Legal Validity of Notices Us 148 Post 1st April, 2021

NEW SCHEME OF
REASSESSMENT UNDR SECTION

148 & SEARCH CASES - LEGAL
VALIDITY OF RECENT 148
NOTICES
&
FACELESS ASSESSMENT
- Ved Jain
Section I
New scheme for
reassessment under
section 147
15th July 2021 Ved Jain 2

Need for new scheme of reassessment
Relevant extract of Memorandum to Finance Bill, 2021
“Under the Act, the provisions related to income escaping assessment provide that if the Assessing Officer has reason to believe that any
income chargeable to tax has escaped assessment for any assessment year, he may assess or reassess or recompute the total income for
such year under section 147 of the Act by issuing a notice under section 148 of the Act. However, such reopening is subject to the time limits
prescribed in section 149 of the Act.
In cases where search is initiated u/s 132 of the Act or books of account, other documents or any assets are requisitioned under section 132A
of the Act, assessment is made in the case of the assessee, or any other person, in accordance with the special provisions of sections 153A,
153B, 153C and 153D, of the Act that deal specifically with such cases. These provisions were introduced by the Finance Act, 2003 to replace
the block assessment under Chapter XIV-B of the Act. This was done due to failure of block assessment in its objective of early resolution of
search assessments. Also, the procedural issues related to block assessment were proving to be highly litigation-prone. However, the
experience with this procedure has been no different. Like the provisions for block assessment, these provisions have also resulted
in a number of litigations.
Due to advancement of technology, the department is now collecting all relevant information related to transactions of taxpayers
from third parties under section 285BA of the Act (statement of financial transaction or reportable account). Similarly, information is
also received from other law enforcement agencies. This information is also shared with the taxpayer through Annual Information
Statement under section 285BB of the Act. Department uses this information to verify the information declared by a taxpayer in the
return and to detect non-filers or or those who have not disclosed the correct amount of total income. Therefore, assessment or
reassessment or re-computation of income escaping assessment, to a large extent, is information-driven.
In view of above, there is a need to completely reform the system of assessment or reassessment or re-computation of income
escaping assessment and the assessment of search related cases. The Bill proposes a completely new procedure of assessment of
such cases. It is expected that the new system would result in less litigation and would provide ease of doing business to taxpayers
as there is a reduction in time limit by which a notice for assessment or reassessment or re-computation can be issued.”

Analysis of the new
provision relating to scheme
of reassessment

Section 147 - Income escaping assessment
Section 147 Section 147

Amended vide Finance Act 2021 Prior to Finance Act 2021
If any income chargeable to tax, in the case of an assessee, If the Assessing Officer has reason to believe that any income
has escaped assessment for any assessment year, the chargeable to tax has escaped assessment for any assessment
Assessing Officer may, subject to the provisions of sections year, he may, subject to the provisions of sections 148 to 153,
148 to 153, assess or reassess such income or recompute the assess or reassess such income and also any other income
loss or the depreciation allowance or any other allowance or chargeable to tax which has escaped assessment and which
deduction for such assessment year (hereafter in this section comes to his notice subsequently in the course of the proceedings
and in sections 148 to 153 referred to as the relevant under this section, or recompute the loss or the depreciation
assessment year). allowance or any other allowance, as the case may be, for the
assessment year concerned (hereafter in this section and
Explanation.—For the purpose of assessment or reassessment in sections 148 to 153 referred to as the relevant assessment
or recomputation under this section, the Assessing Officer may year) :
assess or reassess the income in respect of any issue, which ……..
has escaped assessment, and such issue comes to his notice
subsequently in the course of the proceedings under this
section, irrespective of the fact that the provisions of section
148A have not been complied with.]

When can notice under section 148 be issued under
the new provisions ?
Notice under section 148 can be issued by the AO if:
(1) there is “information with the Assessing Officer which

suggests that the income chargeable to tax has escaped
assessment” in the case of the assessee for the relevant
assessment year; and
(2) The Assessing Officer has obtained prior approval of

the specified authority to issue such notice

“Information with the Assessing
Officer which suggests that the
income chargeable to tax has
escaped assessment”
Meaning and Scope

“Information with the Assessing Officer which suggests that the
income chargeable to tax has escaped assessment”
Meaning and scope
• There are 2 Explanations provided under the new section 148 which provides the meaning of the expression ‘information with the
AO which suggests that the income chargeable to tax has escaped assessment’:
• Explanation 1 to section 148: Information with the AO which suggests that the income chargeable to tax has escaped
assessment means:—
 any information flagged in the case of the assessee for the relevant assessment year in accordance with the risk
management strategy formulated by the Board from time to time;
Note: As per the Memorandum, this flagging would largely be done by the computer based system
 any final objection raised by the Comptroller and Auditor General of India to the effect that the assessment in the case of the
assessee for the relevant assessment year has not been made in accordance with the provisions of this Act.
Note: Inclusion of cases based on CAG objections may nullify numerous various judicial pronouncements that the audit
objection and audit report cannot be basis for reopening u/s 147.

Meaning and scope (contd.)
• Explanation 2 to section 148: Cases where the AO shall be deemed to have information which suggests that the income chargeable to tax
has escaped assessment:
i. Search under section 132: A search is initiated under section 132 on or after the 1st day of April, 2021 in the case of the assessee or
ii. Requisition under section 132A: Books of account, other documents or any assets are requisitioned under section 132A, on or after
the 1st day of April, 2021 in the case of the assessee; or
iii. Survey under section 133A: A survey is conducted under section 133A, other than a survey under section 133A(2A) [TDS/TCS related
survey] or a survey under section 133A(5) [survey to verify expenditure incurred in connection with any function, ceremony or event], on
or after the 1st day of April, 2021, in the case of the assessee; or
iv. Asset seized or requisitioned during search belongs to another assessee: AO is satisfied, with the prior approval of the Pr. CIT or
CIT, that any money, bullion, jewellery or other valuable article or thing, seized or requisitioned under section 132 or section 132A in
case of any other person on or after the 1st day of April, 2021, belongs to the assessee; or
v. Documents seized or requisitioned during search relates to pertains to another assessee: AO is satisfied, with the prior approval
of Pr. CIT or CIT, that any books of account or documents, seized or requisitioned under section 132 or section 132A in case of any
other person on or after the 1st day of April, 2021, pertains or pertain to, or any information contained therein, relate to, the
assessee,
For condition no (iv) and (v), apparently, approval required only by AO of the assessee. Approval not required by AO of searched person

