Under the old provisions, prior to the amendment, Section 147 of the Income Tax
Act authorized the Assessing Officer to issue notices under Section 148 for
reassessment of income that had escaped assessment. However, the old provisions
did not specify a detailed or mandatory procedure to be followed by the
Assessing Officer before issuing such notices. This led to ambiguity and
To address this issue and to simplify tax administration, the Finance Act, 2021
introduced a new Section 148A and made amendments to Section 147. The new
Section 148A lays down the procedure that the Assessing Officer must follow
before issuing notices under Section 148.
New Procedure for Reassessment
After the Finance Act 2021, this procedure under the Income Tax Act, 1961,
hereinafter referred to as the Act, was drastically amended and a new section
148A was introduced, which puts a procedural requirement upon the Assessing
Officer to conduct an inquiry, issue a notice, and issue an order under this
section before starting proceedings in Section 148. Section 147 was also
substituted by new Section 147, which subtly omits the words "If the Assessing
Officer has reason to believe." The conditions for reopening of assesment were
shifted from section 147 to section 148. Now Explanation 1 of section 148
provides that subject to procedural requirements of Section 148A, the Assessing
Officer must have "Information suggesting escapement of income chargeable to
The Finance Act, 2021 also introduced changes to the limitation period for
issuing notice under Section 148. The new limitation period is three years from
the end of the relevant assessment year, with an extension of up to ten years if
the Assessing Officer has evidence of income amounting to fifty lakh rupees or
Information Suggesting Escapement
In the new procedure, "Information suggesting escapement of income" is a core
aspect for reassement proceedings, whether under Section 148A or Section 148. A
proceeding cannot be initiated by the Assessing Officer unless he has such
information that suggests escapement of income. This information is
restrictively defined under Explanation 1 of section 148, which reads as
For the purposes of this section and Section 148A, the information with the
Assessing Officer, which suggests that the income chargeable to tax has escaped
From the above, it can be inferred that this "information" must relate to:
Income chargeable to tax: Chargeability is an important expression that limits
the scope and nature of such information by:
- Any information in the case of the assessee for the relevant assessment year in accordance with the risk management strategy formulated by the Board from time to time;
- Any audit objection to the effect that the assessment in the case of the assessee for the relevant assessment year has not been made in accordance with the provisions of this Act;
- Any information received under an agreement referred to in Section 90 or Section 90A of the Act;
- Any information made available to the Assessing Officer under the scheme notified under Section 135A;
- Any information that requires action in consequence of the order of a Tribunal or a Court.
- Firstly, the information must be related to any income, and;
- Secondly, such income must be chargeable to tax.
, if the Assessing Officer has information about a transaction of
large cash deposit by the assessee with his bank, by virtue of this information
alone, proceedings cannot be initiated unless the source of such income is
unknown, and the Assessing Officer, after due application of mind, finds that it
is an income chargeable to tax.
After determining the tax chargeability of such income, the
information must suggest that such income is unknown or undeclared and has not
From the above, it can be understood that both conditions must be satisfied, and
the source and nature of such information should be between Clause (i) to (v) of
the Explanation 1 of Section 148. Therefore, for the purpose of "information"
under Section 148, the term "information" must not be construed in a literal or
general way but in a more narrow and specific way, subject to the conditions
provided under section 148 of the Act.
Section 148A: Conducting Inquiry, Providing Opportunity before Issue of Notice
under Section 148
Section 148A of the Act lays down the procedural requirements that the Assessing
Officer must fulfill before issuing any notice under Section 148. It includes
the following steps:
- Conduct any inquiry, if required, with the prior approval of the specified
authority, with respect to the information suggesting escapement of income
chargeable to tax
- Provide an opportunity of being heard to the assessee, with the prior
approval of the specified authority, by serving upon him a notice to show cause
within a specified time, being not less than seven days and not exceeding thirty
days from the date on which such notice is issued, or such time as may be
extended by him on the basis of an application in this behalf, as to why a
notice under Section 148 should not be issued.
