Reassessment under section 147 of the Income Tax Act: A Practical Playbook

Overview

Reassessment under Section 147 of the Income Tax Act  (“ ITA” or “the Act”) is no longer rare, it’s routine. With a surge in notices and a shifting legal landscape, tax professionals find themselves on the front lines of procedural complexity.

What began as a simple “reason to believe” standard has evolved into a layered process shaped by the Finance Acts of 2021 and 2024, and now by the proposed Income Tax Bill, 2025. Each phase has introduced stricter checks, defined timelines, and more structured powers for the Assessing Officer.

This playbook breaks down how reassessment has changed, what’s coming next, and how to respond—clearly, strategically, and within the bounds of due process.

Reassessment Basics: What Section 147 of ITA allows

Section 147 of the Income Tax Act empowers the Assessing Officer (AO) to reopen completed assessments if there is a “reason to believe” that income has escaped assessment. Traditionally, this was a broad and discretionary power, but that discretion often led to arbitrary reassessment notices and litigation.

Recognizing the need for greater safeguards, the Finance Act, 2021 introduced a restructured regime, anchored by Sections 148A to 151A, to bring consistency, transparency, and checks on the AO’s authority. This marked a shift from spontaneous reopening to a more process-driven approach.

The Finance Act, 2024 built on this framework by refining procedures and further clarifying what qualifies as “information” for initiating reassessment.

Now, with the introduction of the proposed Income Tax Bill (ITB) through the Finance Act, 2025, the reassessment structure is poised for another overhaul. The ITB not only renumbers key provisions but also reshapes them, some are revised, others removed, and new elements introduced altogether.

With this background, let’s take a closer look at how reassessment worked in the pre-2021 era, before the reforms reshaped the process.

The Pre-2021 Framework Era

Before the 2021 reforms, reassessment under Section 147 followed a more traditional and less structured approach. At its core, Section 148(1) required the AO  to serve a formal notice to the assessee, asking them to file a return for the relevant year. This notice was the starting point for reopening assessments, reassessments, or re-computations.

 

“Before making the assessment, reassessment or recomputation under section 147, the Assessing Officer shall serve on the assessee a notice requiring him to furnish within such period, as may be specified in the notice, a return of his income or the income of any other person in respect of which he is assessable under this Act during the previous year corresponding to the relevant assessment year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed; and 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 :”

 

This meant that once a notice was issued, the reassessment process essentially mimicked a regular assessment, but with one crucial difference—it was triggered by the AO’s belief that income had escaped scrutiny.

The legal foundation for such belief lay in Section 147, which permitted the AO to reopen assessments if there was “reason to believe” that taxable income had not been assessed. This belief, though intended to be objective and evidence-based, often became a matter of dispute due to its wide interpretational scope.

 

Relevant extract of Section 147 of the Act

 

“ If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year) :”

 

Thus, the pre-2021 regime granted significant power to the AO—but lacked procedural safeguards. This created uncertainty for taxpayers and gave rise to frequent litigation over the legitimacy and timing of reassessment notices.

It was this backdrop of ambiguity and overreach that ultimately set the stage for the structured overhaul introduced in 2021.

The 2021 Framework: Structured, Not Spontaneous

Before 2021, Assessing Officers (AOs) could issue reassessment notices on a mere “reason to believe,” often without clear evidence. The 2021 reforms changed this by introducing a robust, step-by-step process to ensure fairness and transparency.

 

Key highlights of the new framework:

 

1. Information-Based Trigger:Section 148 of the Act includes a proviso specifying that no reassessment notice shall be issued unless the AO has information which suggests that income chargeable to tax has escaped assessment, shifting the trigger from vague suspicion to a clear informational basis.

2. Mandatory Preliminary Inquiry via Section 148A: A mandatory preliminary inquiry has been initiated subject to certain exceptions where

• The AO issues a show cause notice (SCN) under Section 148A(b), explicitly detailing the information on which the reassessment is proposed.
• The assessee is then granted a fair opportunity to present explanations, submit evidence, and defend their position.
• Upon reviewing the assessee’s response, the AO is required to issue a reasoned order under Section 148A(d), clearly determining whether the case merits reopening through reassessment.

