The recently concluded Income Declaration Scheme (IDS) 2016, while was successful in garnering hidden money of about Rs65,000 crore, also opened a window of opportunity for tax officials to open or re-open old cases or that is what the taxmen believes.
A circular (No27 of 2016) issued by the Central Board of Direct Taxes (CBDT), clearly says the provisions of IDS would prevail over the provisions of earlier laws, especially time limit (of six years) allowed to re-open cases for scrutiny under section 149 of the Income-Tax (I-T) Act, 1961. Several tax professionals, including Chartered Accounts (CAs) and their representative bodies have expressed concern with this blanket prevalence before the Ministry of Finance and CBDT.
CA Ameet Patel, who is former president of the Bombay Chartered Accountants Society (BCAS), says, "Till last year, there was a limit beyond which I-T department could not reopen your past assessments. However, under the IDS 2016, the tax department has done away with time limits and the taxman can go back to any number of years. Therefore, we need to save our important documents for posterity!"
As per Clause (c) of section 197 of the Finance Act, 2016,
“where any income has accrued, arisen or received or any asset has been acquired out of such income prior to commencement of this Scheme, and no declaration in respect of such income is made under this Scheme,—
1. such income shall be deemed to have accrued, arisen or received, as the case may be; or
2. the value of the asset acquired out of such income shall be deemed to have been acquired or made,
in the year in which a notice under section 142, sub-section (2) of section 143 or section 148 or section 153A or section 153C of the Income-tax Act is issued by the Assessing Officer, and the provisions of the Income-tax Act shall apply accordingly.”
A plain reading of the Clause suggest that the person participating in the IDS 2016 should make declarations of all undisclosed income or assets acquired in any year before commencement of the Scheme. In other words, all years beyond the six year limit.
As per section 149 of the I-T Act, income escaping assessment can be brought to tax by re-opening the assessment for maximum six-seven previous years. In case there is any undisclosed income detected by the department, beyond that then such income cannot be brought to tax since there is no power with the I-T department to re-open and assess or reassess such income of the assessee.
However, by incorporating Clause C under Section 197, the tax authorities are being handed over powers to assess or re-assess cases beyond the six-year time limit. For example, if the I-T Officer (ITO) detects some undeclared income of the assessee during assessment year 2017-18 (FY2016-17) and issues notices under Section 142, 143(2), 153(A) and 153 (C), then the undisclosed income relating to any AY before six years, would be deemed income of the assesses for AY2017-18 (since notice was issued in this year) and would be assessed as income of the assessee as per normal provisions of the I-T Act.
In an article published at Mondaq, two writers, Asim Choudhury and Rohan Poddar of Khaitan & Co, says, the provisions in IDS goes against the basic tenets of the I-T Act and may be unconstitutional as under Article 265 of the Constitution of India. "...even if for the sake of argument if we consider that section 197(c) in actuality supersedes the law of limitation it cannot under any circumstances render null and void the entire basis of charge of tax under Section 4 and Section 5 of the I-T Act. Section 4 of the I-T Act lays down that income is charged in respect of total income of previous year which has been defined under Section 3 of the Act. Section 5 talks about scope of total income of any previous year. Therefore, total income is always calculated with respect to 'previous year', which means the financial year immediately preceding the assessment year. Section 197(c) of IDS peculiarly contemplates the situation where income shall be deemed to have accrued arisen or received in a year in which notice under section 142/ 143(2) /148 /153A /153C of the Act is issued and the provisions to apply accordingly."
"...in the case of Black Money Act, which has a similar provision, the law of limitation not applying is understandable because of criminalisation of the act of evading tax in relation to foreign income. However, non-disclosure and consequent non-payment in case of domestic income remains a civil liability and as such dispensing with limitation is not warranted. Enacting a provision disregarding settled limitation principles is grossly unjust and only leads to incongruity," the article says.
