After three years, an assessment notice cannot be issued if the estimated income that was hidden was less than Rs 50 lakh

 After three years, an assessment notice cannot be issued if the estimated income that was hidden was less than Rs 50 lakh

If the relevant assessment year has ended more than three years ago, no income tax notification may be given. However, a notice may be issued if there is proof of income concealment of at least Rs 50 lakh, more than three years but within ten years after the conclusion of the relevant assessment year.

If the Assessing Officer has reasonable suspicion that there is no income subject to tax, he may, in accordance with Section 148 of the Income Tax Act, 1961, issue a notice to reassess the taxpayer's Income Tax Return (ITR). For any assessment year, income has eluded assessment.

Income tax laws are complex, and balancing the actions of assessing officers (AOs) may sometimes need judicial involvement. The Delhi High has stated in a recent court ruling that the prolonged 10-year review term for income tax (IT) assessments is only applicable in cases where the projected amount of concealed income above Rs 50 lakh.

Judges Rajeev Shakdhar and Girish Kathpalia stressed that no notice should be given in "normal cases" when the income hidden is less than Rs 50 lakh and three years have gone since the end of the relevant assessment year. The court therefore invalidated over fifty of these reassessment notifications that the AO had sent out for the assessment years 2016–17 and 2017–18, whereby income of less than Rs 50 lakh had been disguised.

Tax professionals and specialists have expressed gratitude for the court's ruling and anticipate that this clarification will be a useful instrument in contesting and overturning future unjust letters from the Income Tax Department. The multidisciplinary tax consulting business Tax Connect Advisory's partner, Vivek Jalan, stated: "With this judgment, this jurisprudence, as laid down by law, should now gradually cool down as the courts reject the deviation."will keep on being carried out."

Yeshu Sehgal, head of tax markets at AKM Global, a tax and consultancy business, states that "Old notices issued under section 148 and The ongoing proceedings will be dropped" with regard to notifications that have previously been issued and proceedings that are predicated on them. when there is less than Rs 50 lakh in residual income.

The ruling from the High Court has no intention of proposing or altering any current rules. But it does so in plain language, outlining the legal position on the deadline for tax notices. This is bolstered by a thorough examination of the notifications, reassessment, and new regime requirements, as well as the ruling made by the Supreme Court in the Ashish Aggarwal case. Following the Supreme Court's ruling in the Ashish Aggarwal case, the High Court has granted significant relief by quashing the notices in all cases where notices under section 148 issued under the previous regime [relating to assessment years 2016–17 and 2017–18] have been issued. following the ruling, were granted normal status," Sehgal said. But because their income is less than Rs 50 lakh, they are seen as having over the three-year limit. For the taxpayer, this is a move that is generally appreciated.

Let's study more about the Income Tax Act's Section 48, which permits the issuance of notices for income reassessments.

What is the IT Act's Section 148?

If the Assessing Officer has reasonable suspicion that there is no income subject to tax, he may, in accordance with Section 148 of the Income Tax Act, 1961, issue a notice to reassess the taxpayer's Income Tax Return (ITR). For any assessment year, income has eluded assessment. Stated differently, the AO believes that the taxpayer has either under- or not declared all of his income on his return.

Section 148 gives the AO the authority to notify the taxpayer for a reassessment of income in such a circumstance. Generally speaking, however, if three years have passed since the conclusion of the relevant assessment year, no notification may be sent. A notice may be issued if there is proof of income concealment of at least Rs 50 lakh, occurring more than three years but within ten years of the conclusion of the relevant assessment year.

Modification of Section 148

A new sub-section 148A was added to the Finance Act 2022, requiring the assessing officer to allow the taxpayer to make his case before performing the investigation and sending out the notice required by section 148. a warning sent to the taxpayer under section 148A(B), including pertinent data and unfavorable material suggesting potential income tax evasion.

It's crucial to remember that the ten-year statute of limitations may only be used in "serious tax evasion cases," and even then, only in circumstances in which proof is discovered. It won't be enough to just say that more than Rs 50 lakh has been taken. According to Jalan, the AO needs proof that at least Rs 50 lakh in money has been embezzled.

"Field officers were issuing notices where there was suspected theft and that too less than Rs 50 lakh," according to the statute that was already in force. Jalan said that on occasion, AOs would exaggerate the amount of theft to exceed Rs 50 lakh in the absence of any supporting documentation.

The taxpayer has the chance to provide his explanation and the necessary documentation within the allotted time frame after receiving notification under section 148(B). Unless otherwise stated in the notice, a person has thirty days in general to respond to a notice under section 148.

The Income Tax Officer will decide whether or not to send a reassessment notice after examining the taxpayer's answer. If the officer decides to reopen the matter, they must provide the taxpayer with a copy of the order and a notification under section 148.

Verify the reasons listed on the notice of reassessment you receive under section 148. The assessee has the right to submit an objection contesting the notice's legality if he believes the justifications provided in it are inadequate or without merit. The assessee may even file a writ case in the High Court if the Assessing Officer declines the objection, even before the assessment or reassessment is finished.