Income escaping assessment is done by the evaluating officer if there is a cause for him to believe that income chargeable to tax has escaped assessment for any assessment year. It’s essential to compute your taxes with proper tax planning, but sometimes people use unfair means to avoid taxes or reduce the tax burden known as tax evasion. The Income-tax authorities have various powers in the Income-tax Act, which deals with tax evasion. If they have cause to believe that specific income has escaped assessment or not disclosed by an assessee, they may issue a notice in this regard. Section 147 of the Income Tax Act, 1961 deals with ‘Assessment or Re-assessment of Incoming Escaping Assessment’.
Assessment Income tax assessment is the procedure of collecting and reviewing the information filed by the assesses in their income tax returns.
Re-assessment If Income tax authorities have any reason to believe that any income chargeable to tax has escaped assessment, the AO has the authority to reopen the case for scrutiny. Re-assessment means ‘Assessment upon Assessment’. It doesn’t mean that the entire assessment can be done over an earlier evaluation. However, re-Assessment can be done multiple times provided other conditions prescribed in Section 147 have been satisfied.
Process of the Assessment or Re-assessment u/s 147 of the Act
To make any assessment, it will be started through a notice. Hence, for making Assessment u/s 147, notice u/s 148 has to be issued. Notice u/s 148 shall not be time-barred and issued within the time limits given u/s 149(1). The time limits provided u/s 149(1) are for the issue of notice and not for the service of notice. It means even if the notice is served after the period, still assessment us 147 is possible. Below are the time limits to the Issue Notice:
Particular
Time limit
Income escaping assessment of any amount
Up to 4 years from the end of relevant AY
Income escaping assessment of more than Rs. 1 Lakhs
Up to 6 years from the end of relevant AY
Income escaping assessment for income earned outside India
Up to 16 years from the end of relevant AY
Before providing any notice u/s 148, it is compulsory to take necessary sanctions from the higher authorities (Sanction required from Assistant Commissioner/ Deputy Commissioner/ Joint commissioner) by the Assessing Officer (AO) to misuse the powers AO arbitrarily can be avoided. This sanction will be acquired under Section 151.
Now, the notice is received by the assessee. If the assessee believes that notice is deceptive because it had been issued after the time limits described in the law, he can file a writ petition/SLP to quash such information. However, if the court stops notification under section 148, then the entire assessment is not possible. It means that the assessment will come to an end before the start.
However, if the notice was fully served, then the assessee is under an obligation to file the Return of Income (ROI); known as return u/s 148 and cannot be revised. We can say that at this moment, Assessment Proceedings have been started. After the Return of Income (ROI) filing, the assessee can demand the certified copy of reason to believe from the Assessing concerned Officer (AO).
On-demand by the assessee, AO has to give a certified copy of reason. If the assessee thinks that reason which was recorded is not tenable or doesn’t exist, he can file a writ petition against such assessment proceedings. If the court decided in favour of the assessee, then Assessment Proceedings will have to stop. It can’t be progressed further. But, on the other hand, if the court decides against the assessee & held that Assessment proceedings are valid as per law, then assessment proceedings will be progressed.
In order to complete the assessment proceedings, books of accounts, information, etc., may be required by the AO. To sanction the AO, Section 142(1) (ii) states the powers of AO to call upon the books of Accounts, etc. Furthermore, it is now mandatory for the department to notice u/s 143(2) within 6 months from the end of the financial year. ROI u/s 148 had been filed; or else, Assessment Proceedings shall be invalid. Thus, we can say that even after the activities are perfectly progressed still there can be a situation where entire proceedings can turn into an invalid one.
Once the proceeding is concluded now, it is time to draft the Assessment order. Section 152 states that rates that applied to the relevant Assessment Year will apply. Order must be signed on or before the time limits indicated u/s 153. Even if the assessee receives the order after the time limits given in Section 153 still the order is valid.
Section 147 authorizes the assessing officer to assess or reassess income chargeable to tax if he believes that income for any assessment year has escaped assessment. The AO is said to have reason to accept if he has a source or explanation to know or assume that income has escaped assessment.
At AJSH, we assist our clients in dealing with various income tax compliances, including income tax assessments, ITR filings, TDS returns, tax advisory and other related services by providing them adequate support and guidance from our end. If you have any questions or wish to know more about income escaping assessment under section-147, kindly contact us.
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