Meaning and scope (contd.)
• In the above cases stated in Explanation 2, the AO shall be deemed to have information which suggests that the income
chargeable to tax has escaped assessment in the case of the assessee for the 3 assessment years immediately preceding
the assessment year relevant to the previous year in which the search is initiated or books of account, other documents or
any assets are requisitioned or survey is conducted in the case of the assessee or money, bullion, jewellery or other valuable
article or thing or books of account or documents are seized or requisitioned in case of any other person.
• Search based assessments now covered under section 147. Provision of section 153A and 153 not to be applicable in respect of
search on or after 01.04.2021.
• In search based assessments, the period for which reopening shall be mandatory is now 3 assessment years. In case the AO
intends to reopen for beyond 3 years, he can do so by complying with Explanation 1 to section 148 – Judgment of Hon’ble Delhi
High court in Kabul Chawla affirmed legislatively
• Deemed cases where income chargeable to tax has escaped assessment - the deemed cases are now captured under
Explanation 1 and Explanation 2 to section 148 as discussed above. Earlier, different category of cases (inclusive list) was
captured under Explanation 2 to section 147. Now, the list is exhaustive

Procedure under section 148A

Procedure under section 148A
• *AO to give an opportunity to assessee to reply as to why

Under the new provisions, before issuing notice, AO is a notice under section 148 should not be issued on the
required to comply with procedure under section 148A basis of information which suggests that income
chargeable to tax has escaped assessment in his
4. case for the relevant assessment year and results of
1. Order to be passed by AO enquiry conducted, if any, as per clause 148(a);
AO to Conduct enquiry, if as to whether it is a fit
required, with prior case for issuance of notice
approval [148A(a)] u/s 148, with prior • *Minimum 7 days; maximum 30 days period to be given to
approval [148A(d)]** respond to from date of notice; period further extendible
• **Order to be passed within 1 month from the end of the

2.
month in which the reply under section 148A(c) is
Opportunity of being heard 3.
received by AO, where no such reply is furnished, within 1
to be given to assessee, AO to consider reply of
with prior approval assessee [148A(c)] month from the end of the month in which time or
[148A(b)]* extended time allowed to furnish a reply as per 148A(b)
expires

Procedure under section 148A (contd.)
• 148A non-applicability: Procedure under section 148A is not applicable in following cases:
 Search under section 132: A search is initiated under section 132 on or after the 1st day of April, 2021 in the case of the assessee or
 Requisition under section 132A: Books of account, other documents or any assets are requisitioned under section 132A, on or after
the 1st day of April, 2021 in the case of the assessee; or
 Asset seized or requisitioned during search belongs to another assessee: AO is satisfied, with the prior approval of the Principal
Commissioner or Commissioner, that any money, bullion, jewellery or other valuable article or thing, seized or requisitioned under section
132 or section 132A in case of any other person on or after the 1st day of April, 2021, belongs to the assessee; or
 Documents seized or requisitioned during search relates to pertains to another assessee: AO is satisfied, with the prior approval
of Principal Commissioner or Commissioner, that any books of account or documents, seized or requisitioned under section 132 or
section 132A in case of any other person on or after the 1st day of April, 2021, pertains or pertain to, or any information contained
therein, relate to, the assessee,
 Cases which comes to the notice of the AO during the course of reassessment proceedings [Explanation to section 147]
 In case of above said exclusions, if income pertains to period prior to 3 years, then too, the procedure under section 148A may not be
required to be followed (one may contest though). However, test of Explanation 1 to section 148 still need to be complied with by the AO.
 Survey cases not covered in deemed exclusions for 148A – however, hile survey cases deemed to be cases where income has escaped
15assessment
th July 2021for 3 years under Explanation 2 to section 148
Ved Jain 13
Procedure under section 148A (contd.)
• Reason to believe taken care of by procedure under section 148A
 While there is no explicit requirement under the new provision for there to be a ‘reason to believe’ on the part of the AO before
issuance of notice, as was earlier required under section 147, however, under the new regime, before issuing notice, AO is
required to comply with procedure under section 148A.
 The procedure under section 148A, in a way, takes care of the ‘reason to believe’ as the order under section 148A(d) to
the effect that the case is fit for issuance of notice under section 148 should be a reasoned order.
 Further, it is pertinent to note that there is a requirement to seek approval at every stage i.e. before inquiry [148A(a)], before
issuing notice to assessee [148A(b)] and before passing order [148A(d)]

Number of approval required
before issuance of notice
under section 148

Four level of approvals required before issuance of
notice
1. Before conducting enquiry u/s 148A(a)
2. Before issuing notice under section 148A(b)
3. Before passing order under section 148A(d)
4. Before issuing notice under section 148 [refer proviso to section 148]
 In case where procedure under section 148A is not applicable (such as search based assessments), first 3 approvals will not be required.
 However, the approval before issuance of notice under section 148 shall still be required even in such cases [refer proviso to section 148]. Thus,
the effect of deeming fiction of Explanation 2 to section 148 (which deems that AO is in possession of information for 3 years that income has
escaped assessment) is diluted since there shall be a requirement to seek prior approval before issuance of notice under section 148
 Earlier, approval u/s 153D was required before passing assessment order in case of search based assessments - there is however no
requirement to obtain any approval before passing reassessment order even in case of search based reassessment order

Specified Authority for the
purpose of granting approval
under section 148 and section
148A

