Get Ready for a Wave of Income Tax Notices in August 2024
The Income Tax Department is set to send out a significant number of notices in the upcoming month, amidst concerns that numerous taxpayers might evade the tax net due to the impending implementation of the new reassessment law on September 1, 2024.
In accordance with the amended regulation announced in Budget 2024, tax authorities can now only reassess a taxpayer’s records for a maximum of five years if the escaped income is at least Rs 50 lakh, and for three years if the amount is less than Rs 50 lakh. This marks a significant reduction from the previous ability to reassess cases up to 10 years old.
According to an ET report, tax officials are facing the challenge of compiling and corroborating data on tax and income inconsistencies for the financial years 2013-14 to 2017-18 within the next few weeks, as these years will become time-barred for reassessment from September 1, 2024.
The process involves the reliance on information from various sources, including banks, property registrars, and search findings from the investigation wing, to build reassessment cases.
However, concerns have been raised about the feasibility of issuing notices in a large number of cases within a single month, given the overburdened nature of the jurisdictional assessing officers and the time-consuming process of obtaining sanction from the chief commissioner.
Furthermore, the law grants taxpayers the right to explain their position before reassessment orders are finalized, a process that many believe cannot be completed by the end of August.
Amidst these developments, the suggestion to postpone the effective date of the proposed amendment has been put forth to the Central Board of Direct Taxes (CBDT) by its officers. Nonetheless, this proposal is unlikely to be well-received by corporations and high net worth individuals.
Mitil Chokshi, partner at CA firm Chokshi & Chokshi, stated, “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.
Ashish Mehta, partner at law firm Khaitan & Co, highlighted the likelihood of a surge in reassessment notices in August 2024, particularly for the AYs 2018-19 and prior to that. He noted that these notices are likely to raise new interpretation issues in the already complex reassessment provisions.
This situation echoes the conflict between the Income Tax office and taxpayers in 2021, following the amendment of the reassessment law in April 2021. The change led to an influx of over 10,000 writ petitions by companies, contesting the lack of sufficient time to explain and the issuance of notices without considering the carve-out for cases which couldn’t be reopened earlier.
Subsequently, the Supreme Court upheld all reassessment notices issued after March 31, 2021, under its extraordinary powers, while leaving room for judicial proceedings based on the merits of each case. Currently, several such matters are pending before the court.
