Section 149: Time Limits for Issuing Notice for Income Escaping Assessment

Introduction to Section 149

Section 149 of the Income Tax Act, 1961, plays a critical role in the framework of reassessment proceedings. While Section 148 empowers the Assessing Officer (AO) to issue a notice for income escaping assessment, Section 149 specifically sets out the time limits within which such a notice can be issued. This section is designed to provide certainty to taxpayers, preventing indefinite re-opening of past assessments and ensuring that tax matters attain finality after a reasonable period.

It establishes a balance between the tax department's need to collect due revenue and the taxpayer's right to have their assessments finalized.

Time Limits for Issuing Notice under Section 148

Section 149, as amended by the Finance Act, 2021, and subsequent clarifications, specifies different time limits based on the amount of income that has escaped assessment and the nature of the income. These limits are counted from the end of the relevant assessment year.

1. General Time Limit:

• No notice under Section 148 shall be issued if three years have elapsed from the end of the relevant assessment year.

  Example: For the Assessment Year 2022-23 (Financial Year 2021-22), the general time limit for issuing a Section 148 notice would be up to March 31, 2026.

2. Extended Time Limit (Serious Escapement):

• A notice under Section 148 can be issued if ten years have elapsed from the end of the relevant assessment year, but only if the Assessing Officer has in his possession books of account or other documents or evidence which reveal that the income chargeable to tax, which has escaped assessment, amounts to ₹50 Lakhs or more for that year or in aggregate for that year and any other years falling within the period of ten years.

  Example: For the Assessment Year 2015-16 (Financial Year 2014-15), a notice could potentially be issued up to March 31, 2026, if the income escaping assessment is ₹50 Lakhs or more, provided the AO has concrete evidence.

3. Specific Cases (No Notice Beyond 3 Years):

• No notice under Section 148 shall be issued for an assessment year if three years have elapsed from the end of the relevant assessment year unless the Assessing Officer has in his possession books of account or other documents or evidence which reveal that the income escaping assessment amounts to ₹50 Lakhs or more.
• For cases other than those involving assets located outside India, no notice under Section 148 shall be issued at any time for the relevant assessment year if it falls beyond the period of ten years from the end of the relevant assessment year.

4. Deemed Escapement of Income (Proviso to Section 149(1)):

For the purpose of computing the period of three years or ten years, as the case may be, the income escaping assessment shall be deemed to be ₹50 Lakhs or more in certain situations, such as:

• Where the income escaping assessment for a year, or in aggregate for that year and any other year(s) falling within the period of 10 years, amounts to ₹50 Lakhs or more.
• Where information is received from foreign tax authorities under a Double Taxation Avoidance Agreement (DTAA) or Tax Information Exchange Agreement (TIEA).

Key Considerations and Changes Post-Finance Act, 2021

The Finance Act, 2021, brought significant changes to the reassessment regime, including Section 149. Key points to note:

• Reduced Time Limits: The general time limit for issuing reassessment notices was reduced from 6 years to 3 years. The extended limit of 10 years now specifically applies to cases of significant income escapement (₹50 Lakhs or more).
• Dependence on Information: The AO's power to initiate reassessment proceedings after three years is now strictly contingent on having "information which suggests that income chargeable to tax has escaped assessment". This information must also reveal that the income escaping assessment is ₹50 Lakhs or more.
• New Procedure under Section 148A: Before issuing a notice under Section 148, the AO must now follow a mandatory procedure outlined in Section 148A, which involves conducting inquiries, providing a show-cause notice to the assessee, and considering their reply. This procedure is aimed at reducing litigation.
• Approval from Higher Authority: As per Section 151, the issuance of a notice under Section 148 (and thus adhering to the time limits in Section 149) requires the approval of higher authorities. For notices issued after 3 years, the approval of the Principal Chief Commissioner or Principal Director General is typically required.

Importance of Section 149

Section 149 is vital for both the tax administration and taxpayers. For the tax department, it provides the necessary legal backing to bring to tax income that was not previously assessed. For taxpayers, it offers assurance that their past assessments cannot be indefinitely disturbed, promoting finality and stability in their tax affairs. The strict adherence to these time limits, coupled with the procedural safeguards of Section 148A, is essential for a transparent and fair tax system. Ignoring a notice under Section 148, even if issued outside the time limit, can lead to adverse consequences, making it crucial to understand the legal implications.