Income tax authorities may issue reassessment notices under General Anti Avoidance Rules (GAAR) for tax years outside the time limits specified for issuing these notices if the new proposal under the Income Tax Bill 2025 is greenlighted.
Under current regulations, reassessment notices for under-reported income of ₹50 lakh or more must be issued within five years and three months from the end of the relevant assessment year.
The new proposal directed that tax authorities could proceed back several years to compute all the transactions or arrangements that are considered to be performed only for the tax avoidance objectives and to which the GAAR provisions could be applied.
Understanding GAAR Provisions
Authority is been provided by the GAAR provisions to the tax authorities to consider any arrangements or a transaction as an ‘impermissible avoidance arrangement’ (IAA) and re-compute income and consequent tax implications.
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Among the incorporated safeguards to ensure that GAAR provisions are not misused is the need that GAAR shall be invoked merely after getting permission from an approving panel, headed by a serving or retired judge of a High Court.
An IAA under GAAR that spans various years could be contested in one go. Instances may be there where by the time the GAAR panel discovers an arrangement to be an IAA and cites the pertinent years some of the tax years engaged may have become time-limited for furnishing the reassessment notices.
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As per him, the proposed amendment attempted to address the same problem and permitted a reassessment notice to be issued for those time-limited years. It is furnished that the case is directed to the GAAR panel within the outer time limit of the reassessment notice of the subject year.
The Same Amendment is Perfect
To avert any challenges to reassessment, the panel of the GAAR directions is now recognized as data showing that the income does not undergo assessment. General Anti-avoidance Rule (GAAR) matters are now waived from the obligatory need to furnish the chance of being heard before a reassessment notice is furnished.
The change will allow the reassessment for the years before or after the year of assessment based on the time consumed in approving a specific arrangement as IAA. Classifying a specific arrangement as IAA could take time, provided the process engaged like collecting the data from the foreign jurisdiction, he mentioned.
On May 31, 2023, let us assume a case to the GAAR panel for AY18-19. Therefore, the directions approving GAAR invocation are issued for AY18-19 and AY17-18 on November 30, 2023. The outer time limit to issue the notices for AY18-19 is June 30, 2024.
If the income for AY17-18 has been waived as well, then the assessing officers shall not be able to provide the notice as the outer time limit for AY17-18 (June 30, 2023) shall have lapsed.
As per the proposed tax statutes, the Assessing Officer (AO) would be enabled to issue a notice as the case has been directed to the GAAR panel by June 30, 2023.
