Proposed Rationalization of Assessment and Re-assessment Provisions
The Finance Act of 2021 introduced new procedures for income assessment and reassessment, effective from April 1, 2021. The upcoming Finance Bill of 2022 proposes to rationalize these provisions by expanding the scope of reassessment, simplifying procedures, rectifying drafting errors, aligning search assessments, and offering clarification on existing provisions.
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Presentation Transcript
Assessment & Assessment & Re Re- -Assessment Assessment Provisions Provisions Amit Rana l Corporate Tax Amit Rana l Corporate Tax Partner Partner l PwC l PwC Session No.7
Table of Contents Background Validity of Section 148 Notices Issued After 31st March 2021 Proposal for Expansion of Scope of Reassessment Proposal for Simplification of Procedures Proposal for Rectification of the inadvertent drafting errors Proposal for Aligning the scheme of search assessments Proposal for Clarification in the existing provisions February, 2022 | 01
Assessment & Re Assessment & Re- -Assessment Provisions Provisions Assessment
Rationalization of provisions relating to assessment and reassessment Background The Finance Act, 2021 amended the procedure for assessment or reassessment of income w.e.f 1st April, 2021 New reassessment procedure provided, inter alia, in sections 147, section 148, section 149 and also introduced a new section 148A In cases search is initiated on or after 1st April, 2021, assessment or reassessment is now made under sections 143 or 144 or 147 The Finance Bill, 2022 ( Bill ) now proposes to rationalize the provisions relating to aforesaid assessment and reassessment on following aspects: i. Expansion of scope of reassessment ii. Simplification of procedures iii. Rectification of the inadvertent drafting errors iv. Aligning the scheme of search assessments v. Clarification in the existing provisions February, 2022 | 2
Validity of Section 148 Notices Issued After 31 March 2021 before 30 June 2021 Clarified? No saving or revival clause has been brought in the Bill Issue continue to be litigated in respect of notices issued after 31 March 2021 under old re-assessment regime Most High Courts have given favorable verdict Pending before Supreme Court - will decide on final verdict Will there be saving or revival clause in next Bill? February, 2022 | 2
Rationalization of provisions relating to assessment and reassessment Expansion of Scope of reassessment [w.e.f 1 April 2022] Existing Provision Revamp of reassessment proceedings by Finance Act 2021; Limitation period reduced to 3 years, which can go upto 10 years if AO has evidence that income (>Rs 50 lakh for the year) has escaped assessment and is represented as assets [Section 149(1)] AO should have the information and obtain approvals for issuing notice [Proviso to section 148] Proposal Reference to Rs 50 lakhs for that year in section 149(1)(b) has been deleted Expansion of scope of the reassessment provision to include the following: Scope expansion What has been included? Sources suggest that income chargeable to tax has escaped assessment [Explanation 1 to Section 148] of information which Any Audit objections Information received from a foreign jurisdiction under an agreement Information made available to AO from Faceless Collection of Information under Section 135A Tribunal or Court order Issuance of notice within the time period of 10 years expanded to cover cases [Section 149(1)(b)] In the form of asset; or Expenditure in respect of transaction /event /occasion; and Entries in books of accounts Search cases Income (of Rs 50 lakh or more) represented by assets or expenditure can be made in more than 1 year Omit the word flagged used in Explanation 1 to section 148
Rationalization of provisions relating to assessment and reassessment Expansion of Scope in the existing provisions [w.e.f 1 April 2022] Key takeaways Substantial increase in scope of reassessment Source of information have been substantially widened Any audit objections even if not final, seemed to be covered Any Court order, even if not connected to income tax or of other country, seemed to be covered Substantial cases to likely fall under the 10 year limit Against the spirit and intent Reassessment may be initiated even in cases where Rs. 50 lakhs is not satisfied in one year but has been spread over more than 1 AY and relates to the same investment / expenditure. -For instance; Rs 50 lacs spend in 5 years, then, notice can be issued for each 5 year, even if each year, spend is less than 50 lacs
