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Section 147 of the Income Tax Act, 1961 allows the Assessing Officer to assess or reassess any income that should have been taxed but was not included in the original assessment for a particular year. This applies if the officer discovers income that was not previously assessed, even if the taxpayer didn’t follow certain notification procedures.
Here’s a simplified explanation with examples of section 147 of Income Tax Act:
Let’s say Mr. Sharma didn’t report some of his rental income in his tax return for the financial year 2020-21. The Assessing Officer, upon discovering this discrepancy later on, can use Section 147 to reassess Mr. Sharma’s income for that year and ensure the missing rental income is taxed.
Similarly, if a business claimed excessive deductions for expenses that were not valid under the law, and this was not caught during the initial assessment, the Assessing Officer can reassess the business’s income under Section 147 to correct the error and calculate the correct tax liability.
In essence, Section 147 empowers tax authorities to rectify any omissions or errors in the original assessment to ensure that taxpayers are paying the correct amount of tax.
Section 147 of the Income Tax Act, 1961: Income escaping assessment
If any income chargeable to tax, in the case of an assessee, has escaped assessment for any assessment year, the Assessing Officer may, subject to the provisions of sections 148 to 153, assess or reassess such income or recompute the loss or the depreciation allowance or any other allowance or deduction for such assessment year (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year).
Explanation.—For the purposes 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.]
Q&A on Section 147 of the Income Tax Act, 1961:
Q: What is Section 147 of the Income Tax Act, 1961?
A: Section 147 empowers the Income Tax Officer (ITO) to reassess your income if he believes taxable income has escaped assessment in any previous year. This means the ITO can add any missed income to your tax liability, even if you unintentionally forgot or omitted it in your original return.
Q: Can the ITO use Section 147 just because they suspect I missed income?
A: No, the ITO needs a valid reason to believe income has escaped assessment. This could be based on information received from third parties, discrepancies in your accounts, or unexpected increases in your wealth. Mere suspicion is not enough.
Q: How long does the ITO have to use Section 147?
A: The ITO generally has four years from the end of the relevant assessment year to initiate a reassessment under Section 147.
Q: What can I do if I disagree with the ITO’s reassessment under Section 147?
A: You have the right to appeal the reassessment order to the Commissioner of Income Tax (CIT). If you’re still not satisfied, you can further appeal to the Income Tax Appellate Tribunal (ITAT) and ultimately to the courts.
Q: How can I avoid getting into trouble with Section 147?
A: The best way to avoid a reassessment under Section 147 is to be accurate and complete when filing your income tax return. Disclose all income sources, maintain proper records, and seek professional advice if you’re unsure about anything.
Q: I think I may have made a mistake on my return. Can I fix it before the ITO notices me?
A: Yes, you can file a revised income tax return before the ITO starts any proceedings under Section 147. This can help you rectify any errors and potentially reduce your tax liability.
Q: How can I know if any proceeding is going on for any Assessement year under section 147 in my case ?
A: To check if any proceeding is pending in your case under section 147 or if any proceeding is being opened under section 147 of Income Tax Act for any assessement year, you can either simply contact your jurisdictional assessing officer or you can login to your Income Tax Account on the Income Tax Departement website. The proceedings can be checked in the e-proceeding section or the details of the jurisdictional assessing officer can be checked in my profile section on the website.
Remember: Consulting a qualified tax advisor is always recommended for personalized advice on your specific situation.
Please note that this is not an exhaustive list of questions and answers. For more detailed information or specific legal advice, please consult a tax professional.