Union Budget 2026-27 - Finance Bill, 2026

Income-tax Act, 1961 provides a two-step procedure for carrying out reassessment under section 147. The first step provides for procedure before a notice under section 148 is issued for carrying out reassessment. This first step starts with a notice under section 148A which enables the Assessing Officer to carry out enquiries so as to determine whether the case is fit for issuance of notice under section 148. The notice under section 148 is accompanied with an reasoned order under section 148A(d)/148A(3) by the Assessing Officer.

2. With the notice under section 148, the case gets transferred to the National Faceless Assessment Centre (NaFAC) for carrying out the assessment in a faceless manner as per section 144B. The taxpayer does not know the identity of officers who are part of the assessment unit in NaFAC. All communications with the tax-payer at this stage are carried out by NaFAC. The assessment units is provided powers of the Assessing Officer by virtue of section 144B(3) which provides that “assessment unit” wherever used in said section shall refer to an Assessing Officer having powers so assigned by the Central Board of Direct Taxes (CBDT).

3. It is clear from the aforesaid scheme of the Act that the legislature has clearly demarcated the line between assessment and pre-assessment enquiry process which culminates in issuing of notice under section 148. The Assessing officer carries out pre-assessment enquiry and therefore reaches a conclusion if it is a fit case of reassessment. This satisfaction is reflected in intimation to the assessee by way of notice under section 148. Thereafter, the proceedings are carried out in a faceless manner by NaFAC.

4. Accordingly, it was never the intention of the legislature to mandate the NaFAC or the Assessment Units in NaFAC to involve pre-assessment enquiry in any manner whether for issuance of notice under section 148A or under section 148. The faceless assessment for reassessment under section 147 was only required to be carried out to the extent provided under section 144B. The intended objective of the scheme framed under section 151A that is e-Assessment of Income Escaping Assessment Scheme, 2022 was also the same.

5. However, divergent views have been expressed on this issue by various High Courts, some in favour of the revenue and some in assessee’s favour. The matter is now pending in Hon’ble Supreme Court. The present amendment seeks to achieve certainty and clarity and avoid litigation.

6. The Income-tax Act, 2025 is coming into force from the 1 st of April, 2026. The objective of the new law has been to provide simplicity in language and provisions so as to avoid interpretational issues and prevent litigation. Therefore, there is an urgent need to clarify the position of law in the new Income-tax Act, 2025. The intention of the legislature also needs to be clearly laid out in the Income-tax Act, 1961 so that the intent is uniformly reflected in the two Acts.

7. Accordingly, it is proposed to clarify in the Income-tax Act, 1961 that notwithstanding anything contained in any judgment, order or decree of court, the Assessing Officer for the purposes of section 148 and section 148A shall mean and shall always be deemed to have meant Assessing Officer other than the National Faceless Assessment Centre or any of its assessment units. Suitable amendment is also carried out in the Income-tax Act, 2025 so that correct interpretation is taken and litigation is minimized and certainty is achieved.

8. The clarification in Income-tax Act, 1961 shall come into force with retrospective effect from 1 st day of April, 2021. The amendment in Income-tax Act, 2025 shall come into force with effect from 1st day of April, 2026.

[Clause 8, 62]

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Union Budget 2026-27 - Finance Bill, 2026