Appeal to the Government to come out with an Official announcement not to levy Penalty when High denomination Notes deposited are reflected in current years return by CA Rasesh Shah

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No citizen is above the law,
At the same time, the government is also not above the law.

Majority of the citizens have welcomed the historic decision of government of scrapping high denomination notes for fighting evils of black money, terrorism, counterfeit currency and corruption.

Immediately after this announcement, I had expressed my opinion that there cannot be any penalty for evasion, when unexplained cash of high denominations deposited into bank is declared in the return of income of current year with payment of income-tax at the rate of 30%. Many other legal experts also expressed similar view.

The provision of section 270A is very much clear in this regard and therefore there is no case of any different opinion. But because of media reports claiming to be based on statement of some tax officials that there is still scope of penalty @ 200% of tax, the panic still prevails in the minds of tax payers. The media reports are not authenticated by any official statement from CBDT or government. There is also apprehension that law may be amended to increase tax or levy penalty although applicable law provides for maximum rate of tax @ 30% with no penalty. I salute this government that they are against amending law retrospectively to put additional burden on tax payer.

However, because of this panic situation, the damage has already been done e.g. Buying of gold at higher rate with high denomination notes after they ceased to be legal tender etc. At present, the people are lured to sell the notes at discount or obtain accommodation entries or make donation to temples or make other investments. Accordingly, the monies are blocked in unproductive assets and government may not get the due revenue because of adoption of dubious methods by tax payers in fear of heavy penalty and harassment.

Although because of clear language of section 270A, there is no possibility of different interpretation but to prevent panic situation, and to stop dubious practices, and further to stop channelisation of investment in unproductive items but to collect optimum revenue as taxes, it is high time that official announcement may be made by government that no penalty will be levied if the unexplained cash is declared in return of income even without disclosing source. Of course, there cannot be any immunity in other indirect taxes and allied laws.

Yesterday, FM has made it very clear that if cash deposit in bank account mismatches with the returned income then in that case only, the tax payer has to face consequences and pay Tax plus 200% penalty. So in a way he has accepted that no penalty shall be levied if unexplained deposits are reflected in return as additional income of the current year. But at the same, he has cautioned against declaring abnormal income.

Further, I am of the opinion that on the basis of declaration of large deposits in bank in current year, the assessments of past years cannot be reopened in absence of materials available to relate deposits with undisclosed income of past years.

By and large, people from all sections have overwhelmingly welcomed the action of the Government and hopes of “Achchhe Din” is building up now in spite of short term inconvenience. At this juncture, the Government should come out with firm announcement of Nil penalty( if tax is paid at 30% and deposits are reflected as income in return) and accept the position of law gracefully.

Even in absence of firm clarification by government officials and presence of atmosphere of threat, I urge public at large not to resort to dubious methods and declare additional income in current year by paying tax at maximum marginal rate of 30%.

All the citizens of India should get sound sleep by making them rich and prosperous and not keeping them as poor.

( The above article is written by CA Rasesh Shah based at Surat and promoter of the firm Rasesh Shah and Associates. He is a member of the Institute of Chartered Accountants of India and can be reached at )