Cash disclosed in ITR might not incur 200 per cent fine

Post demonetisation, tax experts are taking the penalty under section 270A of the I-T Act under consideration. According to the Act, 200 per cent of the I-T is to be paid on misreported or under-reported income and tax officials are examining that whether it can be levied if an individual deposits unaccounted money, but pay advance tax on the same and also declare it in his I-T return (ITR).

The issue surfaced during an in-house panel discussion at Bombay Chartered Accountants’ Society (BCAS).

"As per the existing provisions of the I-T Act, section 270A cannot be applied in such a situation as the income has been voluntarily offered for tax. So it cannot be construed as a case of under-reporting or misreporting. The problem, however, would be in terms of explaining the source of the income. But that in itself may not be enough for levying penalty," Ameet Patel, chairperson of the taxation committee at BCAS told ET.

In a series of tweets by Finance Ministry, the Ministry stated that if cash above Rs 10 lakh is deposited in a bank account and is not matching with declared income, the same will be treated as 'tax evasion'. In such a case, the I-T plus a penalty of 200 per cent of the I-T payable would be levied as per section 270(A) of the I-T Act.

"This does not seem to be in line with the law as it stands today," Patel told ET.

"While no penalty can be levied if one discloses the amount in one's ITR, the issue is not so simple. There are other risks besides a likely amendment (especially since the tax rate under the recently concluded Income Disclosure Scheme was higher). There could also be possible litigation regarding the year of taxation with resultant penalty and prosecution,” Gautam Nayak, former president of BCAS, told ET.

So the question is, if the depositor is not able to prove the source of his income, can the I-T officials treat it as income of an earlier year and reopen assessment?

"They could, but reopening is a lengthy process that requires approval of higher officials. Also, the I-T department is currently not adequately staffed to cope with so many more cases," Patel told ET.