Income Declaration Scheme, 2016 – Whether Supersedes Law Of Limitation Applicable To Reopening Of Cases

Rakesh_Gupta_Raj_Agarwal1

Dr. Raj K. Agarwal & Dr. Rakesh Gupta point out that the Income Declaration Scheme, 2016 has several ambiguous provisions which have remained unclear despite clarifications issued by the CBDT. The learned authors explain that the question whether the Scheme supersedes the law of limitation applicable to reopening of cases u/s 147 of the Act is one such ambiguity which requires urgent clarification by the CBDT

Government has introduced “Income Declaration Scheme, 2016” which has come into force from 1st June, 2016. The scheme provides an opportunity to persons who have not paid taxes in the past in respect of undisclosed income, to come forward and declare such undisclosed income and pay tax, surcharge and penalty totaling in all to 45% of such undisclosed income so declared.

The initial response of the tax payers and tax consultants regarding the scheme is not encouraging. It is, inter alia, for the reason that the scheme has ambiguities relating to various issues. Though CBDT has issued multiple sets of frequently asked questions (FAQs) containing clarifications relating to various aspects during last one month, still doubts exist. One such provision is regarding consequences in case of non-declaration of undisclosed income which has been drafted in an ambiguous manner and may have severe consequences.

CONSEQUENCES IN CASE OF NON-DECLARATION

In case no declaration is made in respect of the undisclosed income relating to earlier years prior to commencement of this scheme, Clause (c) of section 197 of the Finance Act, 2016 provides as under,

“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 said Clause suggests that a person should make declaration of all the undisclosed income generated or undisclosed assets acquired in any year prior to commencement of this scheme even if such year is a year which is beyond the limitation period. This is so because as per the said Clause in case no declaration in respect of undisclosed income relating to such earlier years is made under this scheme, such undisclosed income shall be deemed to be the income of the year in which a notice u/s 142 or u/s 143(2) or u/s 148 / 153A / 153C of the Income Tax Act is issued by the Assessing Officer. Needless to say, the above provision has been drafted in such a manner which would have far reaching consequences as discussed hereunder.

It seems that the intention of incorporating such a provision in the Scheme is to do away with the law of limitation for re-opening of the earlier year(s) cases to bring to tax the undisclosed income as given under the Income Tax Act, 1961. As per section 149 of the Income Tax Act, income escaping assessment can be brought to tax by re-opening the assessment for maximum seven earlier years. In case there is any undisclosed income detected by the department, say, relating to A.Y. 2005-06 in the Current F.Y. 2016-17, such income cannot be brought to tax since there is no power with the department to re-open and assess or reassess such income of the assessee. But by incorporating the above provision viz. section 197(c) in the Scheme, an attempt has been made to state that in case such income is detected by the department, say, in the year 2017-18 or subsequently and a notice u/s 142/ 143(2)/ 148/ 153A/ 153C is issued during such year, then such undisclosed income relating to A.Y. 2005-06 shall be deemed to be the income relating to A.Y. 2017-18 or the year in which such notice is issued and shall be assessed in the hands of the assessee in accordance with the normal provisions of the Act.

The above intention is evident by a clarification issued by CBDT on 27th June, 2016 as per Circular No. 24/2016 while answering FAQ No. 4 in the above circular which is reproduced as under:-

Question No.4: If undisclosed income relating to an assessment year prior to A.Y. 2016-17, say A.Y. 2001-02 is detected after the closure of the Scheme, then what shall be the treatment of undisclosed income so detected?

Answer: As per the provisions of section 197(c) of the Finance Act, 2016, such income of A.Y. 2001-02 shall be assessed in the year in which the notice under section 148 or 153A or 153C, as the case may be, of the Income-tax Act is issued by the Assessing Officer. Further, if such undisclosed income is detected in the form of investment in any asset then value of such asset shall be as if the asset has been acquired or made in the year in which the notice under section 148/153A/153C is issued and the value shall be determined in accordance with rule 3 of the Rules.  

