Quick Answer
Decide in three steps. First, test the notice itself: where applicable, the section 148A procedure precedes the reassessment notice (show-cause with the information, your reply, a reasoned order) and must be within the section 149 limits — for the show-cause under section 148A, three years from the end of the assessment year, or up to five years where, as per the information with the Assessing Officer, the escaped income amounts to or is likely to amount to ₹50 lakh or more (section 149(2)); for the section 148 notice that follows, three years and three months, or up to five years and three months only where the Assessing Officer has books of account, documents or evidence related to an asset, expenditure, transaction or entries showing escaped income of ₹50 lakh or more (section 149(1)) — and first identify which Act applies to the year (the 1961 Act for assessment years up to 2026-27; the Income-tax Act, 2025 thereafter). A notice outside these limits is void and the reply should say so before anything on merits. Second, price the three outcomes: accepting the addition and paying within the assessment costs tax plus interest, and section 270AA — as amended by the Finance Act, 2026 with effect from 1 March 2026 — gives immunity from the section 270A penalty for both under-reporting (otherwise 50% of the tax) and misreporting (otherwise 200%), provided you pay within the demand notice and do not appeal; in a misreporting case you also pay additional income-tax equal to 100% of the tax on the under-reported income. Replying and losing costs the same plus the penalty proceedings. Appealing to CIT(A) costs a filing fee and, for a stay, an application under section 220(6), where the CBDT's benchmark is a deposit of 20% of the disputed demand, which the officer can vary for recorded reasons. Third, decide by the merits and the amount: appeal where the addition is a question of law or the evidence is with you (bank statements, agreements, valuations); settle where the addition is a disallowance you cannot document; and never let a pure limitation defect go unraised. The CIT(A) appeal is due within 30 days of the order; ITAT within 60 days of the CIT(A) order. A transfer-pricing question (a SaaS company billing its foreign parent) is not a reassessment question — it is a Form 3CEB obligation every year with no threshold, and the study is what defends the mark-up.
Reviewed: 4 November 2026 | Law: Income-tax Act, 1961 (ss. 40(a)(ia), 92 to 92F, 139(8A), 148, 148A, 149, 156, 220(6), 246A, 249, 253, 270A, 270AA); Income-tax Rules (rules 10D, 10TA–10TG); CBDT Office Memorandum of 29 February 2016 as modified on 31 July 2017 (20% stay); Income-tax Act, 2025 (s. 263) | Author: CA V. Viswanathan, FCA, ACS, CFE
Answer: Work through the additions one by one, because the answer differs by addition. For each: (a) is the addition on a point of law (for example, share premium treated as income under section 56(2)(viib) for assessment year 2025-26 or later, when the clause no longer applies, or a section 68 addition on an investor whose identity, creditworthiness and genuineness you can show) — appeal, because the CIT(A) and ITAT decide law and you will win or lose on the record; (b) is it a documentation failure (cash deposits without a source, expenses without vouchers) — settle, because an appeal without evidence adds penalty exposure; (c) is it a limitation or procedural defect (Q47) — raise it in the reply and, if the order still issues, appeal on that ground alone. Then price it: the demand, the 20% deposit for a stay (Q49), the appeal fee (₹1,000 at CIT(A) for assessed income above ₹2 lakh; at ITAT, 1% of the assessed income subject to a maximum of ₹10,000 where assessed income exceeds ₹2 lakh — fees under sections 249(1) and 253(6)), professional cost, and time (CIT(A) under the faceless scheme, then ITAT). The appeal is to CIT(A) within 30 days of service of the order (section 249(2)); the ITAT appeal within 60 days of the CIT(A) order (section 253(3)). Limited records cut both ways — they weaken the merits but they also mean the officer's information (bank data, AIS, third-party statements) is the whole case, and that information is what the section 148A notice must have disclosed to you.
