Section 148A of Income Tax Act: All You Need to Know

Section 148A of Income Tax Act: All You Need to Know. Section 148A of Income Tax Act is a major amendment introduced in the Finance Act of 2021, which aims to ensure transparency and fairness in the reassessment proceedings initiated by the Income Tax Department. This section was added to strike a balance between the powers of tax authorities and the rights of taxpayers. Prior to this amendment, reassessment proceedings could be initiated without giving the assessee a fair opportunity to explain. However, Section 148A now makes it mandatory for the assessing officer to give the taxpayer a proper chance to be heard before proceeding with reassessment under Section 148. This article provides a detailed explanation of Section 148A of Income Tax Act, the procedural requirements involved, the time limits applicable, and how it impacts taxpayers. We have also included the updates announced in Budget 2024 for a clearer understanding.
What is Section 148A of Income Tax Act?
Section 148A of Income Tax Act is a procedural provision that requires the Assessing Officer (AO) to conduct an inquiry and provide an opportunity of being heard to the taxpayer before issuing a notice for reassessment under Section 148. This section mandates that no notice under Section 148 shall be issued unless the AO has conducted an inquiry, if required, with prior approval from the specified authority, and has provided the assessee with a chance to explain why a notice should not be issued.
Under this section, the AO is required to serve a show cause notice to the taxpayer, giving them a minimum of 7 days and a maximum of 30 days to respond. The AO must then consider the taxpayer's reply before making a final decision. This provision ensures that reassessment is not initiated arbitrarily and upholds the principles of natural justice.
What is Notice Under Section 148?
A notice under Section 148 of Income Tax Act is issued by the Assessing Officer when he has reasons to believe that some income has escaped assessment during a previous assessment year. This notice signifies the reopening of the assessment process and allows the AO to reassess the taxpayer’s income. Earlier, before the introduction of Section 148A, there was no legal obligation to inform or involve the taxpayer before initiating reassessment. However, now, due to the mandatory procedure laid out under Section 148A, the process is more taxpayer-friendly. A notice under Section 148 can only be issued after fulfilling the requirements of Section 148A.
Taxpayers receiving such a notice are advised to respond within the prescribed time limit, with all relevant documents and explanations supporting their earlier filings. A failure to comply or respond may lead to adverse consequences such as higher tax liability, interest, or penalties.
How Does Section 148A Impact Taxpayers?
Section 148A of Income Tax Act has an important impact on taxpayers. While it provides tax authorities with a framework to reopen assessment cases, it also offers procedural safeguards to the taxpayer. Once a taxpayer receives a show cause notice under Section 148A, they must respond with proper documentation and explanation.
If the AO is not satisfied with the taxpayer’s response, the case can be reopened under Section 148. In such situations, the taxpayer may be required to pay additional taxes on the previously unreported income, along with interest and penalties. The process of reassessment can also be time-consuming and stressful, as it involves the re-examination of previously closed matters.
Moreover, if the AO believes that the taxpayer has willfully evaded tax, prosecution proceedings may also be initiated under relevant provisions of the Income Tax Act. Therefore, taxpayers must maintain accurate records, file income tax returns on time, and respond to income tax notices promptly and appropriately.
When Can the Income Tax Department Reopen Assessment Under Section 148A?
The Income Tax Department can reopen assessments under Section 148A of Income Tax Act if it has information suggesting that income chargeable to tax has escaped assessment. This belief must be based on tangible evidence and not mere suspicion. The following scenarios may lead to such reopening:

If a taxpayer fails to file their income tax return, the AO may suspect that income has escaped assessment. Similarly, if the department receives information from third parties such as banks, regulatory authorities, or other government bodies, suggesting that the taxpayer’s income has not been fully disclosed, it may lead to action under Section 148A.

In some cases, a search or survey operation conducted by the department may reveal undisclosed income. In such instances, the AO can reopen the assessment by following the procedure laid out in Section 148A.

This ensures that reassessments are carried out only when there is a valid and lawful reason to believe that income has escaped assessment.

What is the Time Limit for Reopening Assessment Under Section 148A?
The time limit for reopening an assessment under Section 148A of Income Tax Act depends on the quantum of income that has allegedly escaped assessment. As per the original provision:

If the income that escaped assessment is less than Rs. 50 lakhs, the notice must be issued within 3 years from the end of the relevant assessment year.

If the escaped income is Rs. 50 lakhs or more, the notice can be issued up to 10 years from the end of the relevant assessment year.