It is strange to note first of all as to how notice u/s 148 or 153A or 153C can be issued relating to income of A.Y. 2001-02 during F.Y. 2016-17 or later on. Further, it is also not clear from the language of the above provision of section 197(c) that notice u/s 148/153A/153C etc. is to be issued in pursuance to undisclosed income of any earlier year detected by the department, or undisclosed income of any earlier year can be brought to tax in the year in which such notice has been issued in connection with any other proceeding under the Act. In other words, it is not clear as to whether detection of such undisclosed income for any earlier year is the triggering point for issuance of such notice, or any undisclosed income relating to earlier year may be brought to tax deeming it to be income of the year in which notice has already been issued & when any proceeding in pursuance to any such notice is pending.

The Principle of limitation and time-barring of cases has all along been recognized under the Income Tax Act for the reason that the underlying jurisprudence has dictated that there has to be finality of the assessment and stale issues should not be reactivated beyond a specified period & that lapse of time must induce repose in and set at rest judicial and quasi judicial controversies as it must in other sphere of human activity. A useful reference may be made to the decision of Hon’ble Supreme Court in the case of Parashuram Pottery Works Co. Ltd. vs. ITO 106 ITR 1, 10(SC).

By incorporating the above provision i.e. 197(c) under this scheme, the mechanism of limitation prescribed under the Act seems to be erased by the legislature which cannot be reversed or amended. In our opinion, such provision cannot pass the judicial test before Hon’ble Courts. The entire law of limitation and time barring of proceedings cannot be brushed away in a single stroke by incorporating the above provision under the present scheme in such oblique manner.

If we analyze further the implication of the above provision of section 197(c), it would result into unintended consequences from the point of view of the department too which in our considered opinion has perhaps not been thought by the framers of law. The above provision of section 197(c) would mean that after the closure of the scheme, in case any notice u/s 148/ 153A/ 153C is issued by the department, any undisclosed income relating to any earlier year i.e. A.Y. 2016-17 or any earlier year shall be deemed to be the income relating to the year in which such notice is issued e.g.: if there is an income relating to A.Y. 2011-12 for which notice u/s 148 is issued during A.Y. 2017-18, the above provision of section 197(c) would mean that such income relating to A.Y. 2011-12 shall be deemed to be the income relating to A.Y. 2017-18 and tax on such income shall be charged as applicable during A.Y. 2017-18 without levy of any interest from A.Y. 2011-12 to 2017-18. Further, the above provision would mean that after closure of the above scheme, any undisclosed income / assets detected by the department as a result of search relating to any of the years for which notice is issued u/s 153A / 153C of the Act, such entire income relating to all the earlier years shall be deemed to be the income relating to the year in which notice u/s 153A / 153C is issued and shall be assessed accordingly. 

In this manner, after the closure of the scheme the whole machinery of the Income Tax Act relating to the year in which income is to be charged to tax, is prone to be interpreted in this manner which could never be the intention of the legislature.

It seems that the above provision of section 197(c) has been incorporated with the intention to bring to tax income relating to any earlier year irrespective of any time limitation but without considering the other consequences and impact it may have on the other provisions of the Act and on the entire scheme of the Act as explained above.

It seems that the background of the above provision incorporated in the present scheme lies in the earlier scheme on Black Money in Foreign Assets introduced last year by the government. It may be recalled that the government brought the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 requiring a person to declare undisclosed income / assets kept out of country in the shape of foreign assets.

The above said Black Money Act provided an opportunity to declare all undisclosed foreign income / assets and a stern warning was issued that after the closure of the scheme in case any undisclosed income / assets are detected, there may be severe consequences relating to imposition of tax, interest, penalty and prosecution. The above scheme also incorporated a similar provision so as to by-pass the law of limitation and principle of time-barring for re-opening of the earlier year(s) cases.

Clause (c) of section 72 of the “The Black Money (Undisclosed Foreign and Assets) and Imposition of Tax Act, 2015” provided in case no declaration in respect of any undisclosed income / asset  relating to earlier years prior to commencement of this Act is made, as under:

(c ) where any asset has been acquired or made prior to commencement of this Act, and no declaration in respect of such asset is made under this Chapter, such asset shall be deemed to have been acquired or made in the year in which a notice under section 10 is issued by the Assessing Officer and the provisions of this Act shall apply accordingly.

It is pertinent to mention that in the case of person having foreign income/ assets the time-barring period under the Income Tax Act has already been extended from 6 years to 16 years by Finance Act, 2012. Notwithstanding the same, above provision was incorporated in that scheme to by-pass the law of limitation for opening of earlier year(s) cases given under the Income Tax Act.