3. Issuance of Notice Under Section 148: Only if the AO is satisfied post-inquiry, a formal notice under Section 148 is issued, requiring the assessee to file a return.

4. Mandatory Approvals at Every Stage: To curb arbitrary action, prior approvals from higher authorities are mandatory before issuing notices or passing orders.

The Finance Act, 2024: What Changed

The Finance Act, 2024, effective from September 1, 2024, brought important reforms aimed at clearing practical hurdles and cutting down on litigation delays in reassessment proceedings.

One of the standout changes is the addition of subsection (3) to Section 148, which carefully defines what constitutes “information” that allows the Assessing Officer to reopen cases. The law states:

 

“For the purposes of this section and section 148A, the information with the Assessing Officer which suggests that the income chargeable to tax has escaped assessment means,—

(i) any information 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; or

(ii) any audit objection 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; or

(iii) any information received under an agreement referred to in section 90 or section 90A of the Act; or

(iv) any information made available to the Assessing Officer under the scheme notified under section 135A; or

(v) any information which requires action in consequence of the order of a Tribunal or a Court; or

(vi) any information in the case of the assessee emanating from survey conducted under section 133A, other than under sub-section (2A) of the said section, on or after the 1st day of September, 2024.”

 

This broadening of the definition means reassessments can now be triggered by a wider range of reliable data sources, including audit objections, treaty information, court or tribunal orders, and insights from faceless assessments and surveys.

 

In parallel, the provisions under Section 148A(1) (formerly 148A(b)) continue to require that the Assessing Officer issue a show cause notice specifying the information relied upon before initiating reassessment, except in cases involving searches on related persons where the transaction is identified, and prior approval has been obtained. In such cases, the reassessment notice may be issued directly by the Faceless Assessment Centre, bypassing the preliminary inquiry.

Moreover, as clarified in the CBDT Office Memorandum dated February 27, 2025, for search cases conducted on or after September 1, 2024, the Jurisdictional Assessing Officer (JAO) has been explicitly empowered to issue reassessment notices under Section 148 directly, without the need for uploading information on CRIU/VRU or following the Risk Management Strategy. This enhancement streamlines the process and strengthens procedural efficiency in handling post-search reassessments.

Changes proposed in ITB

The Income Tax Bill (ITB) reproduces Section 148 of the Income Tax Act as Section 279, with an important addition in subsection (2), which states

“(2) For the purposes of the assessment or reassessment or re computation under this section, Assessing Officer may assess or reassess–

(a) the income which has escaped assessment;

(b) income in respect of other issues which come to his notice subsequently in the course of the proceedings under this section, irrespective of the fact that the provisions of sections 280, 281 and 284 were not complied with. “

 

This addition of clause (b) significantly expands the AO’s powers. It allows the AO to make additions based on income or issues that were not part of the preliminary inquiry under Section 148A of the ITA or Section 280 of the ITB, provided they come to the AO’s attention during the course of the assessment proceedings.

Furthermore, Section 280 of the ITB amends the definition of “information” to encompass

1. Any directions given by the Approving Panel under Section 274(6), i.e., directions issued on reference by the Principal Commissioner or Commissioner for declaring an arrangement as an impermissible avoidance agreement.

2. Any findings or directions contained in orders passed by any authority, Tribunal, or Court under this Act, whether by way of appeal, reference, or revision, or in proceedings under any other law. This includes directions from authorities such as CIT(Appeals), references made to the Transfer Pricing Officer (TPO), or revision applications filed with CCIT/PCIT/CIT.

These changes are aimed at providing the Assessing Officer with broader scope and flexibility in reassessment, ensuring that subsequent revelations during the proceedings can be appropriately acted upon, even if they were not captured initially.

