What You Need To Know About Tax Notices Under Section 148

Taxpayers who receive notices from the Income Tax Department have to ensure that these are dealt with and disposed of in a proper manner.

While the tax department is trying to ensure that no income of the individual has escaped from assessment, there are times when the notices leave the taxpayer in a spot of bother. Especially impacted are the notices that open an assessment long after the financial year has ended, as this can lead to a lot of effort to go back into history and then try to find out what was the actual position.

Here is a look at the validity of such notices.

The relevant Section under which such notices for reassessment are sent is Section 148 of the Income Tax Act.

A notice under this section is sent when the tax department feels that the income of the taxpayer has not been assessed correctly. This means that there has to be some income that has not been assessed and tax avoided on it for the notice to be issued.

The other point is that the notice can be issued only after several conditions are present. One of them is that there has to be a reason why the tax officer believes that the income has escaped assessment and this should not be a hunch or a guess. There has to be some strong proof that is available with the tax officer to arrive at this conclusion. This is important because there has to be linkage between the evidence available and the taxpayer and this has to be provided in writing, as to why the income has not been disclosed or paid tax on.

One key aspect of the notice under this section is that there is a specific time period within which the notice has to be issued. This has to be done within a specific period from the end of the assessment year. This limit ensures that there is no unlimited time given to the tax department to issue such notices. It provides relief and comfort to the taxpayer, too, that they will not be slapped with a notice at any point.

The time limit that is present is three years from the end of the assessment year, when the tax that is avoided is less than Rs 50 lakh and a period of 10 years from the end of the assessment year, when the tax avoided is more than Rs 50 lakh.

The Delhi High Court has recently reiterated the fact that the Income Tax Department cannot issue notices under Section 148 beyond three years, if the income escaping assessment is not more than Rs 50 lakh.

There have been a lot of instances wherein the tax department has issued notices going back several years, under the going-back-in-time theory, saying that this is valid.

The Finance Minister had clearly mentioned in her speech as well as the changes in the relevant sections show that it was clear that the limits laid down are not confusing and this is easy to understand. This ensures that the tax department cannot change the conditions to suit them and issue notices for smaller amounts after three years. This is a big bit of relief for the taxpayers because they know that they will not be harassed for small amounts through such notices. This gives clarity in terms of the past assessments that have been made because sudden opening of old details can prove to be a problem, especially when they stretch way back, for which even the records are not available.

Arnav Pandya is founder of Moneyeduschool.