PROCEDURE GOVERNING INCOME TAX PROSECUTION PROCEEDINGS

The procedure governing prosecution proceedings under the Income-tax Act, 1961 can be divided into two parts i.e.

(1)   Procedure to be followed by the Department while launching prosecution proceedings, and

(2)   The procedure before the Court.

(1)  Procedure followed by the department while lunching the prosecution

Though there is no specific procedure provided under the Act or Rules, the Department has framed their own guidelines and instructions for initiating prosecution proceedings. The said instructions are referred in the following cases while quashing the prosecutions under Section 271C(1) read with Sections 277 and 276CC of the Act.

The Income-tax department’s manual deals with various guidelines to be followed before launching prosecution proceedings and the broad parameters as laid down are as follows:

STEP - 1. The Assessing Officer on the basis of the records of the assessee sends the proposal to the respective Commissioner.

STEP -2. The Commissioner issues the show cause notice to the assessees.

STEP - 3. If Commissioner is satisfied with the reply of the assessee he may not grant sanction to the Assessing Officer to file complaint before the Court. The commissioner has to apply his mind to the reply and material produce before him.

Opportunity of being heard before giving sanction under section 279 of the Act
When an Assessing Officer takes a decision to initiate proceedings or a Principal Commissioner or Commissioner grants sanction for such proceedings. He has to apply his mind and on the basis of the circumstances and the facts on record, he has to come to the conclusion whether prosecution is necessary and advisable in a particulars case or not. The said Act does not provide that the Commissioner has to necessarily afford the assessee an opportunity to be heard before deciding to initiate proceedings. The absence of an opportunity to be heard will not make the order of sanction void or illegal as held in CIT v. Velliappa Textiles Ltd. (2003) 263 ITR 550 (SC).

Income-tax Act does not provide that the Commissioner has to necessarily afford of  an opportunity hearing before deciding to initiate proceedings. – [UOI v Banwari Lal Agarwal (1998) 101 Taxman 508 (SC)]

However, it is being observed that the commissioners are issuing a show cause notice before sanctioning the Sanction for prosecution based on the internal manual.

Sanction for launching of prosecution

Under Section 279, the competent authority to grant sanction for prosecution is Principal Commissioner or Commissioner or Commissioner (Appeals), Principal Chief Commissioner or Chief Commissioner or the Principal Director General or Director General. Prosecution, without a requisite sanction shall make the entire proceedings void ab initio.

(i)            Sanction is a weapon to ensure discouragement of frivolous and vexatious prosecutions and is safe guard for the innocent but not  ashield  for guilty.

(ii)           The order of sanction must ex facie disclose that the sanction authority had considered the evidence and material place before it.

(iii)         The sanctioning authority has to apply its own independent mind.

(iv)          Discretion should be shown to have not been affected by any extraneous consideration.

            If the above test is not satisfied sanction  may be held to be bad in law . the ratio of the decision referred above is equally applicable  when sanction is given under section 279 of the Income -tax Act.  – [Mansukhlal Vithaldas Chauhan v. State of Gujarat (1977) 7 SCC 622 : AIR 1997 SC 3400]

Sanction must be in respect of each of the offences in respect of which the accused is to be prosecuted

The sanction must be in respect of each of the offences in respect of which the accused is to be prosecuted. Where the Commissioner has held that an assessee had made a return containing false entries and gave sanction for prosecution for an offence under Section 277, and the accused was found guilty of an offence under Section 276CC, and not under Section 277, it was held in revision that an offence under Section 276CC was of a different nature from that under Section 277, and as there was no sanction for prosecution for an offence under Section 276CC, the conviction was illegal – [Champalal Girdharlal v. Emperior (1933) 1 ITR 384 (Nag)(HC)]

Prosecution be initiation during the pendency and before the completion of assessment or during the pendency of Appeal before the appellate authority

The answer to this question is noticeable from the decision of Apex Court in the case of P. Jayappan v. CIT (1984) 149 ITR 696 (SC). The Apex Court held that the assessment proceedings and criminal proceedings are independent proceedings. They can simultaneously take place and one proceeding need not wait for the other proceeding. This is because the income tax assessment proceedings are civil proceedings in nature and conducted by Income Tax Authority. For the offences committed, once the proceedings are initiated, they are tried before a competent court. Strict rules of evidence as per the Evidence Act need not be followed by the income tax authorities. The Evidence Act has strictly to be implemented in the criminal proceedings.