Budget 2024 Update on Section 148A Time Limit
The Union Budget 2024 proposed a change to the time limit for reopening cases under Section 148A of Income Tax Act. According to the new rule, applicable from October 1, 2024:

For income escaping assessment below Rs. 50 lakhs, the notice must be issued within 3 years from the end of the relevant AY.

For income escaping assessment of Rs. 50 lakhs or more, the notice can now be issued within 5 years from the end of the relevant AY. This is a reduction from the earlier limit of 10 years.

These changes aim to bring more certainty and reduce the period during which old cases can be reopened, thereby benefiting taxpayers.
Table: Comparison of Existing and Proposed Time Limits

Case Type

Existing Time Limit (Sec 148)

Proposed Time Limit (Sec 148A)

New Time Limit (w.e.f. Oct 1, 2024)

Normal Case

Within 3 years

Within 3 years 3 months

Escaped Income >= Rs. 50 Lakhs

Within 10 years

Within 5 years

Within 5 years 3 months

What Taxpayers Should Know About Section 148A?
There are several key aspects that every taxpayer should be aware of regarding Section 148A of Income Tax Act.

The Assessing Officer must have a valid reason to believe that income has escaped assessment. This belief must be based on credible material or information, and cannot be arbitrary or baseless.

The notice must be issued within the prescribed time limits. If the AO fails to issue the notice within the applicable time frame, the reassessment proceedings become invalid.

The taxpayer has a right to respond to the notice by submitting relevant documents and explanations. If the AO is satisfied with the response, they may choose not to issue a notice under Section 148.

If the AO proceeds with reopening the case, the taxpayer can challenge the reassessment by filing objections or appealing before higher authorities.

If the department concludes that the taxpayer has intentionally evaded tax, it may initiate penalty proceedings or even criminal prosecution. Hence, maintaining transparency in tax filings and complying with legal procedures is extremely important.

Conclusion
Section 148A of Income Tax Act has brought about a welcome change in the reassessment procedure by ensuring transparency, fairness, and accountability. It provides a fair opportunity to the taxpayer to present their case before any reassessment is initiated. The provision also empowers tax officers to take action in genuine cases of tax evasion, provided they follow due process. Taxpayers must be proactive in complying with tax laws and respond timely to any notices issued under Section 148A. Ignoring such notices can lead to serious consequences, including higher tax liability and prosecution.
With the latest amendments introduced in Budget 2024, the reassessment window has been reduced to 5 years for high-value cases, offering more certainty to taxpayers. If you have received a notice or expect one, it is advisable to consult tax experts such as Compliance Calendar LLP, who can help you navigate the process efficiently.
You can book a consultation with our tax experts through mail at info@ccoffice.in or Call/Whatsapp at +91 9988424211.
FAQs
Q1. What is the main purpose of Section 148A of Income Tax Act?
Ans. The main purpose of Section 148A is to ensure that no reassessment notice under Section 148 is issued without giving the taxpayer an opportunity to be heard. It establishes a fair procedure by allowing the taxpayer to explain their side before the department initiates any reassessment proceedings.
Q2. Who can issue a notice under Section 148A of Income Tax Act?
Ans. Only an Assessing Officer who has credible information that income has escaped assessment can issue a notice under Section 148A. However, this can only be done after obtaining prior approval from the specified higher authority and complying with the procedure laid down in the Act.
Q3. What is the timeline given to respond to a notice under Section 148A?
Ans. The taxpayer is given a minimum of 7 days and a maximum of 30 days to submit their response to the notice under Section 148A. The exact timeline is decided by the Assessing Officer and is mentioned in the notice itself.
Q4. What happens if a taxpayer fails to respond to the notice under Section 148A?
Ans. If a taxpayer does not respond to the notice under Section 148A within the stipulated time, the Assessing Officer may assume that the taxpayer has nothing to say and may proceed to issue a notice under Section 148, leading to reassessment proceedings.
Q5. Can reassessment be initiated in the absence of sufficient evidence?
Ans. No, Section 148A clearly states that the belief of escaped income must be based on tangible material or information. Reassessment proceedings cannot be started merely on suspicion or assumptions without proper inquiry and evidence.
Q6. What is the difference between Section 148 and Section 148A of Income Tax Act?
Ans. Section 148A introduces a preliminary step before the issuance of a notice under Section 148. Under Section 148A, the Assessing Officer must conduct a prior inquiry and offer the taxpayer a chance to be heard. Section 148, on the other hand, deals with the actual notice for reassessment.
Q7. What should a taxpayer do after receiving a notice under Section 148A?
Ans. A taxpayer should carefully read the notice, gather all necessary documents, and prepare a proper explanation justifying their previously filed income. It is advisable to consult a tax professional to ensure an accurate and timely response to avoid further complications.

