In the past, notices under section 148 were often issued merely based on information received by the Assessing Officer from other authorities or agencies. These notices frequently lacked the officer’s analysis or judgment regarding the connection between the material received and the possible escapement of income. As a result, objections raised by the assessee were often dismissed without due consideration, or with brief, non-speaking orders that failed to address the substantive issues raised. Consequently, appellate authorities regularly quashed reassessment proceedings due to non-application of mind by the Assessing Officer, the use of borrowed satisfaction, the absence of a direct connection between the evidence and the formation of belief, or due to the overlooking of limitation issues.
To address these problems, the Finance Act, 20,21, introduced Section 148A after Section 148. The intention behind this reform was to ensure that reassessment proceedings were initiated on solid legal and factual grounds. Section 148A incorporates important procedural safeguards and principles derived from landmark judicial decisions, including GKN Driveshafts (India) Ltd. v. ITO. Among the procedural reforms introduced is the requirement that the Assessing Officer obtain prior approval from a senior authority before issuing a notice under section 148. This measure ensures that technical and procedural considerations are not neglected during the reopening of assessments.
Legal Provision of Section 148A
Section 148A mandates a preliminary process before the issue of any notice under Section 148. The law outlines the following key steps:
The Assessing Officer must first conduct any necessary inquiry, after obtaining prior approval from the specified authority, based on information suggesting that income chargeable to tax has escaped assessment.
An opportunity of being heard must be provided to the assessee by issuing a show-cause notice. The notice must grant a response period of no less than seven days and no more than thirty days. This period can be extended based on an application submitted by the assessee.
The Assessing Officer is then required to consider the reply furnished by the assessee to the show-cause notice.
A decision must be made, based on all material on record, including the assessee’s response, on whether it is a fit case for issuing notice under section 148. This decision must be documented through a written order and must receive prior approval from the specified authority. The order must be passed within one month from the end of the month in which the assessee’s reply is received, or the expiry of the time granted to reply if no reply is furnished.
However, this entire procedure is not applicable in specific cases such as:
- When a search has been initiated under section 132 or when books of account or assets have been requisitioned under section 132A on or after April 1, 2021
- When the Assessing Officer, with prior approval of the Principal Commissioner or Commissioner, determines that assets or documents seized during a search or requisition in the case of another person belong to the assessee
- When the Assessing Officer receives information under a scheme notified under section 135A, indicating income escaping assessment
The term “specified authority” is defined as the authority mentioned under section 151 of the Income-tax Act.
Summary of Procedures Mandated by Section 148A
Before issuing a notice under section 148, the Assessing Officer must undertake several sequential actions in specific cases:
The officer must assess the information in hand to determine whether it fulfills the requirements outlined under section 147.
Where necessary, the Assessing Officer must conduct inquiries related to the information that suggests possible evasion of income.
Once the inquiries are completed, the officer must issue a show-cause notice to the assessee, providing them an opportunity to respond and explain why a notice under section 148 should not be issued.
The show-cause notice must be issued based on both the information suggesting escapement of income and the results of any inquiries conducted.
The time given to the assessee to reply must be no less than seven days and no more than thirty days from the date of issuance of the notice. This period may be extended upon application by the assessee.
The Assessing Officer is obligated to consider the reply furnished by the assessee.
Based on the total material available on record, including the reply, the officer must decide whether issuing a notice under section 148 is justified.
This decision must be formalized through a written order.
This order must be passed within one month from the end of the month in which the assessee’s reply is received or from the end of the period allowed to reply.
Before issuing this order, the officer must obtain prior approval from the specified authority.
The procedure described under section 148A does not apply in cases involving search operations, requisitions of books or assets after April 1, 2021, or receipt of specific government information under section 135A.
Requirement of Clear Charge of Escapement in Notice Under Section 148A(b)
A notice issued under section 148A must explicitly state that income chargeable to tax has escaped assessment. The mere receipt of transactional information, such as cash deposited in a bank, is insufficient. The presence of a bank deposit does not necessarily imply undisclosed income, as the source of the deposit might not be taxable income.
An inference that such deposits represent escaped income, without further material inquiry, is a flawed assumption. The Assessing Officer must conduct further inquiries and collect additional material to support the assertion that such income has escaped assessment.
