[FAQs] on Scope and Jurisdiction of Sections 147, 148A and Notice Issuance

The similarities are–

(i) service of notice u/s 148 is essential for a valid reassessment,

(ii) issue and service are different, whereas issue of notice before limitation is essential for assuming jurisdiction to reassess, the service of notice is essential for valid assessment,

(iii) approval from specified authority (new law) or satisfaction of senior authority is essential as provided u/s 151.

The dissimilarities are-

(i) the reasons are no longer required to be recorded,

(ii) the limitation for issuance of notice u/s 149(1) is changed into two slabs, three years and ten years,

(iii) additional conditions are provided for issuing notice u/s 148 after three years u/s 149(1)(b).

This issue is relevant in the context of Explanation to section 147. If an item of escaped income is added in the reassessment a purpose of assessment or reassessment will be served but where an item of income in respect of which procedure u/s 148A is followed and thereafter notice u/s 148 was issued, is not added in the reassessment then no purpose of reassessment is served and therefore, explanation to section 147 may not be invokable. There are other situations where there is apparently no purpose of reassessment. For example: where in survey cases no material is found for one or two relevant assessment years, then there is no purpose of reassessment and therefore, even notice u/s 148A(b) is not required to be issued and consequently no reassessment proceedings are initiated and explanation to section 147 is not required to be invoked.

One view is that no purpose will be served if there is no material for reassessment. However, this issue will arise only when explanation to section 147 is invoked for adding in the reassessment new item of escaped income noticed during reassessment proceedings. For example: in a search case, search is deemed information and notice u/s 148 can be issued even though there may not be any material for any of the 3 initial relevant assessment years covered u/s 149(1)(a). Since there is no material, no purpose is likely to be served by initiating reassessment proceedings.

There cannot be any dispute that there is an escapement of income but the procedure u/s 148A can be followed only when such information falls under Explanation 1 (except clause (iv)) or under Explanation 2 (ii) of section 148. Personal knowledge of the AO is not relevant in deciding to invoke section 148A.

Yes, provided such information comes to the AO through audit objection or through RMS (falling under Explanation 1 to section 148) and satisfy the limitation u/s 149(1)(a). The AO has to follow procedure u/s 148A before issue of notice u/s 148. However, if such items fall within the limitation u/s 149(1)(b), no action apparently is possible.

Where error committed by the AO in computation is pointed out by the audit it will form part of Explanation 1 to section 148 and AO can initiate proceedings u/s 148A/148 in respect of AY falling under limitation of section 149(1)(a). No action is possible if computation error falls in the AY falling within the limitation of section 149(1)(b). Other options available to the AO are section 154 or 263.

The scope of inquiry is limited to the information which suggests that income chargeable to tax has escaped assessment. The language of section 148A(a) is very clear. No roving and fishing inquiry in respect of any other matter or issue, other than arising from the information is permissible.

The AO can issue notice u/s 148A even on 31-03-2022 for the AY 2018-19 as this assessment year will be within limitation of section 149(1)(a). And by virtue of fourth proviso to section 149(1), limitation therein will be extended, so that minimum seven days are available to him to enable the AO to pass order u/s 148A(d). Therefore, for getting approval to pass order u/s 148A(d) section 151(i) will apply. Thereafter when notice u/s 148 is to be issued then limitation u/s 151(ii) will apply as AY 2018-19 will now fall beyond three years. Fourth proviso to section 149(1) cannot apply to section 151 as a deeming provision is enacted in that proviso which will enable the AO to pass order u/s 148A(d) within extended period and for approval for such order specified authority will be one mentioned in clause (i) of section 151. But such extension of limitation is not provided for issue of notice u/s section 148, hence clause (ii) thereof will be applicable to get approval to issue notice u/s 148. Similar situation may arise in cases falling under Explanation 2 (ii) to section 148. If this issue is extended further, and notice u/s 148A is issued on last day of tenth year, the case will fall beyond limitation, even u/s 151(ii), for granting approval to issue notice u/s 148. Hence issue of notice u/s 148 will be barred by limitation.

