Time Limit Reduced for Re-opening Income Tax Proceedings proposed in Budget 2021 | CA Club

Clipped from: https://www.caclub.in/time-limit-reduced-for-re-opening-income-tax-proceedings/

Reduction in Time Limit has been proposed in Budget 2021 for Re-opening of Income Tax Proceedings within 3 years, as against existing limit of 6 years, except in serious tax evasion cases of Rs. 50 lacs or more, wherein existing limit of 10 years will continue subject to approval of Principal CCIT.

In order to reduce compliance burden, Budget 2021 has proposed to provide for reduction in the time-limit for reopening of income tax proceedings to three years. However, in serious tax evasion cases, where there is evidence of concealment of income of Rs. 50 lakh or more in a year, the assessment can be reopened upto 10 years but only after the approval of the Principal Chief Commissioner.

Presently, an assessment can be re-opened up to 6 years (10 years in serious tax fraud cases). To reduce this long period of uncertainty for taxpayers, Budget 2021 has proposed to reduce this time-limit for re-opening of assessment to 3 years from the present 6 years/ 10 years (i.e. including in serious tax evasion cases). However, cases where there is evidence of concealment of income of Rs. 50 lakh or more in a year, the assessment proceedings can still be re-opened, upto 10 years, subject to approval of the Principal Chief Commissioner, the highest level of the Income Tax Department.

Further, it is proposed in the Finance Bill 2021 to completely remove discretion in re-opening of assessments and hence the same shall be done only in cases flagged by system on the basis of data analytics, objection of C&AG and in search/ survey cases.

New framework of re-assessment proceedings introduced by Finance Bill 2021, applicable in the cases of income escaping assessment including search/ survey, shall reduce litigation and help to proceed in the direction of ease of doing business. In proposed regime, the AO will first conduct an enquiry and provide an opportunity of being heard to the assessee before issuing the assessment reopening notice, except in search cases.

Accordingly Clause 35 to 39 of the Finance Bill 2021 has proposed to amend/ substitute/ insert Sections 147, 148, 148A, 149 and 151 of the Income Tax Act for Time Limit reduction for re-opening income tax proceeding, applicable with effect from 01/04/2021, as under:

1. Clause 35 of the Finance Bill 2021 seeks to amend Section 147 of the Income-tax Act relating to income escaping assessment:

It is proposed in the Finance Bill 2021 to substitute Section 147 so as to provide that if any income chargeable to tax, in the case of an assessee, has escaped assessment for any assessment year, the Assessing officer may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or re-compute the loss or the depreciation allowance or any other allowance, as the case may be, for such assessment year.

2. Clause 36 of the Finance Bill 2021 seeks to substitute Section 148 of the Income-tax Act relating to issue of notice where income has escaped assessment:

It is proposed in Finance Bill 2021 to substitute Section 148 so as to provide that before making the assessment, reassessment or re-computation under section 147, and subject to the provisions of section 148A, the Assessing Officer shall serve on the assessee a notice along with a copy of order passed under clause (d) of section 148A, requiring him to furnish within such period, as may be specified in such notice, a return of his income or the income of any other person in respect of which he is assessable under this Act during the previous year corresponding to the relevant assessment year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed; and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139, provided that no notice under the said section shall be issued unless there is information with the Assessing Officer which suggests that the income chargeable to tax has escaped assessment in the case of the assessee for the relevant assessment year and prior approval of the specified authority to issue such notice has been obtained by the Assessing Officer.

The proposed Explanation 1 to Section 148 provides for the purposes of the said section and section 148A, that information which suggests that the income chargeable to tax has escaped assessment means any information flagged in the case of the assessee for the relevant assessment year in accordance with the risk management strategy formulated by the Board from time to time or any final objection raised by the Comptroller and Auditor General of India to the effect that the assessment in the case of the assessee for the relevant assessment year has not been made in accordance with the provisions of this Act.

The proposed Explanation 2 to Section 148 provides that where,-

(i) a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A, on or after the 1st day of April,2021, in the case of the assessee; or

(ii) survey is conducted under section 133A in the case of the assessee; or

(iii) the Assessing Officer is satisfied, with the prior approval of Principal Commissioner or Commissioner, that any money, bullion, jewellery or other valuable article or thing, seized or requisitioned in case of any other person on or after the 1st day of April, 2021, belongs to the assessee; or

(iv) the Assessing officer is satisfied, with the prior approval of Principal Commissioner or Commissioner, that any books of account or documents, seized or requisitioned in case of any other person on or after the 1st day of April, 2021, pertains or pertain to, or any information contained therein, relate to, the assessee, the Assessing officer shall be deemed to have information which suggests that the income chargeable to tax has escaped assessment in the case of the assessee for the three assessment years immediately preceding the assessment year relevant to the previous year in which the search is initiated or books of account, other documents or any assets are requisitioned or survey is conducted or money, bullion, jewellery or other valuable article or thing or books of account or documents are seized or requisitioned in case of any other person.

The proposed Explanation 3 to Section 148 provides that the “specified authority” shall mean the specified authority referred to in section 151.

