[Opinion] Interplay Between Sections 148A(b) and 148A(d)

D.C. Agrawal & Ajay Kumar Agrawal – [2025] 173 taxmann.com 895 (Article)

1. Introduction

The Finance Act, 2021 marked a significant departure from the earlier reassessment regime under the Income-tax Act, 1961, by introducing a structured and judicially conscious framework under Section 148A. This reform was rooted in the need to curtail arbitrary reopening of assessments and to uphold constitutional principles of natural justice in the domain of tax administration. The legislative mandate under Section 148A was a response to mounting judicial criticism of mechanical reassessments and the proliferation of notices issued without proper inquiry or disclosure of material facts. It introduced a pre-notice enquiry stage where, for the first time, the Assessing Officer (AO) was required to undertake due diligence before invoking the drastic power of reassessment.

Within this new framework, Section 148A(b) requires the AO to furnish the assessee with a show-cause notice along with the “information” which suggests that income has escaped assessment, thereby ensuring a meaningful opportunity to rebut such allegations. It is this notice that triggers the procedural safeguards and enables the assessee to furnish an effective reply. Section 148A(d), on the other hand, authorises the AO to decide on the basis of the assessee’s reply and available information, whether it is a fit case for issuance of notice under Section 148. This final decision-making stage under 148A(d) is contingent upon the fairness and sufficiency of disclosure made under 148A(b).

The interplay between Section 148A(b) and Section 148A(d) lies at the heart of safeguarding procedural fairness and maintaining jurisdictional integrity in reassessment proceedings. Courts across the country, including the High Courts of Delhi, Bombay, Madras, Calcutta, and Gujarat, as well as the Supreme Court, have intervened in numerous cases where this interplay was either distorted or reduced to an empty formality. These judgments underscore the critical requirement that the reasoning in the final order under 148A(d) must remain within the bounds of the show cause notice under 148A(b) and must also reflect proper application of mind to the assessee’s reply.

In essence, Sections 148A(b) and 148A(d) are not isolated procedural steps but are interdependent stages forming a constitutional shield against arbitrary state action. The jurisprudence emerging post-2021 reveals a robust affirmation of natural justice, transparency, and legal accountability, all of which are essential to maintain the legitimacy of tax reassessments in a constitutional democracy.

2. Section 148A(b) – Scope, Purpose and Judicial Expectations

Section 148A(b) was introduced as part of the reassessment procedure effected by the Finance Act, 2021, with the clear legislative intent to usher in a transparent, fair, and accountable process for identifying cases of income escapement. The provision casts a statutory obligation on the Assessing Officer (AO) to issue a show cause notice to the assessee, along with the “information which suggests that income chargeable to tax has escaped assessment,” thereby affording the assessee a meaningful opportunity of being heard. This notice is not intended to be a mere formality or a procedural ritual. Rather, it is designed to form the jurisdictional foundation for reassessment proceedings and must contain specific, verifiable, and actionable material enabling the assessee to respond effectively.

Judicial interpretation of Section 148A(b) has consistently emphasised the necessity of precise disclosure and factual correlation. In Mahashian Di Hatti (P.) Ltd. v. Dy. CIT [WP(C) No. 12504 of 2022, dated 1-9-2022] the Delhi High Court clarified that the show cause notice must reflect application of mind and must convey not just the identity of the transaction, but also the allegation of escapement and the manner in which it arises. The Court rejected the practice of issuing boilerplate notices and stressed that absent such particulars, the opportunity provided under 148A(b) becomes illusory. Similarly, in Somnath Dealtrade (P.) Ltd. v. Union of India [2022] 143 taxmann.com 71/[2023] 455 ITR 720 the Calcutta High Court quashed the proceedings where the AO failed to supply the assessee with the underlying documents mentioned in the notice, despite a clear request to that effect. The Court held that the denial of access to incriminating material undermines the fairness of the hearing and renders the subsequent order under 148A(d) unsustainable.

Further judicial clarity comes from Usha Rani Girdhar v. ITO [2023] 146 taxmann.com 547 where the Delhi High Court invalidated the reassessment on the ground that the details provided in the 148A(b) notice were factually inconsistent with those relied upon in the 148A(d) order. These and other judgments, such as Excel Commodity & Derivatives (P.) Ltd. v. Union of India [2023] 150 taxmann.com 94/455 ITR 341 and Satluj Credit & Holdings Pvt. Ltd. v. ITO [2024] 164 taxmann.com 285 (Mad.) reinforce a consistent legal principle: the information forming the basis of the notice must not only be disclosed, but must be coherent, relevant, and must align with the eventual reasoning under Section 148A(d).

In light of the above, courts have made it clear that the right to be heard under Section 148A(b) is not a procedural nicety, but a jurisdictional mandate rooted in natural justice. Any shortcoming in disclosure, clarity, or scope in the notice renders the reassessment process liable to be struck down as unconstitutional and legally void.

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