Section 148 of Income Tax Act

Under Section 148 of the Income Tax Act, 1961, the Assessing Officer can reassess a taxpayer’s return if there is reason to believe that some income has not been reported correctly. To begin this reassessment process, a notice under Section 148 or 148A may be issued.

This provision helps maintain transparency and fairness in the tax system by ensuring that income which has escaped assessment is brought under taxation. Understanding Section 148 is important for taxpayers, as it explains the reassessment procedure, key rules, and the steps to follow when responding to a notice received from the Income Tax Department.

Section 148 of the Income Tax Act empowers the Assessing Officer (AO) to reopen a completed tax assessment if there is credible material suggesting that income has escaped assessment in a previous financial year. A notice issued under this section requires the taxpayer to file the income tax return again for the relevant assessment year, even if the return was already submitted earlier or the assessment had been completed. While Section 147 provides the legal authority for reassessment, Section 148 acts as the formal procedure for initiating the process. Certain search and seizure cases are dealt with separately under block assessment provisions. Before issuing a notice under Section 148, the AO must comply with the procedure prescribed under Section 148A. This includes conducting preliminary enquiries, issuing a show-cause notice, sharing the information or evidence available, and giving the taxpayer an opportunity to respond. In most situations, the notice can be issued within 3 years from the end of the relevant assessment year. However, this limit can extend up to 5 years if the escaped income is Rs. 50 lakh or more and supported by relevant

Budget 2026 update

As per the proposal in Budget 2025, individuals who have received a show-cause notice under Section 148A will not be allowed to file an updated return once 36 months have passed since the end of the relevant assessment year. However, if it is determined that issuing a notice under Section 148 is not justified, the taxpayer will be permitted to file an updated return within a 48-month window from the end of the same assessment year.

What is Section 148 of Income Tax Act?

Section 148 of the Income Tax Act, 1961 empowers the Assessing Officer to issue a notice when there is reason to believe that a taxpayer’s income has escaped assessment. This generally happens when the officer suspects that the taxpayer has either failed to disclose complete income or has provided incorrect or incomplete information in the tax return.

The purpose of this provision is to enable the Income Tax Department to reassess income that may not have been properly taxed earlier. Proceedings under Section 148 can be initiated regardless of whether the taxpayer has previously filed an income tax return. It may also apply even if an assessment has already been completed in earlier years.

Once a notice under Section 148 is issued, the taxpayer is required to respond by filing a fresh return of income for the relevant assessment year within the prescribed timeline. The notice also gives the taxpayer an opportunity to explain the details of income and supporting documents before reassessment proceedings are completed.

What are Income Tax Notices Issued Under Section 148?

Section 148 of the Income Tax Act allows an assessing officer to assess or reassess any taxable income that was incorrectly calculated and not previously assessed as per the law. Once the notice is issued, the taxpayer must file their income tax return within 30 days or within the specified timeframe mentioned in the notice.

How a Notice u/s 148 is issued

• A notice under Section 148 cannot be issued directly by the Assessing Officer. Before issuing such a notice, the officer must first conduct an inquiry under Section 148A of the Income Tax Act.
• This inquiry can only begin after obtaining prior approval from the specified authority. The purpose of the inquiry is to give the taxpayer an opportunity to explain their position before reassessment proceedings are initiated.
• Under Section 148A(b), the Assessing Officer issues a show cause notice to the taxpayer along with evidence suggesting that certain income may have escaped assessment. The taxpayer has the right to submit explanations, documents, and supporting evidence in response.
• The Assessing Officer is also required to provide all relevant material and information relied upon while issuing the notice or show cause communication.
• The taxpayer must be given a minimum of seven days and a maximum of 30 days to respond. After reviewing the reply, the officer will decide whether reassessment proceedings should be initiated under Section 148.

Reasons to issue a notice under Section 148

A notice under section 148 of the Income Tax Act can be issued when:

• The Assessing Officer (AO) has substantial evidence indicating that the taxpayer has evaded income assessment for a particular year. However, the issuance of the notice cannot be based on mere suspicion.
• The information provided to the AO must justify the suspicion that the taxpayer intended to escape income assessment, and the evidence must be directly relevant to the case.
• Before issuing the notice, the AO must document the reasons in writing. They must clearly state why they believe the taxpayer has evaded income assessment.
• The notice must adhere to established provisions and guidelines to ensure its validity and appropriateness.

Time limit to issue a notice under section 148

A notice under Section 148 must be issued within the following timeframes for the relevant assessment year:

• Normal Time Limit: Within 3 years from the end of the relevant assessment year. 
• Extended Time Limit: Between 3 and 10 years from the end of the relevant assessment year, provided the Assessing Officer has evidence of undeclared income of ₹50 lakhs or more.

The Assessing Officer will issue a notice only if these conditions are met for the relevant assessment year:

• The taxpayer filed returns under Section 139.
• The taxpayer did not file returns after receiving a notice under Section 142 or Section 148(1).
• The taxpayer was expected to furnish accurate and complete information required for the assessment of that year.