For issue of notice u/s 148A(b) it is not necessary that AO has to show that assessee has got right to receive the income which has escaped assessment. Merely information which suggests that income has escaped assessment (under Explanation 1 and Explanation 2(ii) to section 148) is sufficient to issue notice u/s 148A(b). It is for the assessee to furnish information to the AO, in the reply to the show cause notice, that he has no right to receive the income alleged to have escaped assessment. Thereafter, onus will shift on the AO to hold in the order u/s 148A(d) how assessee has right to receive the alleged escaped income. If AO is not able to establish how the assessee has the right to receive the income, issuance of notice u/s 148 may be invalid. Reference may be made to the decision of Hon’ble Apex Court in P.G. & W. Sawoo (P.) Ltd. v. ACIT¹.

So far as inspection of the assessment record is concerned, it is the right of the assessee under departmental instructions. He can comply with the rules relating to the inspection and make payment of necessary fee. So before reply to the show cause notice inspection can be demanded. He can also demand the documents annexed with the information. This will be in accordance with the principles of natural justice. Even though it is not so specifically provided in the section but the expression in section 148A(b) that “…on the basis of information which suggests that …” clearly vests a right in the assessee to get complete information including documents annexed with it. The scope of this expression is larger than the expression “…and results of enquiries conducted, …” in subsequent part of section 148A(b). The difference in the two expressions clearly require the AO to provide complete information to the assessee as compared to what is provided in respect of enquiries carried out by him, whose results alone are provided to the assessee.

As such the AO cannot ask the assessee to produce books of account and documents in response to the show cause notice u/s 148A(b). It is because AO is only empowered to issue show cause notice in writing and seeking a reply thereon. However, the AO can initiate proceedings for enquiries u/s 148A(a) after due approval from specified authority and call for books of account or documents from the assessee and examine them in the light of the information (As per Explanation 1 to section 148) received by him. It will not be a regular hearing u/s 148A(a) but examination of books of account and documents is likely to be carried out to support/supplement the information in possession of the AO. However, AO cannot call for books of account or documents relevant to the assessment year falling between seventh to tenth relevant assessment year because of Rule 6F(5) which requires the assessee to maintain books of account and documents only upto the six assessment years and in cases where presumptive income is taxed.

In a recent judgment in the case of Armada D1 Pte. Ltd. v. DCIT² Hon’ble Bombay High Court vide there order dated 03-06-2021 stayed the proceedings in respect of the notice issued u/s 148 on 07-04-2021 for the AY 2013-14 on the plea of the counsel of the assessee that revenue has violated the mandatory provisions of section 148A which were effective from 01-04-2021. The issue which arises in such cases is whether notice u/s 148 issued on and after 01-04-2021, without following the procedure u/s 148A is invalid in all cases. Almost all the Courts, Delhi High Court, Allahabad High Court, Rajasthan High Court, Bombay High Court held that issuance of notice u/s 148 on or after 01-04-2021 without following the procedure u/s 148A is invalid. However, Hon’ble Apex Court by its order dated 04-05-2022 held that notices issued u/s 148 under old law during the period from 01-04-2021 to 30-06-2021 should be deemed as notices issued u/s 148A and the provision of law under new Act will apply accordingly.

No. The order u/s 148A(d) has to be exclusively based on information, inquiries u/s 148A(a), show cause notice and replies of the assessee. The decision in the order u/s 148A(d) cannot be subsequently justified by other material/information/affidavits/statements. The legality of such order has to be evaluated only on the basis of material available on record which consist only of, information, inquiries, show cause notice and replies of the assessee.

No. It has been specifically provided in clause (b) to proviso to section 148A that provisions of this section will not apply where AO receives information pertaining to income chargeable to tax escaping assessment for any assessment year in the case of the assessee.