There was not much reaction regarding the above provision incorporated in the above scheme regarding undisclosed income in the form of foreign assets. It seems that enthused by the earlier scheme, the provision in the present scheme has been drafted on the similar lines without analyzing and contemplating the consequences of such provision. However, it is significant to note that the above scheme relating to foreign black money could not be successful and only 638 declarations were made mopping up revenue of Rs. 2,488 crores only.

We expect the government to come out soon with the clarification explaining the above provision of section 197(c) so that there does not remain any doubt and ambiguity regarding the interpretation of the provision of the scheme.

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31 comments on “Income Declaration Scheme, 2016 – Whether Supersedes Law Of Limitation Applicable To Reopening Of Cases
  1. M.Manikandan says:

    My one of the client is partner of the Firm . the firm Declare our income in Income Declaration Scheme 2016, The one of the partner paid in the first installment in the own pan number instead of firm PAN Number, how to rectify the mistake.

    M.Manikandan , Trichy

  2. arun kumar says:

    a notice under various sections, which is issued beyond limitation, will not constitute a proper notice. so, 197c will never apply, unless limitation is specifically legislated away.

  3. G C Das says:

    There appears to be daily threats from the authorities. The same is not in keeping with the policy of the present government.All the tax experts know the consequences of non disclosure of income.As I have said earlier and repeat the the same again is that department has failed to make quality assessments which can only send messages to the tax payers that tax evasion is costly. This is hardly done except by a small number of officers. The department is now better equipped in the matter of handling assessments. Therefore the stern messages alone wont make much differences except creating distrust. Should the high functionaries of the government issue such messages ? Will CBDT have a relook to the functioning of the department ? It has to be accepted that the present IDS Scheme is a badly drafted piece of legislation.

  4. Neeraj says:

    Good and informative article. Highly analytical which is a result of hard work and knowledge.

  5. Rajesh Jain FCA , LL.B says:

    Section 197(c) is against the judgement of hon Supreme Court in the case of K M sharma 254 ITR 772. A dead case can not be revived even if limitation provisions are enlarged subsequently. Rule 6F also come to the rescue of taxpayers as department can not expect the assesse to keep his books of accounts beyond specified time I think it is only academic and drafting error which will be soon covered by FAQ

  6. G C Das says:

    What scares a tax payer ? Not such ill thought out and ambiguous scheme. If CBDT conducts a verification, it will reveal that the department has so far not been successful to ensure that a quality assessment is frames resulting in penalty and prosecution. The same would have a more deterrent effect than such scheme. Meetings and discussions would not help. Despite CBDT’s repeated instruction not to take bald admission in search and survey but to collect sustainable evidence, the instruction remain mostly in paper. Taking ad hoc admission after prolonged hours of search and survey still continue.

  7. RAJESH JAIN FCA,LL.B says:

    K.M. SHARMA vs. INCOME TAX OFFICER

    SUPREME COURT OF INDIA

    S.P. Bharucha, C.J.; N. Santosh Hegde & D.M. Dharmadhikari, JJ.

    Civil Appeal No. 7742 of 1997

    11th April, 2002

    (2002) 70 CCH 0286 ISCC

    (2002) 174 CTR 0210 : (2002) 254 ITR 0772 : (2002) 122 TAXMAN 0426

    Legislation Referred to

    S 149, 150

    Case pertains to

    Asst. Year 1968-69, 1969-70, 1970-71, 1971-72, 1982-83

    Decision in favour of:

    Assessee

    Reassessment—Limitation—Applicability of amended s. 150(1)—Amendment made to s. 150(1) which intends to lift embargo of period of limitation under s. 149 to enable the authorities to reopen assessments not only on the basis of orders passed in proceedings under the IT Act but also on the basis of order of a Court in any proceedings under any law has to be applied prospectively on or after 1st April, 1989, when the amendment was introduced—Sub-s. (2) of s. 150 cannot be held applicable only to reassessment based on orders ‘in proceedings under the Act’ and not to orders of Court ‘in proceedings under any other law’—Sub-s. (2) intends to insulate all proceedings of assessments which have attained finality—Thus, only those assessments can be reopened which have not already attained finality due to bar of limitation under s. 149 and this position is applicable equally to reassessments proposed on the basis of orders passed under the Act or under any other law.