Specified Authority for the purpose of granting
approval under section 148 and section 148A
If reopening made within 3 Pr. CIT or Pr. DIT

years from end of relevant
assessment year or CIT or DIT
Specified Authority
Pr. CCIT or
Pr. DGIT
If reopening made after 3 years
from end of relevant
assessment year
Where there is no Pr. CCIT or
Pr. DGIT, then by CCIT or DGIT
 Earlier, in case reopening was made within 4 years, approval was required from Joint Commissioner. If reopening was made after 4 years,
approval was required from Pr. CCIT or CCIT or Pr. CIT or CIT
 The authority from which approval is now required is of a higher rank than the authority from which the approval was required earlier

Time period for issuance of
notice under section 148
under new regime

Time period to issue notice under section 149
 As per substituted section 149, no notice shall be issued for the relevant assessment year if:
a. 3 years have elapsed from the end of the relevant assessment year, unless the case falls under clause (b) below
b. if 3 years, but not more than 10 years, have elapsed from the end of the relevant assessment year unless the AO has in his
possession books of account or other documents or evidence which reveal that the income chargeable to tax, represented in the form
of asset, which has escaped assessment amounts to or is likely to amount to INR 50 lakhs or more for that year:
 Explanation to section 149: "Asset" shall include immovable property, being land or building or both, shares and securities, loans and
advances, deposits in bank account.
 148A response period excluded while computing limitation under section 149
 The time or extended time allowed to the assessee, as per show-cause notice issued under clause (b) of section 148A or the period
during which the proceeding under section 148A is stayed by an order or injunction of any court, shall be excluded while computing
limitation period for issuance of notice under section 148
 Where immediately after the exclusion of the period u/s 148A as above, the period of limitation available to the AO for passing an order
under 148A(d) is less than 7 days, such remaining period shall be extended to 7 days and the period of limitation under section 149(1)
shall be deemed to be extended accordingly

Comparison with erstwhile provisions
Time limit to issue notice under the new regime Time limit to issue notice under the earlier regime
(amended vide Finance Act, 2021) (prior to Finance Act, 2021)
• If reopening is proposed to be made within 3 years • Reopening was possible within 6 years from end of relevant
from end of relevant assessment year – assessment year in normal circumstances
Exceptions:
No condition, reopening possible irrespective of the
amount of income that has escaped assessment  Reopening possible within 4 years in below cases:
 If income chargeable to tax which has escaped
• If reopening is proposed to be made after 3 years but assessment is less than Rs. 1 lakh
within 10 years from end of relevant assessment year
 If assessment framed earlier u/s 143(3) and assessee
Condition: Reopening possible only if AO has in his has disclosed fully and truly all material facts in the
possession books of account or other documents or assessment [proviso to section 147] [except where
evidence which reveal that the income chargeable to income relates to asset located outside India]
tax, represented in the form of asset, which has  Reopening possible within 16 years* from end of relevant
escaped assessment amounts to or is likely to amount assessment year if the income in relation to an asset
to INR 50 lakhs or more for that year (including financial interest in any entity) located outside
India has escaped assessment.
*Note: 16 years limit is not prescribed under the new provisions since the cases pertaining to undisclosed assets outside India
are intended to be covered under Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015

Impact of proviso to section 149
 The proviso to substituted section 149 read as under:
“Provided that no notice under section 148 shall be issued at any time in a case for the relevant assessment year
beginning on or before 1st day of April, 2021, if such notice could not have been issued at that time on account of being
beyond the time limit specified under the provisions of clause (b) of sub-section (1) of this section, as they stood
immediately before the commencement of the Finance Act, 2021:”
 The above proviso requires taking into account the time limit as per 149(1)(b) as it stood prior to Finance Act, 2021 which read as
under:
“149. (1) No notice under section 148 shall be issued for the relevant assessment year,—
(a) if four years have elapsed from the end of the relevant assessment year, unless the case falls under clause (b) or clause (c);
(b) if four years, but not more than six years, have elapsed from the end of the relevant assessment year unless the
income chargeable to tax which has escaped assessment amounts to or is likely to amount to one lakh rupees or more
for that year;
(c) if four years, but not more than sixteen years, have elapsed from the end of the relevant assessment year unless the income
in relation to any asset (including financial interest in any entity) located outside India, chargeable to tax, has escaped
assessment.”
 Even if asset located outside India, the test to be considered is that whether reopening was possible within 6 years (not 16 years)

Impact of proviso to section 149 (contd.)
Two interpretations are possible in respect of proviso to section 149 as under:
 Interpretation 1 (as it appears from plain reading of the provisions):
 The usage of the expression ‘at that time’ circles back to the time when notice is being issued – It is at such point when one
is required to apply the test whether notice could have been issued as per erstwhile provision of section 149(1)(b)
 Accordingly, benefit of 10 years to be effectively available for AY 2022-23 and subsequent assessment years.
 For AY 2021-22 and earlier assessment years, notice can be issued only within 6 years from the end of the relevant
assessment year.
 Interpretation 2 (as it appears is/was intended):

 Under this interpretation, the test is whether the assessment year could have been reopened as per the erstwhile provision
of section 149(1)(b) as on 31.03.2021 or not
 Accordingly, under this interpretation, the benefit of 10 years should be available to the Department from AY 2014-15
onwards since it the last assessment year that could have been opened as on 31.03.2021
Income escaping assessment is Rs. 50 lakhs or more
Income escaping assessment is
less than Rs. 50 lakhs
Assessment
year
Interpretation 1 Interpretation 2
AY 2013-14 • Reopening not possible (on or • Reopening not possible on or after • Reopening not possible on or after
after 30.06.2021) 30.06.2021 30.06.2021
AY 2014-15 • Reopening not possible (on or • Reopening not possible on or after • Reopening may be possible on or
after 30.06.2021) 30.06.2021 before 31.03.2025
AY 2015-16 • Reopening not possible (on or • Reopening possible on or before • Reopening possible on or before
after 30.06.2021) 31.03.2022 31.03.2026
after 30.06.2021) 31.03.2023 31.03.2027
after 30.06.2021) 31.03.2024 31.03.2028
AY 2018-19 • Reopening possible on or before • Reopening possible on or before • Reopening possible on or before
31.03.2022 31.03.2025 31.03.2029
31.03.2023 31.03.2026 31.03.2030
Income escaping assessment is Rs. 50 lakhs or more
Income escaping assessment is
less than Rs. 50 lakhs
Assessment
year
Interpretation 1 Interpretation 2
31.03.2024 31.03.2027 31.03.2031
31.03.2025 31.03.2028 31.03.2032
31.03.2026 31.03.2033 31.03.2033
31.03.2027 31.03.2034 31.03.2034
Note: From AY 2022-23 onwards, under both the interpretations, benefit of 10 years shall be available to the
Department