Provisions for issuance of a notice under Section 148

Section 151(1) of the Income Tax Act lays out specific provisions for issuing a notice under section 148. Let’s check them out:

• Time limit of 3 years
  • If more than 3 years have passed since the end of the relevant assessment year, the Assessing Officer (AO) cannot issue a notice under section 148.
  • However, an exception exists if a higher authority is convinced by the AO's reasons for issuing the notice.
  • The term “higher authority” represents the following:
    • The Chief Commissioner
    • The Principal Commissioner
    • The Principal Chief Commissioner
• Rank requirement
  • The AO must hold a rank of at least a Joint Commissioner to issue a notice under section 148 of the Income Tax Act.
  • If the AO is of a lower rank, an exception can be made if a Joint Commissioner is satisfied with the reasons documented by the AO.

Furthermore, it is essential to state that even if any higher authority (as explained above) is satisfied with the reasons provided by the AO, they cannot issue a notice on their own.

When can a notice be issued under Sec 148?

As per the provisions of Section 149, a notice under Section 148 can be issued within 3 years from the end of the relevant assessment year. However, as an exception to this rule, if the assessing officer finds that undeclared income amounts to Rs. 50 lakhs or more, then the notice can be issued beyond the initial three-year period but not later than ten years from the end of the relevant assessment year.

Let’s understand better through a hypothetical example:

• Say the relevant assessment year ended on March 31, 2021.
• If the income escaping assessment was less than Rs. 50,00,000, a notice can be issued up to March 31, 2024.
• However, if the income escaping assessment is Rs. 50 lakhs or more, a notice can be issued up to ten years from the end of the relevant assessment year, i.e., up to March 31, 2031.

How does Section 148A impact taxpayers?

If the Income Tax Department chooses to proceed with reassessment after reviewing your response to the notice, you may face the following consequences:

• You could be required to pay additional taxes along with applicable interest and penalties on previously unassessed income.
• The reassessment process may be lengthy and time-consuming, leading to potential stress and disruption.
• In cases of suspected intentional tax evasion, the assessing officer may initiate strict actions, including hefty penalties or even imprisonment.

Replying to notice under Section 148

It is imperative to treat a notice under Section 148 with utmost seriousness. If you receive such a notice, please adhere to the following guidelines:

1. Review the notice: Carefully examine the notice for the specific reasons cited by the Assessing Officer for issuing it. If these reasons are not provided, request a copy from the officer.
2. Timely response: Respond to the notice within the stipulated timeframe, typically 30 days. This can be done either by filing a return or by submitting a written reply along with supporting documents.
3. Evaluation of reasons: If the reasons provided by the Assessing Officer are valid, file the return as soon as possible. If a return has already been filed, submit a copy to the officer.
4. Diligent return filing: When filing a return in response to a Section 148 notice, ensure that all income and expenses are accurately declared. Failure to do so may result in penalties.
5. Challenging the notice: If you believe the notice is invalid or the reasons for the reassessment are unfounded, you may contest its validity before the Assessing Officer or higher authorities. A successful challenge could halt the assessment proceedings. However, an unfavourable outcome may allow the Assessing Officer to proceed with the reassessment.

What happens if you do not respond to Section 148?

If you ignore or fail to respond to a notice under Section 148 of the Income Tax Act, the Assessing Officer (AO) will proceed with the assessment without your input. The AO will use the information available to them to:

• Estimate your income
  and
• Calculate your revised income tax liability (along with penalty and interest)

This process is called a "best judgment assessment". While making this kind of assessment, the AO relies on any information or evidence they have or can obtain to estimate your income. Usually, some common documents are:

• Bank statements
• Financial transactions
• Mutual agreements, if any

Furthermore, it should be stated that this estimation of income may not be accurate. It can result in a higher tax liability than what you would have reported if you had responded to the notice.

Now, once the best judgment assessment has been made and you disagree with it, the only option left to you is to challenge it by filing an appeal with higher authorities in the following sequence:

1. Commissioner of Income Tax (Appeals)
2. The Income Tax Appellate Tribunal (ITAT)

These higher authorities review the AO's assessment and your arguments against it. If satisfied, they can provide you with the requisite relief, wholly or partially.

Who can issue a notice under Section 148?

A notice under Section 148 of the Income Tax Act can be issued by an Assessing Officer (AO) who is ranked above an Assistant Commissioner or a Deputy Commissioner. Officers below this rank cannot issue such notices.

Also, the AO must obtain approval from higher authorities for cases involving income escaping assessment when it involves:

• Significant sums
  or
• Periods beyond three years

For example:

• Say more than 3 years have passed since the end of the relevant assessment year.
• Now, the notice can only be issued with the approval of either of the following:
  • Principal Chief Commissioner
  • Principal Commissioner
  • Chief Commissioner

Furthermore, the AO must have concrete evidence or reasons to believe that income has escaped assessment. This evidence must be documented and approved by the relevant higher authority before issuing the notice.