    Held :

    Fiscal statute more particularly on a provision such as the present one regulating period of limitation must receive strict construction. Law of limitation is intended to give certainty and finality to legal proceedings and to avoid exposure to risk of litigation to litigant for indefinite period on future unforeseen events. Proceedings, which have attained finality under existing law due to bar of limitation cannot be held to be open for revival unless the amended provision is clearly given retrospective operation so as to allow upsetting of proceedings, which had already been concluded and attained finality. The amendment to sub-s. (1) of s. 150 is not expressed to be retrospective and, therefore, has to be held as only prospective. The amendment made to sub-s. (1) of s. 150 which intends to lift embargo of period of limitation under s. 149 to enable authorities to reopen assessments not only on the basis of orders passed in proceedings under the IT Act but also on order of a Court in any proceedings under any law has to be applied prospectively on or after 1st April, 1989, when the said amendment was introduced to sub-s. (1). The provision in sub-s. (1), therefore, can have only prospective operation to assessments, which have not become final due to expiry of period of limitation prescribed for assessment under s. 149. To hold that the amendment to sub-s. (1) would enable the authorities to reopen assessments, which had already attained finality due to bar of limitation prescribed under s. 149 as applicable prior to 1st April, 1989, would amount to giving sub-s. (1) a retrospective operation which is neither expressly nor impliedly intended by the amended sub-section. Sub-s. (2) makes it clear that the embargo of period of limitation lifted under sub-s. (1) for proposed reassessments based on order in proceedings in appeal, reference or revision, as the case may be, would not apply to assessments which have attained finality due to bar of limitation applicable at the relevant time. The plain language of sub-s. (2) of s. 150 clearly restricts application of sub-s. (1) to enable the authority to reopen assessments which have not already become final on the expiry of prescribed period of limitation under s. 149. As is sought to be done by the High Court, sub-s. (2) of s. 150 cannot be held applicable only to reassessments based on orders ‘in proceedings under the Act’ and not to orders of Court ‘in proceedings under any other law’. Such an interpretation would make the whole provision under s. 150 discriminatory in its application to assessments sought to be reopened on the basis of orders under the IT Act and other assessments proposed to be reopened on the basis of orders under any other law. Interpretation, which creates such unjust and discriminatory situation, has to be avoided. Sub-s. (2) intends to insulate all proceedings of assessments, which have attained finality due to the then existing bar of limitation. To achieve the desired result it was not necessary to make any amendment in sub-s. (2) corresponding to sub-s. (1), as is the reasoning adopted by the High Court. Sub-s. (2) aims at putting embargo on reopening assessments, which have attained finality on expiry of prescribed period of limitation. Sub-s. (2) in putting such embargo refers to whole of sub-s. (1) meaning thereby to insulate all assessments, which have become final and may have been found liable to reassessments or recomputation either on the basis of orders in proceedings under the Act or orders of Courts passed under any other law. The High Court, therefore, was in error in not reading whole of amended sub-s. (1) into sub-s. (2) and coming to the conclusion that reassessment proposed on the basis of order of Court in proceedings under Land Acquisition Act could be commenced even though the original assessments for the relevant years in question have attained finality on expiry of period of limitation under s. 149. On a combined reading of sub-s. (1) as amended w.e.f. 1st April, 1989, and sub-s. (2) of s. 150 as it stands, a fair and just interpretation would be that the authority under the Act has been empowered only to reopen assessments, which have not already been closed and attained finality due to the operation of the bar of limitation under s. 149. On a proper construction of the provisions of s. 150(1) and the effect of its operation from 1st April, 1989, the provisions cannot be given retrospective effect prior to 1st April, 1989, for assessments which have already become final due to bar of limitation prior to 1st April, 1989. Taxing provision imposing a liability is governed by normal presumption that it is not retrospective and settled principle of law is that the law to be applied is that which is in force in the assessment year unless otherwise provided expressly or by necessary implication. Even a procedural provision cannot in the absence of clear contrary intendment expressed therein be given greater retrospectivity than is expressly mentioned so as to enable the authorities to affect finality of tax assessments or to open up liabilities, which have become barred by lapse of time. Therefore, sub-s. (1) of s. 150, as amended w.e.f. 1st April, 1989, does not enable the authorities to reopen assessments, which have become final due to bar of limitation prior to 1st April, 1989, and this position is applicable equally to reassessments proposed on the basis of orders passed under the Act or under any other law.—K.M. Sharma vs. ITO & Ors. (1996) 134 CTR (Del) 530 : (1996) 221 ITR 202 (Del) : TC 51R.2216 set aside; S.S. Gadgil vs. Lal & Co. (1964) 53 ITR 231 (SC) : TC 51R.1993 applied.

