Rakesh Kumar
Under the provisions of Section 148 of the Income Tax Act of 1961, the Income Tax Department can issue notice to a taxpayer whose taxable income cannot be assessed under the normal time limit of the Income Tax Act under Section 143 (2) of the Income Tax Act of 1961 . The notice can be issued subject to time limits and monetary limits provided in the relevant sections of the Income Tax Act of 1961,with the approval of specified authority.
There has been a substantial change in law since April 1, 2021 on Section 148 of the Income Tax Act of 1961. The memorandum explaining the provisions of Finance Bill 2021 has highlighted that in order to reform the system of assessment, reassessment, or re-computation of income escaping assessment and assessment of search related assessments, certain changes were necessitated. The thrust was on ease of doing business, less litigation, and a reduced time limit for issuing the notice.
In the earlier law prior to April 2021, the assessing officer was required to record reasons in respect of income escaping assessment and these reasons were required to be communicated to the taxpayer. There was considerable litigation as tax payers used to file objections to the reasons recorded by the assessing officer and the department was bound to dispose of objections as per ratio laid down in the Hon’ble Supreme Court ‘s famous case, “GKN DRIVE SHAFT.”
As per the new law after April 1, 2021, the requirement of recording “reasons to believe” regarding escapement of income has given way to a new requirement as per which the assessing officer should have information with him which suggests that income chargeable to tax has escaped assessment for the relevant assessment year and the assessing officer has obtained the approval of specified authorities before issuing notice under Section 148 of the Income Tax Act of 1961. A new section 148 A has also been introduced for this purpose w.e.f April 1, 2021. The assessing officer is required to conduct an inquiry (if required) and to provide an opportunity of being heard to the tax payer so that he can show cause as to why notice u/s 148 of the I.T. Act 1961 should not be issued by the department on the basis of information which suggests that income chargeable to tax has escaped assessment for the relevant assessment year. The department is also required to communicate the results of inquiries conducted (if any) by it . The reply of the tax payer (if any is filed) is required to be considered by the assessing officer. After completing this exercise,the assessing officer shall decide on the basis of material available on record, including the reply of the assessee, and by obtaining the prior approval of specified authorities, whether this is a fit case for issuing notice under Section 148 of the Income Tax Act of 1961. A formal order u/s 148A(d) of the Income Tax Act 1961 is needed to be sent along with notice u/s 148 of the Income Tax Act 1961.
As discussed in earlier paragraphs, the basis for initiating proceedings under Section 148 of the Income Tax Act 1961 after April 1, 2021 is the information available with the department suggesting escapement of income, which is furnished by third parties to the department in compliance to Section 285BA of the I.T. Act 1961. Similarly, information is also received by the department from other law enforcing authorities. The entire process for issuing notice under 148 under the new regime is thus largely information-driven. ( There are a few more situations in which information suggesting escapement of income can form the basis of issuing notice u/s 148 of income Tax Act 1961 but these are not being discussed as the focus is on information based cases.) . A few illustrations of such transactions commonly noticed are cash deposits with banks,property transactions, and share transactions .
In this legal background, let us understand the problems faced by the small tax payers who are not well versed with the provisions of the law and are not served by tax professionals. Out of fear, they prefer to remain silent with the result that a huge tax demand is created against them. Through this piece of writing , they are advised to comply with the requirements of the first notice received by them under 148 A(b) by explaining that the information communicated does not constitute an income escaping assessment. We take the example of a trader who is maintaining a current account with a particular bank .In this account, there will be both credit and debit entries, but the department’s query would be with regard to the credit entries only. Here, the taxpayer can explain the nature of his business with supporting evidence and the nature of his credit entries, which probably could be cash deposited in a bank account out of cash sales. Similarly, debit entries can also be explained for purchases and expenses. There can also be a case where the tax payer has sold some immovable property and the department has only the value of the sale consideration with it. If the tax payer informs the department about the cost of acquisition, a reasonable view would be taken by the department to work out the chargeable capital gains instead of adopting the entire sale consideration as income of the tax payer where no response is submitted. If the tax payer is able to bring on record the necessary clarifications, the assessing officer will consider them appropriately and proceedings can be concluded rationally at this stage only. The real problem arises when the taxpayer offers no explanation and does not cooperate in proceedings under 148A(d), and then the department proceeds to issue notice under 148 of the I.T. Act 1961 .
The financial year is coming to an end on March 31, 2024, and it is likely that many taxpayers will be receiving or must have have received notices under Section 148A(b) for relevant assessment years at the initial stage. If proper attention is given by the tax payer to the show cause notices received under Section 148A(b), then the situation can be controlled at the initial stage only. If the taxpayer avoids the notices under Section 148A(b) as well as under Section 148 of the IT Act 1961, this could result in exparte assessment under Section 144 of the IT Act 1961, resulting in huge demand followed by the imposition of penalties.
The newly introduced section has seen many legal disputes and controversies but these issues have not been discussed in this article.The main effort has been to alert and educate the small tax payers so that they can make use of the facilities provided to them by law in Section 148A of the Income Tax Act of 1961. It may also be clarified here that procedure u/s 148A(d) does not apply to search or survey cases.
An effort has also been made to keep the language of the article as simple as possible so that a common person can also understand the message of this article.
(The author is a retired Commissioner of Income Tax )
Follow our WhatsApp channel
