To prevent misuse of the existing provisions of the Income-Tax Act as a way to launder unaccounted income, the tax department warned of scrutiny and penal action against those filing revised income tax returns for manipulating income, cash-in-hand, profits after the government’s decision to scrap high-denomination currency notes.
The Central Board of Direct Taxes (CBDT) in a statement said that the provision to file a revised return of income under Section 139(5) of the Income-tax Act has been stipulated for revising any omission or wrong statement made in the original return of income and not for making changes in the initially declared income that will drastically alter the form, substance and quantum of the earlier disclosed income.
“Under the existing provisions of Section 139(5) of the Income-tax Act, 1961, 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 under Section 142(1), discovers any omission or any wrong statement therein. Post demonetization of the currency on November 8, 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 said.
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The CBDT further said that manipulation in the amount of income, cash-in-hand, profits and fudging of accounts may necessitate scrutiny of such cases for ascertaining the correct income for the year and may also attract penalty/prosecution in appropriate cases as per provision of law.
While some tax experts welcomed the statement by the tax department, some raised concerns that it may affect some genuine taxpayers who may need to revise their previous year’s income to incorporate foreign income. “It is a welcome move by the CBDT so that people do not take advantage of the revision provisions under tax law and revise the return of income filed for earlier assessment years for manipulating the income, cash etc. However, this may also concern some of the genuine taxpayers who have a requirement to revise the previous year’s return to incorporate foreign income and take any treaty benefit which they could not do in the original return, due to non-availability of information/foreign country tax return etc. These tax payers should ensure that they maintain adequate documentation to substantiate the reasons for revision of the return,” Amarpal Chadha, Tax Partner and India Mobility Leader, EY said.
The government has given another chance to those with unaccounted wealth to come clean through the soon-to-be notified Pradhan Mantri Garib Kalyan Yojana (PMGKY).
As per the scheme, a 30 per cent tax plus 33 per cent surcharge on the tax and a 10 per cent penalty is proposed to be levied on the undisclosed income in the form of cash and deposits along with a zero-interest deposit scheme for four years, wherein the declarants will be supposed to park 25 per cent of their total deposit.