    (Paras 13 to 15, 17, 18 & 20)

    Conclusion :

    Amendment made to s. 150(1) is prospective only and it does not enable the authorities to reopen assessments, which have become final due to bar of limitation prior to 1st April, 1989, and this position is applicable equally to reassessments proposed on the basis of orders passed under the Act or under any other law.

    PLEASE READ THE ABOVE JUDGEMENT PROVISION CONTAIN IN SECTION 197(c) is contrary to the above judgement of Hon SUPREME COURT. IN MY HUMBLE OPINION THE SECTION IS CONTRARY TO THE ABOVE JUDGEMENT OF HON SUPREME COURT

    • law of limitation is a must else every time you will say something left out; that is not justice or judicial prudence; so sec 150(1) rightly says ‘prospective’; never allow tax laws to revisit old matters by so called ;retrospective’ theory ; that is applicable in law of crimes either by state or citizens; obviously not applicable in tax laws.Tax law is based upon, ‘civil issues’, how can you say this is a crime and that is a crime; you cannot be you are the government’ govt shall act normally under ‘legitimate expectation ‘ paradigmof proper and meaningful governance, not by so called ‘arbitrary actions’ of fiscal administration; after all government cannot just draw excesive taxes, that way the governance only promotes undeclared positions, after all every fiscal budgetary demands once accepted only then only you have to what is essential expenses under ‘expenditure management’, you cannot just go on levying taxes that is bound to raise the quantum of ‘unaccounted moneys’; why anyone pay arbitrary taxes – so in the USA in Boston it was said, excessive taxes obviously forced America to go out of the imperial British rule ; that way they said in clear terms, ‘No taxation without (right) representation ; representation means ‘you have to tell the people what you need essentially, once approved by the people at large only you can ask the people the governments governance need only; not otherwise, if the federal does in any arbitrary way in ‘india’ sooner than later many ‘states’ would fight for separation from the indian federation the federal structure governance need to know;

      that is what we call what Tiruvalluvar said ‘Karkha kasadara karka, katra pin adarku thaga’ meanonging, ‘you learn things in a most decent way in the best way possible,(depending on your intellectual way, as your own intellect (i mean governing law makers need to seek real tax payers – direct or indirect – and take their advice , as they only make you govern not other way that is called ‘democratic governance’ whereby), law makers in their delegated ‘governance’ they ought to seek counsel of the people), else people trust on lawmakers just dwindle to the ‘no confidence on the law makers), obviously right perception of the citizens, then they also adopt same ‘game theory’ you economists on behalf of governments adopt) . Game theory is played by both cooperative and non cooperative actions of people; if governance by govt adopts ‘non cooperative games like sec 10(5) or so, political donations they seek exemptions if the contributions are under Rs.20,000/- the politicians need not account from where they generated, (that is the beginning of ‘black moneys’; similarly corporate generate under various so called ‘exemptions’ (again ‘unaccounted funds) they rightly royally deposit in their bank accounts, and enjoy their life at the cost of tax payers – see today bankers take ‘commissions’as high as 40% to convert the old notes, you say tax man caught, that is a futile explanation, they creator of black moneys are the very law makers themselves – they need to be ashamed – honorable courts under doctrine of severability need to sever such sections from very tax laws under judicial independence like the judicial review system ; judicial reviews need to remove irrational sections or irrational statutes that is expected of the judiciary, that way obvious ‘separation of power theory’ Montesquieu advocated in the American constitution, india too borrowed heavily from the American constitution, and from American Jurisprudence, like from other good constitutions of the world say ‘Irish constitution – the idea of ‘fundamental rights’ . So the law makers cannot abridge the fundamental rights under any circumstances, fundamental duties under Art 51A of Part IVA of the constitution imposes equally on the very law makers their duties to the sovereign citizens by the defacto institutions – Parliament, Executive and the Judiciary too.

