Section 147 read with section 148 of the Income-tax Act, 1961 (IT Act) provides for assessing the income that has escaped assessment. Recently, the Central Board of Direct Taxes (CBDT) issued an instruction1 for selection of cases for reassessment under section 148 of the IT Act. It was expressly provided in the said instructions that they shall not be applicable to International Tax charge. Post issuance of the said instructions, the CBDT has recently issued an instruction2 containing criteria for determining cases as ‘potential cases’ for selection for issue of notice under section 148 of the IT Act by the International Taxation Charge. We, at BDO in India, have analysed and summarised the said instruction and provided our comments on its impact hereunder:
1. The CBDT has laid down following criteria for determining cases as ‘potential cases’ for taking action under section 148 of the IT Act by the International Taxation Charge for the fiscal year (FY) 2012-13 to FY 2016-17:
- Cases where there are Audit Objection (Revenue/Internal) which require action under section 148 of the IT Act;
- Cases of information from any other Government Agency/Law Enforcement Agency which require action under section 148 of the IT Act;
- Potential case including:
- Reports of Director of Income Tax (Investigation),
- Reports of Director of Intelligence & Criminal Investigation,
- Case of Non-Filer Management Systems (NMS) & other cases,
as flagged by the Director of Income-tax (Systems) subsequent to 4 March 2021. The NMS cases flagged earlier will get subsumed in the new list.
- Cases of information arising out of field survey action, which require action under section 148 of the IT Act;
- Cases of information arising out of FT&TR references, which require action under section 148 of the IT Act;
- Cases where information has been received from any Income-tax Authority, including the Tax Officer himself/herself, which require action under section 148 of the IT Act. The information so received shall not include the information received from Directorate of Income-tax (Investigation), Central Charges and Directorate of Income-tax (Intelligence and Criminal investigation) after 1 April 2019. Under this category, 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.
2. 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.
3. 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 151 of the IT Act shall be obtained before issuing notice under section 148 of the IT Act.
4. The instruction also provides that the verification exercise for remittances made on or before 31 March 2017 which have been flagged by the Directorate Income-tax (Systems) shall be conducted only where aggregate amount of flagged remittances made by a remitter during a fiscal year is INR 50 million or more. Furthermore, the Instruction provides that where verification exercise was completed before this instruction was issued and if the verification indicates escapement of income in the hands of a non-resident remittee, such cases to be considered as potential cases for action under section 148 of the IT Act by 31 March 2021.
5. 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 above.
With this instruction, the criteria for determining whether a particular case will be treated as a potential case for International Taxation charge are now prescribed. It appears that for the purpose of remittances whose verification is done prior to 31 March 2017 can be reopened only if the flagged remittances are more than INR 50 million. Thus, in a case where the total remittances made by a taxpayer exceed INR 50 million, but the flagged remittance’s quantum does not exceed INR 50 million, the same may not be covered for reopening if the verification exercise was made on or before 31 March 2017.
2CBDT Instruction F.No.225/40/2021/ITA-II, dated 15 March 2021