Yes, it appears to be so. The Finance Act, 2021 permitted direct issue of notice u/s 148 only in the cases of search/requisitions whereas in addition, Finance Act, 2022 has further empowered the AO to issue notice u/s 148 directly without following the procedure u/s 148A in the cases of information received u/s 135A. Section 135A enables the Department to collect, analyse and disseminate information received u/ss 133, 133B, 133C and 134 under a scheme and through electronic mode, and on that basis to issue notice u/s 148 without following the procedure u/s 148A. Earlier such information as per Finance Act, 2021, used to be received through RMS therefore, it became necessary to follow the procedure u/s 148A. Now entire such information may be received u/s 135A and therefore, clause (i) of Explanation 1 to section 148 is considerably diluted and therefore, necessity to follow the procedure u/s 148A is also considerably reduced. Now, as per Finance Act, 2022, procedure u/s 148A has to be followed under Explanation 1 to a limited number of situations as the impact of clause (i) of Explanation 1 is negligible.

It seems yes. Under the scheme framed u/s 135A, the prescribed authority checks from the return of the assessee and calls for his explanation for verifying the correctness of information in his possession. Once the verification from the assessee about the information is already done, it is not considered necessary to issue notice u/s 148A which is also a kind of verification.

As stated above, there is no restriction as to the number of times notice u/s 148A(b) can be issued. If notice u/s 148A(b) is dropped for want of complete information about amount of income escaped assessment, the name of the assessee to whom such income would belong, the assessment year in which such income has escaped assessment and whether such income is chargeable to tax, and subsequently the AO gets complete information after carrying out enquiries u/s 148A(a) then he can issue a fresh notice u/s 148A(b). So far as notice u/s 148 is concerned, even though there is no limitation on the AO to undertake reopening of the assessment only once³, second notice cannot be issued during the pendency of reassessment proceedings in pursuance of first notice. Reference may be made to the following authorities⁴. But where, in response to an invalid notice assessee filed the return, the issuance of second notice u/s 148 was held invalid by Hon’ble Calcutta High Court in Indian Tubes Co. Ltd. v. ITO⁵.

If show cause notice is found defective, on account of

(i) jurisdiction of AO issuing such notice

(ii) not mentioning therein the information which suggested that income chargeable to tax has escaped assessment or

(iii) not providing results of inquiries carried out by him or

(iv) not seeking approval, or not seeking from correct specified authority, it will be treated as non-est and no valid proceedings thereafter can continue.

However, this does not preclude the issuance of notice u/s 148 by the correct officer after reinitiating proceedings u/s 148A, provided limitation u/s 149(1) is available.

Where proceedings u/s 148A are quashed for certain reasons such as not taking approval from specified authority, no notice u/s 148 as a consequence of this procedure can be issued, but AO will be free to reinitiate fresh 148A proceedings after removing the irregularities or illegalities and if they are valid, notice u/s 148 can be issued as a consequence of such new proceedings provided limitations and other conditions mentioned in section 149(1) are complied with.

Technically yes. The reasons are that no assessment or reassessments are initiated or framed on the basis of that information, the character and quality of information is not altered by not issuing notice u/s 148, the AO will be at liberty to conduct more and in-depth inquiry to come to a fresh conclusion that there was an income which was chargeable to tax, and which has escaped assessment for that relevant assessment year. However, he has to issue a fresh show cause notice u/s 148A(b) incorporating therewith fresh material collected on inquiries. For example, the initial information was that assessee had made a cash deposit of ` 50 lakhs in bank account. He made preliminary inquiry by way of verification from the record and issued show cause notice u/s 148A(b). The assessee replied that they are the sale proceeds recorded in the books. The cash deposit is no longer unexplained and therefore, it will not be a fit case for issue of notice u/s 148. The AO drops the proceedings u/s 148A, carries out further inquiries by way of survey and finds that assessee did not have stock to make sales. The AO will be at liberty to issue fresh show cause notice u/s 148A(b) incorporating therein new material so found. This may now become a case under Explanation 2 to section 148. There is no limit as to how many times notice u/s 148A(b) can be issued on the same issue provided fresh material is available every time.

