Section 148 of the Income Tax Act empowers the Assessing Officer (AO) to reassess a taxpayer’s income for a previous financial year if it appears that some income has escaped assessment. In such cases, the AO issues a formal notice to the taxpayer, informing them that their earlier income tax return may not have disclosed their full income or certain details might have been overlooked. This notice requires the taxpayer to furnish a fresh return for the specific assessment year in question, giving them an opportunity to clarify or correct the information before the reassessment process begins.
Link with Section 147 (Income Escaping Assessment)
Section 148 is directly connected to Section 147. While Section 147 provides the power to reassess, Section 148 is the procedural step through which the AO initiates reassessment.
Applicability of Section 148
Cases Where Reassessment Can Be Initiated
- Non-disclosure of income or assets
- Underreporting or misreporting income
- Wrongful claims of deductions, exemptions, or losses
- Discovery of foreign income or assets later
Role of “Reason to Believe” by the Assessing Officer
The AO must have a genuine reason to believe that income has escaped assessment. Mere suspicion is not enough. Reasons must be recorded in writing before issuing the notice.
Procedure for Issuing Notice Under Section 148
Recording of Reasons for Reassessment
The AO documents the basis of belief that income has escaped assessment.
Prior Approval of Specified Authority
Before issuing a notice, the AO must take prior approval from higher tax authorities.
Service of Notice to Taxpayer
The notice is served to the taxpayer, requiring them to file a return for the relevant year.
Filing of Return in Response to Notice
The taxpayer must either file a fresh return or state that their earlier return should be treated as valid.
Time Limits for Issuing Section 148 Notice
Normal Limit
Up to 3 years from the end of the relevant assessment year.
Extended Limit
Up to 10 years, if the escaped income exceeds ₹50 lakh in that year.
Rights of the Taxpayer
Right to Request Copy of Reasons Recorded: The taxpayer can demand to see the reasons why the assessment is being reopened.
Right to Contest Validity of Notice: If the notice is not validly issued, the taxpayer can challenge it legally.
Right to Appeal Reassessment Order: After the reassessment, the taxpayer can appeal against the order if dissatisfied.
Consequences of Receiving a Section 148 Notice
Requirement to File Return Again: The taxpayer must respond by filing a return.
Reassessment Proceedings Under Section 147: The AO may reassess income and raise additional tax demands.
Risk of Penalties and Additional Tax: Non-disclosure may lead to penalties and interest.
Difference Between Section 148 and Section 143(2)/144
Section 143(2): Scrutiny Assessment – AO examines return details.
Section 144: Best Judgment Assessment – AO estimates income if the taxpayer fails to comply.
Section 148: Reassessment – AO reopens past cases where income escaped assessment.
Example Scenarios of Section 148 Notices
Non-Disclosure of High-Value Transactions: A taxpayer fails to report large property purchases detected later in AIS.
Foreign Assets or Income Detected Later: Undisclosed foreign bank accounts discovered during information exchange with other countries.
Common Mistakes Taxpayers Make
- Ignoring or Delaying Response to Notice: Leads to ex parte assessment.
- Incomplete or Incorrect Information in Response: May attract penalties or further inquiries.
Final Thoughts : Section 148 acts as a safeguard for revenue authorities to ensure no taxable income slips through the cracks. While it empowers tax officers, it also provides rights to taxpayers to contest and appeal. The best defense is proactive compliance, filing accurate returns, reporting all income, and being prepared with supporting documents.
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