In a renewed effort to tackle tax evasion, the Income Tax Department has initiated a fresh wave of reassessment proceedings targeting businesses suspected of inflating purchase entries to reduce their taxable profits. According to sources, several previously concluded assessment cases are being re-examined based on fresh evidence, particularly from GST authorities.
The crackdown focuses on sectors historically vulnerable to invoice manipulation, including trading, construction, and electronics. Tax officials allege that many entities in these sectors claimed ITC under GST norms using fake invoices issued by so-called "entry operators"-shell entities or non-existent firms created solely for facilitating fictitious transactions.
"The department is empowered to reopen assessments if there is credible evidence that income has escaped taxation," said a senior official. "With the integration of GST and income tax data through advanced analytics, discrepancies in returns are easier to detect."
The reassessment exercise involves reopening income tax returns that were earlier processed and accepted without objection, following leads provided by GST authorities on suspected fake purchases. Officials are leveraging cross-verification between GST filings and income tax returns to identify anomalies in reported expenditures and profits.
Under the Income Tax Act, reassessments can be initiated up to three years from the end of the relevant assessment year in standard cases. For cases involving undisclosed income exceeding ₹50 lakh, particularly if linked to an asset, expenditure, or book entry, the window extends up to five years.
Businesses failing to substantiate their purchases or expenses with proper documentation may face additional tax demands, penalties, and interest. In some cases, prosecution may also be considered, especially if the evasion appears deliberate and large-scale.
Tax experts warn businesses to maintain proper records and ensure alignment between their GST and income tax filings to avoid falling under the radar. The department's renewed vigilance signals a broader strategy to improve tax compliance and expand the revenue base by plugging systemic leakages.
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