By TIOL News Service

NEW DELHI, MAR 15, 2018: THE issue is - Whether the legislation intends to penalise any declarants for his gullible mistake being confused between the options of declaration to be made under the PMGKY scheme as directed by the Tax Officials. NO is the answer.

Facts of the case:

The Assessee, a professed income-tax practitioner, has preferred the present Writ challenging the rejection of his application made under the Pradhan Mantri Garib Kalyan Yojna, 2016 (PMGKY scheme). Being aware of the cash deposits made by the Assessee, a team of Tax authorities, on 24th March, 2017, followed the Assessee at his colleague's office. Thereby, the Assessee was asked to provide the details of his PAN, sources of income, bank accounts and his statement u/s 131. While recording the statement, the Assessee confirmed the cash deposits in demonetized notes in his bank accounts and also stated that he had already paid approx. Rs.1,00,00,000 as advance tax with an intent to declare unaccounted money as income in his return. As per the direction of the Tax Officers, the Assessee had also issued cheques towards 49.90% payable as tax, surcharge and penalty and 25% to be deposited in the Bond Ledger Account. The Assessee then, requested to grant credit of the advance tax and the same would be treated as tax paid under the scheme but, the Officers stated the same as impermissible.

Later, as directed, on 27th March, 2017, the Assessee had visited the office of the ITO wherein, the certified copy of his statement was supplied to him. Thereafter, the Assessee wrote a letter to the AO requesting to extend him the credit of advance tax deposited in the month of December, 2016 under the scheme. In the said letter, the Assessee had also referred to his difficulty and had requested for guidance. A copy of the said letter was also forwarded to the Pr CIT seeking to resolve the issue since the PMGKY scheme was about to close on 31st March, 2017. Again, on 31st March, 2017, the Assessee wrote a letter stating the antecedent facts and meeting of the Assessee with the Joint/Additional CIT to whom, his case was discussed.

On 29th March, 2017, the Assessee again met the AO and submitted another letter. On the same day, the Joint/Additional CIT asked the Assessee to meet him again on 30th March, 2017. Faithfully, the Assessee visited the Joint/Additional CIT and pointed out his difficulties whereby, the Assessee was asked to deposit full amount of Rs.1,19,98,954/- under the PMGK Scheme, as he had already deposited Rs.85,50,000/- as advance tax before the PMGKY Scheme was notified. The Assessee in letter dated 31st March, 2017, had referred to extensive previous discussions and understanding with the officers on tax to be paid under the PMGK Scheme. Accordingly, the Assessee had deposit an amount of Rs.34,48,954/- towards tax, surcharge and penalty, and receipt for deposit of Rs.60,11,500/- in a separate Bond Ledger Account under the PMGK Scheme. However, no reply was received for such letter. After a span of three months, the declaration made by the Assessee was rejected by the Revenue Officials by stating that the credit of advance tax paid, TDS or TCS was not to be allowed under the PMGK Scheme.

the High Court held that,

++ the amendment Act, 2016, would indicate that the guilty and remiss Assessees had two separate and distinct options. They could declare unaccounted cash deposited in the bank accounts in the return of income filed u/s 139 and pay tax, surcharge and cess as per Sec. 115BBE and Sec. 2 of the Finance Act post amendment at the effective rate of tax of 77.25%. Penalty @ 10% u/s 271AAC could be imposed by the AO on conditions being satisfied. Alternatively, the Assessees could as a second option file a declaration u/s 199C, which would require them to deposit tax at the rate of 30%, surcharge at the rate of 33% on tax deposited and penalty of 10% on the undisclosed income i.e. total of 49.9%. In addition, the declarants were required to deposit 25% of the undisclosed income as per Sec. 199F(1) for a period of 4 years under the deposit scheme, to be repaid without interest;

++ the intention was to tax persons or Assessees, who had tried to circumvent and minimize consequences of demonetization by depositing advance tax on the unaccounted for cash in the bank accounts, as a separate class to be taxed differently. Such Assessees could opt for the PMGK Scheme by paying tax, surcharge and penalty under Ss 199D and 199E and deposit u/s 199F of the Finance Act, and thereafter seek refund of the advance tax paid in accordance with law. The PMGK scheme did not envisage adjustment or credit of advance tax paid as tax, surcharge and penalty paid under the PMGK scheme. Distinction between the two options, real or effective rate of taxation under the two options and the manner in which more beneficial PMGK scheme option could be exercised, appears to be clear and apparent with benefit of hindsight and on in-depth and intricate interpretative examination. However, facts of the present case exposit confusion and uncertainty that had prevailed for the difference between the two options and the manner in which PMGK option could be exercised was not appreciated and understood by the Assessee and even by the enforcers i.e. tax authorities;

