Understanding Section 148 of Income Tax Act and its Time Limit

March 14, 2023

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The Indian Income Tax Act is a complex set of laws that govern the taxation system in the country. One of the important sections of the Act is Section 148, which deals with the reopening of assessment in certain cases. In this blog, we will discuss the provisions of Section 148 and the time limit for reopening of assessment.

Table of Contents

What is Section 148 of the Income Tax Act?

Section 148 of the Income Tax Act empowers the Assessing Officer (AO) to reopen an assessment that has already been completed, in certain cases. The reasons for reopening the assessment can be:

The assessment was done without a proper investigation
Income had escaped assessment
The assessment was done based on inadequate or incorrect information
The assessment was done based on the taxpayer’s failure to disclose fully and truly all the material facts

What is the Time Limit for Reopening of Assessment under Section 148?

The AO cannot reopen an assessment at any time. There is a prescribed time limit within which an assessment can be reopened under Section 148. The time limit depends on the reason for reopening the assessment:

Income escaping assessment: If the reason for reopening the assessment is that income has escaped assessment, then the AO can reopen the assessment within four years from the end of the relevant assessment year. However, if the escaped income is more than Rs. 1 lakh, then the time limit is six years.
Inadequate or incorrect information: If the assessment was done based on inadequate or incorrect information, then the AO can reopen the assessment within four years from the end of the relevant assessment year.
Failure to disclose fully and truly all material facts: If the assessment was done based on the taxpayer’s failure to disclose fully and truly all the material facts, then the AO can reopen the assessment within four years from the end of the relevant assessment year.

However, if the assessment was done more than six years ago, and no income has escaped assessment, then the AO cannot reopen the assessment.

What is the Procedure for Reopening of Assessment under Section 148?

The AO cannot reopen an assessment without following the due procedure. The procedure for reopening of assessment is as follows:

The AO must have reason to believe that income has escaped assessment or the assessment was done based on inadequate or incorrect information, or the taxpayer failed to disclose fully and truly all the material facts.
The AO must record his reasons in writing and get the approval of the Principal Commissioner or Commissioner before issuing a notice for reopening the assessment.
The AO must issue a notice to the taxpayer, stating the reasons for reopening the assessment.
The taxpayer has the right to file a return and submit the necessary documents within 30 days of receiving the notice.
After considering the taxpayer’s response, the AO can either accept the return or proceed with the assessment.

Conclusion

Section 148 of the Income Tax Act gives the AO the power to reopen an assessment in certain cases. However, the AO cannot do this at any time. There is a prescribed time limit within which an assessment can be reopened, and the AO must follow the due procedure for reopening the assessment. It is important for taxpayers to be aware of their rights and obligations under Section 148 and to comply with the requirements of the law.

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Frequently Asked Questions (FAQs)

Q. What is Section 148 of the Income Tax Act?
Section 148 of the Income Tax Act empowers the Assessing Officer (AO) to reopen an assessment that has already been completed, in certain cases.

Q. What are the reasons for reopening an assessment under Section 148?
The reasons for reopening an assessment can be:

The assessment was done without a proper investigation
Income had escaped assessment
The assessment was done based on inadequate or incorrect information
The assessment was done based on the taxpayer’s failure to disclose fully and truly all the material facts

Q. What is the time limit for reopening an assessment under Section 148?
The time limit for reopening an assessment under Section 148 depends on the reason for reopening the assessment:

Income escaping assessment: The AO can reopen the assessment within four years from the end of the relevant assessment year. However, if the escaped income is more than Rs. 1 lakh, then the time limit is six years.

Inadequate or incorrect information: The AO can reopen the assessment within four years from the end of the relevant assessment year.
Failure to disclose fully and truly all material facts: The AO can reopen the assessment within four years from the end of the relevant assessment year.

Q. What happens if the assessment was done more than six years ago?
If the assessment was done more than six years ago, and no income has escaped assessment, then the AO cannot reopen the assessment.

Q. What is the procedure for reopening an assessment under Section 148?
The procedure for reopening an assessment under Section 148 includes the following steps:

The AO must have reason to believe that income has escaped assessment or the assessment was done based on inadequate or incorrect information, or the taxpayer failed to disclose fully and truly all the material facts.
The AO must record his reasons in writing and get the approval of the Principal Commissioner or Commissioner before issuing a notice for reopening the assessment.
The AO must issue a notice to the taxpayer, stating the reasons for reopening the assessment.
The taxpayer has the right to file a return and submit the necessary documents within 30 days of receiving the notice.
After considering the taxpayer’s response, the AO can either accept the return or proceed with the assessment.

Q. What are the consequences of non-compliance with Section 148?
If the taxpayer fails to comply with the requirements of Section 148, the AO can proceed with the assessment and make the necessary adjustments to the income tax liability, including levying interest and penalty.

Q. Can the taxpayer challenge the reopening of assessment under Section 148?
Yes, the taxpayer can challenge the reopening of assessment under Section 148 by filing an appeal with the Commissioner of Income Tax (Appeals) or the Income Tax Appellate Tribunal, and then the High Court or the Supreme Court, if necessary.

Q. Can the AO reopen an assessment multiple times under Section 148?
No, the AO cannot reopen an assessment multiple times under Section 148 for the same assessment year unless there is new information that was not available earlier or if there is a failure on the part of the taxpayer to disclose material facts.