Controversy around notice under
section 148 issued during 01.04.2021
to 30.06.2021 in relation to AY 2014-
15 or earlier assessment years

Controversy around notice under section 148 issued during
01.04.2021 to 30.06.2021 in relation to AY 2014-15 or earlier
assessment years
• By way of various notifications issued under section 3 of the Taxation and Other Laws (Relaxation and Amendment Of Certain
Provisions) Act, 2020 [in short “Taxation Relief Act”], the Central Government from time to time, inter alia, extended the
limitation for issuance of notice under section 148 of the Act, as prescribed under section 149 of the Act, as under:
S. No. Date of Notification Where the original limitation for issuance of Extended
notice under section 148 of the Act fell during the Limitation
below period
1. 31.03.2020 20.03.2020 to 29.06.2020 30.06.2020
2. 24.06.2020 20.03.2020 to 31.12.2020 31.03.2021
3. 31.03.2021 31.03.2021 30.04.2021
4. 27.04.2021 30.04.2021 (due to extension) 30.06.2021
• The time limit to issue notice for AY 2014-15 and AY 2013-14 under the erstwhile provision of section 149 stood extended to
30.06.2021 owing to the above said extended period of limitation.

assessment years (Contd.)
• On account of the extended period of limitation, the Department has issued various notices for, inter-alia, AY 2014-15 and AY
2015-16 during the period 01.04.2021 to 30.06.2021
• While issuing the notices under section 148 during 01.04.2021 – 30.06.2021, the Department has followed the erstwhile
provision of section 147-152.
• Procedure under section 148A has also not been followed by the Department.
• The Department seeks to rely on the following Explanation provided under the Notification issued for extension of time limit for
issuance of notice under section 148 to contest that the provision that existed prior to commencement of Finance Act, 2021
applied to such notices issued for AY 2014-15 and AY 2013-14:
“Explanation.— For the removal of doubts, it is hereby clarified that for the purposes of issuance of notice under section
148 as per time-limit specified in section 149 or sanction under section 151 of the Income-tax Act, under this sub-clause,
the provisions of section 148, section 149 and section 151 of the Income-tax Act, as the case may be, as they
stood as on the 31st day of March 2021, before the commencement of the Finance Act, 2021, shall apply.”

• The notice issued by following the earlier provisions is being contested to be bad in law on account of, inter-alia, the
following reasons:
 The Explanation issued under the Notification is beyond the power conferred upon and delegated to the Central
Government under the provisions of section 3 of the Taxation Relief Act and is also contrary to the legislative intent behind
the provisions of the Taxation Relief Act.
 The Explanation is also contrary to and ultra vires the provisions of sections 147 to 149 of the Act as substituted/introduced
vide Finance Act, 2021.
 Pursuant to coming into force of the new provisions of section 149, the provisions that existed prior thereto have been
repealed and thus cannot be resorted to and applied by the Department for any proceedings initiated on or after
01.04.2021.

• Writs filed in various High Courts to challenge notice u/s 148 issued on or after 01.04.2021 without following the procedure
under section 148A
 Mon Mohan Kohli vs ACIT & Anr, W.P.(C) 6176/2021 [Delhi High Court]
 Sahil International vs ACIT & Ors., Writ Petition (L) NO. 14687 OF 2021 [Bombay High Court]
 Armada D1 Pte. Ltd. vs. DCIT & Ors., Writ Petition (L) No.11766 of 2021[Bombay High Court]
 Tata Communications Transformation Services Limited vs ACIT & Ors., Writ Petition No.1334 of 2021 [Bombay High
Court]
 Bagaria Properties and Investments Private Limited & Anr. Vs Union Of India & ORS. WPO/244/2021 [Calcutta High Court]

Impact of new scheme of
reassessment in case of
search based assessment

Impact of new provision for reassessment in case of
search based assessment
Impact of new scheme for reassessment in case of search based assessment may be gathered from the following
points:
Impact of time period to issue notice u/s 149 on search based assessments (erstwhile
1 section 153C)
2 Whether any benefit to Revenue by providing for deeming fiction of 3 years ?
3 Abatement of assessment – whether 2 parallel assessments will be carried out
4 Kabul Chawla legislatively affirmed
Whether a new claim can be made in return filed in response to

5
notice under section 148
6 Impact on penalty under section 271AAB
7 Requirement to issue notice under section 143(2)

1. Impact of time period to issue notice u/s 149 on search
based assessments (erstwhile section 153C)
• Under the new provision, the AO is deemed to have information which suggests that the income chargeable to tax has escaped
assessment in the case of the assessee for the 3 assessment years immediately preceding the assessment year relevant to
the previous year in which:
 the search is initiated
 or books of account, other documents or any assets are requisitioned or
 survey is conducted in the case of the assessee
 or money, bullion, jewellery or other valuable article or thing or books of account or documents are seized or
requisitioned in case of any other person.
• Even in cases where assets belong to an assessee are seized during search in case of another person, the deeming fiction
operates for 3 assessment years immediately preceding the assessment year relevant to the previous year in which asset is seized
(not 3 years preceding the year in which assets are transferred)
• However, under the new section 149(1)(a), notice is allowed to be issued within 3 assessment years from the end of relevant
assessment year. In order to issue notice beyond 3 assessment years, the condition that income that has escaped assessment
should be Rs. 50 lakh or more shall be required to be fulfilled

