Scope of Sec.147 vis-a-vis declaration of income for advance tax. - Income Tax - 1623/CBDT

INSTRUCTION NO. 1623/CBDT Dated: June 5, 1985 It is stated that the rates of personal income-tax have been restructured and rationalised by the Finance Act, 1985 with the objective of securing better tax compliance. It is therefore expected that advance tax collections during the financial year 1985-96 would be much higher than advance tax collections during any earlier financial year. 2. Fears have however been expressed that where a tax-payer declares for purposes of payment of advance tax during the current financial year a substantially higher income than that assessed for any earlier year the I.T.O. may suspect that income chargeable to tax for that year has been under assessed and accordingly, reopen the assessment for that year. Fears have also been expressed that where the income declared for purposes of payment of advance tax during the current financial year is higher than the income declared in the return of income for an earlier year, the I.T.O. may start roving inquiries against the taxpayer in the pending assessment proceedings for that year. 3. The circumstances in which an assessment can be re-opened under clause(a) or clause (b) of sub-section (1) of section 147 of the I.T.Act have been clearly enunciated in a number of decisions of various High Courts and the Supreme court. I.T.O's have therefore to follow these principles in reopening the assessments for past years. In terms of the principles enunciated in these decisions, the mere declaration for purposes of payment of advance tax, of much higher income than that assessed for any earlier year will not constitute a valid ground for re-opening the assessment for any earlier year. 4. Hence with a view to allaying such fears, it is hereby clarified that the mere fact that a taxpayer has declared for purposes of payment of advance tax during the financial year 1985-86 a much higher income than the income declared or assessed for earlier years, will not by itself be taken to constitute a ground for re-opening the assessment of the taxpayer for any earlier year. Similarly this by itself will not form the basis for starting roving inquiries against the taxpayer in any assessment proceedings pending before the I.T.O. 5. Clarification has also been sought on the question whether a taxpayer, who is found to have concealed his income for any earlier year can claim that such income should not be assessed in that year on the ground that he had included such income in the estimate of advance tax furnished by him for the financial year 1985-86. Such a claim is clearly untenable. Income which relates to a particular assessment year can be assessed only in that year. Hence a taxpayer will not be able to claim that any part of the higher income declared by him for purposes of payment of advance tax should be set off against the income found to have been concealed by him any earlier year. In such cases the advisable course for the taxpayer will be to voluntarily and in good faith make a full and true disclosure of his concealed income, prior to its detection by the Income-tax Officer and then make an application to the Commissioner of Income-tax for the reduction or waiver of penalty and interest u/s.273 A of the Income-tax Act. 6. Income-tax Officers should bear the above clarifications in mind while dealing with the type of situation referred to in the foregoing paragraphs in this Instruction.