Answer: Section 149 as substituted with effect from 1 September 2024 sets two sets of limits. For the section 148A show-cause notice (section 149(2)): not after three years from the end of the relevant assessment year, extended to five years only if the income chargeable to tax which has escaped assessment, as per the information with the Assessing Officer, amounts to or is likely to amount to ₹50 lakh or more — a quantum test on the information, nothing more. For the section 148 notice that follows the section 148A order (section 149(1)): not after three years and three months; between three years three months and five years three months only if the Assessing Officer has in his possession books of account or other documents or evidence related to any asset, expenditure, transaction or entries which show escaped income of ₹50 lakh or more — a stricter, evidence-based test that the section 148A stage does not require. These are separate limits for issuing the two notices. Section 148A(3) governs the fit-case order and prior approval. Where section 148A applies, it requires the officer to issue the show-cause with the information suggesting escapement, give you the time stated in it to reply, and pass an order deciding whether it is a fit case; sanction under section 151 is by the specified authority. Section 148A(4) excludes cases involving information received under the notified section 135A scheme. For assessment years governed by the Income-tax Act, 2025 (tax year 2026-27 onwards), the corresponding sections of that Act apply; check the year before quoting a limit. Checks to make on the day the notice arrives: which notice it is (section 148A show-cause or section 148) and its date against the three-year / three-year-three-month or five-year / five-year-three-month line for that assessment year; whether a section 148A show-cause was served and whether its information was actually enclosed; for a section 148 notice issued after three years three months, whether the officer actually holds books, documents or evidence relating to an asset, expenditure, transaction or entries showing ₹50 lakh or more (section 149(1)(b)) — the ₹50 lakh figure in the section 148A information alone is not enough at that stage; whether the approval is from the right authority; and whether the notice was issued by the jurisdictional officer or through the faceless mechanism as required. Each of these has been the ground on which High Courts have quashed notices.
Answer: Section 270AA was amended by the Finance Act, 2026 with effect from 1 March 2026, for assessment year 2026-27 and earlier years, to extend immunity to misreporting cases. The conditions now are: (a) pay the tax and interest in the demand notice under section 156 within the time it allows; (b) in a misreporting case under section 270A(9), also pay additional income-tax equal to 100% of the tax payable on the under-reported income, in lieu of the 200% penalty; (c) file no appeal against the order; (d) apply in Form 68 within one month from the end of the month in which the order is received. The officer decides the application within the period the section prescribes, after hearing you. Before choosing immunity, read the amended section for the cases in which it remains barred — for example where prosecution or other proceedings have already been initiated. The arithmetic: in an under-reporting case, immunity costs nothing beyond tax and interest against a 50% penalty; in a misreporting case it costs 100% additional tax against a 200% penalty risk. Either way it gives up the appeal on the whole order, so choose it only where every addition is to be accepted. If the officer has invoked misreporting on facts that are really under-reporting, contesting the limb in the penalty reply may still be worth more than immunity. For tax year 2026-27 onwards under the Income-tax Act, 2025, apply the corresponding provision of that Act.
Answer: Apply to the Assessing Officer under section 220(6) for stay of the demand pending the CIT(A) appeal. The CBDT's Office Memorandum of 29 February 2016, as modified on 31 July 2017, directs the officer to grant stay on payment of 20% of the disputed demand, unless the officer records reasons for a higher or lower percentage (lower where the addition is covered by a decision of a higher court in your favour, or where the addition is on the same issue decided in your favour in an earlier year; higher where the addition is covered against you). File the stay application with the appeal acknowledgement, the computation of the 20%, and the grounds, and ask for the penalty proceedings to be kept in abeyance under section 275 until the appeal is disposed of. If the officer refuses or stays silent, the Principal Commissioner has administrative power to intervene, and the ITAT has power to stay once the matter reaches it (section 254(2A), with the 20% condition and the 365-day limit). Do not ignore the demand while the appeal is pending — section 220(2) interest at 1% a month runs on the unpaid demand regardless of stay, and recovery can begin after 30 days from the demand notice.
Answer: From the first rupee. Section 92E requires every person who has entered into an international transaction with an associated enterprise to obtain and furnish the accountant's report in Form 3CEB by the due date — there is no monetary threshold for the report (the ₹20 crore threshold in section 92BA applies to specified domestic transactions). The documentation under section 92D and rule 10D is required where the aggregate international transactions exceed ₹1 crore in the year; below that, the arm's-length principle still applies and the officer can still ask. For a SaaS company providing services to its parent, the study must settle: the characterisation (contract software developer, contract R&D, marketing support, or an entrepreneur licensing its own IP); the most appropriate method (TNMM on operating cost for a cost-plus service provider; CUP where the same service is sold to third parties); the comparables set and the mark-up; and the treatment of stock-based compensation and foreign-exchange items in the cost base. The ready documents: the intercompany services agreement with the pricing clause, the functional analysis, the cost base reconciliation to the audited accounts, the comparables search with the filters, the invoices and FIRCs, and the Form 3CEB working. If the parent is a start-up, the safe-harbour rules (rules 10TA–10TG) are the cheaper route: Budget 2026 set the safe-harbour operating margin for software development and IT-enabled services at 15.5% for international transactions up to ₹2,000 crore — opting in under Form 3CEFA means no TP audit on those transactions at the cost of a margin that is above most negotiated outcomes. The second TP question for a SaaS group is the reverse flow: licence fees or management charges paid to the parent, which attract TDS under section 195 and the same arm's-length test.
