Income Tax--Current Issues

Practice Update

V.K. Subramani

WHEN CASH CREDITS ARE ACCEPTED AS GENUINE CREDITS IN PENALTY PROCEEDINGS THE QUANTUM ADDITION MADE IN ASSESSMENT WOULD GET AUTOMATIC RELIEF

Additions to the income contained in sections 68 to 69D automatically expose the taxpayer to tax burden under section 115 BBE @ 60%. Upon addition of Surcharge @ 25% thereon the effective rate is 78% (including HEC @ 4%). Many taxpayers in relation to assessment year 207-18 might have faced the wrath of the tax authorities when unexplained or unacceptable cash deposits, being taxed at the whopping rate of 78%.

Many of such cases were devastating to the taxpayers who did not know the consequences and permitted the buyers to deposit cash (demonetized currency) in to their bank account with the primary objective to realize sale proceeds. The onus under the income-tax law is on the recipient to prove the identity of remitters of such amounts to get away from the tax rate of 78% for such credits.

In Basir Ahmed Sisodia v .ITO (2020) 188 ITR (SC) 20 the taxpayer was originally subjected to tax for bogus purchases. In the first appeal, the appellate authority in appeal against levy of penalty accepted the explanations and evidences furnished by the taxpayer. Thus it was held that there was neither concealment of income nor furnishing of inaccurate particulars of income by the taxpayer for justifying levy of penalty. The apex court held that when penalty is cancelled by accepting the explanation and other evidences furnished by the taxpayer, the order of assessment in which additions were made to the returned income on the same ground, cannot be sustained. Thus the quantum addition was quashed.

This decision, how far could help the taxpayers in the context of faceless appeal needs could be appreciated? Under Faceless Appeal Scheme, the appellant can furnish additional evidence, other than the evidence produced during the assessment proceeding. However, the appellant has to specify as to how his case is covered by exceptional circumstances specified in rule 46A of the Income-tax Rules, 1962. With so many draft orders served on the taxpayers in the recent times, the taxpayers would do well to respond to the draft orders in such a way that their case falls in rule 46A to provide some clinching evidences before the first appellate authority.