Tax litigation woes may see government take Ordinance route: Report

The central government is exploring legal options, including bringing an Ordinance, in order to address the issue of rising income tax litigations on reassessment notices under the old and time-barred rules, according to a report in Business Standard. This came after several companies and individuals filed writ petitions in the last few weeks, challenging the validity of the notices, issued by the I-T Department between April 1 and June 30 under the old norms. The old law was in effect till March 31, and later got extended till June 30.

What is a reassessment notice?

Under the existing provisions of the Income Escaping Assessment, or Reassessment Proceedings, the assessing officer (AO) can reopen concluded assessment years of any assessee to verify any other income, which has not been accounted for. If the AO has a reason to believe that an income has escaped assessment then a notice of reassessment can be issued to the taxpayer.

For that, the AO is required to record his reasons for reopening the assessment and serve a notice to the assessee, asking him/her to file a tax return. However, for reopening an assessment, which is older than four years, the AO requires sanction of the higher authorities.

However, reassessment proceedings are often being challenged in writ proceedings before the high courts on the ground that such notices lack legal validity. The petitions generally put blame on the AO alleging that the officer failed to follow due diligence under the law. The courts become overwhelmed with cases regarding the validity of a reassessment. This means the high courts become busy deciding whether the AO had “reasons to believe” that a company or an individual had escaped assessment.