December 16, 2021

Section 147 and 148 of Income Tax Act is a well designed weapon for the Income Tax Department empowering it to assess, reassess, or re-compute income, turnover etc, which has escaped assessment. 

Sec.147: Income escaping assessment.

Sec.148: Issue of notice for Income Escaping Assessment.

Sec.147: Income escaping assessment

Income Escaping Assessment under section 147 of Income-tax Act is the assessment which is done by the Assessing Officer if there is a reason for him to believe that income chargeable to tax has escaped assessment for any assessment year.

If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recomputed the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned.

Cases where Income chargeable to tax has deemed to be Escaped assessment:

(a) When the total income of any assessee during the previous year exceeded the maximum amount which is not chargeable to income-tax and no return has been furnished by him.

(b) When Assessing Officer has noticed that the assessee has understated the income or has claimed an excessive loss, deduction, allowance or relief in the return and no assessment has been made.

(c) When an assessee is required to furnish a return under section 92E about any international transaction and he failed to do so.

(d)  In the case where an assessment has been made, but

  1. Income chargeable to tax has been under assessed.

  2. The income which is assessed is being assessed at a rate which is too low.

  3. Such income has been made the subject of excessive relief under this Act.

  4. Excessive loss or depreciation allowance or any other allowance under this Act has been computed.

(e)  Where a person is found to have any asset (including financial interest in any entity) located outside India 

Sec.148: Issue of notice where income has escaped assessment

Before making the assessment, reassessment, or re-computation under section 147, the Assessing Officer shall serve a notice on the assessee requiring him to furnish within such period, as may be specified in the notice, a return of his income or the income of any other person in respect of which he is assessable under Income-tax Act during the previous year corresponding to the relevant assessment year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed.

If the Assessing Officer has a reason to believe that any income has escaped assessment for any assessment year which was chargeable to tax, then the notice may be issued under section 148:  (Time Limit for notice – Sec.149)

  1. Within 4 years from the end of the relevant assessment, if the escaped income is less than Rs. 1,00,000.

  2. If the income which is escaped is equal to or more than Rs. 1,00,000 then notice can be issued for up to 6 years from the end of the relevant assessment year.

  3. If escaped income is associated with any assets located outside India, and then notice can be issued up to 16 years from the end of the relevant assessment year. It includes financial interest in any entity.

It may be noted that the notice under section 148 can be issued by AO only after getting prior approval from the prescribed authority mentioned in section 151. 

Submission of return after order in section 148:

The assessee shall submit the return within the time period prescribed in the Notice of Income Escaping Assessment. Assessee may demand reasons of proceeding u/s 147 from AO. If such reasons are not demanded by the assessee, the AO can proceed to complete assessment. If the assessee demands reasons, the AO must provide reasons to the assessee. Assessing officer is duty bound to provide the copy of reason recorded within the reasonable time as per guidelines of Honorable Supreme Court.

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