Income Tax Department issued Instructions to AOs for initiating proceedings u/s 147

The Finance Act, 2021 has completely replaced the provisions of assessment and reassessment under Section 147 of the ITA.

The Directorate of Income Tax (Systems) has issued e-Verification Instruction No. 2 (i) of 2024, guiding Assessing Officers (AOs) on initiating proceedings under section 147 of the Income Tax Act, 1961, specifically in e-Verification cases. This instruction aims to address queries and provide clear directives regarding the process and considerations for reopening assessments.

Every earning individual is required to file the return to the income tax department if the earning is chargeable to tax. The tax authorities examine your income tax return (ITR). This process of examining the return of income is referred to as assessment.

1. Identification of High-Risk Cases: The instruction highlights the identification of high-risk cases under the e-Verification Scheme-2021 for the reopening of assessments under section 147 of the Act. AOs are instructed to invoke the provisions of section 147 and issue notices under section 148 accordingly.

2. Challenges Faced by AOs: A query regarding the quantum of Value at Risk (VaR) in the Final Verification Report (FVR) has been addressed. AOs faced difficulties in viewing the FVR to ascertain the quantum of Income Escapement amount/Value at Risk. The instruction provides clarity on accessing this information through the Insight Portal.

3. Information Available to AOs: The instruction clarifies that the information provided to AOs in e-Verification cases constitutes “Information” within the meaning of clause (iv) of Explanation 1 to Section 148 of the Act. It categorizes cases into non-updated and updated ITR cases, detailing the computation of Value at Risk in each scenario.

4. Guidance for AOs: A step-by-step guide is provided for AOs to initiate proceedings under section 147 of the Act. A quick reference guide for ‘High-Risk e-Verification Scheme Cases’ is also available for assistance on the Insight Portal. Ads by

5. Support Channels: AOs are informed about the availability of support channels for assistance, including email and helpline services provided by the Directorate of Income Tax (Systems). Conclusion: The e-Verification Instruction No. 2 (i) of 2024 serves as a comprehensive guide for AOs in initiating proceedings under section 147 of the IT Act in e-Verification cases. It addresses queries, provides clarity on accessing necessary information, and offers step-by-step instructions for compliance. By following these directives, AOs can effectively navigate the process of reopening assessments and ensure compliance with relevant regulations.

e-Verification Instruction.

No. 2 (i) of 2024 DIRECTORATE OF INCOME TAX (SYSTEMS)

ARA Centre, E-2 Ground Floor Extension, Jhandewalan New Delhi-110055 F. No.: CIT(e-Verification)/2023-24/FVR/Instr./ Date: – 19.03.2024

To, All Pr. Chief Commissioner(s)/Pr. Director General(s) of Income Tax All Chief Commissioner(s)/Director General(s) of Income Tax All Commissioner(s)/Pr. Director(s) of Income Tax All Commissioner(s)/Director(s) of Income Tax Sir/ Madam Sub: Instructions to the AO’s for initiating proceedings u/s 147 of I.T. Act, 1961 in e-Verification cases-reg.

Kindly refer to the e-Verification Instruction No. 2 of 2024 circulated vide F. No.: CIT(e-Verification)/2023-24/FVR/Instr/ dated 01.03.2024 on the above subject.

1. Vide afore mentioned Instruction, it was apprised that certain High-Risk Cases have been identified under e-Verification Scheme-2021 for reopening of assessment u/s 147 of the Act and the respective AOs were advised to invoke the provisions of section 147 of the Act and issue Notice u/s 148 of the Act in such e-Verification cases accordingly.

2. In this connection certain query has been received from field formations with regards to the quantum of Value at Risk (VaR) arrived at in the Final Verification Report (FVR) by the CIT, e-Verification as mentioned in the aforesaid It has been conveyed that the AOs are facing problem in viewing the FVR relating to the cases to ascertain the quantum of Income Escapement amount/ Value at Risk.

3. View of all proceedings carried out by the Prescribed Authorities and documents submitted by the taxpayer during the e-Verification has been provided under e-Verification module in Insight portal. The user may navigate the path Insight Portal >> Verification Module >> e-Verification (Taxpayer) >> e- Verification Scheme 2021>>Verified>>Count.

