Who Has Jurisdiction in Reassessment? Govt Clarifies AO and NaFAC Roles under Sections 148 and 148A

The Income-tax Act, 1961, has laid down two steps for reopening completed assessments under Section 147 when tax authorities believe that income has escaped assessment. The first step says the Assessing Officer (AO) must follow a preliminary procedure before issuing a reassessment notice under section 148. The step begins with issuing a notice under Section 148A. Under the said notice, the Assessing Officer can make inquiries and check whether there is a valid reason to reopen the case.

After finishing the inquiry, if the AO believes the disputed case is suitable for reassessment, then they are required to issue a reasoned (speaking) order under section 148A(d) / 148A(3) explaining the reasons. Only after this order is passed can the notice under section 148 be issued.

Once notice under Section 148 is issued, the second step starts. In this step, the case is transferred to the National Faceless Assessment Centre (NaFAC), and reassessment proceedings are carried out in a faceless manner as per section 144B. At this stage, all communications with taxpayers are carried out by NaFAC; taxpayers do not directly interact with individual officers. Despite NaFAC assessment units being given similar powers to an AO for carrying out assessments, these powers apply only after the reassessment proceedings have formally begun.

The law has explicitly separated the pre-assessment inquiry stage from the assessment stage. The aim behind this action was to ensure that pre-assessment actions (like inquiries under section 148A and issuance of notice under section 148) are being carried out by the jurisdictional Assessing Officer and not by NaFAC or its assessment units. Faceless procedures were meant to apply only to the assessment stage, not to the decision of whether reassessment should be initiated.

However, views of several High Courts clash on whether NaFAC can be involved in the pre-assessment process. This issue is currently pending before the Supreme Court, leading to uncertainty and litigation. Some high courts have ruled in favour of the taxpayer and some in favour of the tax authority. However, the matter is still pending in the Supreme Court.

To remove the unclearness and ensure consistency, the government proposes a clarificatory amendment. It is clarified that, for sections 148 and 148A, the term “Assessing Officer” shall always mean an officer other than NaFAC or its assessment units, regardless of any court judgment. This amendment has a retrospective effect from April 01, 2021, under the Income-tax Act, 1961, and prospectively from April 1, 2026, under the new Income-tax Act, 2025, to reduce disputes and provide legal certainty.