1. Impact of time period to issue notice on search based
assessments (erstwhile section 153C) - Example
• There may be panic situation to issue notice under section 148 in time in in case an asset belonging to or information
pertaining to or relating to an assessee is seized in the case of third person and transferred to the AO of the assessee after
inordinate delay
Example:-
 Search carried out in the premises of Mr. X on 28.03.2022.
 Jewellery worth Rs. 30,00,000 belonging to Mr. Y is found and handed over to the AO of Mr. Y on 20.03.2023.
 The deeming fiction under Explanation 2 to section 148 will imply that AO is deemed to have information that income has
escaped assessment for 3 assessment years immediately preceding the previous year relevant to assessment year in
which jewellery is seized in case of Mr. X i.e. AY 2021-22, AY 2020-21 and AY 2019-20 –Benefit of such deeming fiction
shall be available to the AO after AO of the assessee records satisfaction after obtaining prior approval from Pr. CIT or CIT
 In the above example, notice for AY 2019-20 (3rd preceding assessment year) shall be required to be issued immediately
on or before 31.03.2023 after taking approval from specified authority under section 151 in accordance with proviso to
section 148. If notice is not issued on or before 31.03.2023, the same shall become time barred unless the condition of Rs.
50 lakh is fulfilled. Thus,

2. Whether any benefit to Revenue by providing for
deeming fiction of 3 years ?
• In most of the cases, out of the 3 assessment years immediately preceding the assessment year relevant to the previous year
in which search is initiated or assets/documents are seized, the immediately preceding 1 (and 2 in some cases) assessment
years may anyway be assessable by the Revenue under regular scrutiny assessment
Example:- Search carried out in the premises of Mr. X on 01.04.2021*. Benefit of deeming fiction under Explanation 2 to
section 148 available for AY 2021-22, AY 2020-21 and AY 2019-20
 For AY 2021-22, time limit to file return of income yet to expire on date of search – thus, case can anyway be regularly
assessed by issuing scrutiny notice under section 143(2)
 For AY 2020-21, time limit to issue notice expires on 30.06.2022. Again, the case for AY 2020-21 can anyway be regularly
assessed by issuing scrutiny notice under section 143(2)
 For AY 2019-20, the benefit of deeming fiction may be required if notice u/s 143(2) has not been issued
*Note: Even if search is carried out on 20.03.2022, then too, at least AY 2022-23 can still be assessed under regular scrutiny assessment

3. Abatement of assessment – whether 2 parallel
assessments will be carried out
• Where notice under section 143(2) has not been issued and time limit to
issue notice under section 143(2) has expired, there should be no issue as
such and the AO can issue notice under section 148
• However, under the new provisions, there is no clarity as to how the

scheme of assessment will work in case notice for regular assessment
under section 143(2) has already been issued; or where time though notice
under section 143(2) has not been issued, time limit to issue notice under
section 143(2) has not expired
• Issue: In the above cases, the issue will be whether a regular assessment
shall be carried out in pursuance of already issued notice under section
143(2) or by issuance of notice under section 143(2), or whether the
proceedings will abate and AO can issue notice under section 148

3. Abatement of assessment – whether 2 parallel
assessments will be carried out (contd.)
S. No. Situation Likely process to be followed
1. Where notice under section it is likely that the said proceedings will have to continue and no reopening shall be made. In various
143(2)/148 has already been judicial pronouncements, it has been held that there cannot be two parallel assessments based on
issued two notices.
 Aditya Medisales Ltd, Special CA No. 2827 of 2013, Gujarat High Court
 Marwadi Shares and Finance Limited, Special CA No. 17698 of 2017, Gujarat High Court
2. Where notice under section There are divergent rulings on the issue:
143(2) has not been issued • Favor: Held that no notice under section 147 can be issued if time limit to issue notice
but time limit to issue notice under section 143(2) is pending
under section 143(2) has not  Smt. Suman w/o. Keshaorao burde, Income Tax Appeal No. 72 of 2003 [Bombay High Court];
expired
 CIT versus Qatalys software technologies ltd, [2009] 308 ITR 249 (Mad);
 Super Spinning Mills Ltd. vs. Addl. CIT (2010) 38 SOT 14 (Chennai)(TM)(Trib.)
• Against: Held that notice under section 147 can be issued if time limit to issue notice under
section 143(2) is pending
 Shri Jora Singh, Tax Appeal No. 418 of 2010 [Allahabad High Court];
 Acorus Unitech Wireless Private Ltd., [2012] 345 ITR 228, [Delhi High Court]
4. Kabul Chawla legislatively affirmed
• In search based assessments, the period for which reopening shall be mandatory is now 3 assessment years
• In case the AO intends to reopen for beyond 3 years, he can do so by complying with Explanation 1 to section 148 i.e. by
fulfilling the condition that he has information that suggests that income has escaped assessment
• Further, the test of section 149(1)(b) will also required to be fulfilled i.e. the AO should have in his possession books of account
or other documents or evidence which reveal that the income chargeable to tax, represented in the form of asset, which has
escaped assessment amounts Rs. 50 lakh or more for that year the income that has escaped assessment
• Thus, in a way, the assessment years beyond 3 years can be opened only if there is incriminating material with the AO
• Since assessment years beyond 3 years are normally completed assessment years (unabated) in terms of section 153A, the
judgment of Hon’ble Delhi High court in Kabul Chawla has been legislatively affirmed

