An Overview

Vide Notification No. S.O. 3407(E) dated November 8, 2016, Ministry of Finance (Department of Economic Affairs) has declared that existing series of the value of Rs. 500 and Rs. 1,000 (referred to as specified bank notes) shall be ceased to be legal tender. Among other things, it has also been mentioned that specified bank notes are used for storage of unaccounted wealth, therefore, Central Government after due consideration to the recommendations of Central Board of Directors of RBI has decided to implement the recommendations of the Board. Thus, Central Government has declared that specified bank notes shall be ceased to be legal tender with effect from November 9, 2016 to the extent specified in the notification which includes submission of return by every banking company showing details of specified bank notes and remitting the same to the Currency chest or branch of RBI.

The specified bank notes held by a person, other than banking company, can be exchanged at any issue office of RBI, Public sector bank, Private sector bank, Foreign banks, regional rural banks, etc. for a period up to and including December 30, 2016 subject to certain conditions specified in the notification just like ceiling of exchange of Rs. 4,000 which later on has varied two times and one time maximum deposit of Rs. 50,000 where KYC is not available, etc. Thus, on and with effect from November 9, 2016 no person can accept the tender of specified notes, except the persons exempted by the Government. The fallout of such notification and further instructions issued by the Central Government from time-to-time, is that except in the circumstances prescribed or described, specified bank notes would not be a legal tender on and with effect from November 9, 2016 and any person who does not have opening cash in hand on November 9, 2016, shall not be entitled to credit any cash in his books of account by way of specified bank notes and the deposit of these specified bank notes into the bank account has to be limited only to the opening cash in hand as on November 9, 2016.

Here it will be relevant to refer some case laws which may help to contest the addition, if any, proposed to be made by the department despite having sufficient opening cash balance as on November 9, 2016.

a) In the case of Narendra G. Goradia v. Commissioner of Income Tax 234 ITR 571 (Bom.). It is case where high denomination notes were deposited in the bank and it has been held that what the assessee is required to prove in such cases is the source of money and once he is successful in proving the same, he cannot be put to further proof of acquisition of such amount in the currency notes of particular denomination. If the explanation shows that the receipt is not of income nature, the revenue cannot reject the explanation of the assessee to hold that it is income.

b) CIT v. Associated Transport Pvt. Ltd. 212 ITR 417 (Cal). In this case in view of sufficient cash balance, the addition made on account of deposit of high denomination notes was held to be rightly deleted.

c) Commissioner of Income Tax v. Laxmandas Bhatiya 217 ITR 878 (MP). In this case on the issue of addition made in respect of high denomination notes held to be rightly deleted “The Apex Court in Bat Velbai v. CIT [1963] 49 ITR 130
held that the crux of the matter is to explain or establish the source of the income or the receipt of money and not the source of receipt of the high denomination currency notes. The fact remains that the cash balance of the assessee was sufficient to cover the value of high denomination notes. This was a finding of fact which is not perverse and as such it did not give rise to any question of law. In view of this, the Tribunal rightly rejected the application for reference.”

d) Lakshmi Rice Mills v. Commissioner of Income Tax 97 ITR 258 (Pat.) it is held “It is a fundamental principle governing the taxation of any undisclosed income or secreted profits that the income or the profits as such must find sufficient explanation at the hands of the assessee. If the balance at hand on the relevant date is sufficient to cover the value of the high denomination notes subsequently demonetised and even more, in the absence of any finding that the books of account of the assessee were not genuine, the source of income is well disclosed and it cannot amount to any secreted profits within the meaning of the law. What has to be disclosed and established is the source of the income or the receipt of money, not the source of the receipt of the high denomination notes which were legal tender at the relevant time”.

The time window permitting to deposit the specified notes into one’s own bank account is fixed by the Central Government as December 30 2016. The statements are being issued by the Income Tax Department that in case specified notes are deposited by any person in his bank account, which is unexplained, shall entail penalty of 200% of the tax payable on such amount in addition to levy of tax by treating the same as unexplained income under the provisions of section(s) 68/69 etc. of Income Tax Act 1961 (Act). This has created a fear in the minds of general public and questions are being asked by them from their consultants that what would happen in a case if they deposit the specified note into their bank accounts and department treats them as unexplained income and what would be the consequences regarding levy of concealment penalty and what precautions can be taken to avoid those penal consequences if a person is ready to bear the tax and wants to avoid payment of any concealment penalty.


