CBDT decides not to reopen cases on turnover jump due to digitalization; FISME hails the move

New Delhi, Dec 13 (KNN) In line with the suggestions made by various industry associations including FISME to the government, CBDT has directed its assessing officers not to reopen past assessments in cases merely on the ground that the current year’s turnover is higher than previous years' turnovers.

In a circular issued to field formations, the Central Board of Direct Taxes (CBDT) has clarified that mere increase in turnover due to use of digital means of payment in a particular year, cannot be a sole reason to believe that income has escaped assessment in earlier years.

It clarified that reopening of cases u/s 147 of the Income Tax Act, 1961, is feasible only when the Assessing Officer “has reason to believe that any income chargeable to tax has escaped assessment for many assessment year and not merely on the basis of any reason to suspect.

Section 147 of the I-T Act permits reopening of past cases, generally up to the past four years, where the I-T officer has `reason to believe' that income has escaped assessment.

There were apprehensions amongst businesses especially the micro, small and medium enterprises (MSMEs) that going digital – by accepting digital payments for the first time - would lead to enhanced turnover of businesses which will be reflected in their books of accounts which in turn could invite heavy penalties in them.

The MSMEs which mostly accepts payments in cash include - retail stores, restaurants and other service agencies, ranging from coaching classes to beauty parlours.

Reacting to this, Anil Bhardwaj, Secretary General, FISME, mentioned that the move relieves MSMEs from a critical agony of Government’s cashless economy move.

“MSMEs are wary of Income Tax Officers opening their previous year’s accounts if the present year’s turnover increases abruptly.  If the Tax officers heed to the Government’s advice to not reopen past assessments just because current year’s turnover has increased, this will be a great enabler for migration of millions of enterprises from informal to formal sector,” he quipped.

In its circular, CBDT explains, "By adopting the digital mode of payment, no financial transactions would remain undisclosed and consequently an enhanced turnover of business might get reflected in the books of accounts.

"An apprehension was raised by the business community that increased turnover in the current year may lead to reopening of earlier years' cases where the turnover was lower. Reopening would cause undue harassment to taxpayers,” the circular added.

"Mere increase in turnover, because of use of digital means of payment or otherwise, in a particular year cannot be a 'sole' reason to believe that income has escaped assessment in earlier years. Hence, I-T officers are advised not to reopen past assessments in cases, merely on the ground that the current year's turnover has increased."

Mere suspicion is not an adequate ground for reopening of earlier years cases, it added.

Industry body FISME had made suggestion to the MSME Ministry on this. It had also written a letter to Prime Minister Narendra Modi, in it urged the PM to bring two major policy interventions in - Taxation front and Labour Laws front - to help the sector smoothly migrate from cash based economy to a cashless economy.

In Taxation, FISME wrote, the enterprises will pledge disclosure and compliance on a promise that their records of previous years will not be opened and they will not be harassed.

“The existing cash based informal economy- which constitutes over 90% of all enterprises and account for most of the employment in the country other than in the Government and the corporates, is not yet ready for cashless economy and GST,” FISME wrote.

FISME noted that while most of the entrepreneurs can be counselled/persuaded to migrate to formal economy, the biggest hurdle in the way is the fear of persecution both in future and of non-compliance in past.

“A comprehensive ‘amnesty’ – a kind of safe passage, is needed especially in two spheres a) Taxation (Direct and Indirect Tax) and b) Labour/ Social Security along with assurance that the government machinery will also be reformed and made to work for the good of the nation and not to serve vested interests,” it said. (KNN Bureau)