High Court interprets provisions of PMGKY Scheme 2016 and give equitable relief to the assessee without undermining the object and purpose behind the Scheme.
ABCAUS Case Law Citation:
ABCAUS 2246 (2018) (03) HC
The petitioner was an advocate engaged in income-tax practice who had challenged the rejection by Commissioner of Income Tax, his application under the Pradhan Mantri Garib Kalyan Yojna, 2016 (PMGK Scheme).
PMGK Scheme was notified in wake of the demonetization. Any person could make a declaration under the PMGK Scheme on or before the first day of April, 2017 in respect of any income in the form of cash or deposit in an bank account for any assessment year commencing on or before 1st day of April, 2017. No deduction in respect of any expenditure, allowance or set-off of any loss was allowed. Tax at the rate of 30% was chargeable on the undisclosed income and also the declarant was liable to pay 33% of such tax as surcharge called Pradhan Mantri Garib Kalyan Cess. Further, as per Section 199E, in addition to tax of 30% and the cess equal to 33% of the tax, the declarant was liable to pay penalty @10% on the undisclosed income. In other words, the total amount of tax, surcharge and penalty payable on the undisclosed income was 49.90 per cent. However, the declarant was required to deposit 25% of the undisclosed income under PMJKY 2016 and comply with the conditions specified in the PMGKY Scheme. The deposits made were to earn no interest and could be withdrawn only after four years.
The assessees had two separate and distinct options. They could declare unaccounted cash deposited in the bank accounts in the return of income filed under section 139 of the Act and pay tax, surcharge and cess as per Section 115BBE of the Act and Section 2 of the Finance Act post amendment at the effective rate of tax of 77.25%. Penalty @ 10% under the Section 271AAC could be imposed by the assessing officer on conditions being satisfied. Alternatively, the assessees could as a second option file a declaration under Section 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 Sub-section (1) to Section 199F for a period of four years under the Deposit Scheme, to be repaid without interest.
The petitioner had deposited substantial cash Rs. 2,40,46,000/- in Bank account between the demonetisation period. The petitioner had also deposited advance tax of Rs. 85,50,000/- for the Assessment Year 2017-18 on different dates. on or before introduction of PMGK Scheme. The petitioner, in order to avert impact of demonetization, offered for tax undisclosed cash deposited in bank accounts as income for the Financial Year 2016-17, at the prescribed rate. The idea was that he would pay normal incidence of tax and escape the rigours of penalty and prosecution.
In the evening of 24th March, 2017 an income tax team being aware of the cash deposits made by the petitioner had visited his office. As the petitioner had by then left his office, he was followed and traced at his colleague’s office. The petitioner was asked to give details of his PAN, sources of income, bank accounts etc. and his statement under Section 131 of the Act was partly recorded at his colleague’s office and continued at the office of the petitioner.
The petitioner confirmed having deposited cash in demonetized notes in cash in his bank accounts and having paid advance tax with the intent to declare unaccounted money as income in his income return for the current year. Notwithstanding payment of advance tax, the petitioner issued cheques of Rs. 1,19,98,954 and Rs. 60,11,500/- towards 49.90% payable as tax, surcharge and penalty and 25% to be deposited in the Bond Ledger Account. The cheques were handed over and accepted by the officers of the team. As per the petitioner, he was told and directed by the officers to make declaration under the PMGK scheme and pay taxes, surcharge etc. under the said scheme. Petitioner had requested that he should be given credit of the advance tax and the same should be treated as tax paid under the PGMK scheme. However, the team did not inform and state that this was impermissible.
Despite several communications and visits to the Income Tax Officials with request that he should be extended credit of advance tax deposited in the month of December, 2016, as deposit under PMGK Scheme, the petitioner was not replied. On 29th March, 2018, the petitioner wrote to the ITO that if his proposal was not acceptable then the applicant will be left with no choice but to withdraw his declaration.
Again, the petitioner wrote a letter dated 31st March, 2017 to the Principal Commissioner of Income-tax. The petitioner informed the PrCIT that the Joint / Addl. CIT asked him to deposit Rs. 34,48,954/- being the differential amount of tax after adjustment of advance tax which was deposited on 30.03.2017. Regarding 25% of the declared income a separate Bond Ledger Account had already been opened in the Bank. The Petitioner pointed out that it demonstrated that the applicant had taken all necessary steps as told to him in all the meetings which took place between 24.03.2017 to 30.03.2017. Therefore, he requested CIT to record the compliance of the applicant towards the Scheme and issue the declaration in Form No.2 as is envisaged under the Scheme.
