Income Escaping Assessment (Section 147)

1. When can Reassessment Process be started for any Income Escaping Assessment [Proviso 3 to Section 147]-

2. Deemed Cases of Income Escaped Assessment (Explanation 2 of Section 147)

3. Issue of Notice for Income Escaping Assessment under Section 148

If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment, he may assess/reassess such income. For this purpose, a notice shall be issued under section 148. Once an assessment has been reopened, any other income which has escaped assessment and which comes to the notice of the Assessing Officer subsequently in the course of the proceeding under section 147, can also be included in the assessment.

Conditions - There are two conditions –

1. The Assessing Officer must have reason to believe that income or profits or gains chargeable to income-tax had escaped assessment.

2. Such an escapement had occurred by reason of either omission or failure on the part of the assessee to disclose fully or truly all material facts necessary for his assessment of that year.

1. When can Reassessment Process be started for any Income Escaping Assessment [Proviso 3 to Section 147]-

Both these conditions should be satisfied if the original assessment was made under section 143(3)/147 and the Assessing Officer wants to take action after the expiry of 4 years from the end of the assessment year. However, only Condition 1 should be satisfied in the following cases –

1. if the Assessing Officer wants to take an action within 4 years (from the end of the assessment year) and the original assessment was completed under section 143(1), 143(3), 144 or 147; or

2. if the Assessing Officer wants to take an action after the expiry of 4 years and the original assessment was completed under section 143(1) or 144.

However, the above rule is not applicable where any income in relation to any asset (including financial interest in any entity) located outside India, chargeable to tax, has escaped assessment for any assessment year.

2. Deemed Cases of Income Escaped Assessment (Explanation 2 of Section 147)

It clarifies that the following shall also to be deemed to be cases where income chargeable to tax has escaped assessment namely:

1. where no return of income has been furnished by the assessee and no assessment has been made although:

   1. his total income; or

   2. the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income tax;

2. where a return of income has been furnished by the assessee but no assessment (scrutiny/best judgment assessment) has been made and it is noticed by the Assessing Officer that the assessee:

   1. has understated the income; or

   2. has claimed excessive loss, deduction, allowance or relief in the return;

3. (ba) where the assessee has failed to furnish a report in respect of any international transaction which he was so required under section 92E.

4. where assessment under section 143(3) or 144 has been made whether return of income has or has not been furnished but:

   1. income chargeable to tax has been under-assessed; or

   2. income chargeable to tax has been assessed at too low a rate; or

   3. income chargeable to tax has been made the subject of excessive relief under the Incometax Act; or

   4. excessive loss or depreciation allowance or any other allowance under the Income-tax Act has been computed.

5. (ca) where a return of income has not been furnished by the assessee or a return of income has been furnished by him and on the basis of information or document received from the prescribed income-tax authority, under section 133C(2), it is noticed by the Assessing Officer that the income of the assessee exceeds the maximum amount not chargeable to tax, or as the case may be, the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return;

6. where a person is found to have any asset (including financial interest in any entity) located outside India.

3. Issue of Notice for Income Escaping Assessment under Section 148

Before making the assessment, reassessment or recomputation under section 147, the Assessing Officer should serve on the assessee a notice requiring him to furnish a return of income. Before issuing a notice, the Assessing Officer is required to record reasons for doing so.

Time-limit for issue of Notice for Income Escaping Reassessment (Section 149/151) -

Case-1 : Notice can be issued within 4 years from the end of relevant assessment year.

Case-2 : If, however, the escaped income is Rs. 1,00,000 or more, notice can be issued within 6 years from the end of the relevant assessment year.

Case-3 : Where income in relation to any asset (including financial interest in any entity) located outside India, chargeable to tax, has escaped assessment, notice can be issued within 16 years from the end of the relevant assessment year.

If the person on whom notice under section 148 is to be served is a person treated as an agent of non-resident (under section 163), then notice shall not be issued after the expiry of 6 years from the end of the relevant assessment year.

Separate notice under section 148 has to be given for each assessment year for which income has escaped assessment: For making assessment or re-assessment under section 147 a separate notice under section 148 is required to be issued by the Assessing Officer for each assessment year for which the income has escaped assessment.