Provision in scheme lets I-T dept to go after evaders for undisclosed assets acquired well before 6 yrs, but law doesn't allow it
An anomaly in the Income Declaration Scheme (IDS) -a mechanism to disclose hidden assets and come clean -can trigger litigation and go against the present law.
In the course of recent meetings aimed to maximise mobilisation under IDS, senior tax officials have told members of Central Board of Direct Taxes (CBDT), the apex body, about the problems that could crop up.
A provision in the scheme allows the I-T department to go after evaders for undisclosed assets acquired well before six years.
Today, tax officers, as per law, refrain from reopening assessment which are more than six years old.
“The IDS changes this as it empowers assessing officers to revisit old matters. It is against the Income-tax Act and settled nature of tax assess ment,“ said a tax official in Mumbai.
The issue cropped up after the government released the FAQs on the declaration scheme.
In response to a question on consequences for the tax payers if they fail to declare undisclosed income prior to the commencement of the scheme, the government has clarified that such income will be deemed to have been acquired in the year the notice is issued by the asses sing officer and the provisions of the law shall apply accordingly.
For example, if in January 2017, the tax office discovers undisclosed income or property of a taxpayer, she will be asked to pay tax and penalty even if the income accrued or the property was purchased in 2000. Till now, tax officers would have ignored such undisclosed assets if these were bought before six years. But not any longer.
This is irrespective of whether an assessee participates in the IDS; if she has not revealed assets in the IDS, the tax office can pull her up even if the asset was acquired 20 years ago.
“There is every possibility that in many cases the department will issue notices as assessing officers are now armed with the CBDT circular to reopen old assessments. If the government pursues this provision in the manner in which it is being interpreted, there will be litigations and hardships to the assesses,“ said senior chartered accountant Dilip Lakhani.
While this could be part of an aggressive stance taken by the Centre to unearth black money and force people to declare hidden assets, there could be legal hurdles.
Industry trackers say there could be a rise in litigation as the new rules for black money disclosure scheme would be put to test through litigation. “The most damaging part of the Disclosure Scheme is Section 197 (c) of the Finance Act, 2016... This is likely to cause a lot of litigation in terms of challenging the validity of this provision of the IDS as being contrary to the statutory time limits prescribed under Sections 149, 153A and 153C of the Income-tax Act, 1961,“ said Amit Maheshwari, Partner at Ashok Maheshwary & Associates LLP.
IDS is a scheme under which a person who has not disclosed income for earlier assessment years can make a disclosure of income subject to certain terms and conditions stipulated in the scheme.
Some like Lakhani believe that the provisions of IDS cannot override the provisions of Income-Tax Act, 1961. For allowing the tax office to go retrospectively beyond six years (for local black money) and 16 years for undisclosed overseas assets, the Act has to be amended.
The Economic Times New Delhi,19th July 2016
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