Voluntary tax compliance. - Income Tax - 1691/CBDT

INSTRUCTION NO. 1691/CBDT Dated: December 2, 1986 The Finance Act, 1985 has, with the objective of securing voluntary tax compliance, simplified the Direct Tax Laws and rationalised the rates of personal income-tax. The Department has also decided to accept the income in respect of non-corporate assessees returning income upto Rs. one lakh. The Department hopes that as a result of these measures, the level of voluntary compliance will go up substantially, resulting in a large number of tax payers filing returns of income for the current and even earlier years showing substantially larger income, including incomes which had hither to not been disclosed. 2. It is true that the penal provisions of the law will hereafter be strictly applied in cases where any person having taxable income does not voluntarily come-forward to declare the same and pay tax thereon by 31.3.1986 and has, therefore, to be brought into the tax not only through the efforts of the Department. But at the same time, considering the fact that the entire thrust of the new fiscal policy is to give taxpayers hitherto recalcitrant, an opportunity to reform themselves and come-forward and declare their true incomes, officers will have to be liberal and sympathetic in their approach to such taxpayers. The basic principle now being followed is that repentant sinners will be treated on the same footing as honest taxpayers, while those who continue to evade tax will be punished severely. The object of this approach is to unearth the considerable amount of black money which is vitiating the economy of the nation. It may happen under these circumstances that a person files an estimate of income-for Advance Tax purposes showing a very high figure in the current year. It should be obvious that such a higher estimate of income would not represent his income of the current year alone but possibly also the accumulated untaxed income of several earlier years. It may be difficult for him even to relate the income to different years. It may happen that the I.T.O feels that the assessment of some earlier years should be reopened on the basis of some material in his possession. In a case like the one mentioned above, the assessee may very well plead that even if some income has escaped assessment in some particular earlier years, he has made a clean breast of it in the current year by including it in his estimates for Advance Tax and paying tax on the same. In such cases, Income-tax Officers are advised to have a broad and liberal approach and take a systematic view in respect of the cases for the earlier year, so long as the material in their possession does not show the evasion of past income which could not be accounted for by the assessee's estimated for the current year. Obviously such an approach can apply only to cases where the concealment in the earlier year is not in the from of tangible assets.