Reassessment Cases: Here’s How Tax Department Plans To Apply The Supreme Court Ruling
The revenue department has issued instructions to its officers on implementation of the Supreme Court’s ruling in reassessment cases. The directions have been issued to apply the apex court’s ruling in a uniform manner, the Central Board of Direct Taxes said late Wednesday evening.
BQ Prime has reviewed a copy of CBDT’s instruction document.
To recap, last week, the apex court validated 90,000 reassessment notices issued by the tax department between April 1 and June 30, 2021. Notices issued under old procedures to be deemed to have been issued under the new Section 148A and treated as show cause notices, the apex court held.
The Section 148 of the Income Tax Act,1961 grants tax officers power to reopen past tax assessments if certain income has escaped assessment. To question such past filings, so far, the standard was “reason to believe". This was amended via Finance Act, 2021 through the Section 148A to lay down several stringent criteria before a reassessment notice can be issued, namely a pre-notice inquiry, prior approval from senior officers in the department, and an opportunity to the taxpayer to oppose reassessment, etc.
The apex court’s ruling essentially means that all notices issued under the Section 148 will be treated as issued under the Section 148A. Besides validating these notices, the apex court has also left open defences available to assessees under the Section 149. This provision, too, was amended last year to reduce the time period for issuing a reassessment notice.
To ensure uniformity in how the Supreme Court’s directions are interpreted, the CBDT has issued certain instructions to its assessing officers.
The CBDT View
The apex court ruling applies to all reassessment notices issued between April and June last year, irrespective of whether they were challenged or not, the CBDT said.
It has interpreted the court’s directions on the Section 149 to say:
For Assessment Years 2013-14, 2014-15, 2015-16:
Fresh notices can be issued under the Section 148 with the approval of the specified authority. Such cases will need to qualify the requirements of amended Section 149. Meaning, an assessing officer can issue a notice if he possesses books of account, documents or evidence revealing income that’s escaped assessment. And this amount is likely to be above Rs 50 lakh.
In its order, the apex court has given the revenue department 30 days to communicate to assessees the information and material relied upon to open past tax returns. This is a requirement under the Section 148A.
For these AYs, the CBDT noted that there may be notices issued where income that’s escaped assessment is less than Rs 50 lakh.
“It is clarified that information and material may not be provided in a case for AY 2013-14, 2014-15, 2015-16, if the income escaping assessment, in that case for that year amounts to or is likely to amount to less than Rs 50 lakh.” – CBDT
Separate instructions will be issued for disposal of such cases, the CBDT said.
For AY 2016-17, 2017-18:
Fresh notice can be issued with the approval of the specified authority since this is within the three-year period prescribed under the Section 149(1), the CBDT said. To be clear, for these years, the assessing officer doesn’t need to fulfill the criteria of evidence mentioned above for the first category.
The CBDT has also given certain procedural directions to its officers basis the apex court’s ruling, namely:
Tax officers to communicate within 30 days, that is by June 2, information and material relied upon for opening past assessments.
Assessees to get two weeks to respond. Since all defences under the Section 149 are available, an assessee can ask for more time.
Post that, the tax officer will take a call on whether it’s a fit case for reassessment. And pass a final order within one month after the specified authority's approval—a requirement under the new law. If it’s a fit case, then a notice will have to be issued to the assessee. If it's not a fit case, that, too, will need to be communicated.