income tax: the tax service reopens old tax assessments based on an algorithm

The disturbing letters from the tax office began to arrive. The Income Tax (IT) Department has begun the process of reopening old assessments, but with a difference this year. Tax officials across the country are busy tracking “INSIGHT”, the portal that spews out the names of tax evaders following an algorithmic analysis of a mountain of data that has been fed in.

The new rule, which took effect from 2021-22, is simple: until the machine produces a name, the tax man’s hands are tied – unlike before, when he could slap a notice to reopen an old tax assessment as long as there was information. that a portion of income for a certain year had escaped tax.

“The system has a degree of randomness. So it’s possible that if there’s a breakout for four years, the system could show for a year when we know there’s reason to reopen every year. Also, it takes a while after all the information is uploaded before a name comes out,” said a tax official, who is trying to beat the March 31, 2022 deadline, after which many cases will become prescribed.

In addition to waiting for the green light from INSIGHT, IT must go through a more elaborate process. He must send a preliminary letter under the newly introduced Section 148A of the IT Act stating that the assessee’s information has been flagged for a certain assessment year.

Experts see a silver lining

The assessee should be advised that their information has been selected by the Income Tax (Systems) Directorate as “High Risk VRU (Variable Report Upload) under “Risk Management System” in accordance with “Strategy risk management” formulated by the Central Commission for Direct Taxation. The person assessed has one week to respond, failing which the file will be automatically reopened.

“Sure, some would play cat and mouse. They would file a letter of adjournment, give a ‘compelling’ reason to ask for more time…may be submitted at the last moment or look for an excuse to delay beyond March 31,” a source said.

If the system generates enough names in time, the department’s Mumbai region, which accounts for more than 30% of computer collections, could end up issuing more than 50,000 initial letters under Section 148A.

However, the tax experts who advise wealthy individuals do not complain about it. “We understand that if a satisfactory response is received from an assessee, the case may not be reopened. This is a welcome move to reduce litigation and give an assessee the opportunity before a case is be reopened. Written requests based on the principle of natural justice will be given. Each assessee will be given an opportunity to explain their case to the assessing officer. Previous cases have been reopened without an opportunity,” said Rajesh P Shah, who heads the international tax committee of the Chamber of Tax Advisors.

The number of cases that would eventually be reopened would depend on the names cleared by the portal and the time tax officials have to send notices before the end of the fiscal year.

Written petitions

“Reassessment provisions are one of the most contentious provisions with maximum writs filed against reassessment notices. justification is warranted, these procedures are quite abandoned. This will not only reduce unwanted litigation, but will also go a long way in building trust between taxpayers and the administration and making it easier to conduct business,” said Said Ashish Mehta, Partner, Khaitan & Co.

The amended law allows the department to go back 11 years (i.e. 10 years from the end of the tax year in which the notice is received) if the total income that evaded tax is suspected to be above Rs 50 lakh; it is four years if the missed income is less than Rs 50 lakh. Information uploaded to the portal is obtained from banks, foreign authorities, agencies such as the Central Bureau of Investigation and Enforcement Directorate and other third parties.

Once a notice of reopening is issued within fifteen days, a full reassessment would begin involving the recording of all responses and the serving of a show cause notice within nine months of the end of that fiscal year (i.e. i.e. by December 2023). “One case leads to another. Suppose there is a home loan entry where an irregular cash payment ends up in a business. In such a case, all lenders in the business will receive notices,” a said another tax official.

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