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Home » Income Declaration Scheme 2016 » Income Declaration Scheme 2016 : Back door Elimination of section 149 (Time Limit for Re-Opening of an Assessment)

Income Declaration Scheme 2016 : Back door Elimination of section 149 (Time Limit for Re-Opening of an Assessment)

The Income Declaration Scheme 2016 has indirectly eliminated the section 149 of the Income Tax Act by introducing section 197(c) of the Finance Act, 2016. How it is done, is explained below.

As per the current provisions of the Income Tax Act, 1961 section 147 to 151 deals with re-opening of assessment.

Section 147 : Income Escaping Assessment

Following are the main provisions of this section.

If the assessing officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year;

  • He may assess or reassess such income which has escaped
  • Once an assessment has been reopened, any other income which has escaped assessment and which comes to the notice of the assessing officer subsequently in the course of proceedings under section 147 can also be included in the assessment.

 

Section 148 : Issue of notice where income has escaped assessment

  • Before initiating any assessment or reassessment proceedings u/s 147, the assessee has to serve a notice on the assessee requiring him to furnish return of income after recording the reasons of such reopening.

 

Section 149 : Time Limit for issue of Notice

Following is the time limit for issue of notice u/s 148 by the Assessing Officer.

Time Limit for Issue of Notice u/s 148 Monetary Limit of escaped Income
Notice can be issued upto 4 years from the end of the relevant assessment year Assessment can be reopened whatever the amount of income  is the monetary limit
Notice can be issued upto 6 years from the end of relevant assessment year Assessment can be reopened if the escaped income is Rs. 1 Lac or more
Notice can be issued upto 16 years from the end of relevant assessment year If income in relation to any asset (including financial interest in any entity) located outside India, chargeable to tax, has escaped assessment

 

Thus, in normal cases, the income tax authorities can reopen any case upto 6 years from the end of relevant assessment year. For example, the case of an assessee for the FY 2009-2010 can be reopened by serving a notice u/s 148 on the assessee upto 31st March, 2017. After expiry of this time limit, the income tax authorities can do nothing.

 

How the back door elimination of section 149 is done in Income Declaration Scheme 2016 ?

IDS 2016 is introduced by way of enacting of chapter IX of the Finance Act, 2016 under section 181 to 199 of the Finance Act, 2016.

Section 197(c) of the Finance Act, 2016 contains the following provisions.

Section 197(c) :

“Where any income has accrued, arisen or received or any asset has been acquired out of such income prior to commencement of this scheme, an no declaration in respect of such income is made under this scheme;

(i)                  Such income shall be deemed to have accrued, arisen or received, as the case may be; or

(ii)                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, section 143(2), section 148, 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.”

Thus, as per the provisions of the scheme, if no declaration is made under this scheme, and later on during the course of proceedings of section 142, 143(2), 148, 153A or 153C any undisclosed income relating to any earlier assessment year other than the assessment year pertaining to said proceedings, is detected by the assessing officer, such undisclosed income shall be deemed to be income for the year in which such notice u/s 142, 143(2), 148, 153A or 153C is issued.

 

Thus, as per the provisions of the scheme, if no declaration is made under this scheme, and later on during the course of proceedings of section 142, 143(2), 148, 153A or 153C any undisclosed income relating to any earlier assessment year other than the assessment year pertaining to said proceedings, is detected by the assessing officer, such undisclosed income shall be deemed to be income for the year in which such notice u/s 142, 143(2), 148, 153A or 153C is issued.

 

Clarification by Department in Circulars

Circular No. 24/2016 dated 27-06-2016

The excerpts from this circular are re-produced below.

Q.4:        If undisclosed income relating to an assessment year prior to AY 2016-17, say AY 2001-02 is detected after the closure of the Scheme, then what shall be the treatment of undisclosed income so detected

Ans:       As per the provisions of section 197(c) of the Finance Act, 2016, such income of AY 2001-02 shall be assessed in the year in which the notice under section 148, 153A, 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.

Circular No. 27/2016 dated 14-07-2016

The excerpts from this circular are re-produced below.

Q.2:        If an undisclosed income represented in the form of an asset or otherwise pertains to a year falling beyond the time limit allowed under section 149 of the Income Tax Act, 1961 and the said undisclosed income is not declared under the Scheme, then as per the provisions of section 197(c) of the Finance Act, 2016, the said undisclosed income shall be treated as the income of the year in which a notice under section 148 of the Income Tax Act has been issued. The said provision is inconsistent with the existing time lines provided under the Income Tax Act for reopening a case. Please clarify?

Ans:       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 provision of the scheme shall prevail over the provisions of earlier laws.

 

Impact of this section 197(c)

Thus from above provisions and clarifications, the impact can be understood by following example.

A Case Study

The assessing officer issued notice u/s 143(2) selecting the case of assessee under scrutiny for the AY 2015-16 on 15-09-2015. During the course of assessment proceedings, the assessing officer detected an undisclosed income relating to AY 2001-02. The assessee has not declared such income in IDS 2016. What are the different course of actions available to the assessing officer before or after IDS 2016 era?

Before IDS 2016 Era After IDS 2016 Era
The assessing officer can do nothing in respect of such income relating to AY 2001-02, as the time limit for issue of notice for reassessment u/s 148 has already expired The assessing officer can initiate the proceedings u/s 147 by issuing notice u/s 148, as the income relating to AY 2001-02 is detected during the assessment proceedings of AY 2015-16, the notice of which is issued on 15-09-2015. Such undisclosed income is treated as undisclosed income of FY 2015-16 i.e. AY 2016-17.

 

  • Thus by introducing section 197(c) of the Finance Act, 2016 the section 149 of the Income Tax, 1961 is effectively nullified. Notice u/s 148 can be issued any time for any assessment year irrespective of the assessment year for which such undisclosed income relates.

 

  • This amendment is going to have a large impact as now the income tax department can ask for the details of any year for which they are suspecting any undisclosed income.

 

  • Whether this interpretation by the government as given in Circular No. 27 / 2016 dated 14-07-2016 withstands the test of law by courts, is only a matter of time.

 

Amit Mundhra FCA

The author is a Fellow member of Institute of Chartered Accountants of India. He can be reached at amit.mundhra@gmail.com. Mobile : 9 8 2 9 0 1 0 1 7 2

 

Disclaimer: The views express here in above are based on author’s interpretation of law, which may differ from case to case and person to person. Views expressed above are neither intended nor liable to be used as professional advice or a legal opinion in any manner. The author or publisher is not responsible for the result of any action taken on the basis of this work or for any error or omission to any person.

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One Responseso far.

  1. Basavaraj U says:

    how to make IDS entry in the books of accounts

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