++ this Court is in agreement with the Counsel for Revenue that the PMGK Scheme in the form of Ss 199A to 199R is a self-contained complete code. The scheme did not envisage grant of benefit or credit of advance tax paid at any stage; before, during the pendency of the scheme or thereafter. Revenue has rightly pointed out that the scheme under consideration in the case of Kumudam Publications Pvt. Ltd. had provided and allowed credit of TDS, but had denied credit of advance tax. However, under the PMGK Scheme, credit of neither TDS nor advance tax was postulated and envisaged. Advance tax is treated as tax paid under the Act, whereas undisclosed income declared under the PMGK scheme is not to be taxed under the Act. Section 199-I states that undisclosed income was not to be treated as a part of the total income taxable under the Act. Provisions of the PMGK scheme had created a new and separate charge and had postulated payment of tax, surcharge, penalty and requirement to make a deposit. If this Court direct to grant of benefit of advance tax paid under the Act for payment to be made under PMGK scheme. The challans for payment under the Act and PMGK Scheme were separate. In Kumudam's case, there was an anomaly and contradiction as benefit of TDS was available but credit of advance tax was denied, though both were in nature of tax paid in advance. Thus, the Division Bench had held that the distinction of TDS and advance tax was congruous, as both were in the nature of pre-paid taxes. Further, there was no express or implied provision that had precluded reckoning or taking into account the previously paid amount. Accordingly, the prayer of the Assessee to treat payment of advance tax of Rs. 85,50,000/- as deposit of tax, surcharge and penalty under Ss 199D and 199E of the Finance Act cannot be accepted. Wide latitude is required and available in matters relating to fiscal and economic regulations and classification of objects, persons and things for the purpose of formulation of taxation policy;

++ the Assessee must be penalised as a transgressor yet, as long as the purpose behind legislation is not incapacitated and impaired, the Assessee should not be persecuted for the mistake in making the wrong choice when the authorities were equally confounded. As an interpreter, this Court needs to believe and accept as a principle that no legislation would like to penalise their subjects for inoffensive and credulous mistakes given the complexities and uncertainties that could prevail at the given point of time on interpretation, provided the purpose and objective of the legislation is not sacrificed and undermined. Legislations do not and cannot deal with all circumstances with abstract symmetry. When interpretation and understanding of legal provisions and applicability in a peculiar factual matrix was ambiguous and nebulous at the given point of time and confusion had prevailed, the Courts should provide succour to the party who would suffer an infelicitous and odious harm, subject to purpose of the legislation not being defeated and subdued. In the case of Shailesh Dhairyawan, referring to the principle of constructive interpretation or construction, the SC observed that the Court is supposed to attach that meaning to the provision which serves the purpose behind the provision and should ascertain what the provision is designed to accomplish. This means examination of three components i.e. language, purpose and discretion;

++ in the present case, this Court have rejected the Assessee's contention that the advance tax paid should be treated as payment under the PMGK Scheme. The CBDT circular No.2 of 2017 had also dealt with the issue if a person does not disclose his undisclosed income under PMGK Scheme, whether the undisclosed deposit would attract tax u/s 115BBE. Hence, no credit for advance tax paid, TDS or TCS shall be allowed under the scheme. Further, in case of seized cash/money deposit adjustment for payment of tax, surcharge and penalty was permitted. Despite the circular, facts do show that the amendment Act had equally puzzled and flummoxed the tax law enforcers with whom the Assessee was in constant interaction and had sought guidance and assistance. The Tax officers certainly had failed to appreciate and understand the difference between the two options and the procedure, and have substantially contributed to the muddle. The Assessee was prompted, if not clearly directed to file declaration and make deposits as made under the PMGK scheme as the right course and option. Role of an AO or the tax authorities has been described as that of solicitude to the public exchequer with the inbuilt fairness to the Assessee. The tax authorities being law enforcers and having acted as facilitators should have explicated doubts, when they had counselled the Assessee to make taxes under the PMGK Scheme;

++ in the present case, an equitable resolution is possible on interpretation of the provisions without undermining the object and purpose behind the amendment Act. Thus, this Court hold that the declaration made under PMGK Scheme should not have been entirely rejected in view of the peculiar and specific factual background in the present case. For the balance undisclosed income of Rs.1,71,34,268.54, the Assessee must exercise first option and pay 60% tax, 25% surcharge on tax and cess u/s 115BBE r/w Sec. 2(9) of the Finance Act. No provision prohibits or bars an Assessee, who had made true and correct disclosure, to partly take benefit of the option u/s 115BBE and partly exercise the second option in the form of declaration under PMGK scheme. The sections do not prohibit part declarations under both options, provided entire undisclosed income has been accounted for in the declaration made under PMGK scheme and Sec. 115BBE. Such recourse to both or any option was available to the Assessee on or after the amendment Act was notified on 15th December, 2016. Of course, if the Assessee does not make payment as stipulated u/s 115BBE and applicable surcharge in respect of the balance undisclosed income of Rs.1,71,34,268.54/-, it will be open to the Revenue to treat the declaration under PMGK Scheme as invalid or void on the ground of misrepresentation or suppression of facts. In case tax, interest are paid, this Court believes that a fair minded AO would not initiate penalty proceedings u/s 271AAC.

(See 2018-TIOL-452-HC-DEL-IT)