Budget 2024: Amendments to Income-tax Assessment & Reassessment Provisions

The Finance Act 2021 introduced significant changes to the assessment and reassessment procedures under the Income-tax Act, effective from April 1, 2021. Key amendments include modifications to sections 148, 148A, and 149, along with the introduction of a new section 148A. These changes aim to streamline the issuance of notices for assessment or reassessment by specifying detailed procedures for the Assessing Officer (AO), including conducting inquiries and obtaining approval before reopening cases. The amendments also redefine what constitutes actionable ‘information’ for issuing notices and set specific time limits based on the nature and amount of income under scrutiny. The reforms are expected to reduce ambiguity and litigation surrounding the interpretation of these provisions, providing clarity and efficiency in tax administration. Scheduled to take effect from September 1, 2024, these revisions are poised to enhance compliance and facilitate smoother operations for taxpayers and tax authorities alike.

Budget 2024: Rationalisation of provisions relating to assessment and reassessment under the Act

The Finance Act, 2021 amended the procedure for assessment or reassessment of income in the Act with effect from the 1st April, 2021. The said amendment modified, inter alia, section 148, section 149 and also introduced a new section 148A in the Act.

2. The existing provisions of section 148 of the Act provide the procedure for issuance of notice to initiate assessment or reassessment or recomputation under section 147 of the Act. The existing provisions of the said section also provide details of what constitutes ‘information’ for the purposes of issuance of notice. The said section further provides the instances in which the Assessing Officer (AO) would be deemed to have information in order to initiate the assessment or reassessment proceedings.

3. The existing provisions of section 148A of the Act provide the procedure to be followed by AO before issuance of notice under section 148 of the Act, including conducting inquiry, providing an opportunity of being heard to the assessee, and passing an order prior to reopening of a case. The said section also provides the circumstances in which such procedure does not apply.

4. Further, the existing provisions of section 149 of the Act provide the time limits for issuance of notice under section 148 and computation of the period of limitation under various circumstances. Furthermore, the existing provisions of section 151 of the Act mandates to obtain sanction from the specified authority, for issuance of notice under section 148 or section 148A of the Act.

5. In this regard, multiple suggestions have been received regarding the considerable litigation at various fora arising from the multiple interpretations of the provisions of aforementioned sections. Further, representations have been received to reduce the time-limit for issuance of notice for the relevant assessment year in proceedings of assessment, reassessment or recomputation.

6. Hence, it is proposed to rationalize the aforementioned reassessment provisions. It is expected that the new system would provide ease of doing business to taxpayers as there is a reduction in time limit by which a notice for assessment or reassessment or re-computation can be issued. The salient features of the proposed amendments are as follows:-

(i) It is proposed to substitute section 148 of the Act so as to provide that before making the assessment, reassessment or recomputation under section 147 and subject to the provisions of section 148A, the Assessing Officer shall issue a notice to the assessee, along with a copy of the order passed under sub-section (3) of section 148A determining it to be a fit case, requiring him to furnish within such period as may be specified, not exceeding a period of three months from the end of the month in which such notice is issued, a return of his income or the income of any other person in respect of whom he is assessable under this Act. Further, it is proposed to provide that no notice under this section shall be issued unless there is information with the Assessing Officer which suggests that the income chargeable to tax has escaped assessment in the case of the assessee for the relevant assessment year.

Any information in the case of the assessee emanating from survey conducted under section 133A, other than under sub-section (2A) of the said section, on or after the 1st day of September, 2024, is proposed to be added to the definition of ‘information’ with the Assessing Officer which suggests that the income chargeable to tax has escaped assessment.

It is further proposed to provide that where the Assessing Officer has received information under the scheme notified under section 135A, no notice under section 148 shall be issued without prior approval of the specified authority.

(ii) It is further proposed to substitute the section 148A so as to provide that where the Assessing Officer has information which suggests that income chargeable to tax has escaped assessment in the case of an assessee for the relevant assessment year, he shall, before issuing any notice under section 148, provide an opportunity of being heard to such assessee, by serving upon him a notice to show cause as to why a notice under section 148 should not be issued in his case, and such notice shall be accompanied by the information which suggests that income chargeable to tax has escaped assessment in his case for the relevant assessment year. Thereafter, on receipt of notice under sub-section (1), the assessee may furnish his reply, within such time, as may be specified in such notice.

The Assessing Officer shall, on the basis of material available on record and taking into account the reply of the assessee furnished under sub­section (2), if any, pass an order with the prior approval of the specified authority under sub-section (3) of section 148A, determining whether or not it is a fit case to issue notice under section 148.

It is further proposed that the provisions of this section shall not apply in the case of an assessee where the Assessing Officer has received information under the scheme notified under section 135A pertaining to income chargeable to tax escaping assessment for any assessment year in his case.

(iii) The time limitation for issuance of notice under section 148A and section 148 of the Act is proposed to be provided in section 149 of the Act as follows: