2024 (11) TMI 1152 - AT - Income Tax

Undisclosed income declared in Income Declaration Scheme, 2016 (IDS) - Nature/Character of income declared under IDS for tax purposes - non-payment of tax under the IDS, 2016 against the income declared - AO has made an addition on account of income from unexplained sources u/s. 68 r.w.s 115BBE HELD THAT - 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 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. As before the Ld. Revenue Authorities the assessee has submitted that the amount disclosed in Form No.1 filed under IDS, 2016 was nothing but the capital gains arising out of the agricultural land sold through M/s. Satya Sai Housing by the assessee family and other members in various capacities. These facts were not disputed by the Ld. Revenue Authorities. 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. IDS-2016 is 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 Ld. CIT(A)-NFAC has rightly directed the Ld. AO to re-compute the total income in the case of the assessee in the HUF status under the head capital gains and therefore the decision of the Ld. CIT(A)-NFAC does not suffer from any infirmity. As decided in own case 2023 (12) TMI 134 - ITAT VISAKHAPATNAM income to be taxed as capital gains in the hands of the assessee with the status of individual stating that 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 . Appeal of the Revenue is dismissed.

Summary

Issues:
1. Interpretation of provisions of Income Declaration Scheme, 2016 (IDS) regarding taxation of undeclared income.
2. Characterization of income declared under IDS for tax purposes.
3. Validity of best judgment assessment under section 144 of the Income Tax Act, 1961.

Analysis:
1. The case involved a dispute regarding the tax treatment of income declared under the Income Declaration Scheme, 2016 (IDS). The assessee had disclosed an amount under IDS but failed to pay the taxes due. The Assessing Officer (AO) treated the disclosed income as taxable under section 68 r.w.s 115BBE of the Income Tax Act, 1961. The Revenue contended that non-payment of taxes on the disclosed income rendered the declaration invalid, making the undisclosed income taxable in the year of declaration. The Tribunal upheld the decision of the Commissioner of Income Tax (Appeals) to recompute the total income under the head of capital gains, emphasizing that the character of the income declared under IDS should not change due to non-payment of taxes.

2. The main argument revolved around the characterization of the income declared under IDS. The Revenue insisted that failure to pay taxes on the disclosed income invalidated the declaration, leading to taxation under the Act. In contrast, the assessee argued that the character of the income declared should remain unchanged, even if taxes were not paid. The Tribunal agreed with the assessee, emphasizing that the nature of the income declared under IDS should not be altered due to non-payment of taxes. The Tribunal also noted that IDS did not specify the nature of income to be taxed in case of non-payment.

3. The Tribunal reviewed the best judgment assessment conducted by the AO under section 144 of the Act. The AO had treated the disclosed income as undisclosed income under section 68 r.w.s 115BBE. However, the Tribunal found that the income declared was capital gains arising from the sale of agricultural land, not undisclosed income. Relying on a previous decision by the Tribunal in a similar case, the Tribunal directed the AO to recompute the total income under the head of capital gains for the assessee in the Hindu Undivided Family (HUF) status. The Tribunal upheld the decision of the Commissioner of Income Tax (Appeals) and dismissed the appeal of the Revenue.

This detailed analysis highlights the key arguments, interpretations of relevant provisions, and the Tribunal's decision on each issue raised in the appeal.