Income Tax Department Begins Scrutiny of Reassessment Cases for AY 2018-19

The income-tax department has begun scrutinizing cases for the assessment year (AY) 2018-19 to identify those that need to be reopened, potentially resulting in a wave of tax notices. This follows the Union Budget 2024 announcement to reduce the time limit for tax reassessment from 10 years to five in cases of escaped income.

New Reassessment Provision Effective September 1

Effective September 1, the new provision will make past assessments for AY 2018-19 time-barred. Initial letters issued under the new provisions are expected to be numerous, but will decrease after risk assessment, according to an official source.

“The assessee will be informed if their information is selected as high-risk under the I-T systems' risk management strategy. They will have one week to respond, or the case will be automatically reopened,” the official explained.

Directives from the Central Board of Direct Taxes

The Central Board of Direct Taxes (CBDT) has instructed field officials to upload time-barred cases by August 2 on Insight, the tax portal detailing tax dodgers across the country. Once the list is uploaded on Insight, the I-T department will send preliminary letters under Section 148A of the Act, seeking responses from the concerned assessees. The final reassessment notice will be issued based on the assessee's response.

Simplified Reassessment Process in Budget 2024

Finance Minister Nirmala Sitharaman, while presenting the Budget, emphasized simplifying the reopening and reassessment process to reduce litigation. According to the new rules:

• Reassessment Beyond Three Years: An assessment can be reopened beyond three years from the end of the AY only if the escaped income is Rs 50 lakh or more, up to a maximum period of five years.
• Search Cases: For search cases, the time limit is reduced from ten years to six years before the year of the search, reducing tax uncertainty and disputes.

The new rule is expected to significantly reduce litigation. In normal cases, no notice under Section 148A will be issued if three years have elapsed from the end of the relevant AY. Notices beyond three years can be issued only in specific cases where the escaped income is likely to amount to Rs 50 lakh or more, but not beyond five years from the end of the relevant AY.

This move by the I-T department and the provisions in Budget 2024 aim to streamline tax processes and reduce the burden of litigation on taxpayers and the tax administration.