5. The information provided to the AOs in these cases is the “Information” made available to the AO within the meaning of clause (iv) of Explanation 1 to Section 148 of the Act. For Assessment Year 2020-21, following two categories of cases have been made available: – (i) Non- updated ITR cases: – No updated ITR u/s 139( 8A) of the Act has been filled by the taxpayer. (ii) Updated ITR cases: – Updated ITR u/s 139(8A) of the Act has been filled by the taxpayer during the proceedings of e-Verification, without fully reconciling the mismatch. For Non-updated ITR cases, Value at Risk in FVR is the same as Income Escapement amount as estimated by the Prescribed Authorities in the Preliminary Verification Report (PVR). However, in Updated ITR cases, the Value at Risk in FVR is the amount of Income Escapement amount as determined by the Prescribed Authorities in the PVR as reduced by any additional income shown by the assessee in Updated ITR u/s 139(8A) of the Act i.e. {Value at Risk = (Income Escapement mount determined by the PA in the PVR – Additional income shown by the assesse e in Updated ITR)}. Further, the additional income shown by the assessee in Updated ITR u/s 139(8A) of the Act is the amount of Gross Total Income shown in Updated ITR as reduced by Gross Total Income shown in Original ITR i.e. (Additional income = GTI as per Updated ITR – GTI as per original ITR)

6. In view of the above, the respective Assessing Officers are advised to invoke provisions of section 147 of the Act and issue Notice u/s148 of the Act accordingly in such e-Verification cases. To initiate proceedings u/s 147 of the Act, the path is as under: – Insight Portal >> Verification Module >> e-Verification (Taxpayer) >> High Risk – e-Verification Scheme>> Under Verification>>count. 7. Quick Reference Guide for ‘High Risk e-Verification Scheme Cases is available on Insight Portal for the assistance of the Users. For any assistance, you may raise the issue to [email protected] or call helpdesk at 1800 103 4216 (Monday to Friday 9.30 AM to 6. 00 PM) This issues with the prior approval of the DGIT(Systems), New Delhi Yours faithfully (Sanjay Joseph) CIT(e-Verification) Directorate of Systems, New Delhi.

Types of Assessment

Further, assessments are of various types, self-assessment, preliminary assessment, regular assessment, and special assessment.

Any income or earnings during a particular year are assessed by the taxpayer (self-assessment) in the immediately following year referred to as the assessment year.

For instance, anything you earned in the financial year (FY) 2020-21 is assessed in the assessment year (AY) 2021-22. After self-assessment, the taxpayer will compute the tax liability and will have to pay that amount and file ITR. Thereafter, the income tax department (ITD) conducts preliminary checking of returns for any arithmetical errors, incorrect claims, etc., which is a fully-computerised process. At this stage, there is no detailed scrutiny of ITR filed.

Now, regular assessment has been sub-divided into scrutiny assessment, under Section 143(3) and best judgement assessment, under Section 144.

Also, special assessment had two categories: income escaping assessment, under Section 147 and assessment in consequence of search, under Sections 153A to 153C.

It may so happen that a few heads of income may escape assessment during initial assessment proceedings. In such a scenario, and if the assessing officer (AO) finds that some income that is actually chargeable to tax has not been assessed, the AO can re-open the cases to reassess the individual’s ITRs under Section 147 of the ITA.

The AO is likely to assess/reassess such income, recompute the loss/depreciation allowance or any other allowance/deduction for the assessment year (AY), as per the provisions of Sections 148 to 153. Re-assessment can be done multiple times provided other conditions laid down in Section 147 have been satisfied.

Now, any income in the hands of the assessee, which has not been subject to the income tax, shall mean that it has escaped assessment. The income can be said to be escaped assessment if the losses have been overreported by the taxpayer.

For example, an individual earned Rs 24 lakh in AY 2021-22, which is chargeable to tax. However, when the return of income was filed, the said individual had declared Rs 20 lakh. In this case, the income of Rs 4 lakh has escaped assessment.

