Filing of Revised Income Tax Returns by the Tax Payers Post De-Monetisation of Currency

Under the existing provisions of Section 139(5) of the Income-tax Act, 1961 (‘Act’), Revised Return can only be filed if any person, who has filed a return under Section 139(1) of the Act or in response to notice u/s 142(1), discovers any omission or any wrong statement therein. Post demonetization of the currency on 8th November, 2016, some taxpayers may misuse this provision to revise the return-of-income filed by them for the earlier assessment year, for manipulating the figures of income, cash-in-hand, profits etc. with an intention to show the current year’s undisclosed income (including the unaccounted income held in the form of demonetized currency in current year) in the earlier return.

It is hereby clarified that the provision to file a revised return of income u/s 139(5) of the Act has been stipulated for revising any omission or wrong statement made in the original return of income and not for resorting to make changes in the income initially declared so as to drastically alter the form, substance and quantum of the earlier disclosed income.

It is brought to the notice of tax payers that any instance coming to the notice of Income-tax Department which reflects manipulation in the amount of income, cash-in-hand, profits etc. and fudging of accounts may necessitate scrutiny of such cases so as to ascertain the correct income of the year and may also attract penalty/prosecution in appropriate cases as per provision of law.

Source:

Press Information Bureau
Government of India
Ministry of Finance

Direct and Indirect Tax Collections up to November, 2016

Direct Taxes

The figures for direct tax collections up to November, 2016 show that net collections are at Rs. 4.12 lakh crore which is 15.12% more than the net collections for the corresponding period last year. Till November, 2016,48.67% of the Budget Estimates of direct taxes for FY 2016-17 has been achieved. 

As regards the growth rates for Corporate Income Tax (CIT) and Personal Income Tax (PIT), in terms of gross revenue collections, the growth rate under CIT is 11.22% while that under PIT (including STT) is 22.41%.However, after adjusting for refunds, the net growth in CIT collections is 8.75% while that in PIT collections is 23.89%. Refunds amounting to Rs.1,05,561 crore have been issued during April-November, 2016, which is 17.35% higher than the refunds issued during the corresponding period last year

Indirect Taxes

The figures for indirect tax collections (Central Excise, Service Tax and Customs) up to November 2016 show that net revenue collections are at Rs 5.52 lakh crore, which is 26.2% more than the net collections for the corresponding period last year. Till November 2016, 71.1% of the Budget Estimates of indirect taxes for Financial Year 2016-17 has been achieved.

As regards Central Excise, net tax collections stood at Rs. 2.43 lakh crore during April-November, 2016 as compared to Rs.1.69 lakh crore during the corresponding period in the previous Financial Year, thereby registering a growth of 43.5%.

Net Tax collections on account of Service Tax during April-November, 2016 stood at Rs. 1.60 lakh crore as compared to Rs.1.27 lakh crore during the corresponding period in the previous Financial Year, thereby registering a growth of 25.7%.

Net Tax collections on account of Customs during April-November 2016 stood at Rs. 1.48 lakh crore as compared to Rs. 1.40 lakh crore during the same period in the previous Financial Year, thereby registering a growth of 5.6%.

During November 2016, the net indirect tax (with ARM) grew at the rate of 23.1% compared to corresponding month last year. The growth rate in net collection for Customs, Central Excise and Service Tax was 16.1%, 33.7% and 15.5% respectively during the month of November, 2016, compared to the corresponding month last year. However, the total indirect tax collection (with ARM) for the month of November 2016 showed a decline of 13.9% over October 2016 figures.

The net indirect tax collection up-to November, 2016 shows a growth of 26.2% (with ARM) and 8.0% (without ARM) over the corresponding period of previous year. This growth rate up-to October, 2016 was 26.7% (with ARM) and 8.0 % (without ARM).

The month-wise cumulative indirect tax growth trends (without ARM) in FY 2016-17 is shown below.

In order to facilitate the move towards cashless transactions, the Government has directed the banks to install an additional one million new PoS terminals by 31st March 2017;. 2,73,919 camps organized to open banks accounts for unorganized labour in which 24.54 lakh accounts opened.

As part of the plan to expand the digital payments eco-system and facilitate the move towards cashless transactions, the Government has decided that an additional one million new PoS terminals should be installed by 31st March 2017. Towards this end, banks have already placed orders for 6 lakh PoS machines and another 4 lakh PoS machines are likely to be ordered in the next few days. The country today has about 15 lakh PoS terminals across different merchants to facilitate card based payments.