In Nemi Chand Garg v. ITO, it was observed by this Court that if the appeal is pending before the Tribunal further proceedings should not be taken during the pendency of that appeal. – [Nemi Chand Garg v. ITO (1986) 161 ITR 500 (Raj)]

Pendency of appeal before CIT(A) – Stay – Alleged bogus purchases – During pendency of stay the criminal prosecution should not be launched and, if it has been already launched, the same shall not be proceeded - Prosecution proceedings were  stayed as the appeal was pending before the CIT(A)

Prosecution - Initiation of criminal proceedings against assessee during pendency of appeal and stay application before CIT(A) Validity of - Where assessee challenged the initiation of criminal proceedings against it while appeal and stay application was pending before CIT(A), keeping the wider question open, Court granted ad interim stay till the decision of CIT(A) was received. - Assessee challenged the show cause notice issued for launching the prosecution under section 276C(1) of the Income Tax Act, 1961 contending the appeal and stay application against the assessment order was pending before CIT(A) and no hearing was provided to assessee before issuance of the said show cause notice. Held: In the interest of justice keeping the larger and wider question open, the Court directed the assessee to make a stay application to Assessing Officer to seek a stay of the order passed, then, during the pendency of such application, the criminal prosecution should not be launched and, if it was already launched, the same shall not proceed. Thus, the ad interim stay granted by the Court would continue till the disposal of the application for stay by the CIT(A). – [Ramchandran Ananthan Pothi v. UOI & Ors. (2018) TaxPub(DT) 5900 (Bom)]

The decision of Patna High Court in the case of Md. Moinul Haque & Ors. v. State of Bihar & Ors., where the petition under section 482 CrPC 1973, was allowed and the prosecution was quashed observing that no useful purpose would be served in remitting the case to the trial Court itself for consideration since the penalty imposed for concealment of income has been set aside by the CIT(A), and the basis for a prosecution under sectionss 276C  and 277 of the Income-tax Act, 1961 no longer exists. – [Md. Moinul Haque & Ors. v. State of Bihar & Ors. (1997) 224 ITR 239 (Pat)

Finding of the Appellate Tribunal

The apex Court in the case of G. L. Didwania & Anr. v. ITO, wherein it was observed that if the finding of false statement in respect of income have been set-aside by the Tribunal, the criminal proceedings could no longer be sustained. This decision was given following the judgment of Uttam Chand v. ITO (1982) 133 ITR 909 (SC). – [G. L. Didwania & Anr. v. ITO (1997) 224 ITR 687 (SC)]

It was held that while dealing with the prosecution proceedings under section 277, the findings given by the Income -tax Appellate Tribunal are binding on the criminal courts. This is because, the Income -tax Appellate Tribunal is the final fact finding authority under the Income- tax Act 1961.The findings of Income Tax Appellate Tribunal are binding on the Principal Commissioner of Income -tax or The Commissioner of Income -tax as the case may be. Once it is brought to the notice of the trial court that the Income Tax Appellate Tribunal held, that there is no prima facie case against the assessee for concealment of income, the finding has to be respected by the trial court and the trial court has to discharge or acquit the accused. – [Uttam Chand v. ITO (1992) 133 ITR 909 (SC)]

Existence of other mode of recovery cannot act as a bar to the initiation of prosecution proceedings

In a case relating to the mode of recovery of tax demand where the prosecution was initiated under Section276C of Income -tax Act 1961, for non-payment of admitted tax and interest thereon, the A.P. & T.  High Court in the decision of Kalluri Krishna Pushkar v. DCIT held that the existence of other mode of recovery cannot act as a bar to the initiation of prosecution proceedings. – [Kalluri Krishna Pushkar v. DCIT (2016) 236 Taxman 277 (AP&T)]

 (2) Procedure before Court [see Trial Chart]

On the basis of complaint filed before a court, the court sends summons to the accused along with the copy of complaint, to attend before the court on a particular date. The complaint being criminal complaint, the accused must be present before the court, unless the court gives a specific exemption.

If the accused is not present on such particular date, the court can issue a warrant against the accused. If the warrant is issued, unless the accused secures bail, he may be arrested and produced before the court. In normal Course Complainant and his witnesses are required to be examined on oath by the Magistrate before the accused can be summoned under section 200 of Cr.Pc

But as the Complainant in the cases under Income Tax Act are “Public Servants” the Magistrate need not examine him on oath before summoning the accused. If the opinion of the magistrate there is sufficient ground for proceeding:

v  If it is a “Summons Cases” – Issue summons

v  If it is a “Warrant Cases” – Issue summons or Warrants

v  Cases instituted otherwise than on police report. Relevant sections 244 to 250 of Cr.P.C.

Step – 1 : Case is instituted under section 190 of Code of Criminal Procedure, 1973

Under Section  190  of the Code, it is the application of judicial   mind   to   the   averments   in   the   complaint   that   constitutes cognizance. At this stage, the Magistrate has to be satisfied whether there is sufficient ground for proceedings and not whether there is sufficient ground for conviction. Whether the evidence is adequate for supporting the conviction can be determined only at the trial and not at the stage of enquiry.  If there is sufficient ground for proceeding   then   the   Magistrate   is   empowered   for   issuance   of process Under Section 204 of the Code.

