The Income Tax Department has asked the field offices not to issue reassessment notices for small taxpayers for the financial years 2012-13, 2013-14 and 2014-15 where the tax revenue is less than Rs 50 lakh.
Instructing the Supreme Court to implement the judgment on notices sent after a three-year reassessment period, the department said that for FY16 and FY17, where the time limit for issuing such notices falls within 3 years, tax officers will instruct to show cause. Provide notice and information to taxpayers to initiate revaluation activities within 30 days.
The Central Board of Direct Taxes (CBDT) has asked the tax authorities to give the taxpayers two weeks to respond to such notices, which may in fact be further extended at the request of the taxpayer.
The Supreme Court ruled in favor of the IT department earlier this month and upheld all revaluation notices issued after April 1, 2021 – assessments can go back up to 6 years.
The government last year (2021-22) budget reduced the reopening time for IT assessment from 6 years to 3 years.
However, the tax department has sent a number of notices to reopen the assessment, which goes back even after 3 years. The notices were then challenged in several high courts and the IT department then appealed to the Supreme Court to uphold such notices.
Shailesh Kumar, a partner at Nangia & Co LLP, said the CBDT had issued the much-needed directive to provide clarity to both tax officials and taxpayers and to ensure that Supreme Court directives were interpreted and applied equally in all 90,000 odd cases across India.
“This is a welcome notice by the CBDT providing clarity to both the taxpayer and the tax officer. Lots of cases are expected to be dropped for AYs 2013-14, 2014-15 and 2015-16 for small taxpayers … except in exceptional cases where extended deadlines have been called for assets above Rs 50 lakh, ”Kumar said. .
Rajat Mohan, a senior partner at AMRG & Associates, said the circular would clarify all issues arising out of the controversy created by the re-evaluation by the Finance Act 2021 and the impact of the apex court ruling.
“The SC judgment read in conjunction with the recent directive will compel re-evaluation for the notice issued from April to June 2021,” Mohan said.
AKM Global Tax Partner Sandeep Sehgal said CBDT officials have been instructed to provide taxpayers with material for reasons of reopening so that they can respond accordingly within 2 weeks.
“The timeline is offensive to the taxpayers. Further, where the evaded income is less than Rs 50 lakh for a particular year, no material will be provided by the tax officers as they will not proceed with these cases. Appropriate protection under 148A will also be available to the taxpayers where it It will be applicable, ”Sehgal said.
Sandeep Valla, a partner at Dhruv Advisers, said that each case needs to be further assessed whether it is a ‘fit case’ for re-opening by field officers as opposed to re-opening the assessment mechanically.
“It has become imperative for taxpayers to jump into the reassessment debate to assess their tax position and carefully strategize the protections available under the new law,” Valla said.