3. Clause 37 of the Finance Bill 2021 seeks to insert a new Section 148A in the Income-tax Act relating to Conducting inquiry, providing opportunity before issue of notice under section 148:

It is proposed in the Finance Bill 2021 to insert a new section 148A, which seeks to provide that the Assessing Officer shall, before issuing any notice under section 148,-

(a) conduct any enquiry, if required, with the prior approval of specified authority, with respect to the information which suggests that income chargeable to tax has escaped assessment;

(b) provide an opportunity of being heard to the assessee, with the prior approval of specified authority, by serving upon him a notice to show cause within such time, as may be specified in the notice, being not less than seven days but not exceeding thirty days from the date on which such notice is issued, or such time, as may be extended by him on the basis of an application in this behalf, as to why a notice under section 148 should not be issued on the basis of information which suggests that income chargeable to tax has escaped assessment in his case for the relevant assessment year and results of enquiry conducted, if any, as per clause (a);

(c) consider the reply of assessee furnished, if any, in response to the show cause notice referred to in clause (b); and

(d) decide, on the basis of material available on record including reply of the assessee, whether or not it is a fit case to issue a notice under section 148, by passing an order, with the prior approval of specified authority, within one month from the end of the month in which the reply referred to in clause (c) is received by him, or where no such reply is furnished, within one month from the end of the month in which time or extended time allowed to furnish a reply as per clause (b) expires, provided that the provisions of this sub-section shall not apply in a case, where a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A in the case of the assessee on or after the 1st day of April, 2021 or the Assessing officer is satisfied, with the prior approval of the Principal Commissioner or Commissioner that any money, bullion, jewellery or other valuable article or thing, seized in a search under section 132 or requisitioned under section 132A, in the case of any other person on or after the 1st day of April, 2021, belongs to the assessee; or the Assessing officer is satisfied, with the prior approval of the Principal Commissioner or Commissioner that any books of account or documents, seized in a search under section 132 or requisitioned under section 132A, in case of any other person on or after the 1st day of April, 2021, pertains or pertain to, or any information contained therein, relates to, the assessee.

Explanation to the Section 148A provides that “Specified authority” shall mean specified authority referred to in section 151.

4. Clause 38 of the Finance Bill 2021 seeks to substitute Section 149 of the Income-tax Act relating to time limit for notice:

It is proposed in the Finance Bill 2021 to substitute the Section 149 so as to provide that no notice under section 148 shall be issued for the relevant assessment year,-

(a) if three years have elapsed from the end of the relevant assessment year, unless the case falls under clause (b);

(b) if three years, but not more than ten years, have elapsed from the end of the relevant assessment year unless the Assessing Officer has in his possession books of accounts or other documents or evidence which reveal that the income chargeable to tax, represented in the form of asset, which has escaped assessment amounts to or is likely to amount to fifty lakh rupees or more for that year.

Provided that no notice under section 148 shall be issued at any time in a case for the relevant assessment year beginning on or before 1st day of April, 2021, if such notice could not have been issued at that time on account of being beyond the time limit prescribed under the provisions of clause (b), as they stood immediately before the commencement of the Finance Act, 2021.

Further, the provisions of this section shall not apply to cases where a notice under section 153A or section 153C read with section 153A is required to be issued in relation to a search initiated under section 132 or books of account, other documents or any assets requisitioned under section 132A on or before the 31st day of March, 2021 and for the purposes of computing the period of limitation as per this section, the time or extended time allowed to the assessee, as per show-cause notice under clause (b) of section 148A; or the period during which the proceeding under section 148A is stayed by an order or injunction of any court shall be excluded and also where immediately after the exclusion of such period, the period of limitation available to the Assessing Officer for passing an order under clause (d) of section 148A is less than seven days, such remaining period shall be extended to seven days and the period of limitation in sub-section (1) shall be deemed to be extended accordingly.

5. Clause 39 of the Finance Bill 2021 seeks to substitute Section 151 relating to sanction for issue of notice:

It is proposed in the Finance Bill 2021 to substitute Section 151 so as to provide that for the purpose of section 148, specified authority shall be,-

(i) Principal Commissioner of Income-tax or Principal Director of Income-tax or Commissioner of Income-tax or Director of Income-tax, if three years or less than three years have elapsed from the end of the relevant assessment year;

(ii) Principal Chief Commissioner of Income-tax or Principal Director General of Income-tax, or where there is no Principal Chief Commissioner of Income-tax or Principal Director General of Income-tax, Chief Commissioner of Income-tax or Director General of Income-tax, if more than three years have elapsed from the end of the relevant assessment year.

Related Posts:

Union Budget India 2021-22/ Finance Bill, 2021 (Download PDF Copy)

Key Proposals on Direct/ Indirect Taxes: Budget 2021

ITR filing exemption for Senior Citizens (75 or above) proposed in Budget 2021

0.1% TDS on Purchase of Goods above 50 lacs proposed in Budget 2021 

Enhanced Tax Audit Exemption limit of Rs. 10 crore for Digital Turnover, proposed in Budget 2021

Time Limit Reduced for Re-opening Income Tax Proceedings proposed in Budget 2021

ICAI’s Pre Budget Memorandum 2021 on Direct Taxes/ International Taxation

CBDT Updates (Income Tax)
Income Tax Circulars, Instructions, Notifications, Orders, Press Releases, etc. issued by the Central Board of Direct Taxes (CBDT) in different years:
CBDT Circulars: 20212020201920182017
CBDT Instructions: 202020192018201720162015
CBDT Notifications: 20212020201920182017
CBDT Orders: 20212020201920182017
CBDT Press Releases: 202120202019, 2018, 2017, 2016, 2015
Note: For Official/ updated copy, please visit the Income Tax Deptt. website.

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