An attempt has been made in the coming discussion to explain and to remove the doubts prevailing in the minds of such persons. Unexplained cash credits investments and expenditure, etc. are assessable under section(s) 68, 69, 69A, 69B and 69D of the Act. More or less, all these sections enable the Assessing Officer to make an addition in case of unexplained cash credits, investments, money, investments which are not fully disclosed in their books of account, unexplained expenditure and amount borrowed or repaid on hundi, the amount added under these sections is treated as income from other sources. The specified notes deposited in one’s bank account on or after November 9, 2016, unless supported by opening cash in hand, can be treated by AO as unexplained amount to be assessable under these sections. The fallout of such treatment would entail levy of income tax thereon as per section 115BBE of the Act which is 30% and is equal to maximum marginal rate and mode of computation is prescribed in that section. It is also provided in section 115BBE of the Act that no deduction against such income can be allowed as an expenditure or allowance and no set off of any loss shall be allowed. Thus, if any such amount is added to the income of the assessee the gross amount of such deposit etc. would be taxed at 30% plus surcharge, etc. and against such assessed no deduction or set off would be available.

It may also be mentioned here that opening cash balance as on November 8, 2016 may be subject to scrutiny by the department and precautions should to taken to the extent these can be taken with regard to source and quantum thereof as principle of preponderance of probabilities is not unknown to the department and are now well established by the decision of Apex court in the case of CIT v. P. Mohankala (2007) 291 ITR 0278 (SC). However, in cases of unexplained deposits on which tax is already paid at the rate prescribed in section 115BBE of the Act, the AO cannot do anything extra under the existing provisions of the Act and what AO could have done is already done by the assessee.

Now the question arises that where a person who has deposited the specified note in his bank account which he is unable to explain to the satisfaction of Income Tax Authorities and is ready to declare the same in his return of income as income assessable u/s. 68 or any other sections discussed above which is assessable as income from ‘Other sources’ and tax has been paid at the maximum marginal rate with surcharge without claiming any deduction then whether he will be liable for concealment penalty u/s. 270A of the Act which is applicable for the financial year 2016-17 and AY 2017-18. To discuss this aspect it will be necessary to examine the scheme of section 270A.

Scheme of section 270A in Chapter XXI

Section 270A has 12 sub-sections.

Sub-section (1) authorise the authorities described therein to direct any person who has under-reported his income to pay penalty in addition to tax on the unreported income.

Sub-section (2) describes that in what circumstances, the person can be considered to have under-reported his income.

Sub-section (3) describes the manner and mode to compute under-reported income.

Sub-sections (4), (5) and (6) describe a situation where any person who is claiming that source of any receipt, deposit or investment is an amount added to the income or deducted while computing loss, as the case maybe, in the assessment of such person in any year prior to assessment year in which such receipt, deposit or investment appears (referred to as preceding year) and no penalty was levied for such preceding year then the under-reported income shall include such amount as sufficient to cover such receipt, deposit or investment and sub-section 5 describes the order in which the amount of income under-reported for the preceding year is liable for penalty. The provisions of sub-section (4) are subject to provisions of sub-section (6) which describes the exclusion of amounts from under-reported income which are:

i) Where IT authorities are satisfied that the explanation offered by the assessee is bona fide and the assessee has disclosed all the material facts to substantiate the explanation offered.

ii) The addition subject to under-reported income is determined on the basis of estimate in which accounts are correct and complete to the satisfaction of IT authorities described therein but the method employed is such that
income cannot properly be deducted there from.

iii) Where under reported – income is determined on the basis of estimate and the assessee has returned its income on its own estimate and assessee has disclosed all the facts and material to arrive at such estimate.

iv) Where under-reported income is according to ALP determined by TPO and the assessee had maintained information and documents as per section 92D and has declared the international transaction under Chapter X and has also disclosed all the material facts relating to the transaction and

v) The amount of undisclosed income liable for penalty u/s. 271AAB (penalty in search cases)

Sub-section (7) describes that the penalty leviable on unreported income determined in manner specified in sub-section (2) to (6) will be a sum equal to 50% of the amount of tax payable on unreported income.

