Reopening of assessment

A tax demand is sent to a taxpayer when he neglects to complete a tax return or reveal his actual taxable income. The reason for this is that tax authorities have evidence that the taxpayer has more income than he has declared as taxable. Even if the tax return was previously evaluated and the assessment was closed, this is still conceivable. Reopening of assessment or reassessment procedures are the names of these processes.

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The window for revisiting assessments was cut in half in Budget 2021, from six years to three years following the conclusion of the assessment year. With the exception of situations where the amount of taxable income represented by an asset exceeded Rs. 50 lakh, in which case the time restriction would be 10 years, this was not the case. As opposed to the previous "cause to think" rule, the reopening now needed to be based on information that the tax officer had access to.

The definition of "information accessible with the Assessing Officer" has been updated in Budget 2022 to include information collected via Tax Information Exchange Agreements with other nations, the indirect effects of Tribunal or court orders, etc. Additionally, in addition to income symbolised as an asset, income that is depicted as a cost of a transaction, event, or occasion, or as an entry in the books of accounts, and that totals more than Rs 50 lakh, cannot be justified, and suggests that income subject to tax has escaped evaluation, can also draw notice at any time during the 10-year period.

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For instance, this clause would apply to spending for weddings, celebrations, or assets if the investment made is greater than what is required. Additionally, even though this threshold is within the specified limit of Rs. 50 lakh per year, the assessment for each such year may still be reopened if it exceeds the threshold when the years are taken into account collectively. Therefore, a report filed and approved under Section 143(1) or even a routine assessment under Section 143(3) may not gain finality, and the tax department may revisit the assessment within that time period based on the data in their possession.

It is crucial to take into consideration all sources of revenue while completing one's taxable income as well as the funding for all assets bought and costs made during the year. Previously, the taxpayer may correct any error or omission by filing a revised income tax return by December 31 of the evaluation year, or nine months after the conclusion of the financial year.

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