Section 148A of Income Tax Act is a major amendment introduced in the Finance Act of 2021, which aims to ensure transparency and fairness in the reassessment proceedings initiated by the Income Tax Department. This section was added to strike a balance between the powers of tax authorities and the rights of taxpayers. Prior to this amendment, reassessment proceedings could be initiated without giving the assessee a fair opportunity to explain. However, Section 148A now makes it mandatory for the assessing officer to give the taxpayer a proper chance to be heard before proceeding with reassessment under Section 148. This article provides a detailed explanation of Section 148A of Income Tax Act, the procedural requirements involved, the time limits applicable, and how it impacts taxpayers. We have also included the updates announced in Budget 2024 for a clearer understanding.

What is Section 148A of Income Tax Act?

Section 148A of Income Tax Act is a procedural provision that requires the Assessing Officer (AO) to conduct an inquiry and provide an opportunity of being heard to the taxpayer before issuing a notice for reassessment under Section 148. This section mandates that no notice under Section 148 shall be issued unless the AO has conducted an inquiry, if required, with prior approval from the specified authority, and has provided the assessee with a chance to explain why a notice should not be issued.

Under this section, the AO is required to serve a show cause notice to the taxpayer, giving them a minimum of 7 days and a maximum of 30 days to respond. The AO must then consider the taxpayer's reply before making a final decision. This provision ensures that reassessment is not initiated arbitrarily and upholds the principles of natural justice.

What is Notice Under Section 148?

A notice under Section 148 of Income Tax Act is issued by the Assessing Officer when he has reasons to believe that some income has escaped assessment during a previous assessment year. This notice signifies the reopening of the assessment process and allows the AO to reassess the taxpayer’s income. Earlier, before the introduction of Section 148A, there was no legal obligation to inform or involve the taxpayer before initiating reassessment. However, now, due to the mandatory procedure laid out under Section 148A, the process is more taxpayer-friendly. A notice under Section 148 can only be issued after fulfilling the requirements of Section 148A.

Taxpayers receiving such a notice are advised to respond within the prescribed time limit, with all relevant documents and explanations supporting their earlier filings. A failure to comply or respond may lead to adverse consequences such as higher tax liability, interest, or penalties.

How Does Section 148A Impact Taxpayers?

Section 148A of Income Tax Act has an important impact on taxpayers. While it provides tax authorities with a framework to reopen assessment cases, it also offers procedural safeguards to the taxpayer. Once a taxpayer receives a show cause notice under Section 148A, they must respond with proper documentation and explanation.

If the AO is not satisfied with the taxpayer’s response, the case can be reopened under Section 148. In such situations, the taxpayer may be required to pay additional taxes on the previously unreported income, along with interest and penalties. The process of reassessment can also be time-consuming and stressful, as it involves the re-examination of previously closed matters.

Moreover, if the AO believes that the taxpayer has willfully evaded tax, prosecution proceedings may also be initiated under relevant provisions of the Income Tax Act. Therefore, taxpayers must maintain accurate records, file income tax returns on time, and respond to income tax notices promptly and appropriately.

When Can the Income Tax Department Reopen Assessment Under Section 148A?

The Income Tax Department can reopen assessments under Section 148A of Income Tax Act if it has information suggesting that income chargeable to tax has escaped assessment. This belief must be based on tangible evidence and not mere suspicion. The following scenarios may lead to such reopening:

If a taxpayer fails to file their income tax return, the AO may suspect that income has escaped assessment. Similarly, if the department receives information from third parties such as banks, regulatory authorities, or other government bodies, suggesting that the taxpayer’s income has not been fully disclosed, it may lead to action under Section 148A.
In some cases, a search or survey operation conducted by the department may reveal undisclosed income. In such instances, the AO can reopen the assessment by following the procedure laid out in Section 148A.
This ensures that reassessments are carried out only when there is a valid and lawful reason to believe that income has escaped assessment.

What is the Time Limit for Reopening Assessment Under Section 148A?

The time limit for reopening an assessment under Section 148A of Income Tax Act depends on the quantum of income that has allegedly escaped assessment. As per the original provision:

If the income that escaped assessment is less than Rs. 50 lakhs, the notice must be issued within 3 years from the end of the relevant assessment year.
If the escaped income is Rs. 50 lakhs or more, the notice can be issued up to 10 years from the end of the relevant assessment year.

