No new show cause notices to small taxpayers: CBDT tells officials

The Central Board of Direct Taxes (CBDT) issued on Wednesday extensive guidelines for implementing a Supreme Court (SC) order in reassessment cases.

The court had early this month ruled that the thousands of show cause notices the Income Tax department had issued under a previous regime should be treated as ones issued under a new one for reopening assessment cases.

The CBDT said that for three years, viz. assessment years (AY) 2013-14, 2014-15 and 2015-16, reassessment notices will not be issued for small taxpayers whose asset is less than Rs 50 lakh.

The CBDT also clarified about subsequent years--AY 2016-17 and AY 2017-18--where timeline to issue notices under Section 148, as extended by various Taxation & Other Laws Amendment Acts ('TOLA') till June 30, falls within period of three years. Tax officers, in such cases, will issue show cause notices and provide material/ information to taxpayers for initiating reassessment proceedings, within 30 days--June 2.

Taxpayers will get two weeks' time to respond to show cause notices, which can be further extended by tax officers at request of taxpayers in genuine cases.

Under the old regime ( Section 148) the tax office could go back to six years in case of undisclosed income. The law was changed in April 2021. Now, the I-T department under the new regime (148A) can reopen 10-year-old tax returns if total income which has escaped tax is more than Rs 50 lakh and reassess three-year-old matters if income is less than Rs 50 lakh.

Taxpayers and the tax department officials had several questions regarding implementation of the Supreme Court’s directions following the court’s order on reassessment notices issued on or after April 1, 2021 under the erstwhile Section 148.

Sources in the department said that the fresh notices would process under new regime ( Section 148A) will be done by jurisdictional officers. Then it will pass to Faceless Authority for scrutiny assessment.

“This is a much welcome circular by CBDT providing clarity to both taxpayers and tax officials.  Lot of cases for AYs 2013-14, 2014-15 and 2015-16 for small taxpayers are expected to be dropped for small taxpayers except in exceptional cases, where extended timeline for assets worth 50 lakhs of more is invoked. However, taxpayers will be vigilant about show cause notice and responding to such notice, if any issued by tax authorities if they feel reassessment proceedings should be continued in their case,” said Shailesh Kumar, partner, Nangia & Co LLP

The dispute came up when the tax department issued thousands of notices seeking reopening the past assessments after the new regime notified. This was because the old law was extended for three months due to the second wave of the coronavirus pandemic. Taxpayers challenged the validity of the move in various high courts across the country. Most courts favoured taxpayers and quashed the notices, prompting the tax department to appeal before the Supreme Court.

In order to provide clarity to tax officials and taxpayers and to implement Supreme Court’s directions in 90,000-odd cases, the CBDT has issued the instructions.