Section 148 of Income Tax Act: A Complete Guide

Section 148 of the Income Tax Act empowers the Income Tax Department to reopen a taxpayer’s assessment if income has been underreported, misrepresented or escaped taxation. In such cases, the Assessing Officer can issue a notice of reassessment to the taxpayer.

To ensure fairness, the Finance Act 2022 introduced Section 148A, which makes it mandatory for the tax authorities to:

• Conduct an inquiry before reopening an assessment.
• Issue a show-cause notice under Section 148A(b) with reasons and evidence of suspected income escapement.
• Give the taxpayer an opportunity to present their explanation and supporting documents.

Only after reviewing the taxpayer’s response can the officer decide whether to proceed with a reassessment notice under Section 148.

Time Limit for Issuing Notice for Reassessment of Income Tax:

• Normally, an income tax assessment order cannot be issued after 3 years from the end of the relevant assessment year.
• However, if there is evidence of tax evasion of ₹50 lakhs or more, the period extends up to 10 years.

This process ensures that taxpayers are given due opportunity to respond before any notice of assessment is finalised.

A Section 148 (reassessment) notice may be issued when the Assessing Officer (AO) has information suggesting income has escaped assessment, including:

• RMS/CBDT flags: Information flagged under the CBDT’s Risk Management Strategy (e.g., Insight portal).
• Audit objection: A final Comptroller & Auditor General (CAG) audit objection indicating the earlier assessment wasn’t as per law.
• Treaty or e-verification data: Information received under a tax treaty (Sections 90/90A) or via the e-Verification Scheme, 2021 (Section 135A).
• Court/Tribunal direction: Action required in consequence of an order of a Court or Tribunal.
• Search/survey findings: Material found in search/requisition/survey cases on or after 1 Apr 2021 indicating undisclosed income (note: 148A pre-notice inquiry isn’t required in these cases).
• Deemed escapement situations: Failure to file a return when required, under-assessment, income assessed at too low a rate or excessive loss/deduction/allowance claims.

Time limit note (Section 149): Generally up to 3 years from the end of the relevant assessment year; up to 10 years if escaped income of ₹50 lakh+ is represented in the form of an asset/expenditure/entry.

The following needs to be ensured before the notice under Section 148 is sent:

• The Assessing Officer has evidence material against the taxpayer who has escaped income assessment in a particular financial year. A notice cannot be issued simply on suspicion.
• Materials that have been shared with the Assessing Officer must showcase reasons to doubt the taxpayer’s intention to evade income assessment for a specific year. Additionally, all information provided must pertain to the case.

Before the issuance of a notice u/s 148 of the ITA, the Assessing Officer will have to submit relevant reasons in writing, explaining why the taxpayer in question is believed to have escaped income assessment.

A notice u/s 148 of the ITA cannot be issued for the relevant assessment year after:
Normal time limit: Three years and three months from the conclusion of the relevant assessment year

Specified time limit: Before 5 years from the end of the relevant assessment year, and when the Assessing Officer and the income evidence amounts to more than ₹50 lakhs and has not been taxed

Note: These time limits apply to notices of assessment issued on or after September 1, 2024. The time limits for notices issued before August 31, 2024, differ.

A notice will be issued only if the following conditions are met for the relevant assessment year:

• The taxpayer has filed the returns u/s 139
• The taxpayer has not filed the IRT after having received a notice u/s 142 or 148(1)
• The taxpayer must have provided complete and accurate information necessary for completing the assessment for the particular year.

Understanding the income tax notice time limit under Section 148A of the Income Tax Act can help taxpayers respond appropriately to the obligation. This can help avoid any penalty under Section 148 of the Income Tax Act.

The Finance Bill 2025 has made the following amendments.

• Taxpayers who receive a show-cause notice under Section 148A cannot file an updated return if more than 36 months have passed since the end of the relevant assessment year.
• However, if it's later determined that issuing the Section 148 notice was unjustified, filing an updated return becomes permissible within 48 months from the end of that assessment year.

These amendments take effect on April 1, 2025.

Here is the process to respond to notice u/s 148 of the ITA:

• Check the notice for ‘reasons to believe’ that are provided by the Assessing Officer for issuance of the notice u/s 148. If the reasons have not been outlined, then you can ask the authority to provide a copy of the reasons.
• A response to the notice has to be provided within 30 days. The response can be provided either by filing a return or by submitting a written response to the Assessing Officer, accompanied by relevant evidence and information.
• If the ‘reason to believe’ is accurate, file ITR at the earliest. If the return has already been filed, share a copy of the ITR with the Assessing Officer.
• When filing ITR by responding to Section 148, ensure proper due diligence and declare income and expenses. Failing to report income can lead to unnecessary penalties.
• If the notice is invalid, then it can be challenged before the assessing authorities or higher authorities.
• If you win your case, the court will halt the assessment proceeding. Otherwise, the assessment proceeding continues.

What Happens if You Miss Responding to Section 148?

If you fail to respond to a Section 148 notice, the Assessing Officer may proceed with reassessment based on the available information. These officers estimate your income and assess it to the best of their judgment. This process is known as best judgment assessment under Section 144. If you feel the judgment is inappropriate, you can file an appeal with either the Income Tax Appellate Tribunal or the Commissioner of Income Tax (Appeals).

An Assessing Officer (AO), senior to an Assistant Commissioner or a Deputy Commissioner, can issue a notice under Section 148. Officers below this rank aren’t eligible to issue assessment order notices.

Moreover, the Assessing Officer needs the permission of higher authorities if the case in point involves income escaping assessment for significant sums or a period beyond three years.

Example: Suppose Mr. A hasn’t reported on specific income, but three years have elapsed since the end of the relevant assessment year. Now, to issue a notice, the AO will require approval from either of the following:

• Chief Commissioner
• Principal Commissioner
• Principal Chief Commissioner

Additionally, the AO must possess concrete evidence or reasons to suspect that the income has not been assessed. The notice is issued after the relevant higher authority approves the documented evidence.

Section 148 of the ITA is designed to uphold fairness and compliance in the taxation system by reopening cases where income has escaped assessment. To avoid penalties under Section 148 of the Income Tax Act, taxpayers must exercise vigilance by maintaining accurate records and fulfilling their tax obligations.

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