 148 of Income Tax Act

In the month of March-21, the income tax department issued notices u/s 148 for reassessment proceedings of previous financial years.

In exercise of the powers conferred by section 3(1) of the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TLA Act, 2020), the CBDT issued notification No. 20/2021, dated 31-03-2021, extending the deadline for issuance of notice u/s 148 until 30.06.2021. However, many High Courts are challenging the validity of notices issued after 31.3.2021 by filing a writ petition.

Provisions of section 148 of the Income Tax Act.
If the Assessing Officer has grounds to suspect that income liable to tax has avoided assessment, he may reopen the relevant assessment by issuing a notice under section 148, after noting his reasons for doing so. The time limit for issuing such notice up to 31.3.2021 was 4 years from the end of the relevant assessment year if income escaping assessment is less than Rs.1 Lac and 6 years if income escaping assessment is Rs.1 Lac or more.

The Finance Act, 2021, w.e.f. 01-04-2021, substituted the provisions of section 148, stating that a notice can be issued only after the Assessing Office has material in hand suggesting that income has escaped assessment and the Assessing Officer has obtained prior approval as specified in section 148A of the Act. Furthermore, notice under section 148 must be given within 3 years of the end of the relevant assessment year. However, the notice can be issued before 10 years if the Assessing Officer possesses books of account or other documents or evidence in his possession that indicate that the income chargeable to tax that has escaped assessment for that year amounts to or is expected to amount to Rs.50 Lacs or more.

Validity of the notices issued u/s 148
The validity of notices issued after 31.3.2021 has been challenged because they were issued under the old provisions of section 148, despite the fact that section 148 was substituted by the Finance Act, 2021, w.e.f. 01-04-2021. As a result, no notices under the previous section 148 provisions can be issued on or after April 1, 2021.Further, the provisions of section 148A of the Act, which requires the assessing officer to conduct the inquiry and provide an opportunity of being heard, have not been done.

Whether the taxpayers will get relief?
In recent weeks, many writ petitions have been filed challenging the validity of notices issued by the department after March 31, 2021. The Department has requested more time to respond to the matter. The case will be decided by the Court's decision.