- Consider the reply of the assessee furnished, if any, in response to the
- Decide, on the basis of material available on record including the reply
of the assessee, whether or not it is a fit case to issue a notice under Section
148, by passing an order with the prior approval of the specified authority.
Section 148A acts as an additional checkpoint before the initiation of
proceedings under Section 148. The section requires the AO to conduct an
inquiry, if necessary, with the prior approval of the specified authority. This
inquiry is conducted regarding the information suggesting escapement of income
chargeable to tax. The term "if required" does not confer any discretionary
power upon the AO but is intended to ensure that the inquiry is necessary based
on legal requirements or the nature of the information, considered from an
The provisions of Section 148A are mandatory and not merely directory. Failure
to comply with these requirements would result in a jurisdictional defect,
rendering the reassessment proceedings perverse and contrary to principles of
Ashish Agarwal Judgment and its Impact
In the recent judgment of Union of India vs Ashish Agarwal (2022) 138
taxmann.com 64 (SC), the Hon'ble Supreme Court provided important insights into
the procedural changes introduced by the Finance Act, 2021, regarding income
escaping assessment. The court examined the scope and applicability of the new
provisions and shed light on the intent behind the amendments.
The key issue before the court was whether the Assessing Officer's failure to
comply with the mandatory procedural requirements laid down in Section 148A
would render the reassessment proceedings invalid.
The court upheld the view of various High Courts that the new provisions under
Section 148A are not merely directory but are mandatory in nature.
Non-compliance with these requirements would result in a jurisdictional defect,
thereby rendering the reassessment proceedings contrary to law.
After considering all the aspects, the Apex Court took the view that while
issuing notice under the old Section 148, the revenue commited a bona-fide
mistake in interpreting the law and under Article 142 of The Constitution the
apex court held that the impugned notices issued under section 148 shall be
deemed to be show cause notice notices issued under Section 148A(b) of the Act.
The Supreme Court emphasized the importance of the procedural safeguards
provided under section 148A and the limitation provided under section 149 of the
Act, thus protecting the rights of taxpayers and ensuring a fair and transparent
Furthermore, the court clarified that the Assessing Officer must obtain prior
approval from the specified authority before conducting the inquiry. The
requirement of prior approval acts as a check on the arbitrary exercise of power
by the Assessing Officer and ensures that there is an objective assessment of
the information suggesting escapement of income.
The Ashish Agarwal judgment reaffirms the significance of following the
prescribed procedure under Section 148A for initiating reassessment proceedings.
It serves as a reminder to the tax authorities that strict adherence to the
procedural requirements is crucial to maintain the integrity of the assessment
process and safeguard the rights of taxpayers.
The introduction of Section 148A and the amendments to Section 147 by the
Finance Act, 2021, have brought about significant changes in the procedure for
income escaping assessment. These changes aim to streamline the process, provide
clarity, and ensure that taxpayers' rights are protected.
The Ashish Agarwal judgment by the Supreme Court has reinforced the mandatory
nature of the procedural requirements under Section 148A. It highlights the
importance of conducting an inquiry, providing an opportunity of being heard,
and obtaining prior approval before issuing notices under Section 148. Failure
to comply with these requirements can result in the invalidation of reassessment
Taxpayers can take solace in the fact that the court's decision reaffirms their
right to a fair and transparent assessment process. It is incumbent upon the tax
authorities to strictly adhere to the prescribed procedures and ensure that
their actions are in line with the principles of natural justice.
Overall, the changes brought about by the Finance Act, 2021 and the judicial
pronouncements, such as the Ashish Agarwal judgment, have set the stage for a
more robust and accountable process for assesment of income, which has escaped
assessment. These developments contribute to building trust between taxpayers
and tax authorities and foster a conducive environment for effective tax