Reassessment cannot be initiated merely to verify the source of bank deposits. If the Assessing Officer does not contend that such deposits were not disclosed in the return of income, initiating reassessment proceedings is not permissible. The process of verification should be completed before issuing a show-cause notice under section 148A(b).
Moreover, if the notice lacks proper allegations and substantiating material, or if it fails to quantify the escaped income, then the issuance of an order under section 148A(d) or the subsequent issuance of notice under section 148 is invalid.
If the Assessing Officer receives information about cash deposits, it is the officer’s responsibility to examine whether the amount has been declared in the return of income. Without such examination, even the issuance of a show-cause notice under section 148A(b) is not justified.
If the assessee offers a valid explanation, such as evidence that the source of the deposit was a recent withdrawal from the same account, the explanation must be properly considered. Failing to evaluate such explanations can invalidate the notice under section 148.
Even in scenarios involving the recomputation of depreciation, losses, or deductions, the fundamental requirement is to demonstrate that income has escaped assessment. This principle applies uniformly across all reassessment scenarios.
Connection With the GKN Drive Shafts Judgment
The procedural steps under the new section 148A largely reflect the principles laid down by the Supreme Court in the GKN Drive Shafts case. Under the old law, the Assessing Officer was required to record reasons for reopening, supply them to the assessee, invite objections, and dispose of those objections by passing a reasoned order. Though section 148A does not explicitly use the phrase “reasons recorded,” it effectively incorporates these steps.
Under the current law, before issuing a notice under section 148, the officer is required to:
- Carry out an inquiry if necessary, with the prior approval of the specified authority
- Provide the assessee with a show-cause notice and a chance to respond
- Consider the reply received from the assessee
- Issue a written order under section 148A(d), with prior approval, outlining the rationale for issuing or not issuing notice under section 148
Therefore, if the assessee has objections regarding the existence of taxable income, the possibility of escapement, issues relating to the jurisdiction of the Assessing Officer, or whether the subject matter of reassessment is already under appeal or revision, such objections can be raised in the reply to the show-cause notice. These objections will then be addressed in the written order under section 148A(d), which serves the same function as the disposal of objections under the GKN Drive Shafts procedure.
Scope and Applicability of Procedure Under Section 148A
The procedural requirements under section 148A apply in the following two circumstances:
When the Assessing Officer receives information falling under Explanation 1 to section 148. This includes:
- Information received as per the Risk Management Strategy formulated by the Central Board of Direct Taxes
- Audit objections indicating improper assessment
- Information received through agreements under sections 90 or 90A
- Information received under a scheme framed by the government under section 135A
- Information received through orders of courts or tribunals
- The procedure is applicable across all ten relevant assessment years
When a survey operation is conducted under section 133A after April 1, 2021. Even though such surveys qualify as deemed information, the procedure under section 148A must still be followed for all assessment years, including the initial three relevant years.
However, the procedure is not applicable in the following circumstances:
- Search or requisition proceedings initiated after April 1, 2021, in the case of the person being searched
- Cases where the Assessing Officer, with prior approval, determines that seized assets or documents in a search or requisition of another person belong to the assessee
- Cases involving information received under section 135A
These exceptions are specifically laid out in the proviso to section 148A.
Principles of Natural Justice in Section 148A
Section 148A emphasizes adherence to the principles of natural justice. Before any reassessment notice is issued under Section 148, the Assessing Officer (AO) is mandated to provide the assessee an opportunity to be heard. This is a vital shift from the earlier framework where reassessment notices could be issued without prior warning or communication. The insertion of Section 148A ensures that the taxpayer is made aware of the proposed action and is given a chance to present their side. This is aligned with the fundamental principles of fairness and transparency. In practical terms, once the AO has some information suggesting income has escaped assessment, it must initiate a preliminary inquiry, issue a show-cause notice to the assessee under Section 148A(b), and consider the reply of the assessee before moving ahead. The process is structured to prevent arbitrary reassessment actions. The assessee has a minimum of 7 days and a maximum of 30 days to respond, ensuring sufficient time to submit clarifications, documents, or objections. This phase is crucial because if the assessee’s reply is satisfactory, the AO may decide not to proceed with reassessment, thus avoiding unnecessary litigation and tax proceedings.
