Income-tax cases under Rs 50 lakh cannot be opened after 3 years, says Delhi HC

The Delhi High Court recently decided that the 10-year extension for reopening income-tax assessments applies only to cases with serious tax evasion involving evidence of escaped income over Rs 50 lakh.

What

• The Delhi High Court recently ruled that the 10-year extension for reopening income tax assessments applies exclusively to cases of significant tax evasion, where evidence of concealed income surpasses Rs 50 lakh. 

• This ruling is anticipated to be advantageous for numerous taxpayers. 
• In evaluating notices under Section 148, the court established that the three-year limitation period is applicable to alleged escaped income below Rs 50 lakh.
• The court dismissed the tax authorities' "travel back in time" theory, deeming it invalid.

The case

• The people who filed the petition argued that if someone hides income less than Rs 50 lakh, tax officials should only have three years to investigate. 
• They said that the longer, 10-year period should only apply if the hidden income is more than Rs 50 lakh.
• However, tax authorities disagreed, saying that notices were valid based on a Supreme Court case (Ashish Agarwal in May 2022) and a Circular from the Central Board of Direct Taxes (CBDT). 
• They used a law called the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA), claiming it allows them to go back in time when issuing notices.
• The Delhi High Court looked at what the Finance Minister said and the Finance Bill in 2021, and found that the time limit for investigating past tax returns was reduced from six to three years to make doing business easier.
• In instances where the undisclosed income exceeded Rs 50 lakh, tax authorities were granted the flexibility to investigate cases up to a decade.
• This updated rule is retroactive, encompassing prior years if Section 148 notices were served on or after April 1, 2021.

How is it beneficial for people?

• This decision is believed by many to be beneficial to taxpayers in income-tax cases below Rs 50 lakh. 
• This rule will help those taxpayers who were facing a significant delay in reassessment of income taxes under the previous scenario.