Executive Summary
The Income-tax Act, 2025 introduces a reorganized yet familiar framework for reassessment of income that has escaped taxation. While maintaining the substantive authority of the tax department, the law reflects modernization by renumbering provisions (from Sections 147–153 to 279–285), integrating faceless procedures, and aligning terminology such as "tax year" in place of "assessment year." This article provides a comparative overview of the changes and clarifies their implications for taxpayers and professionals.
1. Background and Purpose of Reform
The reassessment regime has often been criticized for complexity and over-litigation. The Finance Act, 2021 had already overhauled key provisions by introducing section 148A. ITA 2025 builds upon these reforms, consolidating and extending time limits (from 3/5 years to 4/6 years), and adopting the term "tax year" for uniformity with other laws.
Section 536 of the new Act ensures that older provisions continue to govern assessments for tax years prior to 1 April 2026, thus ensuring a smooth transition without disrupting ongoing litigation.
2. Substantive Power to Reopen: Section 279
The power under section 279 is structurally similar to the previous section 147, with "assessment year" replaced by "tax year." The Assessing Officer (AO) retains authority to reassess any income that has escaped assessment. The continuity in language indicates that judicial interpretations under the earlier law remain relevant.
A unique challenge arises since reopening pertains to earlier years governed by the older Act, where the concept of "tax year" did not exist. Section 536(3) bridges this by deeming prior references to be to "previous years" under the old Act, yet some interpretational issues may persist.
3. Procedural Prerequisites: Section 280 & Section 281
Section 280 parallels the structure of section 148, with additions such as mandatory approval requirements in more cases. Section 281 retains the safeguard of issuing a show-cause notice before reassessment (similar to section 148A), except in specific situations involving faceless schemes or judicial directions.
Notably, the requirement for "information suggesting escapement" remains central to valid reassessment, reinforcing judicial safeguards.
4. Extended Limitation Periods: Section 282
The new Act increases the reassessment window by a year, now allowing notices within four or six years based on the value of escaped income. A cooling-off clause also prevents notices within one year from the end of the tax year.
Section 536 ensures that for tax years prior to 1 April 2026, older limitation rules under section 149 continue to apply.
5. Appellate Orders and Reassessment: Section 283
Like section 150 of the old Act, section 283 allows reassessment pursuant to directions from higher authorities, while preserving the limitation protection where proceedings were already time-barred.
6. Authority for Sanction: Section 284
Section 284 outlines that Additional/Joint Commissioners or Directors will remain the sanctioning authorities, removing earlier bifurcation based on time limits. This ensures consistency and administrative efficiency.
7. Faceless Regime Preserved: Section 273 and Section 536(2)(u)
Faceless reassessment procedures introduced earlier are preserved under section 273, with section 536 deeming all existing digital governance schemes to continue seamlessly under the new Act.
8. Relief and Protective Provisions: Section 285
Section 285 retains the principle that escaped income should be taxed as if it had not escaped. Taxpayers may seek relief if they have already been assessed on an adequate amount. Rectification provisions are updated to avoid overlap.
9. Transitional Safeguards: Section 536
Section 536 ensures that:
Proceedings for earlier tax years follow old law.
Ongoing schemes and notifications remain valid.
Time-barred matters are not revived.
It also clarifies the equivalence of "tax year" and "assessment year" for interpretive purposes.
Conclusion
The reassessment provisions under the Income-tax Act, 2025 signify continuity with refinement. They reflect an effort to modernize tax administration without discarding core judicial principles. Professionals should focus on understanding the transitional mechanics and procedural safeguards to navigate this evolving landscape effectively.
Author: CA Chinmayy Pathak - Editorial Team, Sanket Milind Joshi & Co.
Category: Direct Tax Litigation / Income Tax Act
Tags: #Direct Tax Litigation, #Income Tax, #Chartered Accountant, #Reassessment, #Search Assessment, #Sanket Milind Joshi