Procedure for Conducting Inquiry Under Section 148A(a)
Section 148A(a) allows the AO to conduct an inquiry, with prior approval from the specified authority, before issuing a notice under Section 148. This provision gives the AO discretion to collect more details and verify facts before initiating reassessment. However, this inquiry cannot be conducted arbitrarily. The AO must first obtain approval from the Principal Commissioner or Commissioner. The information based on which such inquiry is initiated must be credible, tangible, and linked to possible evasion of income. For example, if a third-party statement or a transaction flagged by a data analytics report indicates potential tax evasion, the AO may commence an inquiry to confirm the details. This pre-inquiry phase is essential in establishing the seriousness of the case before formal reassessment procedures are triggered. It is not compulsory in every case; only where the AO feels that further verification is necessary does this sub-clause come into play. If the AO believes the available information is sufficient, they may skip this inquiry and proceed directly to issuing a show-cause notice under clause (b).
Show Cause Notice and Assessee’s Reply – Section 148A(b)
Section 148A(b) is the most critical component of the pre-reassessment mechanism. It requires the AO to issue a show cause notice to the assessee, explaining the information in possession that suggests income has escaped assessment and inviting them to submit their reply. The notice must lay out the facts, the basis of the information, and give the assessee sufficient time to respond, as prescribed under law. This provision acts as a safeguard to ensure that reassessment notices are not issued mechanically. It allows the taxpayer to defend themselves at a preliminary stage. The prescribed time to respond is not less than 7 days and not more than 30 days from the date of issue of the notice, unless extended by the AO. The assessee can submit explanations, rebut evidence, or even accept the facts and pay the tax voluntarily. The AO is then required to consider the reply and pass an order under Section 148A(d), which either sanctions or drops the reassessment proceedings. This approach introduces a meaningful dialog between the taxpayer and the department before formal reassessment, minimizing harassment and promoting voluntary compliance.
Approval of Specified Authority – Section 148A(c)
Before any action under Section 148A(b) can be taken, including issuing a show cause notice, the AO must obtain prior approval from the specified authority under Section 148A(c). This oversight mechanism is designed to prevent misuse of power by lower-level officers and ensure that only well-considered cases proceed to the reassessment stage. The “specified authority” is generally defined as a higher-ranking officer, typically a Principal Commissioner or Commissioner. This layer of control aligns with the government’s broader policy of reducing tax litigation and ensuring procedural fairness. The authority’s role is not merely mechanical; it must evaluate whether the information available is credible and whether issuing a notice is justified. By inserting this clause, the legislature has embedded a check-and-balance system that promotes accountability within the tax department.
Order Under Section 148A(d): To Reassess or Not
Based on the reply received from the assessee and the evaluation of information available, the AO must pass a speaking order under Section 148A(d). This order must record reasons for either proceeding with the issuance of notice under Section 148 or deciding against it. If the AO finds that the income has indeed escaped assessment and the explanation provided by the assessee is unsatisfactory or lacking, then a notice under Section 148 will be issued. On the other hand, if the assessee’s reply is convincing or the available information is insufficient to support reassessment, the AO must drop the proceedings. This order must also be approved by the specified authority. The requirement to pass a reasoned and written order ensures transparency and helps build a documented audit trail in case of future disputes or litigation. It also gives the taxpayer clarity based on action or inaction. The AO cannot proceed further without this order, making it a cornerstone of the new reassessment procedure. This provision prevents the arbitrary exercise of power and enhances the credibility of the reassessment process.
Exceptions to Section 148A Procedure
There are a few situations where the procedure prescribed under Section 148A is not applicable. These exceptions are critical to understand because they restore the AO’s power to act swiftly in certain cases. According to the proviso to Section 148A, the pre-reassessment process is not required where: (i) a search is initiated under Section 132, (ii) requisition is made under Section 132A, or (iii) money, bullion, jewellery, or valuable articles are seized or requisitioned during a search or survey and belong to the assessee. In such cases, the AO can bypass Section 148A and issue a notice under Section 148 directly. This exception is rooted in the fact that searches or seizures are typically based on strong evidence, and the urgency of the situation demands immediate action. Additionally, in cases involving information flagged under the risk management strategy or received from foreign jurisdictions under tax treaties, the AO may also bypass certain formalities if specified by the CBDT. However, even in such cases, the AO must record reasons and obtain approvals, maintaining the overall integrity of the reassessment process.
