IT Department Reopens Old Tax Assessments Via an Algorithm Scan

This year, the IT department reopens old tax assessments with a slight change. With the help of the ‘Insight’ portal, tax officials are shortlisting the names of tax dodgers after the portal scans the data using an algorithm.

Apart from waiting for a go-ahead from the Insight portal, the IT department must comply with a more elaborate process. Tax officials need to send a preliminary letter as per the newly introduced Section 148A of the Income Tax Act mentioning that an assessee’s data has been flagged for a specific assessment year.

The IT department has to inform the assessee that his data has been extracted by the Directorate of Income Tax (Systems) as ‘high-risk VRU (variable report upload) as per the ‘risk management system’ in line with the ‘risk management strategy’ formulated by the Central Board of Direct Taxes (CBIC). The assessee will get a week to respond. If the assessee fails to respond, the case will be reopened automatically.

If the portal shows enough names on time, the Mumbai department, which accounts for more than 30% of the IT collections, could end up issuing about 50,000+ initial letters under section 148A. It is a welcome initiative that aims to bring down litigation and gives a chance to an assessee before a case gets reopened. With this move, every assessee will get an opportunity to explain their case to an assessing officer. The number of reopened cases would depend on the names cleared by the Insight portal and the time the tax officials have for dispatching notices before the end of the financial year.

As per the amended law, the department can go back 11 years (i.e. ten years from the end of the assessment year during which the notice is received) when total income that has skipped tax is presumed to be more than Rs 50 lakh; it is four years when income below Rs 50 lakh escaped taxation. The data uploaded on the portal is procured from overseas authorities, banks, agencies such as the Central Bureau of Investigation (CBI), the Enforcement Directorate and other third parties.

After a reopening notice is issued within the following fortnight, a full-scale reassessment would begin comprising a recording of all responses and a show-cause notice in less than nine months from the end of this financial year (i.e. by December 2023) will be served.

For any clarifications/feedback on the topic, please contact the writer at bhavana.pn@cleartax.in