Fake Invoicing: Income Tax Department sending notices to Reopen Old Tax Cases

The Income Tax Department is reopening old tax assessment cases to identify businesses that reduced their profit by submitting false expenses and trying to avoid paying tax. As per sources, the department is also investigating five-year-old tax records involving cases of tax evasion.

The tax authority is inspecting trading, electronics, and construction sectors. It believes that many of these companies issued fake invoices from fake suppliers who never existed. These fake suppliers Issue fake bills for the companies. By using these fake bills, companies show higher expenses to reduce their taxable income and wrongly claim ITC.

Section 147: Reopening tax cases

Earlier, some of the tax returns were accepted without any problems. However, at present, new GST data shows fake transactions. So, the Income Tax Department has reopened the cases under Section 147 of the Income Tax Act, which allows them to reassess returns if income was hidden or wrongly shown.

Section 148: Department can reopen cases up to 5 years

Section 148 allows the department to reopen assessment cases up to the past 3 years. If hidden income exceeds Rs. 50 lakh and is related to assets, expenses, or fake entries, they can go back up to 5 years.

What are the expected penalties?

If firms are unable to submit documents to prove that the purchase they made is real, the tax department may consider it a fake expense and can impose heavy penalties and extra tax demands.

Even if GST officers have already reversed the ITC, the Income Tax Department is doing its own checks. Experts say just reversing ITC doesn’t prove a purchase is fake; businesses still need to show proper documents as proof.

Businesses must submit documents such as GST invoices, goods receipt notes, E-way bills, and transport records to prove that a purchase is real.

Tax experts say even honest businesses are getting affected. If one fake supplier is found in the supply chain, it can cause problems for everyone. Authorities may reject expense claims even if the rest of the chain is genuine.