Income Escaping Assessment [Section 147]

Section 147 empowers the Assessing Officer (AO) to reassess or recompute income that has escaped taxation in previous years. This provision ensures that all taxable income is accurately reported and taxed, even if initially overlooked. Below is a detailed breakdown of its provisions, procedures, and implications.

1. Key Features of Section 147

(A) Definition of “Income Escaping Assessment”

Income is deemed to have escaped assessment if:

• Not reportedin the original return (e.g., undisclosed capital gains, foreign income).
• Underreporteddue to errors or misstatements.
• Excessive deductionswere claimed (e.g., inflated 80C claims).
• No return was fileddespite income exceeding the exemption limit.

(B) Legal Basis for Reopening

The AO must have “reason to believe” that income escaped assessment, based on:

• Tangible evidence(e.g., bank statements, Form 26AS mismatches).
• New information(e.g., property transactions detected via stamp duty records).

(C) Time Limits for Reassessment

Note: Finance Act 2021 reduced these limits for most cases.

2. Reassessment Procedure

1. Preliminary Inquiry (Section 148A):
   • AO conducts an inquiry and issues a show-cause noticeto the taxpayer.
   • Taxpayer gets 7–30 daysto respond.
2. Notice Under Section 148:
   • Formal notice to reopen the assessment.
   • Must include reasons recordedby the AO.
3. Taxpayer’s Response:
   • Submit a revised returnor counter-evidence.
   • Request a personal hearing(mandatory if sought).
4. Final Assessment Order:
   • AO passes an order after considering the taxpayer’s submissions.
   • Tax liability may include penalties (50–200%)and interest (Section 234A/B/C).

3. Key Amendments (Finance Acts 2021 & 2022)

• Section 148A: Introduced to ensure transparency—AO must conduct an inquiry before issuing a notice.
• Reduced Time Limits: Reassessment now generally limited to 3–4 years(vs. earlier 6 years).
• Approval Requirements: Higher authorities (e.g., Principal CIT) must approve reopening beyond 3 years.

4. Consequences of Non-Compliance

• Penalties:
  • Section 270A: 50% penalty for underreported income; 200% for misreported income.
• Prosecution: Willful evasion may attract imprisonment under Section 276C.

5. Taxpayer’s Rights

✅ Right to Appeal: Challenge the order before CIT(A) or ITAT within 30 days.

✅ Right to Documents: AO must share evidence used for reopening.