Impact of Judicial Precedents on Section 148A
Judicial decisions have significantly shaped the interpretation and implementation of Section 148A. The courts have repeatedly emphasized the necessity of compliance with procedural safeguards to protect taxpayer rights. One of the key rulings is the Supreme Court judgment in the case of Union of India v. Ashish Agarwal, where the Court upheld the importance of giving a proper opportunity to the assessee before initiating reassessment. The Court held that reassessment notices issued between 1st April 2021 and 30th June 2021 under the old regime would be deemed to have been issued under Section 148A, thus providing relief to many taxpayers. This judgment underscores the retroactive applicability of procedural safeguards and reinforces the objective of transparency in reassessment proceedings.
High Courts have also played an instrumental role in interpreting the nuances of Section 148A. For instance, in the case of Mon Mohan Kohli v. ACIT, the Delhi High Court held that compliance with Section 148A is mandatory and cannot be circumvented even in cases involving alleged escapement of income. The court emphasized that any reassessment notice issued without adhering to the Section 148A procedure is liable to be quashed. Similarly, in Swal Ltd. v. ACIT, the Gujarat High Court reiterated that the Assessing Officer must provide a meaningful opportunity to the assessee to respond to the show-cause notice under Section 148A(b). These rulings reflect the judiciary’s firm stance on safeguarding procedural rights and ensuring fair inquiry.
The judicial approach emphasizes the constitutional principles of natural justice and due process. Courts have consistently ruled that reassessment must be based on tangible material and that a fishing inquiry is impermissible. This judicial scrutiny ensures that the power of reassessment is not exercised arbitrarily or as a tool of harassment. The burden is on the Assessing Officer to demonstrate the relevance and credibility of the information that forms the basis of the reassessment. Consequently, judicial oversight has acted as a check against the misuse of reassessment powers and has helped foster taxpayer confidence in the tax administration process.
Another critical aspect addressed by courts is the distinction between information that suggests escapement of income and mere suspicion. In several cases, courts have invalidated reassessment proceedings initiated on vague or generalized information, holding that reassessment must be founded on specific, reliable, and verifiable data. This reinforces the importance of reasoned orders under Section 148A(d), which must reflect the Assessing Officer’s application of mind and not merely reiterate boilerplate language. These rulings have compelled tax authorities to adopt a more diligent and judicious approach in initiating reassessment.
Procedural Requirements and Legal Safeguards
The procedural requirements embedded in Section 148A aim to ensure that reassessment is carried out in a fair and accountable manner. These requirements serve as legal safeguards to prevent arbitrary reassessment and protect the rights of taxpayers. The sequence of steps outlined in Section 148A begins with the Assessing Officer conducting an initial inquiry under clause (a). This inquiry is discretionary and is meant to ascertain the veracity and sufficiency of information indicating potential income escapement. It provides the Assessing Officer with an opportunity to gather additional material before moving forward with reassessment.
The next critical step is the issuance of a show-cause notice under clause (b). This notice must clearly outline the reasons for proposing reassessment and furnish the relevant material to the assessee. The notice should be precise, informative, and allow the assessee sufficient time to prepare an effective response. Failure to provide adequate details or unreasonable timelines may render the notice legally defective. The assessee’s right to respond is an essential component of the principles of natural justice, ensuring that the taxpayer has a fair chance to rebut the allegations.
Upon receiving the response, the Assessing Officer is required to decide clause (d) of Section 148A. This decision must be reasoned, speaking, and reflect due consideration of the assessee’s submissions. A non-speaking order or one that merely parrots the language of the notice may be set aside by appellate authorities or courts. The rationale behind this requirement is to prevent mechanical or perfunctory reassessments and to compel the Assessing Officer to apply an independent mind. The decision must be based on credible material and demonstrate a logical nexus between the information received and the conclusion of income escapement.
Furthermore, the timeline for completing the Section 148A procedure is strictly defined. As per Section 148A(d), the Assessing Officer must decide within one month from the end of the month in which the assessee’s reply is received. This ensures timely action and prevents prolonged uncertainty for taxpayers. Extensions or delays without proper justification may be challenged on grounds of procedural irregularity. The law mandates strict adherence to these timelines to uphold the integrity of the reassessment process.