Similarly, a businessman earned Rs 40 lakh in a particular financial year, but failed to file the income tax return. The complete amount of Rs 40 lakh has escaped assessment.

he Income Tax Act, 1961, empowers the Assessing Officer (AO) to reassess income that may have escaped assessment (“IEA”) under Sections 147 and 148. While this aims to ensure tax fairness, it can also lead to litigation due to ambiguities and complexities in the provisions. Recent amendments in the Finance Bill 2021 and proposed changes in the Finance Bill 2022 seek to address these concerns and promote a more transparent and efficient IEA process.

Finance Act, 2021: Amendments Introduced

The Finance Act, 2021 has substituted the existing Sections 147 to 149 with new Sections 147, 148, 148A and 149 of the ITA. Also, it has removed Sections 153A to 153C and merged all of them under Section 147.

The Finance Act, 2021 has inserted Section 148A, wherein the AO must first conduct an inquiry and provide an opportunity to the taxpayer of being heard before issuing a notice. It is only after considering the reply of the assessee, the AO should then decide, based on the material facts available, whether reassessment provisions should be invoked or not.

Earlier, the AO could reopen reassessments if it had ‘reason to believe’ that the income had escaped assessment. Then subject to provisions of Sections 148 to 153, he/she may assess such income or any other income which comes to his notice, subsequent to the course of proceedings of Section 147.

However, the AO while reopening reassessments will take into consideration information rather than relying on best judgement, the government has specified this now. Any subjectivity and discretion in the hands of an AO has been removed.

For the purpose of Section 147 and Section 148, the information with the AO, which suggests that the income chargeable to tax has escaped assessment, means:

Any information flagged in the case of an assessee for the relevant assessment year AY, in accordance with the rules (risk management strategy) formulated by the Central Board of Direct Tax (CBDT) from time to time
Any final objection raised by the Comptroller and Auditor General of India (CAG of India) in case the assessment of the assessee for the relevant assessment year has not been conducted in accordance with the provisions of this Act
In cases where 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 where:
- Search: A search is initiated under Section 132 or books of accounts, other documents or any assets are requisitioned under Section 132A on or after April 1, 2021 in the case of assessee
- Survey: A survey is conducted under Section 133A, other than under sub-section (2A) or sub-section (5) on or after April 1, 2021 in the case of the assessee
- Seizure:The AO is satisfied with the prior approval of the Principal Chief Commissioner of Income-tax (PCIT) if any money, bullion, jewellery or other valuable article or thing being seized or requisitioned under Section 132A in case of any person, on are after April 1, 2021, belongs to the assessee

Finance Bill 2022 Amendments:

In certain cases, prior approval for IEA notices may no longer be required if the AO has already established grounds under Section 148A(d).
The information scope is proposed to include expenditure related to transactions and entries in books of accounts.
For search, survey, and requisition cases, the 3-year restriction on reopening assessments before the search/survey year is proposed to be removed retrospectively.
The 10-year time limit for IEA based on INR 50 lakhs or more is proposed to extend to cases where income is represented by expenditure or book entries.

Other Related Provisions

under Section 148. Section 148A requires that the assessing officer shall give an opportunity to the assess to reply why notice for income escaping assessment under Section 147 should not be issued.

While Section 148 is concerned with issue of notice in cases where income has escaped assessment or audit, Section 151 is associated with sanction for issue of notice.

An AO may also assess or reassess the income in respect of any issues, which has escaped assessment, and such issue comes to his/her notice subsequently in the course of proceedings under Section 147. This is irrespective of the fact that the provisions of Section 148A have not been complied with.

FAQs

Can an assessing officer (AO) reopen cases under Section 147 that are beyond three years?

If as per the information in the hands of the AO, the income likely to have escaped assessment is Rs 50 lakh or more for the relevant assessment year, it is only then that an AO can initiate the reopening of cases under Section 147 that are beyond three years.

If a re-assessment order is passed after opening the assessment under Section 147/150, can an individual make an appeal against it to the Commissioner of Income-tax (Appeals)?

Yes, an appeal can be filed before CIT(A), when an assessee is adversely affected by orders passed by various income tax authorities. Section 246A of the Income-tax Act, 1961 (ITA) lists various appealable orders.

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