Section 147 of ITA, 1961 : Section 147: Income Escaping Assessment

Explanation using Example

Imagine Mr. Smith, a freelance software developer, filed his tax return for the assessment year 2020-21 declaring an income of ₹10,00,000, and his return was processed without any scrutiny. Two years later, the Assessing Officer (AO) receives information that Mr. Smith had received additional income from a project worth ₹5,00,000, which was not included in his filed return. This income is chargeable to tax and appears to have escaped assessment.

Under Section 147 of the Income-tax Act, 1961, the AO has the authority to reassess Mr. Smith's income for the year 2020-21, provided the AO has a reason to believe that the income has indeed escaped assessment. Before proceeding, the AO would issue a notice to Mr. Smith under Section 148, informing him of the intent to reassess his income.

Mr. Smith would then have the opportunity to present his case. However, if it is proven that he indeed failed to disclose this additional income, the AO can reassess the income for 2020-21 and levy additional tax, interest, and potentially penalties on Mr. Smith for the income that escaped assessment.