Answer: Section 40(a)(ia) disallows 30% of any sum payable to a resident on which tax was deductible and was not deducted, or was deducted but not deposited by the due date of the return; the disallowance is reversed in the year the tax is deposited. For payments to non-residents, section 40(a)(i) disallows 100%. The second proviso saves you if the payee has included the amount in its return and paid tax, and you obtain a CA certificate in Form 26A — that converts the default into interest under section 201(1A) only. As to fixing it: the updated return under section 139(8A) (section 263(6) of the Income-tax Act, 2025 for tax year 2026-27 onwards) may be filed within 48 months from the end of the relevant assessment year — for tax year 2026-27 under the Income-tax Act, 2025, section 263(6) fixes the updated-return window at 31 March 2032 (the revised return under section 263(5) by 31 March 2028) — on payment of additional tax of 25% (within 12 months), 50% (within 24), 60% (within 36) or 70% (within 48), and only if it results in additional tax, not a refund or loss. An updated return cannot be filed once a reassessment has been initiated. The practical sequence is: deposit the TDS with interest, obtain Form 26A from the payee where possible, and file the updated return adding back the 30% in the year of default (or claiming the second proviso) before any notice issues.
Send the notice, the section 148A show-cause (if any) and the order, with the assessment year. We return a one-page position on limitation, the addition-by-addition settle/appeal call with the penalty and stay arithmetic, and the filing dates, before the 30-day appeal window closes.
Send the notice for a settle-or-appeal review
Sources: Income-tax Act, 1961 — sections 40(a)(i), 40(a)(ia), 68, 92B, 92BA, 92D, 92E, 139(8A), 144C, 148, 148A, 149, 151, 156, 195, 201(1A), 220(2), 220(6), 246A, 249, 253, 254(2A), 270A, 270AA, 275; Income-tax Rules, 1962 — rules 10D, 10TA–10TG, 31ACB (Form 26A), 129 (Form 68); CBDT Office Memorandum F.No. 404/72/93-ITCC dated 29 February 2016, modified 31 July 2017; Finance Act, 2026 (safe harbour margin and threshold); Income-tax Act, 2025 — section 263(5) and (6). See the Finance Act, 2026 for the section 270AA amendment and the Income Tax Department’s text of section 149.
Under section 149 as substituted from 1 September 2024: the section 148A show-cause within three years from the end of the assessment year, or up to five years where the escaped income as per the information with the Assessing Officer is ₹50 lakh or more (section 149(2)); the section 148 notice within three years and three months, or up to five years and three months only where the officer has books, documents or evidence relating to an asset, expenditure, transaction or entries showing escaped income of ₹50 lakh or more (section 149(1)). Where section 148A applies, the show-cause with the information precedes the notice; for tax year 2026-27 onwards the corresponding provisions of the Income-tax Act, 2025 apply.
Under section 270AA as amended by the Finance Act, 2026 (from 1 March 2026): pay the tax and interest within the demand notice, file no appeal, and apply in Form 68 within one month from the end of the month in which the order is received. Immunity now extends to misreporting cases on payment of additional income-tax equal to 100% of the tax on the under-reported income, in lieu of the 200% penalty. Check the amended section for cases where immunity remains barred; for tax year 2026-27 onwards apply the corresponding provision of the Income-tax Act, 2025.
20% of the disputed demand under the CBDT Office Memorandum of 29 February 2016 as modified on 31 July 2017, unless the officer records reasons for a different percentage. Interest under section 220(2) continues on the unpaid balance.
Yes. Section 92E requires Form 3CEB for every international transaction with an associated enterprise with no monetary threshold; the rule 10D documentation applies above ₹1 crore of aggregate international transactions. Budget 2026 set the safe-harbour margin for software and ITES at 15.5% for transactions up to ₹2,000 crore.
30% of the sum paid to a resident under section 40(a)(ia) (100% for non-residents under 40(a)(i)), reversed in the year the tax is deposited; the second proviso removes the disallowance if the payee has paid tax and gives Form 26A.
Within 48 months from the end of the relevant assessment year on payment of 25% to 70% additional tax, only if it increases tax; under the Income-tax Act, 2025 the updated-return window for tax year 2026-27 closes on 31 March 2032. It cannot be filed once reassessment has begun.