Saturday, December 10, 2016

Increase in Turnover due to demonetization/ digitisation would not attract Re-opening of Income Tax Case

CBDT has issued a Circular No.40/2016 giving advice to assessing officers of Income Tax Department not to reopen past assessments in cases merely on the ground that the current year’s turnover has increased. As the Govt is insisting on shifting to digital mode of payment for all financial transactions so no financial transactions would remain undisclosed and consequently an enhanced turnover of business might get reflected in the books of accounts.

It is clarified by the Government that increased turnover in the current year cannot be treated as the reason for reopening of earlier years’ cases involving lower turnover u/s 147 of the Income tax Act, 1961 as this will cause undue harassment by the Assessing Officer to tax payers.

Further clarified that reopening of cases u/s 147 of the Act is feasible only when the Assessing Officer “has reason to believe that any income chargeable to tax has escaped assessment for any assessment year” and not merely on the basis of any reason to suspect. Mere increase in turnover, because of use of digital means of payment or otherwise, in any year cannot be a sole reason to believe that income has escaped assessment in earlier years.