Duties and rights of the assesse after the receipt of notice under Section 148

1. Duty to file returns for income escaping assessment
   The assesse is obligated to submit tax returns for any income deemed "Income Escaping" during the relevant assessment year.
2. Right to request notice copy
   Upon filing returns, the assessee may request a copy of the notice issued under Section 148, which details the rationale behind the Assessing Officer's decision.
3. Right to object to notice
   If the assessee finds the reasons provided in the notice copy unsatisfactory or unfounded, they may file an objection contesting the notice's validity.
4. Requirement for valid objections
   When raising objections and challenging the lawfulness of the notice under Section 148, the assessee must provide cogent and justifiable reasons.
5. Right to separate reasons for dismissal
   Should the Assessing Officer reject the assessee's claims, they may request separate reasons for the dismissal.
6. Option to file writ petition
   The assessee may file a writ petition with the appropriate High Court, challenging the legality and validity of the notice under Section 148, even before the assessment or reassessment is finalized.
7. Right to file writ petition post-assessment
   Even after the assessment is completed and the matter is under appeal, the assessee retains the right to file a writ petition with the relevant High Court, questioning the notice's legality and validity.
8. Evidence requirements
   *The assessee must provide evidence of the following actions: * Requesting a copy of the Assessing Officer's reasons for issuing the notice under Section 148. * Filing an objection to the reasons presented by the Assessing Officer. * Requesting separate reasons for the dismissal of their claims. * Challenging the lawfulness of the notice's issuance.

Reopening of income tax assessment cases

It is crucial to understand that, previously, income tax assessment cases could be reopened up to six years after the end of the relevant assessment year. However, with the new budget, this time limit has been reduced to three years, meaning the tax authorities can generally reopen cases within three years from the end of the relevant assessment year.

However, if the concealed income (income that was not disclosed to tax authorities) exceeds Rs. 50 lakh, the cases can be re-opened up to 10 years from the end of the relevant assessment year.

Points to be noted for Notice u/s 148

• There must be proper supporting evidence to prove that income has escaped assessment. Merely stating a “reason to believe” is not sufficient for issuing a notice under Section 148A.
• The Assessing Officer must carefully review and consider the taxpayer’s response to the Show Cause Notice issued under Clause (b) of Section 148A.
• If the taxpayer requests a personal hearing, cross-examination of a third party, or access to a third-party statement, the Assessing Officer is required to provide it after obtaining approval from the specified authority.
• Any notice issued under Section 148 without following the procedure prescribed under Section 148A, including providing an opportunity to be heard, will be considered invalid under the Income Tax Act.
• Courts have repeatedly highlighted that the procedure under Section 148A must be followed strictly as intended by the legislation.
• After receiving the order and notice under Section 148, the taxpayer must file the income tax return for the relevant assessment year within the time limit mentioned in the notice and complete the reassessment process.

Things to consider while replying to a notice under Section 148

Upon receipt of a notice issued under Section 148 of the Income Tax Act, 1961, it is imperative to adopt a proactive and informed approach.

1. Understand the notice: Carefully review the notice to comprehend the reasons cited by the Assessing Officer (AO) for issuing the notice. If the reasons are unclear, individuals have the right to request a copy of the relevant assessment proceedings.
2. Timely compliance: If the reasons provided are deemed justifiable, promptly file the requisite tax returns to avoid potential legal repercussions. Individuals who have already filed returns under Section 148 should submit a copy to the AO.
3. Accurate reporting: Exercise meticulous care when filing income tax returns. Omissions or inaccuracies in reporting income or expenses can lead to significant legal penalties. Ensure that all relevant information is accurately disclosed.
4. Proactive tax compliance: Familiarise oneself with the provisions of Section 148 to prevent potential legal complications. While understanding the law is essential, it is strongly recommended that individuals undergo regular tax assessments each year to maintain compliance and avoid unnecessary inconveniences.

By following these guidelines, individuals can effectively respond to Section 148 notices and navigate the income tax assessment process with confidence.

Conclusion

Section 148 of the Income Tax Act is related to the issuance of a notice, which initiates the process of detailed scrutiny. Usually, taxpayers receive this notice when certain income has escaped assessment for a particular assessment year.

A notice u/s 148 is valid if it is issued within 3 years from the end of the relevant assessment year in which income escaped assessment. However, this time limit is increased to 10 years if the escaped income exceeds Rs. 50,00,000.

Also, responding to a notice under Section 148 of the Income Tax Act is crucial. Upon receiving such a notice, carefully review the reasons provided by the Assessing Officer (AO) for issuing it. If satisfied, promptly file your Income Tax Return (ITR) for the relevant assessment year and make an accurate income declaration. Always remember that a failure to respond can lead to a “best judgment assessment” by the AO, which can result in higher tax liabilities and penalties.

Furthermore, if you disagree with the AO's assessment, you can appeal first to the Commissioner of Income Tax (Appeals) and then you can move on to the Income Tax Appellate Tribunal (ITAT).

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