Taxpoint: Operation Clean Money Assessments

Operation Clean Money Assessments

Perspective on : Its Various aspects e.g infirmities in revenue’s approach ; unexplained income charge , section 115BBE applicability , penal provisions of section 270A & 271AAC & its stay of demand etc

1. Hindsight (Recall of events)

When demonetization was last announced on 8.11.2016 , SBN’s and consequential cash deposits subsequent to that attracted lot of attention as to its tax treatment under the provisions of Income Tax Act,1961 (Act). On social & other platforms it was hot topic in end of calendar year 2016 as to whether said cash deposit would only attract 30% rate as existing prior to amendment in section 115BBE in December 2016 (operative w.e.from AY 2017-2018) and no penalty u/s 270A would be levied on income offered in return filed u/s 139(1) of the Act. Then to penalize errant taxpayers having unsubstantiated or hidden business income in form of cash/asset etc detected by revenue as such , only rate was increased was from 30 to 60% in section 115BBE of the Act keeping its corpus and foundation intact (refer statement of objects and reasons to Taxation Laws (Second Amendment) Bill, 2016 (26/11/2016) (received assent of the President on 15/12/2016)). That is base factor to invoke section 115BBE of the Act , remained unaltered, which requires primordial existence of jurisdictional fact of correct and valid invocation of section 68 to section 69D of the Act. Now when provisions of section 68 to section 69D itself remained unchanged pre & post 2016 and only rate of tax in section 115BBE was doubled to 60% in December 2016 , it remained very much important as to whether such increase by 100% in rate was constitutionally valid , remains a unresolved enigma. This is also dealt in succeeding paragraphs. Now when much water has already flown down the river as already ITR’s of those period stands filed , scrutinized and assessed in just completed assessments creating colossal and high pitched demands , opening a Pandora box of litigation , would be antithesis to government policy of less litigation (refer Supreme court in 400 ITR 9 highlighting national litigation policy) and would be in oppugnation to sage observations of Apex court in recent ruling in case of Maruti Suzuki case (reported at 416 ITR 613) that “There is a value which the court must abide by in promoting the interest of certainty in tax litigation. The view which has been taken by this Court in relation to the respondent for AY 2011-12 must, in our view be adopted in respect of the present appeal which relates to AY 2012-13. Not doing so will only result in uncertainty and displacement of settled expectations. There is a significant value which must attach to observing the requirement of consistency and certainty. Individual affairs are conducted and business decisions are made in the expectation of consistency, uniformity and certainty. To detract from those principles is neither expedient nor desirable.” One wonders as to whether these assessments of OCM cases would answer to much desired expectations of consistency, uniformity and certainty.

2. Various Shades and Aspects of these assessments

2.1 Scrutiny assessments u/s 143(2)/143(3): It remains a matter of ongoing legal debate when a case is scrutinized in Computer aided scrutiny selection CASS u/s 143(2) of the Act that too without any intimation to taxpayer as to his case is taken for limited or complete scrutiny and its reasons, which are no where displayed when seminal notice of section 143(2) is generated by computer and till assessment completion , thus flouting mandate of CBDT instruction of 19& 20/2015 (dated 29.12.2015) , whether such non communication by itself has any fatal impact on assessment made. In authors opinion , since purpose of said instruction is public welfare and mitigation of harassment , its scrupulous and strict implementation is called for and any deviation therefrom must result in making the assessment as null and void. There have been few instances where case has been picked for limited scrutiny on sole “cash withdrawal” reason and no addition is made for same and addition is made for “cash deposits” which is not reason of limited scrutiny in the case concerned , and case is not converted to complete scrutiny as per applicable CBDT guidelines , so that assessment may not pass legal muster in authors opinion for which reference can be made to

i) Delhi bench ITAT CBS international projects pvt ltd (order dated 28.02.2019)
ii) Jaipur bench ITAT Late Smt Gurbachan Kaur (order dated 05.12.2019)
iii) Jaipur bench ITAT Manju Kaushik (order dated 09.12.2019)
iv) Lucknow bench ITAT Ravi Prakash Khandelwal (order dated 08.11.2019)
v) Mumbai G bench ITAT order in case of Su-Raj Diamod Dealers Pvt Ltd order dated 27.11.2019
vi) Mumbai D bench ITAT order in case of R&H Property Developer Pvt Ltd order dated 30.07.2019

Above litany of orders from various benches of ITAT across country remains ad- idem on impact of infraction of scope of cbdt instructions dealing with scope of limited scrutiny assessments that same would be nullity. Further in a recent case it was practically seen that in limited scrutiny assessment for reason of cash deposit which stood satisfactorily explained from sale consideration of immovable property , without any adverse inference on limited scrutiny reason, apparently exceeding the jurisdictional boundary of limited scrutiny assessment, penalty u/s 269SS is initiated which in authors opinion is prima-facie ultra vires to scope of limited scrutiny assessment and can be challenged on ground of detournment de puvoir (misuse of power). Even in a practical case it was observed that when only basis of issue notice u/s 143(2) to a firm was simplicitor PAN No of firm being reflected in concerned bank a/c where cash deposits was made, even when said firm got dissolved long back and said firm was validly converted to proprietary concern where said bank a/c was duly accounted and recorded in its books and said proprietary concern was filing its returns with said bank a/c, without making any independent inquiry etc assessment is made on said non existing firm hitherto dissolved which as per SC recent verdict in Maruti case (supra) is nullity and cant be validated.

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