Last year, around the same time, there was a rush to deposit the demonetized currency notes of Rupees 500 and 1,000 denominations.
The underlying intent of the Government behind the November 08, 2016 announcement was to curb black money and restrict funding of terrorist. As a result of the government order, millions of currency notes including illegitimate, unaccounted money was deposited into banks by many.
Post de-monetization, most of the companies and individuals who had deposited currency into banks revised their Income Tax (IT) returns with the intent of converting illegally possessed currency into legitimate currency and paying only up to 30% tax on the extra currency deposited with the banks. Such companies and individuals believed that in this way they can safely escape from the surveillance of the IT Department without much fuss in relation to undisclosed currency.
A man proposes and the government disposes.
Government has other plans for dealing with such companies and individuals. According to the latest government directive, IT returns revised with “Bona fide error” or “Mistake” will only be accepted by the income tax offices across all locations in India. During the verification, if it is discovered by IT officials that the IT returns are revised with the manipulative intent of legalizing all illegally possessed currency, then individuals or companies filing such returns will be penalized with the fine at higher rate than the penalty for abuse of IT laws.
The following are the key points being taken up by IT officers while verifying the revised IT returns:
· Revised IT return reflects the unsubstantiated reduction in closing stock vis-à-vis the figures in original returns;
· Revised IT return contains higher sales;
· As on March 31, 2016, or March 31, 2015, increase in cash-in-hand (Revised IT returns reflects higher cash for last two financial years could help in regularizing undisclosed cash deposited in banks);
· Claimed additional cash inflow out of earlier-year savings, receipts of loans or advances or gifts or sale of capital assets;
· Use of cash to lower liabilities;
· As on March 31, 2015, or March 31, 2016, lower closing stock as compared to earlier years in belated returns (filed after due date).
A tax payer may revise the IT filings provided the reason for such revision is identification of any omission or any wrong statement under Section 139(5) of Income-tax Act, 1961.
Undoubtedly timely actions by the government are welcome measures in dealing with the misuse of the law by deceptive tax payers to their personal benefit. At the same time, government should take reasonable precautions to ensure that any directive issued by it is not contrary to the existing laws in force, else the exercise will be in jeopardy, proving to be counter productive.
To avoid the clash between government order and any existing law, the Government should make sure of not leaving any scope to use of any loopholes in current tax laws to escape by wrongdoers.
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