A special drive has also been undertaken jointly with Ministry of Labour & Employment and States’ Administration to open banks accounts for unorganized labour by holding camps at various locations. A total of 2,73,919 camps have been organized so far in which 24.54 lakh accounts have been opened.

In the light of the Government’s decision to demonetize Specified Bank Notes w.e.f. the midnight of 8th November 2016, banks are making all out efforts to facilitate genuine transactions. Appropriate action is being taken against individuals involved in irregular and unauthorized activities. Since 3rd December 2016, action against 7 officials of Public Sector Banks (PSBs) have been taken.

In addition, audit has been taken-up in few branches of Public Sector Banks (PSBs). The Concurrent Audit is also being initiated as per the requirement and under the extant guidelines of RBI.

Income Tax (IT) Department carries-out swift investigations in more than 400 cases since the de-monetization of old High Denomination (OHD) currency on 8th November, 2016; More than Rs. 130 crore in cash and jewellery seized and approximately Rs. 2,000 crore of Undisclosed Income admitted by the taxpayers; IT Department refers large number of cases with serious irregularities detected Post De-monetization to Enforcement Directorate (ED) & CBI.

The Income Tax Department has carried-out swift investigations in more than 400 cases since the de-monetization of Old High Denomination (OHD) currency announced by the Government on 8th November, 2016. More than Rs. 130 Crore in cash and jewellery has been seized and approximately Rs.2000 Crore of undisclosed income has been admitted by the taxpayers.

Detecting serious irregularities beyond the Income-tax Act, the CBDT decided to refer such cases to the ED and the CBI, enabling them to examine the criminal conduct for immediate necessary action. More than 30 such references have already been made to the ED, and are being sent to the CBI.

The Bengaluru Investigation Unit of the Income Tax Department has sent maximum references (18) to ED. These are cases where undisclosed cash in new high denomination notes was seized by the Department. The Mumbai unit has referred a case where Rs. 80 lakh in new high denomination currency notes were seized. Ludhiana Unit has referred 2 cases, where seizures of USD 14000 and Rs. 72 lakh in cash were made. Hyderabad, shared a case involving seizure of Rs. 95 lakhs cash from 5 persons travelling in a Tata Indica. Pune’s reference stems from a seizure of Rs. 20 lakhs cash, including 10 lakhs in new currency notes from an un-allotted locker of urban cooperative bank, the key of which was in the possession of the CEO of the bank. Two cases referred by the Bhopal unit are of jewelers against whom evidence of large scale pre-dating of bills and flouting of PAN reporting norms were detected during searches conducted. The cases referred from the Delhi unit include the Axis Bank, Kashmiri Gate in which complicity of officers of the bank in the malpractices was detected.

The concerted and coordinated enforcement action of the Income Tax Department, ED & CBI in detecting the malpractices and taking swift action is going to continue in the coming days.

No need to explain source of deposits taxable at 50% under Pradhan Mantri Yojna

The Government has announced demonetization of existing currency of Rs. 500/1000 with effect from the 9th November, 2016. However, concerns have been raised that some of the existing provisions of the Income-tax Act, 1961 ('Act') could possibly be used for concealing black money. So, the Government has introduced Taxation Laws (Second Amendment) Bill, 2016 in the Lok Sabha to amend the provisions of Income-Tax Act. 

The Government has announced Pradhan Mantri Garib Kalyan Yojana 2016 (PMGKY) in the Taxation Laws (Second Amendment) Bill, 2016. As per this PMGKY black money deposited in banks or held in cash can be offered for taxation at 49.9% (i.e., 30% tax, 9.9% surcharge and 10% penalty).

The Revenue Secretary, Hasmukh Adhia said that Income-tax department will not ask for the source of funds deposited in banks if the entire income is declared under PMGKY. 

It would be the last chance to come clean for black money holders. Any detection of black money by Assessing Officer thereafter (other than search cases) would attract 83.25% tax. 

From bare reading of this statement of Revenue Secretary, doubts arise as to whether any corrupt official or corrupt member of political party or any criminal can also come clean by paying 49.90% tax under PMGKY.

No, any criminal or corrupt person cannot avail of benefit of this PMGKY as he is specifically excluded from purview of PMGKY.

Doubts also arise as to how Government will come to know that any corrupt person or any criminal is offering income under PMGKY as Income-Tax Act Department will not ask for source of funds deposited in banks?

