Section 148A of Income Tax Act: Procedure Before Issue of Notice for Income Escaping Assessment

Earlier, reassessment notices under Section 148 could be issued directly by the Income Tax Department without giving taxpayers a chance to respond. To address concerns about fairness, the Finance Act, 2021 introduced Section 148A. This provision ensures that before any reassessment notice is issued, the taxpayer is informed, given an opportunity to present their case, and the tax authority records its reasons in writing, making the process more transparent and just.

 Purpose of Introducing Section 148A

The aim is to reduce harassment by tax authorities, ensure reassessment is not done on flimsy grounds, and give taxpayers a fair chance to explain their case.

Applicability of Section 148A

When It Applies Before Issuing Notice Under Section 148

Section 148A applies in all cases where the Assessing Officer (AO) believes income has escaped assessment, except for certain exceptions.

Exceptions Where Section 148A May Not Apply

Section 148A is not applicable if:

• A search is initiated under Section 132
• Seizure or requisition is carried out under Section 132A
• Information is received under special Acts (like Black Money Act, Benami Act, etc.)

Procedure Under Section 148A

Step 1: Conducting Inquiry With Prior Approval

The AO may conduct an inquiry with the approval of a specified authority to collect information.

Step 2: Providing Show Cause Notice to Taxpayer

A written notice is served, giving the taxpayer a chance to explain why reassessment should not be initiated.

Step 3: Considering Taxpayer’s Reply

The AO must consider the reply and supporting documents submitted by the taxpayer.

Step 4: Passing a Speaking Order With Approval

Finally, the AO passes a reasoned order (speaking order) with prior approval of higher authorities, deciding whether a reassessment notice under Section 148 should be issued.

Time Limits for Completing Section 148A Proceedings

• The taxpayer must be given at least 7 days and up to 30 days (extendable) to respond.
• Proceedings must be completed within the prescribed time limit before any Section 148 notice is issued.

Rights of the Taxpayer Under Section 148A

• Opportunity to be Heard: Before any reassessment is carried out, the taxpayer must be given a fair chance to present their side of the story. This ensures that individuals and businesses can clarify facts, provide supporting documents, or raise objections, thereby protecting them from unjustified tax demands.
• Access to Reasons and Evidence: Taxpayers are entitled to know the exact reasons recorded by the tax authorities for reopening an assessment. They can also request access to the evidence or material relied upon, enabling them to prepare an informed and effective response.

Importance of Section 148A in Tax Administration

• Ensuring Transparency and Fairness: Section 148A introduces a structured process that prevents the tax department from arbitrarily reopening assessments. By mandating disclosure and the opportunity to be heard, it upholds principles of natural justice and builds trust between taxpayers and authorities.
• Reducing Arbitrary Reassessment Notices: Only cases backed by credible information and valid evidence proceed beyond the preliminary stage. This not only reduces unnecessary litigation but also ensures that tax administration remains efficient, fair, and focused on genuine cases of non-compliance.

Common Mistakes Taxpayers Should Avoid

• Ignoring the Show Cause Notice: This leads to reassessment being initiated automatically.
• Submitting Incomplete Responses: Half-baked explanations weaken the case and increase liability.