Circular No. 40/2016

Government of India

What this is

Circular No. 40/2016 was issued by the Central Board of Direct Taxes on 9 December 2016. Its subject is Government of India.

This is an order under section 119 of the 1961 Act — section 239 of the 2025 Act. Section 119 lets the Board give directions to its own officers and, in defined cases, relax a requirement. It is an administrative power, not a power to rewrite the charge.

What it does

Tells Assessing Officers not to reopen past assessments merely because the current year's turnover has gone up. The Board clarifies that reopening under section 147 is feasible only where the officer has reason to believe that income chargeable to tax has escaped assessment for an assessment year, and not on a mere reason to suspect, and that an increase in turnover in a particular year, whether from the use of digital means of payment or otherwise, cannot by itself be a reason to believe that income escaped assessment in earlier years. The direction is under section 119 and is to be complied with strictly.

Why it was issued

The Government's measures against the black economy had pushed people towards digital payment, which would leave no transaction undisclosed and might show a higher turnover in the books, and an apprehension had been raised that the higher current turnover would be used to reopen earlier low-turnover years, harassing taxpayers.

Who it reaches

Businesses whose turnover rose after shifting to digital payments
Small traders and shopkeepers who began accepting card and electronic payments
Assessees served with a notice under section 148 following a jump in reported turnover

The provisions it speaks to

Left, the provision of the Income-tax Act, 1961 as the instrument itself names it. Right, the section of the Income-tax Act, 2025 that the department’s own concordance maps it to — which is where the same ground is now covered.

Under the 1961 Act	Now
s.119	s.239

The instrument, as the Board published it

The department publishes this one only as a PDF, so the words below were read out of that PDF by machine. That reading can carry its own mistakes — a misread number, a broken line. Check the signed document before you rely on a figure in it.

Government of India
Ministry of Finance
Department of Revenue (CBDT)
Circular No. 40/2016
North Block, New Delhi, the 9th of December, 2016
Subject: - Directions under section 119 of the Income-tax Act, 1961-regd.-

Recent initiatives of the Government to curb the black economy in the country has encouraged
people to shift towards digital mode of payment while making financial transactions. By adopting 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. Under the circumstances, an
apprehension has been raised that increased turnover in the current year may lead to reopening of
earlier years' cases involving lower turnover u/s 147 of the Income-tax Act, 1961 ('Act') by the Assessing
Officer causing undue harassment to tax payers.

2. It is hereby clarified that reopening of cases u/s 147 of the Act is feasible only when the Assessing
Officer "has reason to believe that any income chargeable to tax has escaped assessment for any
assessment year" and not merely on the basis of any reason to suspect. 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, Assessing Officers are advised not to
reopen past assessments in cases merely on the ground that the current year's turnover has increased.

3. The above may be brought to the notice of all for necessary and strict compliance.

4. Hindi version to follow.

(F. No. 225/326/2016/ITA.II)

Copy to:
I. Chairman, CBDT and all Members, CBDT
ii. PS to Revenue Secretary
iii. All Pr.Chief-Commissioners/Pr. Directors-General ofIncome-tax
iv. All JS/CsIT, CBDT
V. ADG(PR,PP & OL) with request for placing on official handle of the department
VI. Add!. CIT, Data base Cell for uploading on Departmental Website
VII. Web manager for uploading on incometaxindia.gov.in & placing in public domain
VIII. ITCC, Central Board of Direct Taxes (3 copies)
IX. Pro DGIT(Vigilance), N.Delhi
X. C&AG, N.Delhi
XI. Guard file

(Rohit Garg)
Director-ITA.II, CSDT

(Rohit Garg)
Director-ITA.II, CSDT

What to watch

The distinction the Board draws is the operative one: reason to believe is required, and reason to suspect will not do.
It bars a reopening founded solely on the increase in turnover; it does not stop a reopening supported by other material for the earlier year.
This is a direction to officers under section 119; it does not by itself quash a notice already issued, which has to be objected to in the reassessment proceeding.

Where you meet it

On objections to a notice under section 148 where the recorded reasons rest on a comparison of the current year's turnover with an earlier year's.

What it names

It mentions. Circular No. 40/2016

On the same provision

Other instruments in this library that name the same provision of the 1961 Act. They are not necessarily still operative, and a later one may have replaced an earlier one without saying so.

Circular No. 6/2026 — Condonation of delay in filing Form No. 10AB electronically for approval under clause(ii) of the first proviso to sectio 2 July 2026
Circular No. 2/2026 — Order under section 119 of the Income-tax Act, 1961 for extension of timeline for issuance of tax deducted at source (TD 25 March 2026
Circular No.15/2025 — Extension of timelines for filing of various reports of audit and income tax returns ITRS for the assessment year 2025 2 29 October 2025
Circular No. 10/2025 — Relaxation of time limit for processing of returns of income filed electronically which were incorrectly invalidated by 28 July 2025
Circular No. 7/2025 — Relaxation of time limit for processing of valid returns of income filed electronically pursuant to order u/s 119(2)(b) 25 June 2025
Circular No. 6/2025 — Extension of due date for furnishing return of income for the Assessment Year 2025-26 27 May 2025

← Circular No. 41/2016 · Circular No. 39/2016 →

A circular binds the department, not you and not a court. The Board issues a circular to its own officers. An assessee may hold the department to a circular that helps him; the department cannot hold an assessee to one that hurts him, and the Tribunal and the courts decide the law for themselves.

Source: the Income Tax Department’s own published text — its page for this instrument.