Delhi Supreme Court will soon decide whether the tax department can reopen old tax messages with regard to foreign assets even if those notifications have time under previous rules.
A Division Bank led by Justices Vibhu Bakhru and Tejas Karia heard a number of petitions submitted on 30 May – submitted by companies such as UK Paints (Overseas) LTD, BJN Holdings (India) LTD and KS Dhingra – who from the income tax Act. It referred the case to a larger bank for a final decision. The notifications were issued between 2014 and 2021, with regard to assessment years that are declining for decades.
2012 Change of Extended Recrision period
In the center of the case, an amendment of 2012 is stated in the Income Tax Act that extends the reassessment period from six years to 16 years for matters involving foreign assets. After the amendment, which was aimed at tackling black money and unknown foreign assets, the Department began to publish reassessment reports for older cases, some date from 1997.
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Taxpayers challenged these notifications in court, which led to conflicting legal interpretations. In the Brahm Dat case (Delhi High Court, 2018), for example, the court ruled that the extended time limit could not apply to things that had already been closed under the earlier six -year rule.
In the last hearing, however, the Delhi Supreme Court noted: “The position expressed in Brahm DATT can reckon through a larger bank,” and referred the business to a larger bank.
What experts say
Tax experts said that if the court allowed retrospective application, the tax department could reopen matters against HoognetWored private individuals, business promoters and professionals, which imposed an important compliance burden. Some notifications can date already in 1996, making it difficult for taxpayers to collect and produce old documents to defend themselves.
“An opinion that promotes the tax department can unnecessarily cause a substantial wave of reassessment knowledge, in particular aimed at highnet-worthy individuals, business promoters and professionals with offshore companies or trusts,” said Hardep Sachdeva, Senior Partner at AZB & Partners.
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“If authorized by the extended restriction period with judicial support, the Department may feel encouraged to reopen things in 1996-97, which will certainly be very unproductive,” Sachdeva added.
Amit Maheshwari, tax partner at AKM Global, tax and consultancy firm, said: “If the larger bench rules in favor of the tax department, the biggest obstacle of the taxpayers will contest these things on their merits and collecting the required documents – which could be especially difficult in view of the time that has died – more than 15 years in some cases.”
Voluntary disclosure schedules can be influenced
Tax lawyers also warned that a ruling in favor of reopening retroactive effect could undermine the credibility of voluntary disclosure schemes for foreign assets, such as black money (non -known foreign income and assets) and the imposition of Tax ACT, 2015.
These schemes are designed to encourage taxpayers to get clean without fear of persecution. A reopening of retroactive effect can discourage participation in future initiatives.
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“A decision that makes reopening of retroactive effect possible, can undermine the credibility of voluntary disclosure schemes, such as that of black money (unknown foreign income and assets) and the imposition of Tax Act, 2015,” said Rahul Charkha, partner in economic laws.
“Taxpayers use such schemes to regularize non-discrosures from the past with immunity through prosecution. If old assessments are reopened despite such regulations, this can deter future participation in similar initiatives,” he added.
