In a renewed crackdown on tax evasion, the income tax department has started re-examining several previously concluded assessment cases. The reassessment cases are largely focused on businesses suspected of having claimed fictitious or inflated purchase entries in order to lower their declared profits and reduce overall tax liability for several years.
The taxmen identified several sectors including belong to sectors such as trading, construction, and electronics — industries that have historically shown higher vulnerability to invoice manipulation.
The IT department flagged several companies availing ITC under GST norms using fake invoices issued by "entry operators," which either don't exist or were created only for fictitious/ bogus transactions.
The tax authorities are reopening tax returns that were originally processed and accepted without any questions or objections from the income tax department based on new evidence from GST authorities suggesting fake purchases or bogus invoices being used to understate income and evade taxes.
“The provision in the income tax laws allows the department to reassess income if it has reason to believe that some portion of taxable income escaped assessment. The advanced data analytics and cross-verifying information between GST returns and income tax filings are used to flag inconsistencies,” informed a senior tax official.
The Income Tax Act allows reassessment of tax returns upto three years in routine cases and for undisclosed income exceeding Rs 50 lakh linked to an asset, expenditure or book entry, the window for reopening extends to five years. The tax department classifies cases of taxpayer unable to validate legitimacy of unexplained expenditures with supporting documentation for additional taxation with penalties.
