Cos, Individuals Challenge I-T Move to Reopen Old Accounts

Corporates as well as individuals are contesting the Income tax (I-T) department’s move to reopen past assessments under the old law. More than a dozen writ petitions have been filed in recent weeks to challenge the validity of notices issued by the tax office after March 31,2021.

Under the new law which came into effect from April 1,2020, the revenue department, while reopening old accounts of a taxpayer, can go back up to three years if the tax assessing officer estimates escaped income is less than Rs. 50 lakhs; however, the law empowers the department to reopen up to 10-year old accounts if the alleged untaxed income is Rs.50 lakh or more.

The old law, amended with the passage of Finance Bill 2021 and in effect till March 31,2021, allowed reopening of assessments of the previous six years. The tax department, according to industry sources, was probably unable to serve the notices before March 31 due to lockdown, and ended up sending them on or after April.

Besides large local companies and some of the foreign investors which have moved the court, a final ruling in favors of taxpayers would also spare hundreds of individuals and small businesses whose cash deposits in the days after Demonetizations on November 8,2016 as well as commodity traders suspected to have booked bogus income. Under the new law, the department can reopen for only, the department can reopen for only three previous assessment years-2020-21,2019-20, and 2018-19-if the escaped income is below Rs. 50 lakhs. The De Mon cash deposit cases pertain to assessment year 2017-18 (financial year 2016-7).

“Representations have been filed with the Central Board of Direct Taxes to withdraw these reassessment notices High Courts have admitted some writ petitions of applicants challenging these reassessment notices and granted interim stay in their cases. The tax Department has been given time to file their responses to these challenges,” said Ashish Mehta, Partner at the law firm Khaitan & Co. According to Priyank Ghia, Partner Chokshi & Chokhi LLP, the revenue has issued notices u/s 148 without following the prescribed procedure as inserted in the Finance Act 2021 w.e.f. 01.04.2021, thereby making all the notices issued on or after 01.04.2021 bad in law.

Some of corporate entities to have moved the court include Tata Communications Transformation Services and Armada D1 Pte. In its petition, the Tata company has said the notice dated 21st May 2021 issued under section 148 of the Act seeking to reopen the company’s assessment for AY 2015-16 is void and arbitrary.

From April 1, an assessing officer cannot issue notices under section 148. Notices under the new law have to be served under section 148(A), which requires the tax officer, among other things, to give the petitioner an opportunity of hearing. While the deadline for issuing notices was extended to June 30 due to the pandemic, the question that crops up is whether a substantive part of the law can be changed through a notification. “The core issue will be whether this is a case of excessive delegation and whether the notifications (issued under the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020) extending the time limit to issue notices under the old reassessment provisions are ultravires and unconstitutional. The new reassessment provisions were issued in substitution of old provisions and are in effect from 1 April 2021, these notifications have the effect of postponing the applicability of new provisions introduced by Finance Act, 2021. In any case, the notifications do not extend before 1April 202, notably, section 147 (of new reassessment provisions) mandates satisfaction of procedures given in newly introduced section 148A which requires issuing show cause notice, opportunity of being heard, etc. before issuance of reassessment notices,” said Mehta.   S-ET

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