      Judiciary cannot escape under the facade of ‘ judicial restraint’ ( a game theory idea only obviously), the support the governance systems of the three powers granted Art 12 of the constitution, then only people will cooperate else they lose their trust on these institutions totally, like a ‘hide and seek’ game; if the systems play naturally it will be the great Modi demonetization idea, as it is a game theory idea of economics, under ‘non cooperative mechanism’, so we see every institution, like baking system, executives, political parties, why even tax players, non tax payers(even if very BJP party workers too ) even not with ruling party, started playing the same game perceptions, obviously you cannot find fault with others when the very governance system is indulging in such games ; obviously only chaos in the system will emerge however much we want to avoid, so balance of sensible governance by the ruling party is needed; if not , unthinkable things like ‘States’ calling for independence like from the British dominion status very india came out under such kind of reasons – so rule of law shd and ought play level playing field in any activity.

      I am penning a book to be published from USA,by end 2017 under a title – ‘A critique on Modi-Demonetizing Game Theory’, probably it might cost US $.300 or so – after all readership is the very politicians only all , they can afford, i don’t treat them as ‘Honest persons’ any more. tks

  8. Samir Bhuptani says:

    Its clarified by circular no. 27 dated 14/07/2016 that section 197(c) shall override old provisions contained under Income-tax Act, 1961. Thus 148 stands overridden in view of the said circular.

  9. CA Lalit Munoyat says:

    The required clarifications have been issued by Circular 27 14-07-16. The department has reiterated firmly that the rate of tax shall be 45% .

    It is clarified that the intent of the clarification issued vide question No.5 of Circular No. 25 of 2016 was limited to conduct of enquiry by the Department. It in no way intends to modify or alter the rate of tax, surcharge and penalty payable under the Scheme which have been clearly specified in the Scheme itself. Sections 184 & 185 of the Finance Act, 2016 unambiguously provide for payment of tax, surcharge and penalty at the rate of 45 per cent of undisclosed income.

    Secondly on the question of limitation for issue of notice u/s 148 r.w.s 149 it has been clarified that

    Question No. 4 of Circular No. 24 of 2016 may be referred where the tax treatment of such income has been clarified. Since the Scheme contained in Chapter IX of the Finance Act, 2016 is a later law in time, the provisions of the Scheme shall prevail over the provisions of earlier laws.

    Confusions & more confusions. Sec 197(c) does not have a non obstante clause. It starts with words ” Section 197 starts with the words “For the removal of doubts, it is hereby declared that—“. This in effect means that it is a Declaratory Statute which inserts a new law and therefore it shall have only prospective effect. Then how the interest will be charged from the A.Y. 2001-02 or A.Y. 2016-17.

    CA Lalit Munoyat

  10. G C Das says:

    The authors have raised some valid queries. I have googled to find out various view points on the issue, deliberated with senior legal counsels. All have reservations about the frame work of the provisions of section 197(c) and so called effective rate of tax rate 31% remains ambiguous even afer one and half months since the scheme was launched . Representations have been made to CBDT, queries have been made in various meetings with departmental officer about initiation of proceeding beyond statutory period of limitation and effective rate of tax at 31%. According to section the undeclared income /asset can be taxed in the year in which a notice under section 142(1)/143(2)/148/153A/153C is issued, if not declared under the present scheme. This means the provisions of section 194(c) has an overriding effect and provisions of of Income tax Act governing application of 142(1)/143(2)/148/153A/153C are subject to the same. In this context following aspects need clarification

    For application of section 197(c),the requirements of 142(1)/143(2)/148/153A/153C are sine qua non as 197(c) does not override these provisions but subject to the same.

    There is no corresponding amendment to the basic provisions of the Act to make provisions of 197(c) compatible and effective

    This section would, if held legally sustainable will result in multiple proceedings. For example say in the year 2017-18, one item of escaped income/undeclared asset for the earlier asst year comes to notice ,the same will be taxed in ay 2019-20 proceeding will be reopened when the rquired notice is issued. Again suppose in the subsequent assessment years another item comes to notice, again the same will be taxed by invoking the provisions. How many times such assessments be made is not known? Can the department initiate such multiple proceedings and tackle the same. The exercise will be endless which would militate against the doctrine of finality and limitation.

    Issuance of notices 142(1)/143(2)/148/153A/153C has certain legal parameters both statutorily and on the basis of judicial precedents. It is not known whether on the basis of provisions of the scheme, such requirements are given a burrial.

