Direct Tax Alert - CBDT issues instructions for selection of cases under section 148 of the Income-tax Act, 1961

Background

Section 147 read with section 148 of the Income-tax Act, 1961 (IT Act) provides for assessing the income that has escaped assessment. With an objective to streamline the process of selection of cases for the issue of notices under section 148 of the IT Act, the Central Board of Direct Taxes (CBDT) has recently issued an instruction¹ for selection of cases for issue of notice under section 148 of the IT Act. In order to clarify on certain aspects pertaining to the said instruction, the CBDT has come out with FAQs² followed by and an additional clarification³. We, at BDO in India, have consolidated, analysed and summarised them and provided our comments on its impact hereunder:

1. The CBDT has laid down following criteria for determining cases as ‘potential cases’:

• Cases where there are Audit Objections (Revenue/Internal) which require action under section 148 of the IT Act
• Cases of information from any other Government agency/Law Enforcement Agency (such as SEBI⁴, DRI⁵, REIC⁶, CEIB⁷ etc.), which require action under section 148 of the IT Act
• Potential cases including:
  • Reports of Directorate of Income-tax (Investigation),
  • Reports of Directorate of Intelligence & Criminal Investigation,
  • Cases from Non-filer Management System (NMS) & other cases

as flagged by the Directorate of Income-tax (Systems) subsequent to 4 March 2021, as per Risk profiling. Further, Non-filers Monitoring System (NMS) cases flagged earlier to get subsumed in the new list.

The CBDT vide FAQ 9 has clarified that proceedings in respect of Foreign Assets / Intelligence cases are to be taken under The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015)

• Cases where information arising out of field survey action, requiring action under section 148 of the IT Act
• Cases of information received from any Income-tax authority (including the tax officer)requiring action under section 148 of the IT Act with the approval of Chief Commissioner of Income tax (CCIT) concerned. The CCIT shall call for the list of the potential cases along with details and evidence from the Subordinate Authorities and shall, after careful examination, suggest to the tax officer, the potential cases to be taken for consideration for action under section 148 of the IT Act.  

Further, information received after 1 April 2019 from the Directorate of Income-tax (Investigation), Central Charges and Directorate of Income-tax (Intelligence and Criminal Investigation) shall not be included.   

2. Basis the above-mentioned criteria, the Jurisdictional Tax Officer has been directed to take action under section 148 of the IT Act by 31 March 2021 for the Fiscal Year (FY) 2012-13 to FY 2016-17.

3. The CBDT vide FAQ 11 has clarified that as cases where escaped income is more than INR 5mn will not get time barred for FY 2012-13 to FY 2016-17,  the investigation shall continue provided such cases are supported by underlying assets.

4. Apart from above-mentioned criteria, no other category of cases shall be considered by the tax officer for taking action under section 148 of the IT Act.

5. The CBDT has also clarified that the Tax Officer shall take an action under section 148 of the IT Act only after forming a reasonable belief that income chargeable to tax has escaped assessment. Also, the ‘reason to believe’ shall be recorded and required sanction as per section 151⁸ of the IT Act shall be obtained before issuing notice under section 148 of the IT Act.

6. Subsequent to the issuance of notice under section 148 of the IT Act, the tax officer shall upload all the underlying documents relied upon and satisfaction recorded, in the ITBA module for all categories of cases as mentioned para 1 to 5 above.  

7. These instructions shall not apply to the Central Charges and International Taxation Charges.

BDO comments

This is a welcome move by CBDT as it intends to reduce arbitrary reopening of assessment by streamlining the selection criteria. It is imperative to take cognisance of recent Union Budget 2021 wherein it has proposed to substitute Section 148 of the IT Act by providing that notice can be issued only when there is “information” (except for search/survey cases) with the tax officer that the income chargeable to tax has escaped assessment. Further the term ‘information’ is proposed to be defined to mean any information flagged in accordance with the risk management strategy of the Board and any objection during CAG⁹ Audit. Now, with the clarity on the criteria for selection of cases for reopening, the taxpayer shall be able to check whether his matter have been reopened within these criteria or not. If not, he can raise an objection that such reopening is bad in law.