Income Tax department uses algorithm to open old tax cases, report says

The Income Tax department has started using ‘INSIGHT’ portal to extract names of income tax dodgers, reports the Economic Times.

The new rule came into effect in 2021-2022 with the machine sharing names of possible assesses who had steered clear of paying taxes based on various permutations and combinations. However, unlike previous times, when taxpayers could slap notice to anyone randomly based on possible tax evasions, the IT department sends notices to only those whose names have been spewed out by the algorithm. The individuals get seven days to respond post which, the department can issue a notice.

ET quoted an IT officer stating, “The system has a degree of randomness. So, it’s possible that if there is evasion for four years, the system may show for one year when we know there are grounds to reopen all the years. Also, it takes a while after all the information is uploaded before a name is thrown up.”

Apart from sending a letter based on information from ‘INSIGHT’, the IT Department has to shoot a preliminary letter under the newly introduced section 148A of the IT Act informing the assessee that his or her information has been flagged for a certain assessment year.

How Does it Work?

The assessee must be informed that the information has been culled out by the Directorate of Income Tax (Systems) as ‘high-risk variable report upload’ under ‘risk management system’ as per the ‘risk management strategy’. 

The assessee has a week to respond failing which the department would automatically reopen the case.

The number of cases that would be finally reopened depends on the names cleared by the portal and the number of letters that IT officers can dole out before the closing of the financial year.

The amended income tax law now implemented allows the IT Department to nab tax assessees, with total income suspected to be more than ₹50 lakh, who had failed to pay their dues even 10 years back. 

Assessees with an estimated income of less than ₹50 lakh but had escaped paying their taxes four years back can also be questioned. The information uploaded on the portal is collected from banks, overseas authorities, agencies like the Central Bureau of Investigation and Enforcement Directorate, and other third parties.

“Once a reopening notice is issued within the next fortnight, a full-blown reassessment would begin involving recording all responses and serving a show-cause notice within nine months from the end of this financial year (i.e. by December 2023). “One case leads to another. Suppose, there is an accommodation loan entry where irregular cash payment is finding its way back into a company. In such a case, all lenders to the company will be served notices,” the report said.