Sub-section (8) prescribes that nothing contained in sub-sections (6) and (7) would be applicable in a case where under-reported income is in consequence of any misreporting thereof by any person then the amount of penalty leviable would be equal to 200% of the amount of tax payable on unreported income.

Sub-section (9) explains that what would be the cases of misreporting of income on which penalty would be leviable as per sub-section (8) which are as under:

a. Misrepresentation and suppression of facts

b. Failure to record investments in the books of account;

c. Claim of expenditure not substantiated by any evidence;

d. Recording of any false entry in the books of account;

e. Failure to record any receipt in books of account having a bearing on total income; and

f. Failure to report any international transaction or any transaction deemed to be an international transaction or any specified domestic transaction, to which the provisions of Chapter X apply.

Sub-section (10) defines “tax payable” for the purpose of computation of penalty in respect of unreported income leviable at the rates described in sub-sections (7) and (8).

Sub-section (11) describes that where any addition or disallowance has already been formed the basis of imposition of penalty in same or any other AY then the said person shall not be liable to pay penalty again on that amount.

Sub-section (12) describes that penalty under this section shall be imposed by an order in writing.


A combined reading of section 270A will give broader picture that amount liable for concealment penalty would be in two broad categories. First category is unreported income as determined in accordance with sub-section (2) from where the amount described in sub-section (6) are to be excluded. Second category is under-reported income which is in consequence of any misreporting as described in sub-section (7). In any case, it is essential that penalty can be levied only if there is existence of unreported income as per sub-section (2). In absence of unreported income, penalty cannot be levied even if it is misreporting of income.

The above position is clear from the reading of sub-section (1) and sub-section (8). Sub-section (1) is an enabling provision for an income tax authority described therein to levy penalty and it speaks of levy of penalty only in case of any person “who has under-reported his income”. Sub-section (8) which describes levy of higher rate of penalty @ 200% of the tax payable on under-reported income will be applicable if under-reported income is in consequence of any misreporting thereof. Therefore, these provisions make it amply clear that unless there is under-reporting of income, misreporting thereof in itself would not result into levy penalty under section 270A. Sub-section (2) describes the circumstances in which a person can be considered to have under-reported his income,

(a) If his income assessed is greater than the income determined in the return processed u/s. 143(1)(a). It is a case where return of income has been filed.

(b) In case where no return has been furnished, the income assessed is more than the maximum amount not chargeable to tax.

(c) In case of reassessment, if income reassessed is more than the income assessed or reassessed immediately before reassessment.

(d), (e) & (f) relates to the cases where income is assessable under the provisions of section(s)115JB or 115JC.

(g) Where income assessed or reassessed has the effect of reducing the loss or converting such loss into income.

The sum and substance of sub-section (2) is that, to hold existence of under-reported income, the assessed or reassessed income, as the case may be, should be more than the income returned or assessed earlier to that. Unless, in the cases of returned income, the income assessed or reassessed is more than the income returned, no case of under-reporting can be made out by the department.

In view of above discussion it would become clear that if the deposit of specified notes are made by a person in his bank account and the same has been returned in the income as income assessable under the head “Income from other sources” and on which income tax has been paid as per provision of section 115BBE, then no penalty under section 270A would be leviable on such deposit as there will be no under-reporting of the income in accordance with provision of sub-section (2) of section 270A which is condition precedent for levy of penalty under the provision of section 270A(1).

Some more questions are required to be explained in the light of prevalent legal position. These are explained as under:


1. Can penalty provisions be amended retrospectively to include cash deposits?

2. Can the Government increase tax rate on deposits retrospectively?

In my opinion, as per well-established law provision regarding levy of penalty and increased tax rate are in the nature of substantive law and not adjectival law. Charging sections are to be strictly construed. Even machinery provisions are to be construed as would effectuate the object and purpose of the statute and not defeat the same. Therefore, fresh inclusion of a circumstance in penalty provisions and increase in rate of tax, even if construed as forming part of the machinery provisions are to be considered as substantive law which cannot be construed retrospectively, such view is in accordance with the decision of the Hon’ble Apex Court rendered by the 5 judges bench in the case of
J. K Synthetics Ltd. v. Commercial Taxes Officer (1994) 119 CTR 0222.

