In the days after demonetisation, thousands handled their hidden cash by dumping the currency in banks, filing a revised income-tax return, and forking out a little over 30% tax for the extra cash that was deposited.
This, they believed, was a neat way to take care of the cash and keep tax officers at bay. But things may turn out differently. On Friday, the government told all tax offices to accept only those revised tax returns where there is a "bona fide inadvertent error" or "a mistake" on part of the assessee. If inquiries indicate any dubious manipulation to legitimise undisclosed cash deposit, then an assessee should be taxed at a much higher rate under the anti-abuse provisions of the law.
The law, however, gives taxpayers a greater latitude than the government's internal communique suggests. According to the Income-Tax Act, a revised return is permitted when a taxpayer "discovers any omission or any wrong statement".
Probably because the law does not specify conditions for filing revised returns, the communique mentions that the "guidelines are only suggestive".
"An assessee can file revised returns under Section 139(5) of I-T Act. It could be due to various reasons, including intention to conceal income.
The suggestion that a revised return can be filed only when there is a bona fide inadvertent error or a mistake is an interpretation contrary to the provision of the law," said senior chartered accountant Dilip Lakhani.
"Most of the high-denomination notes were deposited with banks. The success of demonetisation thus rests on the ability of the I-T department in identifying the untaxed cash," said senior CA Dilip Lakhani.
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