Clarifications on issues relating to effect of filing higher estimates of income for advance tax purposes on assessments for earlier years/filing of returns of income by new assessees declaring substantial income in the initial assessment year/filing of higher returns of wealth for earlier years
Circular No. 432 was issued by the Central Board of Direct Taxes on 20 September 1985. Its subject is Clarifications on issues relating to effect of filing higher estimates of income for advance tax purposes on assessments for earlier years/filing of returns of income by new assessees declaring substantial income in the initial assessment year/filing of higher returns of wealth for earlier years.
This is a clarification. The Board is stating how it reads a provision. That reading binds the department; it does not bind a court, and where the section says otherwise the section wins.
Assures a person filing a return for the first time, or filing a higher estimate of advance tax, that the higher figure will not by itself be used to reopen earlier years. The Board states the settled position on section 147: the mere declaration of substantial income for a year, even if made for the first time, is not by itself a valid ground for opening or reopening any earlier assessment or for starting roving enquiries, and the principles apply to new and existing assessees alike. It says instructions are being issued to all officers to take a liberal and sympathetic approach where the assessee comes forward of his own motion and co-operates, while penal provisions will be applied more strictly to those brought into the net only by the department's own efforts. It also records that the department is accepting all returns of non-corporate assessees up to Rs. 1 lakh.
Apprehension had been expressed that a person who had not been filing returns, whether from ignorance or otherwise, and who now wished to come forward and declare his true income, would face suspicion of escaped income for earlier years and roving enquiries.
| Under the 1961 Act | Now |
|---|---|
| s.147 | s.279 |
Clarifications on issues relating to effect of filing higher estimates of income for advance tax purposes on assessments for earlier years/filing of returns of income by new assessees declaring substantial income in the initial assessment year/filing of higher returns of wealth for earlier years
Filing of return of income - New assessee - Declaration of substantial income in the initial assessment year - Effect thereof in earlier years— 1. The Finance Act, 1985 has, with the objective of securing better tax compliance, simplified the direct tax laws and rationalised the rates of personal income-tax. The department is also accepting all returns of income filed by non-corporate assessees up to Rs. 1 lakh. A public circular has been recently issued stating that simply because a taxpayer has filed a higher return of income for the payment of advance tax, his earlier assessments will not be reopened and no roving enquiries will be made. Apprehension has been expressed in some quarters that where a person who has not so far been filing returns of income for tax purposes, whether due to ignorance or otherwise, now wants to come forward and file a return showing his true income and pay tax he may lay himself open to various difficulties. There is said to be a fear that the Income-tax Officer may, in view of the declaration of substantial income for the first time, suspect that income chargeable to tax for earlier years has escaped assessment and start roving enquiries against the taxpayer.
2. The principles for the reopening of assessment, as prescribed under section 147, have been clearly enunciated in a number of decisions of the various High Courts and the Supreme Court. These principles apply as much to new assessees as to existing assessees. According to these principles, the mere declaration of substantial income for a particular year, even if it is done for the first time, cannot by itself constitute a valid ground for the opening or reopening of any earlier assessment or for starting roving enquiries against the taxpayer. While it is true that the penal provisions of the law will be applied more strictly in the cases where a person having taxable income does not come forward and file a return showing that income and pay tax thereon and is brought into the tax net only as a result of the efforts of the department, the department’s approach will be very liberal and sympathetic in the cases of new assessees who come forward themselves to show their true incomes in good faith and co-operate in any enquiry relating to the assessment of their incomes.
3. Though the penal provisions of the law do apply in such cases, such as failure to comply with statutory obligations relating to filing of estimates and payment of advance tax, filing of returns in time, etc., instructions are being issued to all officers of the department that they should adopt a liberal and sympathetic approach where the assessee has come forward suo motu and co-operates with the department. Assessees will do well to avail themselves of this opportunity and file returns of income without any fear. Even if it is for the first time, they should do so as early as possible.
Circular: No. 432 [F. No. 225/86/85-IT(A-II), dated 20-9-1985/15-11-1985.
When a notice proposing to reopen earlier years follows a first return declaring a large income, and the assessee resists it as founded on nothing but that return.
Source: the Income Tax Department’s own published text — its page for this instrument.