Hon’ble Apex court in the case of W Ramnad Electric Distribution Co. Ltd. v. State of Madras AIR 1962 SC 1753 has held that penal statutes are generally considered prospective. Those penal statutes which create offences or which have the effect of increasing penalties for existing offences will only be prospective by the reason of constitutional restriction imposed Article 20 of the Constitution of India.

In the case of Maruram v. UOI AIR 1980 SC 2147 it has been held that when an Act creates new offence it will bring into its fold only those offenders which commit all ingredients of the offence after the Act comes into operation.

In the case of Pyare Lal v. M.D J&K Industries AIR 1989 SC 184 it is held that “it is the basic principle of natural justice that no one can be penalised on the ground of a conduct which was not penal on the day it was committed”.

Income tax is a liability in respect of previous year relevant to assessment year, the liability is fixed by the Finance Act which is applicable for complete financial year and in my opinion for a particular action, it cannot be changed for part of the year. However, it is one of the settled principles that because of plenary powers, the legislature, if it is otherwise competent to legislate on a topic, can pass legislations prospectively as well as retrospectively subject to several recognised limitations. The first is the requirement that the words used must expressly provide or clearly imply retrospective operation. The second is that the retrospectivity must be reasonable and not excessive or harsh, otherwise it runs the risk of being struck down as unconstitutional.
National Agricultural Co-operative Marketing Federation of India Ltd. v. UOI (2003) 260 ITR 548 (SC).

Reference can also be made to the decision of the Hon’ble Apex Court in the case of
Hitendra Vishnu Thakur v. State of Maharashtra AIR 1994 SC 2623, 2641 (SC). In this case their Lordships after examining several decisions on retrospective operation of a statute have observed as under:

“From the law settled by this Court in various cases, the illustrative though not exhaustive, principles which emerge with regard to the ambit and scope of an Amending Act and its retrospective operation may be culled out as follows:

(i) A statute which affects substantive rights is presumed to be prospective in operation, unless made retrospective, either expressly or by necessary intendment, whereas a statute which merely affects procedure, unless such a construction is texturally impossible, is presumed to be retrospective in its application, should not be given an extended meaning, and should be strictly confined to its clearly defined limits.

(ii) Law relating to forum and limitation is procedural in nature, whereas law relating to right of action and right of appeal, even though remedial, is substantive in nature.

(iii) Every litigant has a vested right in substantive law, but no such right exists in procedural law.

(iv) A procedural statute should not generally speaking be applied retrospectively, where the result would be to create new disabilities or obligations, or to impose new duties in respect of transactions already accomplished.

(v) A Statute which not only changes the procedure but also creates new rights and liabilities shall be construed to be prospective in operation, unless otherwise provided, either expressly or by necessary implication.”

Thus, the validity of retrospective amendment, if brought into the statute has to be examined in the light of above principles.

3. What can the Court do if they find that most taxpayers in India are showing accumulated cash income as current year income?

The answer to this query can be found in the decision of Apex Court in the case of
Padmasundra Rao v. State of Tamil Nadu 255 ITR 0147 (SC) (five judges). It is observed that the Courts only interpret law and cannot legislate. If a provision of law is misused and subjected to abuse of the process of law, it is for the legislature to amend, modify or repeal it, if deemed necessary. It is well-settled principle in law that the Court cannot read anything into a statutory provision, which is plain and unambiguous. A statute is an addict of the legislature. The language employed in the statute is determinative factor of legislative intent. The legislative casus omissus cannot be supplied by judicial interpretative process.

Principle of casus omissus cannot be supplied by the Court except in the case of clear necessity and when reason for it found in the four corners of the statute itself but at the same time casus omissus should not be readily inferred and for that purpose all the parts of the statute or section must be construed together and every clause of a section should be construed with reference to the context and other clauses thereof so that the construction to be put on a particular provision makes a consistent enactment of the whole statute. This would be more so if literal construction of a particular clause leads to manifestly absurd or anomalous results which could not have been intended by the legislature.