5. Whether a new claim can be made in return filed in
response to notice under section 148
• In the context of proceedings under section 153A, in various judicial pronouncements, it was held that in case of an abated
assessment year, a new claim for deduction can be made for the first time in the return filed in response to notice under section 153A
or not [M/s. JSW Steel Ltd. (Sucessor on amalgamation of jsw ispat steel ltd.), Income Tax Appeal 1934 OF 2017 (Bombay High
Court)].
• For completed (unabated) assessment years, there were divergent rulings on the issue whether new claim for deduction ncan be
made for the first time in the return filed in response to notice under section 153A or not:
 Against: Jai Steel (India), (2013) 259 CTR (Raj) 281 [Rajasthan High Court]
 Favorable: Universal Medicare Pvt. Ltd., ITA Nos. 2967 to 2971/Mum/2016 (ITAT Mumbai)
• In the context of proceedings under section 147, however, the Hon’ble Apex Court in the case of Sun Engineering Works [198 ITR
297], held that proceedings under section 147 are for benefit of Revenue and that once an assessment is validly reopened, it is not
open to an assessee to seek a review of concluded items unconnected with the escapement of income.
• The issue that will arise now will be that whether in case an AO drops the assessment under section 143(2) and issues notice under
section 148, whether a new claim for deduction can be made by the assessee for the first time or not.
6. Impact on penalty under section 271AAB
• Penal provisions in a case where search has been initiated u/s 132 on or after 15-12-2016 are governed by sub-section (1A) of Section
271AAB for the ‘specified previous year’. “Specified previous year” includes the following years:
 Search year; and
 Year preceding search year in case the due date of filing return for such year has not expired on or before date of search
• Under section 271AAB(1A), penalty at concessional rate of 30% of undisclosed income may be levied, if assessee admits such undisclosed
income u/s 132(4) and certain other conditions are fulfilled - including that the assessee on or before the “specified date”, pays the tax
together with interest, if any, in respect of such undisclosed income; Else a penalty of 60% of undisclosed income may be levied.
• “Specified date” has been defined to mean the due date of furnishing of return of income under section 139(1) or the date on which the
period specified in the notice issued under section 153A for furnishing of return of income expires.
• Issue - Though the scheme of section 153A has been replaced with section 147, however, an enabling necessary amendment has not been
made in the definition of “Specified Date” under section 271AAB of the Act so as to also include a return filed u/s 148 of the act in Search
and Seizure cases. Consequently, benefit of concessional rate of penalty for the year preceding search year may not be available to the
assessee

7. Requirement to issue notice under section 143(2)
• Pursuant to issue of notice, assessee will be required to furnish return of income as per section 148
• The language of section 148 is un-amended so far as it provides that once the assessee files the return, “the provisions of this Act shall, so
far as may be, apply accordingly as if such return were a return required to be furnished under section 139”.
• Interpreting the above said provisions, the Courts in the past have held that it is mandatory to issue notice under section 143(2) once return
is filed by an assessee in response to notice under section 148
• The earlier judgments on the said issue should continue to apply and therefore, once return is filed by the assessee in response to notice
under section 148, there should be a mandatory requirement to issue notice under section 143(2) of the Act.
• However, it may be relevant to point out that in the context of proceedings under section 153A/153C, few Courts had taken a view that there
is no requirement to issue notice under section 143(2) once the return is filed by the assessee in response to notice under section 153A
[Ashok Chadha vs ITO, 20 Taxmann.com 387 (Delhi)]
• The above said view rendered in the context of proceedings under section 153A which exempts issuance of notice u/s 143(2) in search
cases may not be applicable anymore

Miscellaneous points

Income coming to the notice of the AO subsequently during
the reassessment proceedings
• Explanation to replaced section 147 reads as under:
Explanation.—For the purpose of assessment or reassessment or recomputation under this section, the Assessing Officer
may assess or reassess the income in respect of any issue, which has escaped assessment, and such issue comes to his
notice subsequently in the course of the proceedings under this section, irrespective of the fact that the provisions
of section 148A have not been complied with.]
• Thus, the AO has the power to assess any other income that comes to his notice during the reassessment proceedings as
well
• It may be noted that the language of the above Explanation to amended section 147 is similar to erstwhile provision of section
147 read with Explanation 3 thereto.
• Therefore, earlier jurisprudence in this regard should still be relevant i.e. subsequently found income may be added only if the
income for which proceedings were initiated is assessed to tax and is actually added in the final order of assessment under
section 147.

Impact of third proviso to erstwhile section 147 not being
present in new section 147
• The following proviso present in erstwhile section 147 does not find its place in the new section 147:
Provided also that the Assessing Officer may assess or reassess such income, other than the income involving matters which are the subject
matters of any appeal, reference or revision, which is chargeable to tax and has escaped assessment.]
• The above proviso was inserted vide Finance Act, 2008. The rational behind the same is explained in Memorandum as under:
Amendments in respect of reassessment proceedings to clarify correct legislative intention

The issue of valid reopening of assessment has been a matter of dispute between the department and the taxpayers. Some of the judicial
interpretations on the subject have been found to have a bearing on the legality of such reopening. Two of such judicial interpretations are given
below:-
(i) One of the judicial interpretation on this issue is that if the order of the Assessing Officer has been interfered by the CIT (A) and further
proceedings are pending before the ITAT, any notice under section 148 for the said assessment year is invalid. In the light of such
interpretation, it may not be possible to issue notice under section 148 in any case which is pending before the ITAT/courts. Further, by
the time the Tribunal or the court judgment is received, reopening of the case may be barred by limitation. Such a situation is not in
conformity with legislative intent and some other judicial pronouncement. Infact, in one of the other judgement, it has been held that in a
case where an assessment is made the subject of an appeal, only that part of assessing officer’s order merges with the appellate
authority’s order in respect of which the appellate authority has exercised the appellate jurisdiction [CIT Vs. Sakseria Cotton Mills Ltd. 124
ITR 570 Bombay]. Hence, the legislative intent is clear that if an income has escaped assessment and which has not been subject matter
of an appeal, reference or revision, notice under section 148 can be issued for assessment or reassessment of that income. ..
Hence, in order to correctly reflect the legislative intention, it is proposed to – (i) amend section 148 of the Income-tax Act to provide that the
assessing officer may assess or reassess an income which is chargeable to tax and has escaped assessment other than those income involving
matters which are the subject matter of any appeal, reference or revision;
• In absence of similar provision, one may contest that once the order is in appeal, no proceedings under section 147 can be initiated.