    In search cases, there will be a tendency to seize documents for more than 7 years. There will be indiscriminate seizure.

    There will be a clash between the normal provisions and provisions of section 197(c)

    It would amount to retro taxation which is against the policy of the present government.

    The hallmark of the functioning of the present government is to simplify law of taxation. It has taken some commendable steps. The present provisions of section197(c) negates the policy of the government.

    Why there is a threat by enacting such draconian provision ? There appears to be a signal failure on the part of the department to frame a good assessment resulting in penalty and prosecution. Had it been done there would have been no need for such a threat. A tax payer understands it as a threat which will not stand scrutiny by the Courts and impossible to perform.

    Many tax experts, associtions, have sought clarification on this provisions as also so called effective rate of tax at 31%. why Board is silent ?

    It seems scheme is not well planned and provisions not well drafted and therefore government appears to be in defensive. Many people say that the Government will not come out with any clarification about the effective rate of at at 31% which is less than the normal rate as legal consequences will be fatal.

    It has been clarified that no question will be asked about the source of payment of tax. Thus an element of unaccounted money enters into the scheme. This defeats the objectives of the scheme. It undermines the concept that tax is a part of declared income.

    The good side of the scheme is that many tax payers have evinced interest in the scheme and are awaiting clarification, particularly on the effective rate of tax at 31 % as reported in the press. Once this clarification is made, the response to the scheme will be tremendous.

    Will CBDT listen?

  11. CA Lalit Munoyat says:

    Sorry . Wrong post. Please ignore it.

  12. CA Lalit Munoyat says:

    I think in the whole debate we are missing one crucial point which empowers the government to go beyond 6 years for reopening any assessment. Read Section 149

    Time limit for notice.
    149. (1) No notice under section 148 shall be issued for the relevant assessment year,—

    (a) if four years have elapsed from the end of the relevant assessment year, unless the case falls under clause (b) or clause (c);

    (b) if four years, but not more than six years, have elapsed from the end of the relevant assessment year unless the income chargeable to tax which has escaped assessment amounts to or is likely to amount to one lakh rupees or more for that year;

    (c) if four years, but not more than sixteen years, have elapsed from the end of the relevant assessment year unless the income in relation to any asset (including financial interest in any entity) located outside India, chargeable to tax, has escaped assessment.

    In clause (b) it is clearly mentioned that all those cases in which income chargeable to tax which has escaped assessment amounts to or is likely to amount to one lakh rupees or more for that year then the time limit of 6 years is not applicable.

    It is perhaps on the strength of this clause (b) that Q.4 of the FAQ has been answered i.e. income of assessment year 2001-02 can be assessed in A.Y. 2017-18 if the amount of income escaping assessment amounts to one lakh rupees or more for that year;

  13. Hari Agarwal says:

    yes this is correct

  14. s prakash says:

    The Rule can not over take the Act.

  15. s prakash says:

    Whether by announcing a scheme the Act can be amended? I personally feel that for the investments made behind the prescribed time limit the department can not take any action.This has with stood the judicial test in many earlier decisions.

  16. Obviously 2012 finance Act itself is an arbitrary Act, bypassing the settled law; when so 2016 finance Act is an another arbitrary Act;

    Actually it s ultra vires to constitution Art 14 when read with art 265;

    Tax payers need move writ petitions to declare the section 197(c) ultra vires the constitution;besides the section 197(c) is drastically interfering the settled Limitation Act;

    therefore, 197(c) has to be removed under doctrine of severability;

    Governments cannot undo what Constitution has provided as rights to people be it tax payer or other is my view;

    I am sure hon SC if you file right writ petition, it would do justice.

  17. Bhadresh Doshi says:

    What shall be the implications of the starting words of the Section i.e. “For removal of doubts….”? Does it mean that this provision can be invoked only when there is a doubt regarding the year of taxability or somewhat similar situation? If there is no doubt then how this Section shall operate?

  18. CA Ashok Mehta says:

    The section can lead to a precarious situation where a salaried employee has misplaced his records for 95-96 in which the property is purchased and the bank refuses to give him the records. Can this also be added as undisclosed income? This could lead to precarious situation and harassment to the assessee. A retrograde step by a progressive government in search for revenue from any source possible

  19. voices says:

    The article gives an example of AY 2011-12 for which a notice is issued in FY 16-17. The reading of the provision is that if an asset or income pertaining to say AY 2005-06 is detected during such proceedings then the present position would be that it goes beyond the ambit of taxation. As against this, the income would become taxable in AY 17-18. The income for AY 11-12 will remain to be taxed in AY 11-12 only on a plain reading of the provisions.

