The Finance Act of 2021 brought about significant changes to the provisions governing the reopening of assessments for previous assessment years. Erstwhile Sections 147 to 151 were substituted with amended Sections 147, 148, 148A, 149, 150, and 151, effective from April 1, 2021. Consequently, any notice for reopening assessments issued after April 1, 2021, is subject to the new provisions upheld by the Hon’ble Supreme Court in the case of Union of India & Ors. Appellant (S) Vs. Ashish Agarwal. Additionally, the Finance Act of 2022 introduced Section 148A, obliging the Assessing Officer to conduct an inquiry and provide an opportunity before issuing a notice under Section 148.
Under the earlier regime, the Assessing Officer (AO) used to issue notices under Section 148, compelling the assessee to file Income Tax Returns without disclosing the reasons for reopening assessment. The assessee was then obligated to file an application with the AO to ascertain the reasons for reopening and the satisfaction recorded by the AO. The AO was obliged to address the objections filed by the assessee with a speaking order, per the Supreme Court’s ruling in GKN Driveshafts (India) Ltd vs Income Tax Officer and Ors.
To address issues arising from non-disclosure of reasons or lack of speaking orders, Finance Act 2021 introduced a new regime for reopening assessments. Section 148 was amended, making it mandatory to follow procedures stipulated under Section 148A before issuing a notice under Section 148. This new regime provides an opportunity for the assessee to explain their case and have proceedings dropped, subject to the AO’s satisfaction.
Section 148A obligates the AO to:
Conduct an inquiry with prior approval, if necessary, regarding escaped income.
Serve a notice to show cause to the assessee within specified time (not less than 7 days and not exceeding 30 days) to explain why a notice under Section 148 should not be issued.
Consider the assessee’s reply to the show-cause notice.
Decide whether issuing a notice under Section 148 is warranted, within one month of receiving the assessee’s reply.
Further, Section 148B was inserted to mandate that assessments, consequent to search, survey, and requisition, must have prior approval from higher authorities before an Assessing Officer below the rank of Joint Commissioner can pass an assessment or reassessment order. This measure aims to reduce avoidable inaccuracies in assessments.