Primarily, the AO who conducts the proceedings u/s 148A should be the same who is to issue notice u/s 148 i.e. the AO who has jurisdiction over the assessee. This jurisdiction can be primary jurisdiction u/s 124(1) or specific jurisdiction as conferred upon him u/s 127, or where assessee is regularly assessed. If the proceedings u/s 148A, or issuance of notice u/s 148 is done by an officer who does not have either natural jurisdiction or conferred jurisdiction, then such proceedings will be invalid. But it is possible that an assessee may have natural jurisdiction at a different place, then the jurisdictional place of the AO, where he is regularly assessed. Thus, the AO having natural jurisdiction over the assessee based on

(i) where he carries on business or profession, or principal place of business of profession,

(ii) place of residence or

(iii) place where he has bank account, can issue notice u/s 148A(b) to the assessee (based on decision of Hon’ble Delhi High Court in Abhishek Jain v. ITO⁶.

Thus, an officer having natural jurisdiction, or an officer having regular/conferred jurisdiction can issue notice u/s 148A but notice u/s 148 needed to be issued by the AO having regular/conferred jurisdiction provided the assessee in the reply to the show cause notice raises the issue of jurisdiction of the AO who has issued notice u/s 148A(b). In any case, objection to jurisdiction can also be raised during reassessment proceedings. Once, such objection about jurisdiction is raised before the AO who has issued notice u/s 148A(b), then it is necessary that such AO should transfer all the material available with him to the AO having regular jurisdiction who would issue fresh notice u/s 148A(b) and start afresh proceedings u/s 148A. If the AO having natural jurisdiction but not regular jurisdiction comes to know that there is dispute to jurisdiction, he must get it resolved u/s 124(2) or u/s 124(4).

The principle involved in recording reasons and issuance of notice u/s 148 that, if reasons are recorded by non-jurisdictional officer but on that basis notice u/s 148 is issued by jurisdictional officer will be bad in law⁷, can also apply in issuing notice u/s 148A(b). If notice u/s 148A(b) has been issued by non-jurisdictional officer but notice u/s 148 has been issued along with the copy of the order u/s 148A(d) by the jurisdictional officer, such notice u/s 148 may be bad in law. Therefore, the AO issuing the notice u/s 148A(b) and passing order u/s 148A(d) and the one who issues notice u/s 148 should be the same and should be jurisdictional officer. Further reference, on the similar issue may be made to the decision of Hon’ble Gujarat High Court in Hynoup Food & Oil Industries Ltd.⁸

The condition for assumption of jurisdiction must be satisfied for each year independently. If notice u/s 148A(b) is required to be issued for more than one assessment year, then facts relating to each assessment year should be explained separately. If income escaping assessment fall within three initial Assessment Years and some income escaping assessment fall within fourth to tenth assessment years, then notice u/s 148A(b) needed to be issued separately for the two slabs satisfying conditions mentioned u/s 149(1). On the issue that conditions u/ss 147/148 and 149 should be satisfied for each assessment year separately reference may be made to the following decisions.⁹

Under old law it has been held by Hon’ble Gujarat High Court in Hynoup Food and Oil Industries Ltd. v. ACIT¹⁰ that a successor officer cannot issue notice u/s 148, on the satisfaction recorded by the predecessor officer because the belief that there is an escapement of income has to be of the same officer who has issued notice u/s 148. However, under the new law the requirement is of issuing show cause notice and passing an order u/s 148A(d) that it is a fit case to issue notice u/s 148A after due approval from specified authority. Thus, the officer who passed order u/s 148A(d) and who issued notice u/s 148 should be the same jurisdictional officer and may not be the same person (officer). The issue does not have much relevance now in faceless assessment where jurisdiction lies with National e-Assessment Centre (NeAC).

After insertion of clause (v) in Explanation 1 by Finance Act, 2022, w.e.f. 01-04-2022, information which requires action in consequence of the order of a Tribunal or a Court, can become basis for issuance of notice u/s 148A and thereafter u/s 148.