The income-tax (I-T) department has started scrutinising cases for the assessment year (AY) 2018-19 to determine which of them need to be reopened, a process that might result in a raft of tax notices.
This follows this year’s Union Budget move to reduce the time limit for tax reassessment from 10 years to five in cases of escaped income.
The new provision becomes effective on September 1 and will make past assessments for AY 2018-19 time-barred.
The initial letters issued under the provisions are expected to be numerous, but the number will reduce after risk assessment, an official source privy to the development told Business Standard.
“The assessee should be informed that their information has been selected as high-risk under the risk management strategy of the I-T systems.
"Accordingly, we will give one week to respond, or the case will be automatically reopened,” the official explained.
The Central Board of Direct Taxes, the apex body for direct taxation, has directed field officials to upload such time-barred cases by August 2 on Insight, the tax portal that details tax dodgers across the country.
Following the uploading of the list on Insight, the I-T department will first send a preliminary letter under Section 148A of the Act, seeking responses from the assessees concerned.
The final notice of reassessment, however, will be issued depending on the response of the assessee.
Being the most litigated provision, Budget 2024 has attempted to simplify the reopening and reassessment process.
“An assessment hereinafter can be reopened beyond three years from the end of the AY only if the escaped income is Rs 50 lakh or more, up to a maximum period of five years from the end of the AY,” Finance Minister Nirmala Sitharaman said while presenting the Budget.
“Even in search cases, a time limit of six years before the year of search, as against the existing time limit of 10 years, is proposed.
"This will reduce tax uncertainty and disputes,” she underlined.
The new rule is expected to reduce litigation to a greater extent.
“In normal cases, no notice under Section 148A shall be issued if three years have elapsed from the end of the relevant AY. Notice beyond the period of three years from the end of the relevant AY can be issued only in a few specific cases,” according to the Budget document.
“In specific cases where, as per the information with the assessing officer, the income escaping assessment amounts to or is likely to amount to Rs 50 lakh or more, notice under Section 148A can be issued beyond the period of three years but not beyond the period of five years from the end of the relevant AY,” adds the Budget explanatory memorandum.