No reply or answer to the letters was received back by the Petitioner. On the other hand, on 31 March, 2016 the Principal Commissioner accepted the said Form and challans, which were not returned or rejected on the ground that the petitioner had not paid and deposited full amount of towards tax, surcharge and penalty and had made part deposit.
However, vide letter dated 28th August, 2017, the declaration made by the petitioner was rejected.
The Petitioner filed the instant writ and relying on the judgment of the High Court submitted that he should be given credit of the advance tax paid under the PMGK Scheme.
The Hon’ble High Court expressed agreement with the Revenue that the PMGK Scheme in the form of Sections 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. The Court opined that direction for grant of benefit of advance tax for payment to be made under PMGK scheme would amount rewriting provisions of Chapter IXA of the Finance Act.
However the Hon’ble High Court noted that as per the Revenue, the Petitioner would completely lose right to credit and benefit of Rs. 34,48,954/- under PMGK Scheme. This amount would get forfeited without corresponding tax benefit (Rs.60,11,500/-, though not clearly stated, it appeared would be refunded after four years without interest). Petitioner would be liable to pay 60% rate of tax as per the provisions of Section 115BBE amounting to Rs.1,44,27,600/- plus surcharge @ 25% on the tax of Rs.36,06,900/- and cess of Rs.5,41,035. In other words, petitioner would therefore land up paying tax, surcharge and cess of Rs.1,85,75,535/- towards undisclosed income of Rs.2,40,46,000/- under Section 115BBE of the Act, and tax, surcharge and penalty of Rs. 34,48,954/- which as per the respondents stands forfeited and deposit of Rs. 60,11,500/- under the Deposit Scheme that would be possibly refunded without interest after four years.
The Hon’ble High Court observed that the CBDT circular No.2 of 2017, it was clarified that no credit for advance tax paid, TDS or TCS shall be allowed under the Scheme. However, in case of seized cash/money deposit adjustment for payment of tax, surcharge and penalty was permitted.
The Court observed that the petitioner was in constant interaction and had sought guidance and assistance and the Tax officers failed to appreciate and understand the difference between the two options and the procedure, and have substantially contributed to the problem. The Tax authorities being law enforcers and having acted as facilitators should have explicated doubts, when they had counselled the petitioner to make taxes etc. under the PMGK Scheme.
The Hon’ble High Court opined that that the declaration under PMGK Scheme should not have been entirely rejected in view of the peculiar and specific factual background in the present case. Accordingly, the following directions were issued:
(i) Deposit of Rs. 34,48,954/- will be treated as payment of tax, surcharge and penalty under the PMGK Scheme in respect of undisclosed income of Rs. 69,11,731.46. Rs. 34,48,954/- is 49.9% of Rs.69,11,731.46.
(ii) In respect of the balance undisclosed income of Rs. 1,71,34,268.54, the petitioner would take recourse to the first option under Section 115BBE. The petitioner would accordingly pay tax @ 60% on the aforesaid amount under Section 115BBE, surcharge @25% of the tax and cess as applicable. Rs. 85,50,000/- paid as advance tax would be counted.
(iii) The petitioner would be also liable to pay interest on the late payment of taxes, surcharge, cess and late filing of return.
(iv) Rs. 60,11,500/- deposited by the petitioner under Section 199F of the Finance Act will be refunded to the petitioner without interest after a period of four years in accordance with the deposit scheme.
The Hon’ble High Court added that if the petitioner does not make payment as stipulated under Section 115BBE and applicable surcharge in respect of the aforesaid undisclosed income of Rs.1,71,34,268.54/-, it will be open to the Income Tax Authorities to treat the PMGK declaration as invalid or void on the ground of misrepresentation or suppression of facts. Similarly if subsequently the declaration is found to be bad on account of suppression of facts or misrepresentation , in case tax, interest etc. are paid we a fair minded AO would not initiate penalty proceedings under Section 271AAC of the Act.