Notice Under Section 148 (Reassessment)
A notice under Section 148 of the Income Tax Act initiates reassessment proceedings where the assessing officer has reason to believe that income chargeable to tax has escaped assessment — subject to specific time limits of three years for escaped income below Rs 50 lakh and ten years for amounts above Rs 50 lakh — with the Supreme Court's 2021 ruling in Union of India v. Ashish Agarwal significantly restricting the scope and procedure for such notices.
Section 148 is among the most feared provisions for individual taxpayers because it reopens completed assessments — years after the original return was filed — on the basis that income was omitted or under-declared. Prior to the Finance Act 2021, Section 148 notices could be issued up to 6 years from the end of the assessment year for escaped income above Rs 1 lakh, and up to 16 years for cases involving assets in foreign jurisdictions. The 2021 amendments (effective April 1, 2021) significantly tightened these windows.
Under the amended framework, Section 148 notices can be issued within three years from the end of the assessment year if the escaped income is below Rs 50 lakh, and within ten years if the escaped income exceeds Rs 50 lakh and the assessing officer possesses documentary evidence of the income (not merely a belief). These tighter time limits align Indian reassessment law more closely with international practice and provide taxpayers greater certainty about the finality of assessments.
The Supreme Court's landmark ruling in Union of India v. Ashish Agarwal (May 2022) arose from the government's controversial issuance of approximately 90,000 Section 148 notices between March 31 and April 1, 2021 — the day before the new tighter regime took effect under the Finance Act 2021. The government argued these notices were valid under the old regime since they were issued before April 1, 2021. The Supreme Court held that while the notices were technically valid, they must be treated as notices issued under the new Section 148A framework (which requires a preliminary show-cause procedure before the formal notice), directing the income tax department to follow the new procedural safeguards for all these cases.
The Section 148A procedure introduced by the Finance Act 2021 requires the assessing officer to first conduct a preliminary inquiry and provide the taxpayer with an opportunity to respond — through a written explanation and evidence — before issuing a formal Section 148 reassessment notice. The Section 148A(b) notice asks the taxpayer why reassessment should not be initiated; the taxpayer's reply may lead the assessing officer to drop the proceeding if satisfied with the explanation. This preliminary step is a significant procedural protection that did not exist under the old regime.
For taxpayers receiving Section 148 or 148A notices, the correct response strategy involves: obtaining the full grounds for reopening from the assessing officer, reviewing the implicated assessment year's return and supporting documents, preparing a detailed written reply within the specified time (typically 15-30 days), and engaging a qualified tax advocate or CA for cases where the alleged escaped income is significant. Ignoring the notice leads to ex parte assessment — a decision made in the taxpayer's absence — which is invariably unfavourable and difficult to reverse without appealing through ITAT.