A surge of income tax (I-T) notices is expected over the next month, amid concerns that many taxpayers might evade the tax net. Revenue officials have warned that it will be nearly impossible to reopen old tax returns for some past years before the new reassessment law takes effect on September 1, 2024.
The amended regulation, announced in the budget, limits the tax authority’s ability to reassess taxpayer records to the past five years if the escaped income is at least ₹50 lakh. Previously, they could reassess up to 10-year-old cases. For amounts less than ₹50 lakh, the reassessment period is limited to three years.
Typically, reassessment notices are issued around March for the relevant past year nearing the statute of limitations. With the new budget reducing the maximum reassessment period to five years, tax officials now have only until August 31, 2024, to send out notices.
Interpretation Issues May Arise
The I-T department builds reassessment cases using information from banks, property registrars, and investigation wing inputs. They now need to compile and corroborate data on tax and income mismatches for the financial years 2013-14 to 2017-18 within the next few weeks. After September 1, the I-T returns for these years cannot be reopened.
A tax officers’ body has expressed concerns to the Central Board of Direct Taxes (CBDT) chairman, stating that issuing a large number of reassessment notices under Sections 148 and 148A within a month will be a monumental task for already overburdened assessing officers. Additionally, the chief commissioner, who sanctions these notices, will need significant time to complete the proceedings.
The law gives taxpayers the right to explain their position before reassessment orders are finalized, a process unlikely to be completed by the end of August.
Not Enough Time
Tax officers have urged the CBDT to defer the proposed amendment date. However, this suggestion may not be well-received by corporates and wealthy individual taxpayers. While capping the reassessment period at five years is seen as reducing hassles and litigation, the department fears a genuine loss of revenue if it cannot wrap up several matters by August 31. The government could consider strict parameters for selectively reopening time-bound cases based on identifying escaped income.
Taxpayers should expect a rush of reassessment notices in August 2024, likely for assessment years (AYs) 2018-19 and earlier. The Bombay High Court’s recent ruling in the case of Hexaware Technologies suggests that AY 2017-18 and earlier got time-barred on March 31, 2024. These reassessment notices are expected to create new interpretation issues in the already complex reassessment provisions.
Also read: Filing Your Income Tax Return? Here is the List of Essential Documents Required
Reminder of 2021
This situation recalls the 2021 conflict between the I-T office and taxpayers. In April 2021, the reassessment law changed, allowing the tax office to go back up to six years if undisclosed income was more than ₹1 lakh and the taxpayer was complicit in concealing information. From 2021, the department could reopen 10-year-old tax returns if the escaped income was more than ₹50 lakh and reassess four-year-old cases for amounts less than ₹50 lakh.
Following the issuance of reassessment notices, over 10,000 writ petitions were filed by companies, arguing that they were not given time to explain, and the notices disregarded the carve-out preventing reassessment of cases that couldn’t be reopened earlier.
On May 4, 2022, the Supreme Court used its extraordinary powers under Article 142 of the Constitution to uphold all reassessment notices issued after March 31, 2021. However, the issue remains unresolved as the court left room for judicial proceedings based on each case’s merits, with several such matters still pending.