Even if we assume that any corrupt person or any criminal has availed of benefit of this PMGKY, then also benefit of such PMGKY will be denied when such fact comes to notice of the department. In that scenario, action will be taken under respective provision of IPC and Prevention of Corruption Act and that person will be liable to pay tax at 83.25%.

Point of Sale (POS) Devices and Goods required for their manufacture exempted from Central Excise Duty till March 31, 2017.

The Government has demonetised the currency notes of Rs 500 and Rs 1,000 with effect from mid-night of 8th-9th November, 2016. Along with this, the Government has also laid increased emphasis on promoting digital payments.

Point of Sale (POS) devices are used for cashless transactions, both for making payments or disbursing cash. POS do not attract any basic customs duty. To further reduce the cost of such devices and thereby encourage digital payments, the Government has exempted such devices from Central Excise Duty. Consequently, these devices will also be exempt from Additional Duty of Customs [commonly known as CVD] and additional duty of customs [commonly known as SAD]. Simultaneously, to encourage domestic manufacturers of such devices, all goods required for the manufacture of POS devices have also been exempted from excise duty, and consequently from CVD and SAD. These exemptions will be valid till 31st March 2017.

Notification No.35/2016-Central Excise, dated 28th November, 2016 has also been issued in this regard.

TAX LIABILITY ON DEPOSIT OF HIGH DENOMINATION CURRENCY NOTES

On 8th November, 2016, the Central Government has demonetized INR 500 /1000 Currency Notes. The Government has made arrangements to enable persons holding old currency notes for INR 500 / 1000 to convert them into new currency notes of INR 500 / 2000 denomination. This can be done by converting small quantity of old currency notes into new notes in a physical form. For larger amounts old notes will have to be deposited in the Bank Account of the person holding the old notes on or before 30th December, 2016.

Once the notes are deposited in the Bank Account of the person he will have to explain the nature of such deposit to the Income tax Authorities during the course of assessment proceedings. The Government has announced that such deposits upto INR 2.5 Lakhs will not be reported to the tax authorities and no enquiry will be made by the tax authorities about the nature and source of such deposits. These will be considered as deposits out of savings made for household expenses.

In view of the above, a question will arise as to what will be the tax implication about the deposit of old notes in excess of  INR 2.5 Lakhs. The Banks have been directed to report deposits made by a person between 10.11.2016 to 30.12.2016 in excess of  INR 2.5 Lakhs to the tax department. Therefore, the tax department will call upon such persons who have deposited old notes worth more than INR 2.5 Lakhs. Such persons will have to prove the source of such holding of old notes at the time of scrutiny by the tax department. If no satisfactory explanation is given by such person the assessing officer can treat this amount deposited in the Bank as unexplained cash credit under section 68 and levy tax at 30% u/s 115BBE of the Income tax Act. He can also levy penalty upto 200% of tax (i.e 60%) u/s 270 A. He has also power to prosecute such persons.

If the person depositing old notes in large numbers in his Bank Account is not in a position to given satisfactory explanation about the source of such deposit, it will be possible for him to declare this amount as income of the current Financial Year (2016-17) (A.Y. 2017-18), as “Income from Other Sources”.

He will have to pay Income tax @ 30% plus applicable Surcharge and Education Cess. It will be advisable for him to pay advance tax due on 15.12.2016 for the current year with interest. Total advance tax payable upto 15.12.2016 is 75% of total tax payable on his total income for the current Financial Year.

A question which is now being debated is whether penalty u/s 270 A of the Income tax Act will be leviable with reference to the amount deposited in banks in the form of old notes during the period 10.11.2016 to 30.12.2016 for which the assessee is not able to give satisfactory explanation. Conflicting views are being expressed in difference quarters. In this note an attempt is made to analyze the penalty provisions under the Income tax Act as applicable to such a situation.

Let us take an example of a case of Mr. “A” who is carrying on business. He deposits INR 50 Lakhs in the form of old notes during the period 10/11/2016 to 30/12/2016 in his Bank Account. He is not able to explain the source of this deposit, and therefore, he declares this amount as his “Income from Other Sources”in his return of income for A.Y. 2017-18.He declares his income as under:

(i) Income from business - 20,00,000

(ii) Property Income - 2,00,000

(iii) Interest from Bank and others - 3,00,000

(iv) Income from other sources (Bank Deposits) - 50,00,000

Ch. VI A Deductions  - 2,00,000

Total Income  INR - 73,00,000

He pays advance tax upto 75% of Tax on 15.12.2016 and balance tax by 15.3.2017.