Rationalization of provisions relating to assessment and reassessment Simplification of procedures Insert proviso to section 148 [w.e.f 1 April 2022] and Omit clause (b) of section 148A[w.e.f 1 April 2022] Existing Provisions Proviso to section 148 To issue notice u/s 148, AO to have information regarding escaped income and obtain prior approval of the specified authority. 148A(b) AO to obtain approval of specified authority for providing an opportunity to show cause before issuing notice u/s 148. Proposal No approval needed, if AO has passed an order under Section 148A(d) with the prior approval of the specified authority. Requirement omitted to obtain approval of specified authority for providing an opportunity to show cause against reassessment. This simplification will help to eliminate requirement of taking approval multiple times Key takeaways February, 2022 | 2
Rationalization of provisions relating to assessment and reassessment Rectification of inadvertent drafting errors Omit reference of section 133A(5) [w.e.f 1 April 2022] Existing Provisions Section 133A - Empowers income tax authority to make enquiry in respect of the expenditure incurred on any ceremony or event useful for any proceedings or used as evidence in any proceedings Aforesaid enquiry was excluded earlier from deeming provision contained in clause (ii) of Explanation 2 to section 148 Deeming provision cases where search/survey proceedings are initiated, AO shall be deemed to have information which suggests that the income chargeable to tax has escaped assessment for issuing notice u/s 148 In case authority enquire in respect of expenditure of any ceremony or event, then, the AO shall not be deemed to have information for issuing notice u/s 148, as such enquiry was excluded Proposal The Bill now proposes to cover above enquiries in survey within clause (ii) of Explanation 2 to section 148 In respect of enquiry of the expenditure incurred on any ceremony or event as above, the AO shall now be deemed to have information which suggests that the income chargeable to tax has escaped assessment even for cases covered Key takeaways February, 2022 | 2
Rationalization of provisions relating to assessment and reassessment Rectification of inadvertent drafting errors Omit the reference to three AY in Explanation 2 of section 148 [with retrospective effect from 1 April 2021] Existing provision Explanation 2 to section 148 - Cases where search/survey proceedings are initiated > AO deemed to have information which suggests escaped income In such case, notice can be issued for the three assessment years immediately preceding the assessment year relevant to the previous year in which the search/survey is initiated Proposal Reference to 3 AYs for framing reassessment orders in pursuance to the search/survey proceedings is omitted Reassessment orders framed in pursuance to the search/survey proceedings shall not be restricted to 3 AYs and shall extend to more than 3 AYs as well Key takeaways February, 2022 | 2
Rationalization of provisions relating to assessment and reassessment Rectification of inadvertent drafting errors Proposed Amendment to First Proviso to Section 149(1) [with retrospective effect from 1 April 2021] Existing provision Proviso to section 149 - no notice u/s 148 to be issued for relevant AY before 1st day of April, 2021, if not issued before the commencement of the Finance Act, 2021 being beyond the time limit specified u/s 149(1)(b). Proposal Benefit of proviso to section 149 available to cases where notices are issued under section 153A* and 153C** *Section 153A deals with issuance of notice in relation to assessment in case of search or requisition **Section 153C deals with issuance of notice in respect of case where books of account or documents or assets are seized or requisitioned by the assessing officer Considering that search/survey proceedings shall be now been assessed, inter-alia, under Section 147, benefit of proviso to section 149 has been extended to notices under section 153A or section 153C ie, such notices cannot be issued, if they could not have been issued on account of being beyond the time-limits specified under section 153A or Section 153C Key takeaways February, 2022 | 2
Rationalization of provisions relating to assessment and reassessment Rectification of inadvertent drafting errors Insert sub-section 4 to section 153B [with retrospective effect from 1 April 2021] Existing provision Section 153B prescribes time limit for completion of search assessment. Proposal The Finance Act, 2021 has amended the procedure for assessment or reassessment of income w.e.f 1st April, 2021 It is proposed that time-limits under section 153B shall not apply to search initiated on or after the 1st day of April, 2021. February, 2022 | 2
Rationalization of provisions relating to assessment and reassessment Aligning the scheme of search assessments Amend sub-section (8) of section 132[w.e.f 1 April 2022] Existing provision Section 132(8) - Prior approval of the prescribed authority required to retain the seized books of account or other documents seized by authorized officer for a period exceeding thirty days after passing of order under section 153A or 158BC(c) Proposal Amend Section 132(8) and include assessment/reassessment under Section 143(3), 144 or 147 within its scope. February, 2022 | 2
