Two laws for issuing notices and reopening assessments leaves I-T assessees bewildered
The applicability of two sets of laws for the same purpose of issuing notices and reopening assessments has left income tax assessees bewildered and tax practitioners peeved.
The procedures related to reassessments or re-computation of income escaping assessment and review of search related cases has undergone a major overhaul. Several sections of the Income Tax Act have been amended with the objective to lower litigation and make it easier for taxpayers.
The prominent changes include the lowering of the time limit for issuing notices of reassessment from six years from the end of the relevant assessment year to three years.
Such notices cannot be issued unless the assessing officer has information to suggest that income chargeable to tax has escaped assessment. Before issuing any notice, an assessee will have the opportunity to be heard and after that the assessing officer will take a call on whether there is a case to issue a notice and serve a copy of the order along with such a notice.
If the assessing officer has in his possession books of accounts or other documents or evidence which reveal that income chargeable to tax has escaped assessment and the amount involved is Rs 50 lakh or more, a reassessment notice can be issued beyond the period of three years but not beyond an upper limit of 10 years from the end of the relevant assessment year.
The changes, announced in the Union budget, are part of Finance Act 2021 and they take effect from April 1, according to the explanatory memorandum to Finance Bill 2021. The Finance Bill received the assent of the President on March 28.
However, the tweaks come amid several extensions given by the Central Board of Direct Taxes. The time limit for reassessment of proceedings under the previous provisions of Section 147/148 of the Income Tax Act was also extended till June 30. This has left the department with the option to issue notices under the provisions of the old regime which allows reopening of cases for assessment year 2013-14 to 2017-18, which tax experts point out cannot be reopened under the new provisions that came into effect from April 2021.
“Two sets of legal provisions cannot be used for the same purpose of initiating proceedings for reopening of assessments during the period from April 1 to June 30, 2021 as the new provisions have come into effect from April 2021. Naturally earlier provisions have become redundant and any notice issued under the old provisions is bad by law,” said tax advocate Narayan Jain.
Moreover, under the provisions of Section 148, assessment can be reopened for three years if a survey or search has been conducted even if no asset or incriminating material was seized.
“This should not be allowed if the search report is nil. Scrutiny assessment is now only for the year in which the survey or search is conducted. Same system should continue,” Jain added.
Narendra Goyal, president of Direct Tax Professionals Association, also expressed concern on the rampant issue of notices under Section 148 of the old provisions of the Income Tax Act. The Direct Taxes Professionals Association on Monday made a representation to the Union finance minister highlighting the issue.
The issue of notices under Section 148 after April under the old provisions has been challenged in a writ petition by Armada D1 (a subsidiary of Shapoorji Pallonji Oil & Gas) in the Bombay high court.