An Overview

“Money-laundering” is defined in section 2(p) as having the meaning assigned to it in section 3. “Proceeds of crime” as per section 2(u) means any property derived or obtained, directly or indirectly, by any person as a result of criminal activity relating to a scheduled offence or the value of any such property. “Person” as per section 2(s) means (i) Individual (ii) HUF
(iii) Company (iv) Firm (v) AOP, BOI (whether incorporated or not) (vi) Every artificial judicial person not falling in above clauses and (vii) Any agency, office or branch owned or controlled by any of the above persons. As per section 2(x) “Schedule” means Schedule to this Act. As per section 2(y) “Scheduled offence” means (i) Any offence under Part A of the Schedule (ii) Any offence under Part B if value involved is 30 lakhs or more (iii) The offences specified in Part C of the Schedule.

Section 3 under the head “offence of money-laundering” specifies that whosoever directly or indirectly attempts to indulge or knowingly assists or knowingly is a party or is actually involved in any process or activity connected with the proceeds of crime and projecting it as untainted property shall be guilty of offence of money-laundering.

Section 4 prescribes the punishment for money laundering which varies between 3 to 7 years and under proviso, for offences specified under paragraph 2 of Part A of the Schedule, the punishment can be extended to 10 years.

Section 5 describes that where any officer not below the rank of deputy director on the basis of material has reason to believe which are required to be recorded in writing, on the basis of material in his possession that (a) any person is in possession of any proceeds of crime (b) such person has been charged of having committed a scheduled offence; and (c) such proceeds of crime are likely to be concealed, transferred or dealt with in any manner which may result in frustrating any proceedings relating to confiscation of such proceeds of crime under Chapter III, he may by order in writing can provisionally attach the said property for a period not exceeding not 150 days, etc.

An overview of the above provisions will reveal that scope of the provision of PMLA are wide enough to cover the applicability in respect of almost all entities and it is applicable only in respect of person who is actually involved directly or indirectly, knowingly or unknowingly in dealing with the proceeds of crime and projecting the same as untainted property. Attachment of such property is also regulated by strict provisions when the authority is required to record reasons in writing and also should have material in his possession to show the ingredients mentioned in sub-clause (a) to (c) of section 5(1) as described above. Therefore, to invoke provisions of PMLA there must be an existence of offences described in the schedule and also the connection of such person to the proceeds of crime.

Reference is also necessary to be made to section 24 which describes that when a person is accused of having committed the offence u/s. 3, the burden of proving that proceeds of crime are untainted property shall be on the accused. Thus, the burden to prove under PMLA on the accused is limited only to the extent it relates to property which is subject to PMLA that the same is not the proceeds of crime. Otherwise the burden is on the authorities to bring the person under the provisions of PMLA.

Impact and Implications of the Taxation Laws (Second Amendment) Bill, 2016 (Bill No. 299 of 2016)

According to statement of objects and reasons this bill has been brought before parliament to plug the loopholes in the existing provisions of Income-tax Act, 1961 (“the Act”) to prevent the misuse of existing provisions for concealing black money as early as possible. This bill also intends to give an opportunity to the defaulters to pay taxes with heavy penalty and allow them to come clean so that not only the Government gets additional revenue for undertaking activities for the welfare of the poor but also the remaining part of he declared income legitimately comes into formal economy. To introduce this bill the Central Government has obtained the recommendations under Article 117(1)(3) read with clause 1 of Article 274 of the Constitution of India. A bill making such amendments is called Money Bill as defined in Article 110 of the Constitution of India and Article 110(1) inter alia includes clause (a) which describes as under:-

“The imposition, abolition, remission, alternation or regulation of any tax.”

It is in this manner the above bill has been introduced in the Parliament.

Summary of the amendments

Section 1(2) of the bill states that it shall come into force at once. Section 2 substitutes existing section 115BBE with effect from April 1, 2017. The existing section 115BBE described that where total income of an assessee includes any income referred to in sections 68, 69, 69 A to 69D (hereinafter referred to as “such income”) then the amount of income tax payable shall be aggregate of the amount of income tax calculated on such income @ 30% plus the amount of income tax with which the assessee would have been chargeable had his total income would have been reduced by the amount of such income.

According to proposed substituted section 115BBE the contemplated difference, if any, construed in the existing section 115BBE between amount of such income offered by the assessee in its return of income and determined by the AO has been attempted to be eliminated as in both situations tax rate would be equal i.e., 60% of the such income. Thus, the ambiguity, if any, prevailing in the mind has been cleared that whether such income is offered by the assessee himself or determined by the AO are equally treated so far as it relates to levy of tax rate of 60%.