Section II
Faceless assessment

Faceless Assessment Scheme
• ‘Faceless Assessment Scheme 2019’ (earlier termed as ‘E-Assessment Scheme- 2019’) was notified by the Central Government, in
exercise of its powers under section 143(3A) of the Act, vide Notification No. 61/2019 dated 12.09.2019.
• Faceless Assessment Scheme, 2019 was amended from time to time vide Notification No. 85/2019 dated 01.01.2019, Notification No.
60/2020 dated 13.08.2020 and Notification No. 6/2021 dated 17.02.2021.
• Further, in exercise of its powers under section 143(3B) of the Act, the Central Government, for the purposes of giving effect to the
Faceless Assessment Scheme, 2019 made under 143(3A), issued directions vide Notification No. 62/2019 dated 12.09.2019 which was
amended from time to time vide Notification No. 86/2019 dated 01.01.2019, Notification No. 61/2020 dated 13.08.2020 and Notification
No. 7/2021 dated 17.02.2021. These directions provided that the provisions of this Act shall apply with such exceptions, modifications and
adaptations as are specified in the Notification
• Faceless assessment scheme is now incorporated under section 144B of the Act. All assessments on or after 01.04.2021 which were
earlier covered under faceless assessment scheme, 2019, are now required to be covered under section 144B.
• Section 143(3D) has also been inserted to provide that Faceless Assessment Scheme, 2019 under section 143(3A) and section 143(3B)
shall not apply in respect of orders passed on or after 01.04.2021

Faceless Assessment Scheme (contd.)
• All orders/notices/letters/instructions/any other communications issued by the 'National Faceless Assessment Centre' (NaFAC) on or after
1-4-2021 bearing the logo and name 'National e-Assessment Centre' (NeAC) shall be deemed to have been issued by 'National Faceless
Assessment Centre'(NaFAC). [Circular F. NO. 187/3/2020-ITA-I, Dated 8-4-2021]
• Wherever the sections 143(3A) and/or 143(3B) is mentioned in the notices, communications and orders etc. issued by the NaFAC, the
same shall be read as Section 144B of the Act [Circular F. NO. 187/3/2020-ITA-I, Dated 8-4-2021]
• All the assessment orders, except the following cases, are covered under the faceless assessment regime:
 Assessment orders in cases assigned to Central Charges

 Assessment orders in cases assigned to International Tax Charges.
• An order not passed in accordance with the procedure laid down under section 144B shall be non-est in the eyes of the law [Section
144B(9)]

Faceless Assessment Scheme (contd.)
• CBDT has directed that all Orders, Circulars, Instructions, Guidelines and Communications issued in order to implement the Faceless
Assessment Scheme, 2019 shall mutatis mutandis be applicable to the Faceless Assessment undersection 144B of the Act, except those
specifically modified by issue of fresh Orders/Circulars etc. [Order F. NO. 187/3/2020-ITA-I, Dated 31-3-2021]
• Some relevant Standard Operating Procedure(s) issued under Faceless Assessment Scheme, 2019, which may become relevant under
section 144B as well:
 Guidelines for implementation of Faceless Assessment Scheme, 2019 [Circular F. No. 173/165/2020-ita-1, dated 14-8-2020]
 Standard Operating Procedure (SOP) for personal hearing through video conference under the Faceless Assessment Scheme, 2019
[Circular F. No. PR. CCIT/NeAC/SOP/2020-21, dated 23-11-2020]
 SOP for assessment unit under Faceless Assessment Scheme, 2019 [Circular F. No. PR. CCIT/NeAC/SOP/2020-21, dated 19-11-
2020]
 SOP for functioning of Review Unit (RU) under the Faceless Assessment Scheme, 2019 [Circular F. NO. Pr. CCIT/NeAC/SOP/2020-
21, dated 19-11-2020]
 SOP for functioning of Technical Unit (TU) under the Faceless Assessment Scheme, 2019 [Circular F. NO. PR.
CCIT/NeAC/SOP/2020-21, dated 19-11-2020]
 SOP for functioning of Verification Unit under Faceless Assessment Scheme, 2019 [Circular F. No. PR. CCIT/NeAC/SOP-VU/2020-
21, dated 19-11-2020]

Right to personal hearing
under faceless assessment

Right to personal hearing under Faceless Assessment
• Faceless Assessment Scheme envisages the concept of personal hearing
• Section 144B(7)(vii) envisages a personal hearing where:
 a variation is proposed in the draft assessment order or final draft assessment order or revised draft assessment order, and
 an opportunity is provided to the assessee by serving a notice calling upon him to show cause as to why the assessment should not
be completed as per the such draft or final draft or revised draft assessment order,
• In the above case, the assessee may request for personal hearing so as to make his oral submissions or present his case before the
income-tax authority in any unit
• Pr. CCIT or Pr. DGIT, in charge of the NaFAC has been entrusted with the Authority to law down Standard Operating Procedure
(with the prior approval of the Board) for, inter-alia, circumstances in which personal hearing shall be approved [Section 144B(7)(xii)(h)]
• CCIT or the DGIT has been entrusted with the Authority to approve the request for personal hearing if he is of the opinion that the
request is covered by the SOP issued by the Pr. CCIT or Pr. DGIT laying down the circumstances in which personal hearing may be
granted [Section 144B(7)(viii)]

Standard Operating Procedure (SOP) for personal hearing
issued under Faceless Assessment Scheme, 2019
• SOP for personal hearing issued by Pr. CCIT vide F. NO. PR. CCIT/NeAC/SOP/2020-21, dated 23-11-2020 (issued under Faceless
Assessment Scheme, 2019) reads as under:
“The Principal Chief Commissioner of Income Tax, National e-assessment Centre, with the prior approval of the Central Board of
Direct Taxes, New Delhi, lays down the following circumstances in which personal hearing through Video Conference shall be
allowed in the Faceless Assessment Scheme, 2019:
Where any modification is proposed in the draft assessment order (DAO) issued by any AU and the Assessee or the
authorized representative in his/her written response disputes the facts underlying the proposed modification and makes
a request for a personal hearing, the CCIT ReAC may allow personal hearing through Video Conference, after considering
the facts & circumstances of the case, as below:-
1. The Assessee has submitted written submission in response to the DAO.
2. The Video Conference will ordinarily be of 30 minutes duration. It may be extended on the request of the Assessee or
authorised representative.
3. The Assessee may furnish documents/evidence, to substantiate points raised in the Video Conference during the session or
within a reasonable time allowed by the AU, after considering the facts and circumstances of the case.”