In this case, the total income determined by the CPC u/s 143 (1) (a) will be INR 73,00,000/-, if no other adjustments are made.

New Section 270 A has been inserted in the Income tax Act by the Finance Act, 2016, w.e.f. A.Y. 2017-18. This section provides for levy of penalty on under-reported income. Old Section 271 (1) (c) providing for levy of penalty in the case of concealment of income or furnishing inaccurate particulars of income applies only in respect of A.Y. 2016-17 and earlier years.

Section 270A provides that if a person has under reported his income, penalty @ 50% of tax is leviable on such under-reported income. If the under reported income is of the nature of Misreporting of Income, as defined in section 270A (9), the penalty will be 200% of the tax. Reading Section 270A it makes it clear that for levy of penalty at 50% u/s 270A (7) (under reporting of Income) or at 200% u/s 270 A (8) (Misreporting of Income) the A.O. will have to establish that there is under reporting of Income. Section 270A (2) states that the assesse shall be considered to have under reported his income if -

(i) The income assessed is greater than the income determined in the return processed u/s 143 (1) (a).

(ii) If no return is furnished the income assessed after deducting the maximum amount not liable tax.

(iii) Income assessed in reassessment proceedings is greater than the income assessed before such reassessment.

(iv) Book Profit assessed u/s 115JB / 115JC is greater than Book Profit determined u/s 115JB / 115JC in the return processed u/s 143 (1) (a).

(v) Income assessed or reassessed has the effect of reducing the loss or converting loss into income.

Section 270 A (3) provides for determination of under-reported income. Under this section, this amount is to be determined by finding out the difference between the assessed income and the income determined u/s 143(1) (a). If no return is filed this amount is to be determined by reducing from the assessed income the maximum amount on which no tax is payable.

Section 270 A (7) and 270A (8) prescribe the rates of Penalty leviable in case of under reporting or misreporting of income. These sections read as under.

(i) Section 270A (7) : The penalty referred to in subsection (1) shall be a sum equal to fifty percent of the amount of tax payable on under reported income .

(ii) Section 270 A (8): Notwithstanding anything contained in subsection (6) or sub-section (7), where under-reported income is in consequence of any misreporting thereof by any person, the penalty referred to in sub-section (1) shall be equal to two hundred percent of the amount of tax payable on under-reported income.

Section 270 A (10) explains how tax payable in respect of under reported income is to be determined. This section provides as under:

(i) Where no return is filed and the income has been assessed for the first time, the amount of tax calculated on the under reported income as increased by the maximum amount not chargeable to tax as if it were the total income.

(ii) Where return is filed and the total income determined u/s 143(1) (a) or assessed, the amount of tax calculated on the under-reported income as if it were the total income.

From the wording of sections 270A (7) 270A (8) and 270A (10) it is evident that penalty of 50% or 200% is leviable only on “the amount of tax payable on under reported income”. If we refer to section 270 A (2) it is clear that the amount of under reported income is to be determined by comparing the income assessed and the income as determined u/s 143(1) (a). If there is no difference between these two figures, no penalty u/s 270A (7) (50%) or 270 A (8) (200%) can be levied.

Now, if we revert to example given in Prara 6 above, we will find that the total income declared in the return of income is INR 73 Lakhs and the income determined u/s 143 (1) (a) is INR 73 Lakhs. Therefore, if the A.O. makes some addition while making the assessment u/s 143 (3) and the income assessed is INR 75 Lakhs the difference between the assessed income and income determined u/s 143 (1) (a) will be only INR 2 Lakhs. This amount will be considered as under reported income for the purpose of levy of penalty u/s 270A. In other words, INR 50 Lakhs deposited by the assessee during the period of 10.11.2016 to 30.12.2016 in the form of old INR 500 / 1000 Notes will not be considered as under reported income and no penalty can be levied on this amount which is declared as Income from other sources.

From the above analysis, it is evident that no penalty can be levied under the existing section 270A if the old high denomination notes are deposited by an assessee in his Bank Account between 10/11/2016 to 30/12/2016 and offered for tax as Income from Other Sources in the return of income for A/Y:2017-18. It will be advisable for him to pay advance tax in two instalments on 15/12/2016 (75%) and 15/03/2017 (25%) with interest due u/s 234C of the Income tax Act.