Time Limits for Issuing Reassessment Notices (Section 149 / Proposed ITB Sections 282)

Time period for issuing notices u/s 148 of ITA /280 of ITB

Regime	Time Limit	Threshold Conditions	Reference Point for Time Limit	Applicable Section of ITA/ITB
Pre-2021 Era	Up to 4 years	No threshold	End of relevant AY	149(1)(a)
	After 4 years but before 6 years	Income escaped > INR 1 lakh		149(1)(b)
	After 4 years but before 16 years (Omitted post FA 2021)	Escaped income relates to asset located outside India		149(1)(c)
Post Finance Act, (FA) 2021 Era	Upto 3 years	No threshold	End of relevant AY	149(1)(a)
	after 3 years but before 10 years	Escaped income > ₹50 lakh (must relate to asset, expenditure, or entry)		149(1)(b)
Post 2024 Framework	Up to 3 years & 3 months	No threshold	End of relevant AY	149(1)(a)
	After 3 years 3 months but before 5 years 3 months	Escaped income ≥ ₹50 lakh (same conditions as above)		149(1)(b)
ITB (Proposed),2025	Begins after 1 year from end of relevant tax year			282(3)
	Up to 3 years & 3 months	No threshold	After one year from the end of  relevant tax year (FY)/(PY) as defined in ITB	282(1)(a)
	After 3 years 3 months but before 5 years 3 months	Escaped income ≥ ₹50 lakh (same conditions as above)		282(1)(b)

Time period for issuing notices u/s 148A of ITA /281 of ITB

 

Regime	Time Limit	Threshold Conditions	Reference Point for Time Limit	Applicable Section of ITA/ITB
Post Finance Act, 2021 Era	Up to 3 years	No threshold	End of relevant AY	149(1)(a)
	after 3 years but before 10 years	Escaped income > ₹50 lakh (must relate to asset, expenditure, or entry)		149(1)(b)
Post 2024 Framework	Up to 3 years	No threshold	End of relevant AY	149(2)(a)
	After 3 years but before 5 years	Escaped income ≥ ₹50 lakh (same conditions as above)		149(2)(b)
ITB (Proposed),2025	Begins after 1 year from end of relevant tax year			282(3)
	Up to 3 years	No threshold	After one year from the end of  relevant tax year (FY)/(PY)	282(2)(a)
	After 3 years but before 5 years	Escaped income ≥ ₹50 lakh (same conditions as above)		282(2)(b)

 Note:

• Tax Year vs Assessment Year: ITB uses Tax Year (financial year terminology), and delays time count by 1 year after end of the relevant tax year.
• “3 years & 3 months” and “5 years & 3 months” under FA 2024 are transitional buffers to accommodate administrative lag.
• ITB timelines are almost parallel in structure but begin later, thus providing more time to the department while maintaining thresholds.

Practical Strategy : A Defensive & Proactive Approach

Navigating reassessment notices requires not just vigilance but a strategic mindset. Here’s a step-by-step approach to safeguard your client’s interests while staying ahead of the curve:

Step 1: Scrutinize the Legality of the Notice:

• Check timelines: Confirm the notice is issued strictly within prescribed limits, factoring in complex extensions and exceptions.
• Confirm authority: Validate whether the notice comes from the appropriate FAO or JAO , as jurisdictional errors can be challenged.
• Verify show cause notice (SCN): Look for a well-documented satisfaction note and proper prior approvals; superficial or vague explanations often signal weak grounds.
• Review the order under Section 148A(3)/148A(d): A detailed speaking order is crucial; boilerplate or conclusory statements may be grounds for invalidation.
• Assess consistency of information: Inconsistencies between the SCN and final orders frequently cause confusion and can be challenged effectively.

Step 2: Respond with Precision

• Prepare a targeted, fact-driven response that addresses each allegation meticulously.
• Support arguments with relevant statutory provisions, authoritative case laws, and carefully curated evidence.
• Avoid broad denials; instead, focus on disproving key points raised.

Step 3: Proper supporting Documentation

• Ensure all relevant records are complete, well-organized, and accessible.
• Focus on documentation that supports the nature and legitimacy of key transactions.
• Be prepared for scrutiny, clean, consistent documentation often determines how far a case progresses.

Step 4: Be Writ-Ready

If procedural lapses occur, such as non-application of mind by the AO, violation of natural justice, or failure to provide essential information despite requests, be ready to escalate:

Consider filing writ petitions, especially since orders under Section 148A(3) or 148A(d) are not appealable under Section 246A of the ITA.

