Section 147 – Income Escaping Assessment (Reassessment)

Section 147 empowers the Income Tax Department to reassess the income of a taxpayer if the Assessing Officer (AO) believes that income chargeable to tax has escaped assessment for any previous year.

When can Section 147 be invoked?

The AO must have “reason to believe” that income has escaped assessment. Common reasons:

1. Non-filing of return when taxable income exists
2. Failure to disclose material facts fully and truly
3. Incorrect claims resulting in under-assessment
4. New information from investigation wings, audit objections, other authorities
5. Search or survey findings

This highlights the critical importance of timely and accurate Income Tax Return Filing, as failure to do so may provide grounds for reassessment under Section 147.

Time Limits for Issuing Notice under Section 148 (Reassessment Notice)

Since the timelines have changed under the Finance Act, 2021, the current limits are:

1. Up to 3 years from the end of the relevant assessment year (AY)

AO can reopen assessments for any reason recorded in writing.

2. Up to 10 years from the end of the AY

Allowed only if the AO has evidence that:

• Income escaping assessment is ₹50 lakh or more, and
• It is represented in the form of assets, expenditure, or book entries.

Procedure for Reassessment under Section 147

Step 1: Issue of Notice under Section 148

The AO issues a notice requiring the assessee to file/ refurnish the return for the relevant year.

Step 2: Providing “Reasons to Believe”

On request, the AO must provide the recorded reasons for reopening.

Step 3: Filing Return & Objections

• Taxpayer must file the return and may file objections to reopening (per GKN Driveshaft case).
• AO must dispose of objections through a speaking order.

Step 4: Conduct of Assessment under Section 147 r/w 143(3)

After hearing, AO can:

• Assess income,
• Reassess, or
• Recompute income.

However, issues unrelated to the original reason cannot be raised unless they independently represent escaped income (Supreme Court: Nalini Mahajan, etc.).

Key Judicial Principles

1. Reason to Believe, not Reason to Suspect
   AO must have tangible material (Kelvinator of India Ltd. – SC).
2. Change of Opinion not allowed
   Reopening cannot be done merely because AO changed his view.
3. Full & True Disclosure Requirement
   For reopening beyond 4 years (old law), failure must be established.

Consequences of Reassessment

• Additional tax liability
• Interest u/s 234A/B/C
• Penalty u/s 270A for under-reporting or misreporting
• Possible prosecution in severe cases

Practical Example

AY 2020–21: AO receives information in 2024 that the assessee purchased property worth ₹1.2 crore but declared income below the threshold.
→ Income > ₹50 lakh represented in asset
→ AO can reopen even till 2031.

If you are navigating such complex reassessment procedures, professional guidance becomes essential. We offer comprehensive CA services in Delhi to help you manage reassessment notices seamlessly, ensuring compliance while minimizing penalties and litigations.

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