An analysis of S.148A inserted with effect from 01.04.2021 by the FA 2021. It provides for mandatory steps and stages with prior approval of Pr.CIT / CIT at various stages

[DEV KUMAR KOTHARI]

For brain storming- An analysis of S.148A inserted with effect from 01.04.2021 by the FA 2021. It provides for mandatory steps and stages with prior approval of Pr.CIT / CIT at various stages

Income-tax Act, 1961

The section is reproduced below with highlights added:

¹[Conducting inquiry, providing opportunity before issue of notice under section 148.

148A. The Assessing Officer shall, before issuing any notice under section 148,-

(a) conduct any enquiry, if required, with the prior approval of specified authority, with respect to the information which suggests that the income chargeable to tax has escaped assessment;

(b) provide an opportunity of being heard to the assessee, with the prior approval of specified authority, by serving upon him a notice to show cause within such time, as may be specified in the notice, being not less than seven days and but 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 on the basis of information which suggests that income chargeable to tax has escaped assessment in his case for the relevant assessment year and results of enquiry conducted, if any, as per clause (a);

(c) consider the reply of assessee furnished, if any, in response to the show-cause notice referred to in clause (b);

(d) decide, on the basis of material available on record including 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 specified authority, within one month from the end of the month in which the reply referred to in clause (c) is received by him, or where no such reply is furnished, within one month from the end of the month in which time or extended time allowed to furnish a reply as per clause (b) expires:

Provided that the provisions of this section shall not apply in a case where,-

(a) a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A in the case of the assessee on or after the 1st day of April, 2021; or

(b) the Assessing Officer is satisfied, with the prior approval of the Principal Commissioner or Commissioner that any money, bullion, jewellery or other valuable article or thing, seized in a search under section 132 or requisitioned under section 132A, in the case of any other person on or after the 1st day of April, 2021, belongs to the assessee; or

(c) the Assessing Officer is satisfied, with the prior approval of the Principal Commissioner or Commissioner that any books of account or documents, seized in a search under section 132 or requisitioned under section 132A, in case of any other person on or after the 1st day of April, 2021, pertains or pertain to, or any information contained therein, relate to, the assessee.

Explanation.-For the purposes of this section, specified authority means the specified authority referred to in section 151.]

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NOTES:-

1. Inserted vide THE FINANCE ACT, 2021 dated 28-03-2021 w.e.f. 01-04-2021

Analysis:

Heading of section “Conducting inquiry, providing opportunity before issue of notice under section 148”

Heading of section lays emphasis and importance   to inquiry and providing opportunity, perusal of information including reply of assessee, and then only a decision is to be taken by AO for issuing or not a notice us 148.

At various stages prior approval of Pr. CIT  / CIT is required.

 A decision to issue notice must be reasoned and speaking order.  On reading of entire section 148A it is found that the following mandatory steps are provided:

1. Having information with AO
2. Enquiry
3. Opportunity to assesse
4. Consideration of all material available including reply filed by assesse
5.  Decision about notice to be issued or not.
6. Issuing notice us 148 if so decided.

Mandatory terms:

We find that the provisions are in mandatory terms by use of word “shall” at relevant places. And particularly in beginning as follows:

    “The Assessing Officer shall, before issuing any notice under section 148,-

We also find the following mandatory steps to be taken by the AO if he has information which suggests escapement of income in case of assessee

1. Conduct an enquiry, if required 

(On reading of entire section it is clear that enquiry is required in all cases except those which are specifically excluded by exceptions related to search and survey cases as provided in this section itself by  a proviso.)

2. provide an opportunity to assesse:

The AO is required to provide an opportunity to assessee and he is required to furnish details of information which AO is having and also result of his enquiry with the show cause notice (SCN).

3.  consider the reply of assessee furnished, if any, in response to the show-cause notice referred to in clause (b);
4.  decide, on the basis of material available on record  ….. whether or not it is a fit case to issue a notice under section 148

What should  be provided to assessee with  SCN:

When a show cause notice is issued, it must be along with:

1. the information which suggests that the income chargeable to tax has escaped assessment-  though this may be a preliminary information but some information is necessary which has link with assessment of assessee.
2. result of enquiry – it seems that having some  information is not enough.  AO is required to make an enquiry in relation to assesse vis a vis the information available with the AO.  Apparently this enquiry can relates to the assesse from records available with the department and can be in relation to Return of Income filed by assesse, other returns like return of TDS and TCS, and other reports like tax audit reports, accounts, information available in ITR, past assessment etc.

This enquiry  appears to be  intended to ensure that the AO does not issue any show cause notice in undue haste and just to issue a SCN in an attempt to quick start reassessment proceedings by issue of notice us 148.

Therefore, it is important that a SCN should be issued only after AO has examined relevant information in relation to particular year and  other related  years which can have a bearing on enquiry in relation to assessee.

AO should not issue a notice just on having any information but will make relevant enquiry to examine whether information has a bearing on the case of assesse and whether there is a case of escapement. This can only be after considering ROI and other relevant information related to assess, as available with the I.T. Department.

Prior approval of PR.CIT/ CIT at various stages is required. It is not that an approval obtained once will serve purpose on subsequent stage or step.

              Effective date:

As per notes the new provision has been  Inserted vide THE FINANCE ACT, 2021 dated 28-03-2021 w.e.f. 01-04-2021

As per memorandum explaining proposals in the Finance Bill these amendments   vide Clauses 35 to 40 and 42 to 43]   will take effect from 1st April, 2021 .

Nowhere is it mentioned that the amendments will apply w.e.f. 01.04.2021 for initiation of reassessment proceeding for any of past years.

This is again clear from the provisions which provide exceptions in relation to search and requisitions cases where search is initiated on or after 01.04.2021.

Therefore, in spite of being procedural provision, it is possible view that  these provisions  should apply only in relation to assessment year beginning on or after 01.04.2021 and cannot apply to earlier years.