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Deluge of income tax notices likely this month A flurry of income tax (I-T) notices loom over the next one month amid fears that many could slip through the tax net. Revenue officials have alerted the central authorities that it would be virtually impossible to reopen old tax returns for some of the past years before September 1, 2024, when the new law on reassessment comes into force. Under the amended regulation announced in the budget, the taxman can go back not more than five years to reassess a taxpayer's records if the escaped income is at least ₹50 lakh. Till now, they could reassess up to 10-year-old cases. The time limit is three years for an amount less than ₹50 lakh. Typically, the tax office would shoot reassessment notices around March for the relevant past year which was getting time-barred. Now, with the budget lowering the maximum reassessment period to five years, tax officials would just have a month till August 31, 2024, to send notices. Interpretation Issues May Crop Up The I-T department builds reassessment cases on the basis of information from banks, registrar of properties, and investigation wing's inputs on search findings. Under the present circumstances, they would have to compile and corroborate data on tax and income mismatches over the next few weeks for the financial years 2013-14 to 2017-18. From September 1, the I-T returns for these years cannot be reopened. "Issuance of notice under section 148 (or 148A) in a large number of cases within a period of one month will be mammoth task for overburdened jurisdictional assessing officers....the chief commissioner is the specified authority to sanction the notices which takes a lot of time to complete the proceedings," said a tax officers' body in a representation to the chairman of the apex body Central Board of Direct Taxes (CBDT). Notices for reassessment are sent under Section 148 and 148A with the law giving taxpayers the right to explain their position before reassessment orders are finalised - a process which, most believe, cannot be completed by end August. Not enough time The officers have impressed upon the CBDT to defer the specific date of the proposed amendment. However, the suggestion would not go down well among corporates and wealthy individual taxpayers. "Capping the reassessment period at five years was a great decision as it would reduce hassles and litigation. But if the department fears there could be a genuine loss of revenue as it may not be possible to wrap up several matters by August 31, the government can think of strict parameters where time-bound cases can be selectively reopened - based on trails of steps taken in identifying escaped income," said Mitil Chokshi, partner at CA firm Chokshi & Chokshi. "Taxpayers may expect a rush of reassessment notices in August 2024. These notices are likely to be for the AYs 2018-19 and prior to that. It is pertinent to note that the Bombay High Court in a recent ruling in a case of Hexaware Technologies has taken a view on a proviso introduced in 2021, which can be interpreted to mean that AY 2017-18 (and prior years) got time barred on March 31, 2024. These reassessment notices (for AYs 2017-18 and prior) are likely to rake up new interpretation issues in the already muddled reassessment provisions," said Ashish Mehta, partner at law firm Khaitan & Co. Reminder of 2021 The situation is reminiscent of the tussle between the I-T office and taxpayers three years ago. In April 2021, the reassessment law was changed.Till then, the tax office could go back up to six years if undisclosed income was more than ₹1 lakh and the assessee played a part in concealing the information. From 2021, the department could reopen 10-year-old tax returns if total income which escaped tax was more than ₹50 lakh and reassess 4-year-old matters if the amount was less than ₹50 lakh. However, upon receiving notices, more than 10,000 writ petitions were filed by companies on the grounds that they were not given time to explain, and the notices were served disregarding the carve-out that the cases which couldn't be reopened earlier (i.e, prior to April 2021), couldn't be reassessed under the changed law which became effective in April 2021. On May 4, 2022, the Supreme Court had invoked its extraordinary powers under Article 142 of the Constitution to uphold all reassessment notices issued after March 31, 2021. But the issue was not closed as the apex court left room for judicial proceedings depending on the merits of each case. Several such matters are currently pending before the court. www.economictimes.indiatimes.com,dt. 01-08-2024

Deluge of income tax notices likely this month

A flurry of income tax (I-T) notices loom over the next one month amid fears that many could slip through the tax net.

Revenue officials have alerted the central authorities that it would be virtually impossible to reopen old tax returns for some of the past years before September 1, 2024, when the new law on reassessment comes into force.

Under the amended regulation announced in the budget, the taxman can go back not more than five years to reassess a taxpayer's records if the escaped income is at least ₹50 lakh. Till now, they could reassess up to 10-year-old cases. The time limit is three years for an amount less than ₹50 lakh.

Typically, the tax office would shoot reassessment notices around March for the relevant past year which was getting time-barred. Now, with the budget lowering the maximum reassessment period to five years, tax officials would just have a month till August 31, 2024, to send notices.

Interpretation Issues May Crop Up

The I-T department builds reassessment cases on the basis of information from banks, registrar of properties, and investigation wing's inputs on search findings. Under the present circumstances, they would have to compile and corroborate data on tax and income mismatches over the next few weeks for the financial years 2013-14 to 2017-18. From September 1, the I-T returns for these years cannot be reopened.

"Issuance of notice under section 148 (or 148A) in a large number of cases within a period of one month will be mammoth task for overburdened jurisdictional assessing officers....the chief commissioner is the specified authority to sanction the notices which takes a lot of time to complete the proceedings," said a tax officers' body in a representation to the chairman of the apex body Central Board of Direct Taxes (CBDT).

Notices for reassessment are sent under Section 148 and 148A with the law giving taxpayers the right to explain their position before reassessment orders are finalised - a process which, most believe, cannot be completed by end August.

Not enough time

The officers have impressed upon the CBDT to defer the specific date of the proposed amendment. However, the suggestion would not go down well among corporates and wealthy individual taxpayers.

"Capping the reassessment period at five years was a great decision as it would reduce hassles and litigation. But if the department fears there could be a genuine loss of revenue as it may not be possible to wrap up several matters by August 31, the government can think of strict parameters where time-bound cases can be selectively reopened - based on trails of steps taken in identifying escaped income," said Mitil Chokshi, partner at CA firm Chokshi & Chokshi.

"Taxpayers may expect a rush of reassessment notices in August 2024. These notices are likely to be for the AYs 2018-19 and prior to that. It is pertinent to note that the Bombay High Court in a recent ruling in a case of Hexaware Technologies has taken a view on a proviso introduced in 2021, which can be interpreted to mean that AY 2017-18 (and prior years) got time barred on March 31, 2024. These reassessment notices (for AYs 2017-18 and prior) are likely to rake up new interpretation issues in the already muddled reassessment provisions," said Ashish Mehta, partner at law firm Khaitan & Co.

Reminder of 2021

The situation is reminiscent of the tussle between the I-T office and taxpayers three years ago. In April 2021, the reassessment law was changed.Till then, the tax office could go back up to six years if undisclosed income was more than ₹1 lakh and the assessee played a part in concealing the information. From 2021, the department could reopen 10-year-old tax returns if total income which escaped tax was more than ₹50 lakh and reassess 4-year-old matters if the amount was less than ₹50 lakh.

However, upon receiving notices, more than 10,000 writ petitions were filed by companies on the grounds that they were not given time to explain, and the notices were served disregarding the carve-out that the cases which couldn't be reopened earlier (i.e, prior to April 2021), couldn't be reassessed under the changed law which became effective in April 2021.

On May 4, 2022, the Supreme Court had invoked its extraordinary powers under Article 142 of the Constitution to uphold all reassessment notices issued after March 31, 2021.

But the issue was not closed as the apex court left room for judicial proceedings depending on the merits of each case. Several such matters are currently pending before the court.

www.economictimes.indiatimes.com,dt. 01-08-2024