Notice under Section 148

Income Escaping Assessment

A Notice under Section 148 of the Income Tax Act is issued when the Income Tax Department has reason to believe that some income has escaped assessment. This notice is part of the reassessment proceedings, where the assessing officer (AO) seeks to reassess the income not assessed during the original assessment. Here’s a detailed overview, including handling the notice, potential penalties, required documentation, and other essential aspects.

Detailed Content on Notice under Section 148 – Income Escaping Assessment


What Triggers Section 148 Notice?

  • Reason to Believe: The AO must have a solid reason to believe that income chargeable to tax has escaped assessment. This belief can be based on new information or discrepancies found in the data previously provided by the taxpayer or obtained from other sources.
  • Time Frame: Notices under this section can be issued within six years from the end of the relevant assessment year, but this period can be extended under certain circumstances.


A notice under Section 148 of the Income Tax Act is issued when the Income Tax Department has reasons to believe that some income, chargeable to tax, has escaped assessment. This can occur in various scenarios, commonly known as “income escaping assessment.” The issuance of such a notice is the preliminary step for conducting reassessments of previously filed income tax returns. Here are the key triggers that can lead to the issuance of a Section 148 notice:


Triggers for Section 148 Notice

  • Discrepancy in Income Reported:Suppose there is a discrepancy between the income reported by the taxpayer and the information available to the Income Tax Department through various information sources like banks, financial institutions, or other governmental agencies. In that case, a Section 148 notice might be issued.
  • Non-disclosure of Income: Please report any income source during the original assessment to avoid triggering this notice. This includes income from property, capital gains, interest, dividends, or any other source not included in the originally filed return.
  • Findings from Audit or Investigation: Suppose a tax authority audit or investigation of another taxpayer or entity uncovers information implicating another party in tax evasion or underreporting of income. In that case, a Section 148 notice may be issued.
  • High-Value Transactions: Transactions reported to the Income Tax Department under the Annual Information Return (AIR) or other statements that do not match the income reported or taxes paid can lead to suspicion and the issuance of a notice.
  • Information from External Sources: Information received from other tax jurisdictions under agreements for exchanging information or from public records, media reports, or other third-party sources that suggest underreported income or assets.
  • Assessment in Case of Search and Seizure: If a search and seizure operation reveals undisclosed income or assets, it can prompt the issuance of a Section 148 notice.
  • Claims Made in Revised Returns: If claims made in a revised return by the taxpayer seem to indicate the omission or wrong declaration of certain incomes or deductions in the originally filed return.

Example Scenario
A taxpayer, Mr A, declared an income of ₹50 lakhs in his tax return. However, the department receives information through an Annual Information Return (AIR) that Mr A made high-value transactions amounting to ₹1 crore during the year, which are not reflected in his reported income. This discrepancy prompts issuing a Section 148 notice to reassess Mr A’s income to cover potential income that appears to have escaped assessment.

How to Handle a Section 148 Notice

  • Review the Notice: Carefully read the notice to understand what fiscal year and income items are under question.
  • Gather Documentation: Compile all relevant financial documents related to the income year, including bank statements, sale and purchase invoices, tax returns, and other pertinent records.
  • Consult a Tax Advisor: It is advisable to seek professional advice from a tax consultant or attorney specialising in tax law to respond appropriately and prepare for potential legal proceedings.
  • File a Response: Respond to the notice within the stipulated time, providing all the requested information and documentation to support your case.
  • Attend Proceedings: If required, attend hearings and cooperate fully with the tax authorities, presenting your case clearly and concisely with the support of your advisor.

Example Scenario

Example: Suppose a taxpayer reported income from salaries and interest in the Assessment Year 2018-2019 but failed to declare rental income of ₹2,00,000 earned from a property. In 2023, the Assessing Officer (AO) received information from the tenant’s TDS filings and discovered the oversight. The AO then issued a notice under Section 148 for the income that escaped assessment.


How to Handle a Section 148 Notice

  • Review the Notice: Check the notice for specific details about the income believed to have escaped assessment. Understand the assessment year in question and the amount of income involved.
  • Gather Documentation: Prepare all relevant documents that justify your annual income and deductions. This may include bank statements, rent receipts, TDS certificates, and other pertinent financial records.
  • File a Return: If you have not filed a return for the year in question, you must file it within the time specified in the notice. If you have already filed a return, you might need to file a revised one incorporating the missed income.
  • Seek Professional Advice: Consulting a tax advisor like www.cfoangle.com is crucial. They can provide expert advice on the legal implications and help prepare a proper response.
  • Comply with the Proceedings: Attend all hearings and comply with the requests made by the AO during the reassessment proceedings.


Penalties and Prosecution

  • Penalty for Underreporting: Under Section 270A, if income has been underreported, a penalty of 50% of the tax payable on the underreported income may be levied.
  • Prosecution: In severe cases where underreporting involves a wilful attempt to evade tax, prosecution under Section 276C may be initiated. This can lead to imprisonment ranging from 3 months to 7 years, along with a fine.


Documentation Support

  • Proof of Income: Any documentation supporting your declaration of income and deductions for the relevant year.
  • Proof of Taxes Paid: Documents like TDS certificates, advance tax receipts, and self-assessment tax receipts.
  • Communication Records: Copies of any previous correspondences with the Income Tax Department.


Other Important Parts

  • Rights of Taxpayer: Taxpayers have the right to appeal the reassessment findings. It’s vital to act within the stipulated time frames for filing appeals.
  • Preservation of Records: It’s advisable to keep financial records for at least eight years in case of any future queries or notices from the tax department.


Conclusion
Handling a notice under Section 148 requires careful consideration of the tax laws and proper documentation. Prompt and precise action, preferably under the guidance of a tax professional, is essential to managing the reassessment process effectively and avoiding any further legal implications.

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