  20. CA Meenakshi Sundar V says:

    Dear Sirs, Agree that there is an anamoly here…But it appears that the notice u/s. 142 or u/s 143(2) or u/s 148 / 153A / 153C must still comply with the timelines and limitations prescribed under the IT Act. No where it is mentioned that the Notices can be issued notwithstanding anything contained in the Act (Regarding limitation). Only the year of assessment of the escaped income appears to be tampered with for reasons best known to the Government. The Govt. needs to clear the doubts on this.

  21. Samir Bhuptani says:

    The language of section 197(c) does not contain overriding word viz. “notwithstanding anything contained in the Income-tax Act”. These wordings have been used u/s. 184, 185, 192 and 194(c). Thus section 197(c) cannot override other provisions of Income-tax Act. Further, section 197(c) is not a machinery provision and hence no order can be passed under the said provision. So, when powers to assess income beyond limitation period doesn’t exist under Income-tax Act it cannot be brought to tax. But, this section shall encourage be interpreted by revenue officers as widest powers in their hands to tax any amount may be pertaining to 50 years before.

  22. amit desai says:

    it is very harsh and not a proper section. The safety net created by sec. 148 can not be taken away by sec. 197(c). A proper clarification required from CBDT, to make scheme successful

  23. RAMESH KUMAR says:

    “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.”

    The intention of the Legislature in my opinion is that when a valid notice u/s 142; 143 (2); 148 etc is issued then in such year the undisclosed income will be assessed for that year. There cannot be a carte blanche power to the AOs to issue notices for any number of years

  24. Y Prasad says:

    A Search and Seizure operation was conducted in the year 2014 and assets aquired in the year 1999 from undiclosed income was found. But these undisclosed assets were not considered while completing the assessment u/s 153A of the IT Act as the time limit to bring such assets was lapsed. Can the AO invoke provisions of section 197(c) of IDS 2016 to bring such assets to tax now ?

  25. Manish Sachdeva says:

    If go by the interpretation that limitation is being tried to be avoided, another thing to be noticed is which specific provision becomes the invoking provision to tax the undisclosed income of say A.Y. 2001-02.

    The law simply says “in the year in which notice is issued”, does that mean income of year 2001-02 could arbitrarily assessed under normal scrutiny or re-assessment or search assessment.

  26. Hari Agarwal says:

    This is the useful issue raised by the Author. In my opinion also the limitation period prescribed in the Act cannot be extended. once extended can it go beyond 50 years also ?

  27. The present NDA Govt has all along been saying and promising that no retro amendments will be introduced. This try to give power to the AO by route of s. 197(c) and quest. 4 is nothing but extra-adventurism and is extremely retrospective. Whether this promise was only for foreign investors ignoring the domestic tax-payer ?
    In my view, the Govt must clear its stand that power of unlimited period of re-opening shall be prospective i.e. transactions happening from now onwards. Even that amendment may be subjected to judicial scrutiny as being unjust, harsh and against the promissory estoppel.

  28. CA Goutam Chand Baid says:

    In the clause (c) presumptive provision for time only provided but no provision has been provided for valuation. Therefore even if income of earlier years taxed beyond time limit, same cannot be assessed at current value as required for declaration made under the scheme.

    Further to this one more issue arise in cases where regular assessment framed u/s 143(3). In the presumption provision of clause (c) of section 197, it has not clarified what would happen if income presumed is not assessed in the assessment year relevant to previous year in which notice under any of different provisions referred in section issued.

    It cannot be said that such presumption authority is assigned for indefinite time, if such presumptive authority of assessment of income relevant to time barred period not invoked in the first chance by the income tax authority.

  29. KC AGARWAL says:

    The provision should and could read as under to avoid the controversy if the view expressed are correct about real legilative or departmental intent
    “where any income has accrued, arisen or received or any asset has been acquired out of such income prior to commencement of this Scheme, not being an income pertaining or asset acquired prior to the Assessemt Year ____________, and no declaration in respect of such income is made under this Scheme,—

    such income shall be deemed to have accrued, arisen or received, as the case may be; or
    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.”

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