The Income Tax (I-T) department has begun scrutinizing cases for the Assessment Year (AY) 2018-19, initiating a process to determine which of these cases may need to be reopened for reassessment. This follows a significant change announced in the Union Budget 2024, where the time limit for tax reassessment has been reduced from 10 years to 5 years in cases of escaped income. This new provision, set to take effect on September 1, 2024, will make past assessments for AY 2018-19 time-barred, urging the department to act promptly.
The I-T department is expected to issue numerous initial notices, which will later be refined based on a risk assessment process, according to an official source familiar with the developments. “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 source told Business Standard.
The move is part of a larger effort by the Central Board of Direct Taxes (CBDT) to identify and target potential tax evaders. The CBDT, the apex body for direct taxes in India, has instructed field officials to upload the details of time-barred cases by August 2, 2024, on Insight, the tax department’s portal designed to track tax dodgers across the country.
Reassessment Process and Section 148A
The I-T department will follow a structured process for reopening cases. The first step involves issuing a preliminary letter under Section 148A of the Income Tax Act. This letter will request a response from the concerned assessee regarding the department’s intention to reopen the case. Depending on the response, the final notice of reassessment will be issued.
Section 148A is part of the efforts to streamline the reassessment process and reduce unnecessary litigation. Finance Minister Nirmala Sitharaman, during her Budget speech, outlined how this new approach will simplify the reopening of tax assessments.
“An assessment hereinafter can be reopened beyond three years from the end of the AY only if the escaped income is ₹50 lakh or more, up to a maximum period of five years from the end of the AY,” said Sitharaman. This provision aims to ensure that only significant cases of tax evasion are reopened, thereby limiting the scope for litigation.
In search cases, where investigations may yield hidden income or assets, the time limit for reassessment has also been reduced. “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,” the Finance Minister added.
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Impact on Litigation and Tax Disputes
The new reassessment rules are expected to substantially reduce litigation. The government has been keen to address the concerns of taxpayers who have often faced prolonged uncertainty over tax reassessments. By reducing the time limit for reopening cases to five years, the scope for revisiting old cases is significantly narrowed.
“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,” explains the Budget document. This rule ensures that only those cases with substantial evidence of escaped income will be reopened after the three-year mark.
Further, the Budget explanatory memorandum states, “In specific cases where, as per the information with the assessing officer, the income escaping assessment amounts to or is likely to amount to ₹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.”
Focus on Reducing Tax Evasion
The reassessment process forms part of a broader strategy to crack down on tax evasion while simultaneously reducing the burden on honest taxpayers. The I-T department’s use of advanced technology and risk-based management tools is expected to enhance its ability to detect cases of escaped income more efficiently. By targeting only high-risk cases, the department aims to balance enforcement with minimizing taxpayer discomfort.
As the new reassessment framework comes into effect on September 1, 2024, it is expected to foster a more efficient and less contentious tax environment, benefiting both the department and taxpayers.
