3 yr limitation period for reopening assessment of escape income of less than Rs 50 lakh, 10 yr in serious tax evasion cases: HC

The Delhi High Court has clarified that the time limit for reopening assessment in cases where alleged escape income is less than Rs 50 lakh is three years and only in ”serious tax evasion cases” with evidence of concealment of income of Rs 50 lakh or more, the period was extended to 10 years.

The high court said that according to the memorandum explaining the provisions of Finance Bill 2021, in ”normal cases”, no notice was intended to be issued if three years had elapsed from the end of the relevant assessment year.

Notice, beyond the prescribed three years from the end of the relevant assessment year, could be issued only in a few specific cases, it said.

”As would be evident from the extracts set forth above, both from the Finance Minister’s speech and the memorandum, the time limit for reopening under the new regime was reduced from six years to three years and only in respect of ‘serious tax evasion cases’, that too, where evidence of concealment of income of Rs 50 lakh or more in a given period was found, the period for reopening the assessment was extended to ten years,” a bench of justices Rajiv Shakdher and Girish Kathpalia said in a judgment passed on November 10 and made available recently.

The court said to ensure that utmost care was taken before invoking the extended period of limitation, the proposal was that approval should be obtained from the Principal Chief Commissioner of Income Tax, at the highest hierarchical level of the department.

The high court’s judgment came on a batch of petitions concerning assessment years 2016-17 and 2017-18 in which the petitioner assessees contended that in cases where the alleged escaped income is below the prescribed monetary threshold of Rs 50 lakh, the period of limitation, that is, three years from the end of the relevant assessment year would be applicable.

The pleas said one of the conditions prescribed for invoking the extended period of limitation of 10 years is that the income chargeable to tax, which has escaped assessment, amounts to or is likely to amount to Rs 50 lakh or more.

The high court noted that concededly, in these matters, the income chargeable to tax which is alleged to have escaped assessment is below Rs 50 lakh.

The high court said the memorandum emphasised that the new regime was forged with the hope that it would result in less litigation and would provide ease of doing business to taxpayers as there was a reduction in the time limit by which notice for assessment, reassessment and re-computation could be issued.

”The State, perhaps, did not deem it worthwhile to chase assessees beyond three years, where the alleged escaped income was less than Rs 50 lakh. These aspects concerning legislative policy come through if one were to read the relevant provisions of the statute referred to above in the background of the speech of the finance minister and the memorandum,” the bench said.

While deciding the petitions, the high court said the actions, which include issuance of notices under the Income Tax Act, concerning assessment years 2016-17 and 2017-18 cannot be sustained.