Section 3 of the bill seeks to amend section 271AAB of the Act. Clause (1) limits the existing section 271AAB up to the date when the bill receives the assent of the President meaning thereby that existing provision of section 271AAB would be applicable up to the date when the bill will receive the assent of the President. It further states that after existing sub-section (1), sub-section (1A) shall be inserted according to which if the search is initiated on or after the present bill receives the assent of the President then in that case as per clause (a), the penalty in addition to tax would be @ 30% in a case where the assessee during the course of search in statement under section 132(4), admits the undisclosed income and specifies the manner in which such income has been derived; substantiate such manner and also has paid taxes along with interest in respect of undisclosed income before the specified date and also the return of income has been furnished declaring such undisclosed income therein. Clause (b) of sub-section (1A) provides that if the case is not covered by the circumstances in clause (a) then the penalty would be @ 60% of the undisclosed income. Clause (III) of section 3 of the bill makes consequential amendment and states to include sub-section (1A) in existing sub-section (2) of section 271AAB. This proposed amendment seems to fulfil the intention of the Government to levy heavy taxes on the assessees who have failed to availed the benefit of IDS etc. and during the course of search found to possess undeclared assets and income.

Section 4 of the bill inserts new section 271AAC w.e.f. 1-4-2017 after section 271AAB of the Act and states that except the provisions of section 271AAB, where income determined includes “such income” for any previous year then in addition to tax payable under section 115BBE, a penalty @ 10% may be levied by the AO. The proviso to this section gives an exception against the levy of penalty in a case where “such income” has been included by the assessee in the return of income furnished under section 139 and tax has been paid as per clause (i) of section 115BBE(1) i. e., before the end of the relevant previous year. Sub-section (2) describes that if the case falls under this section then no penalty shall be imposed under section 270A of the Act in respect of “such income”. Sub-section (3) provides that provisions of sections 274 and 275 of the Act shall also apply to this section.

Chapter III of the Bill makes consequential amendments in Finance Act, 2016 whereby in Chapter II of the Finance Act, 2016 the figures and letters “115BBE” are omitted from the third proviso in clause (a) in Chapter II, in section 2, in sub-section (9) and added an additional proviso after sixth proviso, according to which advance tax computed under the first proviso for the purpose of tax in accordance with section 115BBE on such income will be increased by a surcharge calculated @ 25% of such advance tax. Meaning thereby, a special rate of surcharge has been provided on the tax payable on such income which is calculated in accordance with the provisions of section 115BBE.

“Taxation and Investment Regime for Pradhan Mantri Garib Kalyan Yojna, 2016”

Chapter IX A of the Bill introduces a new scheme “Taxation and Investment Regime for Pradhan Mantri Garib Kalyan Yojna, 2016” by inserting sections 199A to section 199R in the Act. The main features of the scheme are that

– Section 199A(2) describes that this scheme shall come into force on the date of notification in the official gazette.

– Section 199B describes definition of declaration; Income Tax Act; Pradhan Mantri Garib Kalyan Deposit Scheme, 2016 “the Deposit Scheme” to be notified by Central Government in consultation with RBI and it has also been described that all other words and expressions are to be interpreted as per the Income-tax Act 1961.

– Section 199C describes that any person may make a declaration on or after the date of commencement of this scheme but on or before date to be notified by the Central Government in the official gazette, in respect of any income in cash or deposit in an account maintained by the person with a “specified entity” which is chargeable to tax under the Act for any Assessment year commencing on or after 1st day of April, 2017. It also describes that in respect of declared income under this scheme no expenditure or allowance or set-off of any loss is allowed. The “specified entity” has been explained in Explanation meaning thereby:

(i) The RBI;

(ii) Any banking company or
Co-operative Bank to which the Banking Regulation Act, 1949 applies (including any bank or Banking institution referred to in section 51 of that Act);

(iii) Any Head Post Office or Sub-Post Office; and

(iv) Any other entity as may be notified by the Central Government in the Official Gazette in this behalf.

Other Main Features of the Scheme

1. Tax on deposits @ 30% [section 199D(1)] plus Kalyan Cess 33% of the tax [section 199D(2)].

2. In addition to the above tax and Cess penalty @ 10% (section 199E).

3. Obligation to deposit 25% of the undisclosed income in Pradhan Mantri Garib Kalyan Deposit Scheme, 2016 [section 199F(1)]. No interest shall be payable on such deposits which is permitted to be withdrawn after four years from the date of deposit subject to fulfilment of other conditions specified in the scheme [section 199F(2)].

