Reopening of cases by Assessing Officer for Income Escaping Assessment

As per the provisions of section 147 and section 148 of the Income Tax Act the Assessing Officer can reopen the assessment of earlier years, where the Assessing Officer is of the opinion that Income for earlier years has escaped assessment and reopening of cases is only option to recover income tax, on the fulfillment of certain conditions.

Income Escaping Assessment U/s 147 of the IT Act

Where the Assessing Officer has reason to believe that the income chargeable to tax for any assessment year has escaped assessment, then he may, subject to the conditions specified U/s sections 148 to 153, assess or reassess such income and any other income which has escaped assessment and which subsequently comes to his notice in the course of the proceedings. However, Assessing Officer shall assess or reassess incomes, other than the incomes which are involving matters which have gone in appeal or revision.

Provided that where an assessment U/s 143 has been made for any relevant assessment year, then no action could be possible U/s 148 after the expiry of 4 years from the end of the relevant assessment year.

However, this clause shall not applicable if any income chargeable to income tax under the act has escaped assessment for such relevant assessment year, where the assessee fails to file the return of the income under section 139or in a response of 142(1) or 148 or fails to disclose all the material facts necessary for the assessment, for that relevant assessment year.

Time limit for issuing the notice U/s 148

• Normally the time limit for issuing the notice U/s 148 is 4 or 6 years.

1. Four years if the income so escaped is less than Rs. 1 lakh.
2. Six years if the income so escaped is likely to be Rs. 1 lakh or more,

• This time limit U/s 148 may extend to sixteen years if it is associated with any Asset or financial interest located outside India.
• If there is any direction specifically contained in an order passed by the authority in any proceeding under Income Tax Act by way of revision/appeal or by a court, in that circumstances there shall not be any time limit to issue notice U/s 148.

For the purposes assessment or reassessment, the following cases shall be deemed to be cases where income has escaped assessment:

• Where no return has been furnished by the assessee, and his income exceeds the maximum not chargeable to tax.
• Where a return has been furnished but no assessment has been made and the income has understated or excessive loss, deduction, allowance or relief has been claimed in the return;
• Where the assessee is required to furnish a report in respect of any international transaction but fails to do so.
• Where an assessment has been done, but—
• The Income chargeable to income tax has been under assessed; or
• Where such income has been assessed at lower rate; or
• Where excessive relief have been claimed under the Act; or
• Where excessive loss or depreciation or any other deduction under this Act has been computed;
• Where the assessee is found to have an asset (including any financial interest in any entity) located outside India.

Duties and Powers of Assessing Officer:

1. The Assessing Officer must have the reasons to believe that the income has escaped an assessment. AO must record such reasons to believe in writing. No reassessment notice U/s 148 can be served to the assessee on mere change of opinion.
2. Assessing Officer must obtain approval from higher authority u/s 151, wherever required. As per section 151, Assessing Officer is required to take prior approval to make reassessment U/s 147 against any assessee.
3. Assessing Officer must issue notice u/s 148 within the time prescribed under the provisions of the Act.

• Normally the time limit for issuing the notice U/s 148 is 4 or 6 years.
• Four years if the income so escaped is less than Rs. 1 lakh.
• Six years if the income so escaped is likely to be Rs. 1 lakh or more,

4. This time limit U/s 148 may extend to sixteen years if it is associated with any Asset or financial interest located outside India.
5. The assessee is required to submit a return of income within the prescribed time in the Notice. Assessee may insist for the reasons of proceeding u/s 147 from Assessing Officer. Even if the assessee fails to demand the reasons, the Assessing Officer can proceed to complete assessment.
6. Provided that where the assessee demands reasons of the proceedings, the Assessing Officer must provide such reasons to believe to the assessee. The assessing officer is bound to provide the copy of reason recorded within a reasonable
7. After this, the Assessing Officer shall issue a notice under section 143(2). Such notice under section 143(2) is mandatory.
8. Assessee rather than filing a fresh return can make a request for considering the return filed under section 139(1) or 139(1)/ (4)/(5) in response to a notice under section 148.