Budget 2024 Update on Section 148A Time Limit

The Union Budget 2024 proposed a change to the time limit for reopening cases under Section 148A of Income Tax Act. According to the new rule, applicable from October 1, 2024:

For income escaping assessment below Rs. 50 lakhs, the notice must be issued within 3 years from the end of the relevant AY.
For income escaping assessment of Rs. 50 lakhs or more, the notice can now be issued within 5 years from the end of the relevant AY. This is a reduction from the earlier limit of 10 years.

These changes aim to bring more certainty and reduce the period during which old cases can be reopened, thereby benefiting taxpayers.

Table: Comparison of Existing and Proposed Time Limits

Case Type	Existing Time Limit (Sec 148)	Proposed Time Limit (Sec 148A)	New Time Limit (w.e.f. Oct 1, 2024)
Normal Case	Within 3 years	Within 3 years	Within 3 years 3 months
Escaped Income >= Rs. 50 Lakhs	Within 10 years	Within 5 years	Within 5 years 3 months

What Taxpayers Should Know About Section 148A?

There are several key aspects that every taxpayer should be aware of regarding Section 148A of Income Tax Act.

The Assessing Officer must have a valid reason to believe that income has escaped assessment. This belief must be based on credible material or information, and cannot be arbitrary or baseless.
The notice must be issued within the prescribed time limits. If the AO fails to issue the notice within the applicable time frame, the reassessment proceedings become invalid.
The taxpayer has a right to respond to the notice by submitting relevant documents and explanations. If the AO is satisfied with the response, they may choose not to issue a notice under Section 148.
If the AO proceeds with reopening the case, the taxpayer can challenge the reassessment by filing objections or appealing before higher authorities.
If the department concludes that the taxpayer has intentionally evaded tax, it may initiate penalty proceedings or even criminal prosecution. Hence, maintaining transparency in tax filings and complying with legal procedures is extremely important.

Conclusion

Section 148A of Income Tax Act has brought about a welcome change in the reassessment procedure by ensuring transparency, fairness, and accountability. It provides a fair opportunity to the taxpayer to present their case before any reassessment is initiated. The provision also empowers tax officers to take action in genuine cases of tax evasion, provided they follow due process. Taxpayers must be proactive in complying with tax laws and respond timely to any notices issued under Section 148A. Ignoring such notices can lead to serious consequences, including higher tax liability and prosecution.

With the latest amendments introduced in Budget 2024, the reassessment window has been reduced to 5 years for high-value cases, offering more certainty to taxpayers. If you have received a notice or expect one, it is advisable to consult tax experts such as Compliance Calendar LLP, who can help you navigate the process efficiently.

You can book a consultation with our tax experts through mail at info@ccoffice.in or Call/Whatsapp at +91 9988424211.

FAQs

Q1. What is the main purpose of Section 148A of Income Tax Act?

Ans. The main purpose of Section 148A is to ensure that no reassessment notice under Section 148 is issued without giving the taxpayer an opportunity to be heard. It establishes a fair procedure by allowing the taxpayer to explain their side before the department initiates any reassessment proceedings.

Q2. Who can issue a notice under Section 148A of Income Tax Act?

Ans. Only an Assessing Officer who has credible information that income has escaped assessment can issue a notice under Section 148A. However, this can only be done after obtaining prior approval from the specified higher authority and complying with the procedure laid down in the Act.

Q3. What is the timeline given to respond to a notice under Section 148A?

Ans. The taxpayer is given a minimum of 7 days and a maximum of 30 days to submit their response to the notice under Section 148A. The exact timeline is decided by the Assessing Officer and is mentioned in the notice itself.

Q4. What happens if a taxpayer fails to respond to the notice under Section 148A?

Ans. If a taxpayer does not respond to the notice under Section 148A within the stipulated time, the Assessing Officer may assume that the taxpayer has nothing to say and may proceed to issue a notice under Section 148, leading to reassessment proceedings.

Q5. Can reassessment be initiated in the absence of sufficient evidence?

Ans. No, Section 148A clearly states that the belief of escaped income must be based on tangible material or information. Reassessment proceedings cannot be started merely on suspicion or assumptions without proper inquiry and evidence.

Q6. What is the difference between Section 148 and Section 148A of Income Tax Act?

Ans. Section 148A introduces a preliminary step before the issuance of a notice under Section 148. Under Section 148A, the Assessing Officer must conduct a prior inquiry and offer the taxpayer a chance to be heard. Section 148, on the other hand, deals with the actual notice for reassessment.

Q7. What should a taxpayer do after receiving a notice under Section 148A?

Ans. A taxpayer should carefully read the notice, gather all necessary documents, and prepare a proper explanation justifying their previously filed income. It is advisable to consult a tax professional to ensure an accurate and timely response to avoid further complications.