4. Declaration to be verified by the person competent to verify the return of income under section 140 of the Act to the Principal Commissioner or Commissioner notified in the Gazette (section 199G).

5. The tax surcharge and penalty in respect of undisclosed income to be paid before filing the declaration [Section 199H(1)]. The deposit in Kalyan Scheme also to be made before the filing of the declaration. [section 199H(2)]. The declaration shall be accompanied by proof of deposit as well as proof of payment of tax surcharge and penalty [section 199H(3)].

6. The declared amount fulfilling all the above conditions will not be included in the total income of the declarant for any assessment year under the Act (section 199I).

7. The declarant is disentitled to get any assessment or reassessment reopened to claim any set-off or relief, etc., regarding any amount paid as tax or surcharge under this scheme (section 199J).

8. The tax and surcharge paid under this scheme is not refundable (section 199K).

9. The contents of declaration shall not be admissible as evidence against the declarant except the Acts specified in section 199O (section 199L).

10. The declaration is to be considered as void and shall be deemed never to have been made if the same is made by misrepresentation or suppression of facts or without payment of tax and surcharge or penalty (section 199M).

11. The provisions of Chapter XV regulating “liability in special cases” and sections 119, 138 and 189 of the Act shall also apply to the proceedings under this scheme.

12. The provisions of this scheme will not apply in relation to certain Acts described in section 199O of the Act relating to offences described therein.

13. Section 199P describes that benefit of this scheme cannot be conferred to any person other than declarant.

14. Section 199Q empowers Central Government to remove difficulties and proviso to this section bars any such order to be made after the expiry of 2 years from the commencement of this scheme and also to place such order before each of the house of the Parliament.

15. Section 199R empowers the Board to frame rules, etc. to carry out the scheme.

Concluding Remarks on Amendments

So far as it relates to substitution of section 115BBE w.e.f. 1-4-2017, though it has not been specifically mentioned, the same would be applicable to assessment year 2017-18 as per law enunciated in Constitutional Bench decision of Apex Court in the case of Karimtharuvi Tea Estate Ltd. v. State of Kerla 60 ITR 262 (SC) as the amendment is brought on the statute from 1-4-2017 i.e. From the commencement of the assessment year 2017-18. It was held that law in force as on first day of the assessment year would be applicable to compute the total income of an assessee. According to well-settled law the legislature has plenary power and if it is otherwise competent to legislate on a topic, it can pass legislation retrospectively, subject to certain restrictions enunciated in National Agricultural’ case (Supra). So the validity of this amendment can be tested in the light of these judicial pronouncements.

Legislature in the amendment has not amended the existing penalty provisions of section 270A and section 271AAB relating to penalty in search matters has also not been amended for past period and enhanced penalty is applicable only in respect of searches conducted after the amending bill receive the assent of the President. Section 271AAC has been inserted w.e.f. 1-4-2017 and will also be applicable to assessment year 2017-18 and its validity for legislative competence has to be examined as per law mentioned earlier in respect of substituted section 115BBE. Similar would be the position in respect of amendment made in the Finance Act 2016 whereby 7th proviso is added to section 2(9) of the Finance Act 2016 for raising the surcharge rate at 25%.

In my opinion a good attempt has been made by the legislature to plug the loop holes in existing provisions of Income-tax Act to prevent the misuse of existing provisions for concealing black money. It has also provided an opportunity to the defaulters to pay taxes with heavy penalty and allow them to come clean so that the Government gets additional revenue for undertaking activities for the welfare of the poor. But the validity of the amendments has to be tested on the touchstone of law enunciated by Apex Court and some of these pronouncements have been discussed in this article.

Disclaimer: The contents of this article are solely for informational purpose keeping in view my personal interpretation of law. It does not constitute professional advice or a formal recommendation. While due care has been taken in preparing this document, the existence of mistakes and omissions herein is not ruled out.

Author can be reached at “[email protected]

[Source : Article published in the Souvenir of 19th National Convention held from 2nd to 4th December, 2016 at New Delhi]

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