Effect of higher income estimates/shown for assessment year 1986-87 in relation to assessment for later years-Clarification regarding - Income Tax - 440/1985

Effect of higher income estimates/shown for assessment year 1986-87 in relation to assessment for later years-Clarification regarding Circular No.440 Dated 15/11/1985 Keeping in view the rationalisation of the tax rates by the Finance Act, 1985, clarifications have already issued, vide Circular No. 423 dated 26-6-1985* and No. 432 dated 15-11-1985,** that if higher incomes are estimated/shown for the assessment year 1986-87, it will not by itself lead to any roving enquiries against the assessee in respect of the past or pending assessments, whether he be an existing or a new assessee. 2. Apprehensions have been expressed in some quarters that if an assessee shows a high income for the current year in view of the rationalisation of the tax rates, the Income-tax Officer may automatically assume in future years that he should have made similar high income in those years also. There is no basis for this apprehension. The assessment for each year is based only on the return of income for that year and the books of account of the assessee for the relevant accounting year. A departure from the returned income is made only where no books of account are maintained, or no regular method of accounting is employed by the assessee or the books of account are defective and the correct income cannot be ascertained from the scrutiny of the accounts. The mere fact that a higher income has been shown in an earlier year has never been a ground for the Income-tax Officer to enhance the assessment of a subsequent year. These apprehensions are, therefore, baseless and taxpayers would do well not to hold back their true income and come forward with a true disclosure without such unfounded fears. (Sd.) M.S. Narayanan, Chairman, Central Board of Direct Taxes. * See [1985] 155 ITR (St.) 45. ** See p. 162 supra.