Rationalization of provisions relating to assessment and reassessment Aligning the scheme of search assessments Amend clause (i) of sub-section (1) and sub-section (4) of section 132B[w.e.f 1 April 2022] Existing provision Section 132B - application of seized or requisitioned assets Section 132B(1)(i)- Liability determined on completion of the assessment in case of search or requisition u/s 153A to be recovered from the seized assets in prescribed manner Section 132B(4) - CG to pay prescribed interest on the excess seized money/assets. Interest to run from period beyond 182 days from last authorization of search was executed till date of completion assessment under Section 153A or chapter XIV-B Proposal Amend Sections 132B(1)(i) and 132B(4) to include assessment or reassessment or recomputation within its scope The amount of liability determined under Section 143/144/147 can also be recovered from seized assets and interest shall run beyond 182 days from last authorization of search was executed till date of completion of assessment under section 143/144/147 Key takeaways February, 2022 | 2
Rationalization of provisions relating to assessment and reassessment Aligning the scheme of search assessments Amend section 133A [w.e.f 1 April 2022] Existing provision Section 133A - Income-tax authority can enter any place of business or profession or charitable activity within his jurisdiction for verification relevant to any proceeding under this Act Explanation to section 133A Contains definition of an Income tax authority -Income tax authority shall be subordinate to the Principal Director General of Income-tax (Investigation) or the Director General of Income-tax (Investigation) or the Principal Chief Commissioner of Income-tax (TDS) or the Chief Commissioner of Income-tax (TDS), as the case may be shall only be considered as Income-tax authorities for the purposes of section 133A Proposal Amend the definition of income-tax authority to mean such authority who is subordinate to the Principal Director General or the Director General or the Principal Chief Commissioner or the Chief Commissioner, as may be specified by the Board Survey is not restrictive to Investigation/TDS wing as of now and one would have to wait and watch which authorities will be authorized by Board to conduct the survey Key takeaways February, 2022 | 2
Rationalization of provisions relating to assessment and reassessment Aligning the scheme of search assessments Insert a new section 148B [w.e.f 1 April 2022] Existing provision The Finance Act, 2021 has amended the procedure for assessment or reassessment of income w.e.f 1st April, 2021 In the erstwhile law, section 153D mandated prior approval for assessment in cases of search or requisition. Proposal No order of assessment or reassessment or recomputation pursuant to search/survey proceedings shall be passed by an AO below the rank of Joint Commissioner, except with the prior approval of the Additional Commissioner or Additional Director or Joint Commissioner or Joint Director This will reduce avoidable inaccuracies February, 2022 | 2
Rationalization of provisions relating to assessment and reassessment Aligning the scheme of search assessments Amend section 153 [with retrospective effect from 1 April 2021] Existing provision Explanation 1 to section 153 - Provides certain exclusion for computing the limitation period for assessment and reassessment proceedings. Proposal Extend the time-limit for passing assessment/reassessment order by : - Excluding the period (not exceeding 180 days) = Commencing from the date on which a search is initiated under section 132 or a requisition is made under section 132A and ending on the date on which the books of account or other documents, or any money, bullion, jewellery or other valuable article or thing seized under section 132 or requisitioned under section 132A, as the case may be, are handed over to the AO having jurisdiction over the assessee. Amend Section 153B [with retrospective effect from 1 April 2021] Time-limit for completion of assessment in case of search/requisition Proposal Consequent to amendment in Section 153 above, proposed to insert sub-section (4) in Section 153B to exclude search u/s 132 and requisition u/s 132A from its scope on or after April 1, 2021 February, 2022 | 2
Rationalization of provisions relating to assessment and reassessment Clarification in the existing provisions Excluded from the scope of Section 148A [w.e.f 1 April 2022] Existing provision Section 148A - Procedure to be followed by AO before issuing notice u/s 148 Procedure is not required to be followed where search is initiated or books of account, other documents or any assets are requisitioned on or after April 1, 2021 Proposal Cases where information is received by AO under faceless collection of information shall be excluded from the procedure of 148A February, 2022 | 2
Q & A Q & A
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