The Finance Act, 2021, also introduced Section 151A, empowering the Central Board of Direct Taxes (CBDT) to issue notifications for faceless inquiry and issuance of notices under Section 148A. This move towards faceless assessments is aimed at reducing human interface, enhancing transparency, and minimizing the scope for harassment or undue influence. The faceless scheme ensures that the inquiry and decision-making process is technology-driven, standardized, and devoid of personal biases. It further strengthens the procedural safeguards available to taxpayers.
Exceptions to Applicability of Section 148A
While Section 148A is a mandatory precondition for reassessment in most cases, there are specific exceptions provided under the law. These exceptions are carved out in cases where prior inquiry may jeopardize revenue interests or when immediate action is necessary. One such exception is when a search is initiated under Section 132 of the Ac,t or books of account and other documents are requisitioned under Section 132A. In such cases, the procedure laid down in Section 148A does not apply, and the Assessing Officer can directly proceed to issue a notice under Section 148.
Another exception is in cases involving information flagged in the Risk Management Strategy (RMS) formulated by the CBDT. Such information may pertain to high-risk transactions, suspicious cross-border dealings, or significant discrepancies in financial reporting. The objective is to prevent potential revenue loss by allowing prompt reassessment without the procedural delays of Section 148A. However, even in such cases, the Assessing Officer must record reasons in writing and obtain approval from the specified authority before issuing a notice under Section 148. This ensures that the exception is not misused and that there is accountability in its application.
The third exception relates to cases where the Assessing Officer receives information under a tax treaty or an agreement fothe r exchange of information with foreign jurisdictions. Given the sensitive nature of such data and the need for timely investigation, the requirement of inquiry under Section 148A is waived. Nevertheless, the information must be credible, specific, and relevant to the assessee’s financial affairs. The Assessing Officer must still adhere to the principles of natural justice and provide the assessee an opportunity to explain or rebut the information during reassessment.
In addition, reassessment in cases of ongoing or completed assessments involving findings of income escapement by appellate authorities or audit objections may also qualify for exclusion from Section 148A procedures. These exclusions are aimed at ensuring efficiency in tax administration and avoiding duplication of proceedings. However, the tax authorities must maintain a balance between efficiency and fairness, and ensure that such exceptions are invoked only in genuine and deserving cases.
The overarching principle is that Section 148A is a safeguard, not a hurdle. Exceptions to its applicability must be narrowly interpreted and strictly construed. Courts have consistently ruled that any attempt to bypass Section 148A must be justified by compelling reasons and subject to prior approval by competent authorities. This approach ensures that the exception does not become the rule and that the procedural protection offered by Section 148A is preserved for the vast majority of taxpayers.
Challenges Faced in Implementation
Despite the well-intentioned objectives of Section 148A, several challenges have emerged in its practical implementation. One of the primary challenges is the inconsistent quality of show-cause notices issued by Assessing Officers. In many cases, the notices lack specificity, fail to disclose the underlying information, or are drafted in generic terms. This hampers the assessee’s ability to provide a meaningful response and undermines the purpose of the inquiry. Taxpayers and professionals have raised concerns over the template-based approach adopted in some cases, which dilutes the element of independent assessment.
Another challenge is the tight timelines for issuing decisions under Section 148A(d). While the law mandates a decision within one month from the end of the month in which the assessee responds, practical difficulties such as data verification, internal approvals, and workload may affect timely compliance. Delays in decision-making may render the reassessment notice invalid or expose the department to litigation. There is a need for capacity-building and process optimization within the department to meet these statutory deadlines effectively.
Technology-related issues also pose significant implementation challenges. The faceless inquiry mechanism, while efficient in principle, has encountered technical glitches, portal downtimes, and communication delays. In some instances, assessee responses have not been acknowledged or uploaded correctly, leading to ex parte decisions. Ensuring robust IT infrastructure, seamless integration of databases, and real-time tracking of communications is crucial for the success of the faceless regime under Section 148A.
Moreover, the requirement for recording reasons and passing a speaking order under Section 148A(d) necessitates a high degree of diligence and analytical ability. Assessing Officers must evaluate the merits of the assessee’s response, scrutinize the evidence provided, and apply their mind to arrive at a reasoned conclusion. This demands continuous training, skill development, and performance monitoring of officers. A mechanical or superficial approach may not withstand judicial scrutiny and can result in the quashing of reassessment proceedings.