SOP for personal hearing issued under Faceless Assessment
Scheme, 2019 also applicable under 144B
• The SOP for Personal Hearing issued under the Faceless Assessment Scheme, 2019 should also be applicable in respect of
proceedings under esction 144B
• In this regard, reference may be made to Order F. No. 187/3/2020-ITA-I, dated 31-3-202. The CBDT vide the said order has directed that
all Orders, Circulars, Instructions, Guidelines and Communications issued in order to implement the Faceless Assessment Scheme shall
mutatis mutandis be applicable to the Faceless Assessment under section 144B of the Act, except those specifically modified by issue of
fresh Orders/Circulars etc. Relevant extract of the Order is as under:
“The Faceless Assessment Scheme, 2019 (the Scheme) has been incorporated in the Income-tax Act vide the Taxation and Other
Laws (Relaxation and Amendment of Certain Provisions) Act, 2020. Section 144B of the Act pertaining to Faceless Assessment
has been inserted by the said amendment w.e.f. 1-4-2021.
2. In pursuance of the said amendment, the Central Board of Direct Taxes, in exercise of powers under section119 of the Act,
hereby directs that all Orders, Circulars, Instructions, Guidelines and Communications issued inorder to implement the Scheme
shall henceforth mutatis mutandis be applicable to the Faceless Assessment undersection 144B of the Act, except those
specifically modified by issue of fresh Orders/Circulars etc.
3. This order comes into effect from the 1st day of April, 2021.”

Manner of making request for personal hearing in terms of
SOP for personal hearing
• Thus, in terms of the SOP on Personal Hearing issued vide F. NO. PR. CCIT/NeAC/SOP/2020-21, dated 23-11-2020 which has been
made applicable to proceedings under section 144B, in order to apply for personal hearing, the assessee must:
 File his response to the draft assessment order
 Request for personal hearing using the link on the E-Proceedings portal
 Dispute the facts underlying the proposed modification and makes a request for a personal hearing
• The following options appear on the e-Proceedings portal. Assessee may opt for one of the options to request for personal hearing:

Judiciary’s perspective in respect of personal hearing under
faceless assessment
• In various cases, High Courts have set aside the assessment order passed by the Revenue without granting an opportunity of being
hear/without considering the request for personal hearing:
 Naresh Kumar Goyal vs. NaFAC Delhi, W.P.(C) 6245/2021 & CM Nos.19753-54/2021 [Hon’ble Delhi High Court]
 Ritnand Balved Education Foundation (Umbrella Org. of Amity Group of Institutions), WP No. 5537/2021 [Hon’ble Delhi High Court]
 Sanjay Aggarwal v. NaFAC Delhi, W.P. (C)5741/2021 [Hon’ble Delhi High Court]
 Naina Lal Kidwai versus NaFAC & Anr., W.P.(C) 5775/2021 [Hon’ble Delhi High Court]
 M/s DJ Surfactants v National e-Assessment Centre, and Others (Writ Petition No. 4814/2021) dated 02.06.2021 [Hon’ble Delhi High
Court]
• In Ritnand Balved Education Foundation (supra), Hon’ble Delhi High Court categorically observed that when statute itself makes the
provision for grant of personal hearing, the respondents/revenue cannot veer away from the same
• In Sanjay Aggarwal (supra), Hon’ble Delhi High Court observed that usage of the expression “may” in section 144B(7)(vii) cannot not
absolve Revenue from the obligation cast upon it to consider the request made for grant of personal hearing.

Key legal points to
remember

Section 144B – Key legal points to remember
The below legal points must be kept in mind while handling assessments under faceless assessment regime:
Show cause notice and • Before making any variation, AO is duty bound to issue show cause notice and draft
1
draft assessment order assessment order
Principle of natural • Reasonable time to respond to show cause notice must be given by the AO
2
justice • AO must wait for reply/timeline stated in the show cause notice before passing order
• If AO proposes to make variation in the final assessment order which is prejudicial

New Show Cause
3 Notice in case of new to the interest of the assessee vis-a-vis draft assessment order, another show
variation
cause and draft assessment order is mandatory

DISCLAIMER
The contents of this presentation are solely for informational purpose. Neither this presentation nor the information contained
herein constitutes a contract or will form the basis of a contract. The material contained in this presentation does not
constitute/substitute professional advice that may be required before acting on any matter. While every care has been taken in
the preparation of this presentation to ensure its accuracy at the time of publication, Ved Jain & Associates assumes no
responsibility for any errors which despite all precautions, may be found herein. In no event shall we be liable for direct or
indirect or consequential damages, if any, arising out of or in any way connected with the use of this presentation or the
information contained herein.

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NEW SCHEME OF

REASSESSMENT UNDR SECTION

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Section 147 Section 147

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Notice under section 148 can be issued by the AO if:

(1) there is “information with the Assessing Officer which

(2) The Assessing Officer has obtained prior approval of

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• *AO to give an opportunity to assessee to reply as to why

• **Order to be passed within 1 month from the end of the

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• Reason to believe taken care of by procedure under section 148A

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2. Before issuing notice under section 148A(b)

3. Before passing order under section 148A(d)

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If reopening made within 3 Pr. CIT or Pr. DIT

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 Interpretation 2 (as it appears is/was intended):

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2. 24.06.2020 20.03.2020 to 31.12.2020 31.03.2021

3. 31.03.2021 31.03.2021 30.04.2021

4. 27.04.2021 30.04.2021 (due to extension) 30.06.2021

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2 Whether any benefit to Revenue by providing for deeming fiction of 3 years ?

3 Abatement of assessment – whether 2 parallel assessments will be carried out

4 Kabul Chawla legislatively affirmed

Whether a new claim can be made in return filed in response to

6 Impact on penalty under section 271AAB

7 Requirement to issue notice under section 143(2)

 the search is initiated

 or books of account, other documents or any assets are requisitioned or

 survey is conducted in the case of the assessee

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 Search carried out in the premises of Mr. X on 28.03.2022.

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• However, under the new provisions, there is no clarity as to how the

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