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New provisions in the Reassessment regime made during this Budget Session of Parliament have been effective from April 1, 2022. However, individual and corporate taxpayers are still seeking clarity from their tax consultants on whether the new changes would affect them.    

Earlier, an escaped income from assets above 50 lakh rupees could trigger a reassessment of the past ten years. So tax department can question a taxpayer if the person had misreported or underreported an asset. 

Whereas now, in addition to scrutinizing escaped income from assets, the amended regime allows the Income Tax (IT) department to notify taxpayers who made unexplained expenditures or book entries above 50 lakhs and ask them to explain.  

Unexplained expenditure includes money spent on expensive gifts and large events. And book entries that suggest loans availed and closed in a short duration or not sufficiently explained, then tax investigators can ask for a reassessment. 

So if the aggregate escaped income or unexplained expenditure over multiple years is above 50 lakhs, then the tax department can scrutinize data for ten years.  

Rakesh Nangia, Chairman of Nangia Andersen India, says, “Reassessment proceedings and search proceedings have been brought in consonance. So now reopening can be almost automatic in search/requisition cases, at least. The only requirement is that the assessing officer identify asset, entry, or expenditure in which aggregate outflow of money is more than 50 lakh rupees–spread over the 4th and 10th relevant assessment year.”

He adds, “In search/seizure/requisition cases, the only condition is to obtain approval from prescribed authority to issue notice reopening notices. Hence, a mere search will be sufficient to issue notice for all the ten assessment years.”

Kuldip Kumar, Partner at Price Waterhouse & Co, says, “The department is now armed with newer technologies like artificial intelligence and automated processes; it can quickly relate and point out discrepancies in the financial data collected from various sources. These data points and the past litigation experience led to these changes in the law.”

The new amends equips the IT department to look for multiple data sources to reopen cases and the data flagged by the Central Board of Direct Taxes’ (CBDT’s) risk management and objections flagged by the Comptroller and Auditor General (CAG). 

Reference: Large ‘unexplained expenditure’ may lead to income tax