Section 147 of Income Tax Act: Assessment of Income Tax Returns

The Income Tax Act empowers tax authorities to decide whether the required information and income furnished by a taxpayer is correct. Section 147 of Income Tax Act empowers the Assessing Officer (AO) to reassess an ITR if he/she suspects that the taxpayer has concealed essential income details leading to an incorrect assessment of income.

To know more about this Section, read on!

What is Section 147 of the Income Tax Act?

This Section aims to prevent any under assessment of assessees’ income. It mentions the conditions under which an Assessing Officer can reassess an Income Tax Return by issuing notice to the taxpayer under Section 148 of Income Tax Act within a set time frame. 

Whenever an AO has adequate reasons to consider that any income has escaped assessment, he/she may trigger proceedings under Section 147 for reassessment. However, the AO must take prior approval or permission from a higher authority before issuing any notice. The time limit to issue notice for reassessment proceedings is 4 or 6 years, depending on the escaped income.

Scope of Assessment under Section 147 of Income Tax Act

• When an assessee’s total income exceeds the exemption limit and the person does not submit ITR.
• If an assessee has furnished income tax returns, but the Income Tax Department has not carried out any assessment with regard to the same.
• When one has claimed excessive losses, depreciation or deductions while computing the total income.

Judicial Trend while Interpreting Section 147 of Income tax Act, 1961

The power of an AO to issue certificates is not arbitrary and not abundant. The Supreme Court has laid down clear conditions, which tax authorities must fulfil before carrying out reassessment proceedings. They are as follows:

• The IT officer or AO must have adequate reasons to suspect that some part of taxable income is unassessed. 
• The Assessing Officer should have reasons to believe that income in the current year has escaped assessment because of concealment or failure on the part of the assessee to provide relevant information necessary for computing the total taxable income. 

The judiciary has always been of the firm view that assessees are duty-bound to provide all relevant and crucial details necessary for computing the taxable income. This information will help the AO to carry out assessments in a fair and reasonable manner.    

What is the Procedure to Carry out Assessment under Section 147 of Income Tax Act?

Here are steps for carrying out assessment under Section 147 of Income Tax Act, India:

• When AO believes that some income has escaped assessment, he/she issues notice to taxpayers regarding reassessment. 
• Taxpayers are given an opportunity to be heard or present their case. 
• If the AO is not satisfied with the assessee’s explanation, he/she may go ahead with the reassessment of any income. 
• The Assessing Officer can once again compute depreciation, deductions or loss benefits mentioned in the return as the case may be. 

Note that income under revision or appeal is not eligible for reassessment under this Section by an AO. 

Time Limit to Issue Notice under Section 148 of IT Act

The tax authorities are liable to issue a reassessment notice within a certain period. The time limits are as follows: 

• When escaped income from assessment is less than Rs. 1,00,000, the time period for issuing notice is 4 years. 
• When income escaped from assessment is more than Rs. 1,00,0000, the time period for AO to issue notice is 6 years. 
• When escaped income is related to assets located outside India, the time limit for issuing notice is 16 years.   

What is First Elaboration of Section 148?

If all details related to a taxpayer’s case concerning the assessment year according to risk handling strategy is initiated via the board with time, an AO will initiate this report on the basis of a computerised system. AO can refer all final objections to CAG of India in relation to the taxpayer’s case for relevant AY. 

What is Second Elaboration of Section 148?

Here are the cases in which an AO thinks that income has escaped assessment:

• AO starts a search under section 132 of IT Act on or after April 1.
• If books of accounts of an assessee are seized/requisitioned  under Section 132A on or post April 1 
• AO carries out a survey to review or check expenses incurred by taxpayers related to any function or an event. This is also done after April 1 as per Section 133A of Income Tax Act.

Final Word

Section 147 of Income Tax Act It gives AOs power to revisit or review ITR files and check whether one has concealed facts or information about their income. Therefore, the assessees must be very careful that they furnish all income-related details in their original ITR to avoid legal proceedings and penalties.

FAQs on Section 147