JIYYANA VENKATRAYUDU,KAKINADA vs. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-1, KAKINADA

PER S. BALAKRISHNAN, Accountant Member :

2 2. Brief facts of the case are that the assessee has filed Form-1 under Income Declaration Scheme, 2016 before the Ld. Pr. CIT-2, Visakhapatnam on 28/09/2016 by disclosing an amount of Rs. 50,59,580/- in the form of cash for the AY 2015-16. However, the assessee failed to pay the taxes payable as per the provisions of the Income Declaration Scheme, 2016 [IDS]. The Ld. AO invoked the provisions of section 197(b) of the IDS, 2016 and concluded that the income declared shall be treated as income of the assessee in the year of declaration and brought the amount of Rs.50,59,580/- to tax U/s. 68 r.w.s 115BBE of the Act. However, the Ld. AO also issued a show cause notice dated 2/12/2019 as to why the undisclosed income declared in IDS, 2016 should not be taxed and the assessment be completed U/s. 144 of the Act?

In response, the assessee filed its reply through ITBA on 9/12/2019 stating that since the taxes could not be paid it was not possible to upload the return. Further, in his reply, the assessee also stated that the assessee “derived capital gains and has claimed deduction U/s. 54F of the Act”. The Ld. AO therefore completed the assessment based on his best judgment U/s. 144 of the Act. Aggrieved by the order of the Ld. AO, the assessee filed an appeal before the Ld. CIT(A)-NFAC. On appeal, the Ld. CIT(A)-NFAC upheld the order of the Ld. AO and dismissed the appeal of the assessee. Aggrieved by the order of the Ld. CIT(A)-NFAC, the assessee is in appeal before us by raising the following six grounds of appeal:

“1. The order of the Ld.CIT(A) is contrary to the facts and also the law applicable to the facts of the case.

3. The Ld. CIT(A) ought to have appreciated that the provisions of section 68 are not applicable to the case of the appellant.

6. Any other grounds may be urged at the time of hearing.”

4 4. With respect to the first issue, the Ld. AR submitted that the assessee has filed a declaration under IDS-2016 on 28/09/2016 and in Annexure to Form-1 “Statement of undisclosed income” the assessee has declared an amount of Rs. 50,59,580/- as income from capital gains. Further, the assessee could not pay the taxes as admitted. The ld. AR further submitted that the amount declared in IDS, 2016 shall be eligible to tax under the Income Act, 1961 in the previous year in which such declaration is made. The Ld. AR further submitted that the IDS, 2016 is silent on the nature of the income declared in the IDS, 2016 which could partake the character of undisclosed income U/s. 68 of the Act. He therefore pleaded that the income declared as capital gains shall be taxed under the provisions of capital gains in the hands of the assessee. Further, the Ld. AR also submitted that the assessee has also claimed deduction U/s. 54F of the Act which was disputed by the Ld. Revenue Authorities. He therefore pleaded that the orders of the Ld. Revenue Authorities be set aside.

Per contra, the Ld. DR relied on the orders of the Ld.

Revenue Authorities.

5 5. We have heard both the sides and perused the material available on record as well as the orders of the Ld. Revenue Authorities. As per section 197(b) of IDS, 2016 where the assessee fails to pay the tax as per the income declared under IDS, 2016 the undisclosed income shall be chargeable to tax in the previous year in which such declaration is made. We find force in the argument made by the Ld. AR that non-payment of tax under the IDS, 2016 against the income declared cannot change the character of the income declared under IDS, 2016 with respect to character of income assessable in the previous year in which such declaration was made under the Income Tax Act, 1961. Further, in response to the show cause notice dated 2/12/2019, the assessee has submitted its reply stating that it was the capital gains which was declared under the IDS, 2016 after availing the deduction U/s. 54F of the Act. These facts were not disputed by the Ld. Revenue Authorities. However, we find that the Ld. AO while framing the assessment has stated the same as undisclosed income U/s. 68 r.w.s 115BBE of the Act instead of taxing the same under capital gains. Merely because the assessee failed to discharge the tax liability under IDS-2016 as declared cannot change the character of the income under which it was declared under the IDS-2016. Further, IDS-2016 is 6 also silent on the nature of income to be taxed in the event of failure by the declarant to pay the taxes. In these circumstances, we are of the considered view that the income of the assessee shall be taxed as capital gains in the hands of the assessee we therefore direct the Ld.AO to compute the taxes applicable with respect to capital gains disclosed by the assessee.

Pronounced in the open Court on the 10TH August, 2023.