Income Escaping Assessment under section 147 is the assessment which is done by the Assessing Officer if there is a reason for him to believe that income chargeable to tax has escaped assessment for any assessment year. It gives power to him to re-assess or re-compute income, turnover etc. which has escaped assessment.

Objective

The objective of carrying out Income Escaping Assessment u/s 147 is to bring any income which has escaped assessment in the original assessment under the tax net.

The proceedings under Section 147 are for the benefit of the revenue and not an assessee and are aimed at gathering the ‘escaped income’ of an assessee. The same cannot be allowed to be converted as ‘revisional’ or ‘review’ proceedings at the instance of the assessee, thereby making the machinery unworkable.

Notice for Income Escaping Assessment issued under section 148

If the Assessing Officer has a reason to believe that any income has escaped assessment for any assessment year which was chargeable to tax, then the notice may be issued under section 148:

Case 1: Within 4 years from the end of the relevant assessment, if the escaped income is less than Rs. 1,00,000.

Case 2: If the income which is escaped is equal to or more than Rs. 1, 00,000 then notice can be issued for up to 6 years from the end of the relevant assessment year.

Case 3: If escaped income is associated with any assets located outside India, and then notice can be issued up to 16 years from the end of the relevant assessment year.It includes financial interest in any entity.

It may be noted that the notice u/s 148 can be issued by AO only after getting prior approval from the prescribed authority mentioned in section 151.

Cases where Income chargeable to tax has deemed to Escaped assessment

(a) When the total income of any assessee during the previous year exceeded the maximum amount which is not chargeable to income-tax and no return has been furnished by him.

(b) When Assessing Officer has noticed that the assessee has understated the income or has claimed an excessive loss, deduction, allowance or relief in the return and no assessment has been made.

(c) When an assessee is required to furnish a return under section 92E about any international transaction and he failed to do so.

(c)  In the case where an assessment has been made, but

  • Income chargeable to tax has been under assessed.
  • The income which is assessed is being assessed at a rate which is too low.
  • Such income has been made the subject of excessive relief under this Act.
  • Excessive loss or depreciation allowance or any other allowance under this Act has been computed.
  • Where a person is found to have any asset located outside India.It includes the financial interest in any entity.

Submission of return after order in section 148

The assessee shall submit the return within the time period prescribed in the Notice of Income Escaping Assessment. Assessee may demand reasons of proceeding u/s 147 from AO. If such reasons are not demanded by the assessee, the AO can proceed to complete assessment. If the assessee demands reasons, the AO must provide reasons to the assessee. Assessing officer is duty bound to provide the copy of reason recorded within the reasonable time as per guidelines of Hon’ble Supreme Court.

Conclusion

Section 147 empowers the Assessing Officer to assess or reassess income chargeable to tax if he is an opinion that income for any assessment year has escaped assessment. The AO is said to have reason to believe if he has cause or justification to know or suppose that income has escaped assessment.

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