Supreme Court on the Validity of Notices under the New Regime
In Union of India v. Ashish Agarwal (2022), the Supreme Court addressed the chaos following the faceless reassessment scheme and the subsequent issuance of reassessment notices under the old regime. The Court held that notices issued under the old Section 148 (after its repeal) would be deemed as issued under Section 148A(b). However, it also directed that the procedural requirements of the new regime must still be followed. This judgment upheld the principle of procedural fairness while maintaining administrative practicality.
Importance of Prior Inquiry and Opportunity
In Savitri Devi v. Income Tax Officer (2023), the Delhi High Court quashed a notice under Section 148 issued without adhering to the inquiry and show-cause requirement under Section 148A. The Court emphasized that reassessment cannot proceed without following the procedure outlined in Section 148A, reaffirming the taxpayer’s right to be heard and the officer’s obligation to apply independent judgment.
High Court View on Application of Mind
In Bajaj Finance Ltd. v. ACIT (2022), the Bombay High Court ruled that mechanical approval of reassessment without due application of mind violates the spirit of Section 148A. The judgment highlighted that the Revenue must demonstrate due diligence and objective consideration of the taxpayer’s response before passing an order under Section 148A(d).
Exceptions to Applicability of Section 148A
The provision itself contains certain exceptions. Section 148A does not apply in the following cases:
- When a search is initiated under Section 132 or requisition is made under Section 132A.
- When books of accounts, documents, or assets are seized or requisitioned in such searches.
- When the Assessing Officer has received information under the risk management strategy, flagged as high risk.
These exceptions indicate that the Revenue has discretionary power in sensitive cases where evidence already suggests significant tax evasion. However, even in such cases, the constitutional safeguards of fairness and natural justice remain paramount.
Impact on Taxpayers and Compliance Strategy
Section 148A has increased the threshold for initiating reassessment, ensuring taxpayers are not harassed by arbitrary or uninformed notices. From a compliance perspective, taxpayers must ensure the following:
- Maintain well-organized and accessible financial records.
- Promptly respond to notices under Section 148A(b).
- Present a legally sound defense to avoid reassessment proceedings.
- Monitor any past assessments that might be subject to reopening under extended timelines.
The new procedure encourages voluntary compliance and timely rectification of discrepancies. It also reduces litigation risk by narrowing the discretion available to tax officers.
Role of Technology in Reassessment Framework
The introduction of faceless reassessment aligns with the procedural safeguards under Section 148A. Digital platforms help ensure that communication is properly recorded, notices are not issued arbitrarily, and responses are timely evaluated. Artificial intelligence and data analytics are now being used to flag potential reassessment cases, which complements the statutory requirement of ‘information suggesting income escaping assessment.’
This intersection of legal procedure and technological tools creates a more transparent and efficient system for both the Revenue and the taxpayer.
Common Challenges in Implementation
Despite the clear legal framework, several challenges have emerged:
- Ambiguity in defining ‘information’ that justifies reassessment.
- Subjective evaluation of taxpayer responses by assessing officers.
- Delay in disposal of replies leading to time-barred actions.
- Issues with technical glitches in the faceless reassessment portal.
These practical hurdles indicate the need for constant training, robust IT systems, and regular administrative reviews.
Future of Reassessment Procedures in India
Section 148A signifies a larger trend in Indian tax administration toward greater accountability and procedural rigor. The focus is shifting from intrusive investigations to data-driven risk assessment and taxpayer engagement. Over time, it is expected that Section 148A will further reduce frivolous reassessment notices and enhance the credibility of the system.
Legislative refinements, judicial pronouncements, and administrative circulars will continue to shape the evolution of this provision. Taxpayers and professionals alike must stay updated with these developments to ensure compliance and protect their interests.
Conclusion
Section 148A of the Income-tax Act represents a significant reform in the reassessment procedure. By introducing a mandatory preliminary inquiry, providing the taxpayer an opportunity to be heard, and requiring reasoned decisions before reassessment, it embeds natural justice into the very fabric of tax administration. While challenges remain in its implementation, the intent of promoting transparency, fairness, and accountability is evident. Both tax authorities and taxpayers must uphold these principles to foster a more efficient and equitable tax regime in India.