Judicial Review: Courts Favour Due Process

Judicial scrutiny has played a critical role in shaping the contours of reassessment proceedings under Section 147. Courts have consistently emphasized that procedural safeguards are not mere technicalities but integral to the fairness of the tax administration process.

1. GKN Driveshafts (India)Pvt. Ltd. v. ITO

 [2002] 125 Taxman 963 (SC)/[2003] 259 ITR 19 (SC)[25-11-2002]

The Hon’ble Supreme Court laid down a foundational principle: when a notice under Section 148 is issued, the assessee is entitled to seek the reasons for reopening. The AO is bound to furnish such reasons within a reasonable time. Once the reasons are provided, the assessee can file objections, and the AO must dispose of those objections by passing a speaking order before proceeding with the assessment. This ruling remains central to defending against arbitrary reassessments.

 

2. Union Of India vs Ashish Agarwal

CIVIL APPEAL NO. 3005/2022 [04- May-2022]

The Supreme Court addressed the procedural vacuum created by the transition from the old to the new reassessment regime introduced by the Finance Act, 2021. The Court held that reassessment notices issued between April 1 and June 30, 2021, under the old Section 148, would be deemed to have been issued under Section 148A(b) and treated as show-cause notices under the new law. As a one-time measure, the prior inquiry under Section 148A(a) was waived. AOs were required to furnish the information relied upon within 30 days, and assessees were granted two weeks to respond. This judgment ensured a balance between revenue protection and taxpayer rights during the legislative transition.

 

3.Union of India vs. Rajeev Bansal

[2024] 167 taxmann.com 70 (SC)/[2024] 301 Taxman 238 (SC)/[2024] 469 ITR 46(SC)[03-10-2024]

The Supreme Court upheld the constitutional validity of the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA). The Court ruled that TOLA’s provisions, which extended the time limits for issuing reassessment notices during the COVID-19 pandemic, continued to apply even after the Finance Act, 2021 came into effect. Therefore, reassessment notices issued between April 1 and June 30, 2021, under the old regime, were valid and deemed as show-cause notices under the new framework. The ruling emphasized strict adherence to procedural timelines, even during legislative transitions.

Several High Courts, in cases such as Sunlight Tour and Travels (P.) Ltd. [2024] 169 taxmann.com 673 (Delhi) and Anand Cine Services (P.) Ltd. [2024] 169 taxmann.com 236 (Madras), have struck down reassessment additions made under Section 147 where the Assessing Officer deviated from the original grounds of reopening and made additions on unrelated issues. Such roving or fishing inquiries—where the reassessment drifts beyond the initial “reason to believe” without proper linkage—have been consistently held to violate principles of natural justice and procedural fairness.

That said, some courts have taken a more flexible view in specific contexts. For instance, in Manjinder Singh Kang [25 taxmann.com 124 / 344 ITR 358 (P&H)] and Toor Finance Company Ltd. [2025] 171 taxmann.com 505 (Gauhati), reassessment additions on issues not originally flagged were permitted—provided they clearly arose from material already on record during the proceedings.

To resolve this divergence, the proposed Income Tax Bill (ITB) introduces a legislative fix. Section 279(2)(b) explicitly empowers the AO to assess or reassess “other issues” that come to notice during reassessment—even if such issues were not part of the initial show cause or reason recorded. This clause effectively overrides earlier restrictive interpretations and provides statutory clarity. Going forward, the AO would have clear authority to make further additions based on findings that emerge during reassessment, irrespective of whether they were mentioned at the outset.

Conclusion

The reassessment framework under Section 148 has seen a notable evolution in recent years—driven by legal reforms and the integration of technology. With the post-2024 regime emphasizing data intelligence, AI-driven insights, and inter-agency collaboration, reassessment proceedings are expected to become more dynamic and information-driven.

In this evolving landscape, the focus for professionals must remain on procedural accuracy, factual preparedness, and legal clarity. Responding to notices is not merely a matter of compliance, but an opportunity to ensure transparency, uphold due process, and contribute to a more robust tax system.

Staying informed and adopting a balanced, well-prepared approach will be key to navigating the road ahead.