Income Tax §148 Reassessment Notice — Reply Strategy & Bombay HC / Ashish Agarwal Framework

The Finance Act 2021 (with effect from 1 April 2021) overhauled the reassessment provisions:

Section 147 (substituted) — '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 (hereinafter in this section, sections 148 to 153 referred to as the relevant assessment year).'

Section 148 (substituted) — Notice for reassessment can only be issued after the §148A procedure has been followed. The notice must specify the assessment year and require the assessee to furnish a return.

Section 148A (new) — Pre-§148 enquiry and show-cause procedure:
(a) Provide an opportunity of being heard to the assessee through a show-cause notice;
(b) Specify the information suggesting that income chargeable to tax has escaped assessment;
(c) Consider the assessee's reply;
(d) Decide, by a reasoned order, whether to issue the §148 notice;
(e) Obtain approval of the specified authority before passing the §148A(d) order.

Time limit (Section 149): Reassessment notice can be issued —

• Up to 3 years from the end of the relevant assessment year in ordinary cases.
• Up to 10 years where the income escaping assessment is represented in the form of an asset (movable/immovable/financial-instrument/expenditure in respect of an event/occasion/entries in books of account) and the total escaped income is likely to be ₹50 lakh or more.

Between 1 April 2021 (when new regime kicked in) and 30 June 2021 (the COVID-extended limitation for old assessments), the Revenue issued ~90,000 notices under the old §148 — without following §148A. These were challenged in Allahabad, Bombay, Delhi and Calcutta High Courts, which quashed them.

*Supreme Court in Union of India v Ashish Agarwal [(2022) 13 SCC 1]*: Instead of striking down all 90,000 notices, the Court invoked Article 142 power and held:

• All notices issued under the old §148 between 01.04.2021 and 30.06.2021 are deemed to be notices under the new §148A(b).
• AO must, within 30 days, furnish the underlying material/information to the assessee.
• Assessee gets 2 weeks to respond.
• AO then passes a §148A(d) reasoned order; only thereafter §148 notice.
• All defences available to assessees under the new regime preserved.

Follow-up — Instruction 1/2022 by CBDT and the SC's clarification in Rajeev Bansal v Union of India [2024] (clarifying surviving period of limitation under the TOLA 2020 read with Ashish Agarwal).

In practice, by 2026 most Ashish Agarwal-converted matters have run to final reassessment orders or have been dropped. The remaining live battlefield is fresh §148A notices issued post 1.4.2022 — which are the ordinary §148A regime cases.

1. Beyond the limitation period (Section 149):

• Beyond 3 years AND escaped income < ₹50 lakh → notice is barred.
• Beyond 3 years but no asset-based 'representation' of income → also barred.
• AO computes ₹50 lakh by aggregating non-asset items → quashable.

2. No 'information' triggering reassessment (Section 148 Explanation):
The new §148 Explanation defines 'information' restrictively — flagged audit objection / risk-management strategy / final objection of CAG / information received under information-sharing arrangements / specified information about a foreign asset / search/survey-derived. Generic 'reason to believe' is not enough anymore. Sabh Infrastructure v ACIT [Bombay HC 2024] quashed notices for not specifying which limb of the Explanation was triggered.

3. §148A(b) notice without underlying material:
The show-cause must enclose the material that gives rise to the reassessment suspicion. Bare allegations without underlying material → violation of natural justice. Touchstone Holdings v ITO [Delhi HC 2023].

4. §148A(d) order without considering reply / non-speaking order:
Must be a reasoned order disposing of each contention of the assessee. Mechanical/template orders are quashable. Pankaj Bansal v ITO [Punjab & Haryana HC 2023].

5. No approval of specified authority:
Section 151 — approval of Principal Commissioner/Principal Director-General for notices up to 3 years; Principal Chief Commissioner for notices beyond 3 years. Approval must be on application of mind — not rubber-stamp.

6. Issuance during pendency of original assessment:
If the original §143(3) assessment for the same year is pending, §148 cannot be issued for the same year — first complete the original assessment.

A §148A(b) show-cause notice typically gives the assessee 7-30 days to reply. The reply should be structured in six sections:

Section 1 — Preliminary objections (jurisdictional):

• Limitation under Section 149.
• 'Information' relied upon falls outside the limbs of the Explanation to §148.
• Insufficient material furnished — request for complete records.
• Approval under Section 151 not on record — request copy.
• Same issue stands concluded in earlier assessment year → estoppel.

Section 2 — Factual reply to the alleged escaped income:

• Concede / dispute each transaction with documentary support.
• Cross-link with returned income, balance sheet, books of account.
• Where the income is offered as part of capital account or as exempt income (e.g., LTCG with STT paid pre-2018, agricultural income), explain.

Section 3 — Legal grounds:

• Cite favourable judicial precedents — Calcutta Discount Co v ITO (full disclosure principle), Pr CIT v Ranbaxy (audit objection alone not 'information'), GKN Driveshafts (India) Ltd v ITO [(2003) 259 ITR 19] (proper sequence to be followed).
• Cite any High Court ruling specifically against the same trigger (e.g., FY-specific audit objection).

Section 4 — Documentary annexures:

• Returned ITR with computation.
• Audit report (Form 3CA/3CB-3CD).
• Bank statements / contract notes / sale deeds — proof of the alleged transaction.
• Earlier assessment order if §143(3) is over.

Section 5 — Request for personal hearing:
Under Sahara India (Firm) v CIT [(2008) 14 SCC 151] and the National Faceless Assessment Scheme — personal hearing is available on application. Make the request.

Section 6 — Prayer:
'In view of the above, it is most respectfully prayed that no order under Section 148A(d) be passed and the proceedings be dropped.'

If despite the §148A(b) reply, the AO passes an adverse §148A(d) order and issues §148 notice — the assessee has two parallel tracks:

Track 1 — Writ Petition under Article 226:
Challenge the §148A(d) order / §148 notice in the jurisdictional High Court on jurisdictional grounds (limitation, no information, no approval, breach of natural justice). The Bombay, Delhi and Calcutta High Courts have entertained writ petitions extensively in this space. GKN Driveshafts (2003) is the leading authority on writ being maintainable at the §148 stage.

Track 2 — File Return in Response & Litigate Through Appeals:
File a return under §148 (must be filed even if writ pending) → cooperate with reassessment → if assessed, appeal to CIT(A) → ITAT → High Court (substantial question of law) → Supreme Court (SLP).

Smart practice: File a protective return under §148 (declaring same income as original return) and simultaneously file writ. This way, even if writ fails, the assessee is not in default; if writ succeeds, no harm done. The CBDT has accepted this practice.