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• Posted 24 Apr, 2025
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Income Escaping Assessment Under Section 147 of the Income Tax Act: What You Must Know

In the ever-evolving landscape of Indian taxation, Sections 147 to 149 of the Income Tax Act, 1961 empower the Income Tax Department to reassess income that may have escaped assessment in previous years. This blog explores the mechanism, legal thresholds, time limits, and safeguards involved in the reassessment process, helping taxpayers and professionals understand their rights and responsibilities.

🔍 What is Income Escaping Assessment?

Section 147 of the Income Tax Act permits the Assessing Officer (AO) to reassess income if they believe that any part of the taxpayer’s income has escaped assessment in any assessment year. This could result from under-reporting, concealment, or misclassification of income.

The AO can also recompute loss, depreciation, or any other allowance or deduction for the relevant year, even if the initial assessment did not reveal discrepancies.

📬 Issuance of Notice Under Section 148

Before initiating reassessment under Section 147, a notice under Section 148 must be served on the assessee. This notice must include:

• 1. A copy of the order under Section 148A(3).

• 2. A directive to furnish a return within a specified period (not exceeding three months).

However, this notice cannot be issued in a vacuum—it must be backed by credible information suggesting escaped income.

🧾 What Constitutes ‘Information’ Suggesting Escaped Income?

As per Section 148(3), the AO must possess specific types of information, such as:

1. 1. Insights from the risk management strategy by CBDT.

2. 2. Audit objections stating non-compliance in original assessment.

3. 3. Foreign data received under DTAA (Section 90 or 90A).

4. 4. Data from e-verification schemes (Section 135A).

5. 5. Orders from Courts or Tribunals requiring re-evaluation.

6. 6. Results of income tax surveys (except under Section 133A(2A)) post-1st September 2024.

🧑‍⚖️ Prior Approvals and Authority

Under Section 148B, reassessment or recomputation orders involving specific categories (like foreign income or information under Section 135A) cannot be passed by officers below Joint Commissioner rank. Such cases also require prior approval from a higher authority, ensuring checks and balances in high-stake matters.

⏳ Time Limits for Issuing Notice – Section 149 Explained

Section 149 lays down clear timelines to initiate action:

📅 For Notices Under Section 148

• 1. Up to 3 years and 3 months from the end of the relevant assessment year — standard cases.

• 2. Between 3 years 3 months and 5 years 3 months — only if the escaped income is ₹50 lakhs or more, supported by documentary evidence.

📅 For Show Cause Notices Under Section 148A

• Similar time frames apply, capped at 5 years, with conditions.

These limits balance revenue interests with taxpayer certainty.

⚖️ Safeguards for Taxpayers

Recent amendments have introduced structured safeguards like prior approval, a preliminary inquiry stage under Section 148A, and strict time constraints to ensure fairness. Taxpayers have the opportunity to respond and explain discrepancies before reassessment is finalized.

✅ Key Takeaways for Assessees and Tax Professionals

• 1. Always maintain proper documentation and disclosures.

• 2. Reassessment is not arbitrary—it must follow due process.

• 3. Respond promptly to any notices under Sections 148 or 148A.

• 4. Seek professional advice if any reassessment notice is received.

Section 147 to 149 empowers the tax department to plug revenue leaks—but also embeds procedural fairness to protect taxpayer rights. As a taxpayer or consultant, keeping abreast of these provisions ensures better compliance and risk mitigation.