Section 148A of Income Tax Act – Detailed Guide

The Finance Act, 2021 brought a major shift in how the Income Tax Department reopens assessments by inserting Section 148A in the Income Tax Act, 1961. This section provides a framework for initiating reassessment in a fair and transparent manner and protects taxpayers from arbitrary or unjustified notices under Section 148.

This article covers the complete details of Section 148A, including its background, objectives, steps involved, exceptions, timelines, examples, and frequently asked questions.

What is Section 148A of the Income Tax Act?

Section 148A lays down the procedure that the Assessing Officer (AO) must follow before issuing a notice under Section 148 (which is issued when income is believed to have escaped assessment).

Under Section 148A, the AO is now legally required to conduct an inquiry and give the assessee an opportunity to explain before reopening an assessment.

This section ensures natural justice by allowing the taxpayer to be heard before a reassessment notice is issued.

Why Section 148A Was Introduced

Before 2021, the AO could issue notices under Section 148 without any obligation to inform the assessee about the reasons or give them a chance to respond beforehand. This led to:

• Arbitrary reopening of cases
• Misuse of reassessment powers
• Excessive litigation in courts

To overcome these issues and in light of Supreme Court judgments on principles of natural justice, Section 148A was introduced to strengthen taxpayer rights and promote transparency.

Step-by-Step Procedure Under Section 148A

Let’s break down each clause of Section 148A and understand the exact steps:

Step 1: Conducting Inquiry – Section 148A(a)

The AO may conduct an inquiry if required, with prior approval from a specified authority, to determine whether income has escaped assessment.

• This is not mandatory in all cases.
• Inquiry includes data verification, third-party information, AIS review, etc.

Step 2: Notice to Show Cause – Section 148A(b)

The AO must serve a notice to the assessee stating the reasons why reassessment is being considered.

• The notice must contain the "information suggesting income has escaped assessment".
• The assessee is given minimum 7 days and up to 30 days to respond.
• Extension of time can be granted on request.

Step 3: Taxpayer’s Reply – Opportunity of Being Heard

The assessee must respond with explanations, documents, or justifications showing why reopening is not necessary.

• If no reply is filed, AO may proceed ex-parte.
• Legal representation is allowed.

Step 4: Passing an Order – Section 148A(d)

After reviewing the reply, the AO must pass a reasoned, speaking order:

Either with a decision to proceed with reassessment (issue notice under Section 148), or

Drop the reassessment if the explanation is satisfactory.

Approval from specified authority (Joint Commissioner or above) is mandatory before issuing the final order.

Section 148A Timeline: Rules and Deadlines