Text of Section 190 of The Code of Criminal Procedure, 1973

190. COGNIZANCE OF OFFENCES BY MAGISTRATES.

(1)   Subject to the provisions of this Chapter, any Magistrate of the first class, and any Magistrate of the second class specially empowered in this behalf under sub- section (2), may take cognizance of any offence-

(a) upon receiving a complaint of facts which constitute such offence;

(b) upon a police report of such facts;

(c) upon information received from any person other than a police officer, or upon his own knowledge, that such offence has been committed.

(2) The Chief Judicial Magistrate may empower any Magistrate of the second class to take cognizance under sub- section (1) of such offences as are within his competence to inquire into or try.

STEP – 2 : Summons is issued under section 204 of The Code of Criminal Procedure, 1973

Text of Section 204 of The Code of Criminal Procedure, 1973

204. ISSUE OF PROCESS.

(1) If in the opinion of a Magistrate taking cognizance of an offence there is sufficient ground for proceeding, and the case appears to be-

(a) a summons- case, he shall issue his summons for the attendance of the accused, or

(b) a warrant- case, he may issue a warrant, or, if he thinks fit, a summons, for causing the accused to be brought or to appear at a certain time before such Magistrate or (if he has no jurisdiction himself) some other Magistrate having jurisdiction.

(2) No summons or warrant shall be issued against the accused under sub- section (1) until a list of the prosecution witnesses has been filed.

(3) In a proceeding instituted upon a complaint made in writing every summons or warrant issued under sub- section (1) shall be accompanied by a copy of such complaint.

(4) When by any law for the time being in force any process- fees or other fees are payable, no process shall be issued until the fees are paid and, if such fees are not paid within a reasonable time, the Magistrate may dismiss the complaint.

(5) Nothing in this section shall be deemed to affect the provisions of section 87.

KEY NOTE

Summons can be challenged in revision before the sessions court/under criminal application u/s 482 of CR.P.C. accused appears and file for bail

STEP – 3 : The accused can file discharge application under section 245.

v  Arguments on discharge application. if discharged the matter is over, if not discharged, The prosecution will lead evidence of the complainant.

v  The evidence is recorded by the magistrate.

v  Opportunity is granted to the accused to cross examine the complainant or not to cross examination at this stage also discharge can be filed by the accused under section 245 of CR.P.C.

Text of Section 245 of The Code of Criminal Procedure, 1973

245. WHEN ACCUSED SHALL BE DISCHARGED.

(1) If, upon taking all the evidence referred to in section 244, the Magistrate considers, for reasons to be recorded, that no case against the accused has been made out which, if unrebutted, would warrant his conviction, the Magistrate shall discharge him.

(2) Nothing in this section shall be deemed to prevent a Magistrate from discharging the accused at any previous stage of the case if, for reasons to be recorded by such Magistrate, he considers the charge to be groundless.

STEP – 4  : Charges are framed Under section 246(1) of The Code of Criminal Procedure, 1973

v  Again evidence is lead by the prosecution of the complainant and other witnesses.

v  Cross examination of the complainant and the other witnesses by the accused advocate. (under section  246(4) Cr.P.C.

Text of Section 246 of The Code of Criminal Procedure, 1973

246. PROCEDURE WHERE ACCUSED IS NOT DISCHARGED.

(1) If, when such evidence has been taken, or at any previous stage of the case, the Magistrate is of opinion that there is ground for presuming that the accused has committed an offence triable under this Chapter, which such Magistrate is competent to try and which, in his opinion, could be adequately punished by him, he shall frame in writing a charge against the accused.

(2) The charge shall then be read and explained to the accused, and he shall be asked whether he pleads guilty or has any defence to make.

(3) If the accused pleads guilty, the Magistrate shall record the plea, and may, in his discretion, convict him thereon.

(4) If the accused refuses to plead, or does not plead or claims to be tried or if the accused is not convicted under sub- section (3), he shall be required to state, at the commencement of the next hearing of the case, or, if the Magistrate for reasons to be recorded in writing so thinks fit, forthwith, whether he wishes to cross- examine any, and, if so, which, of the witnesses for the prosecution whose evidence has been taken.

(5) If he says he does so wish, the witnesses named by him shall be recalled and, after cross- examination and re- examination (if any), they shall be discharged.

(6) The evidence of any remaining witnesses for the prosecution shall next be taken, and after cross- examination and re- examination (if any), they shall also be discharged.

STEP – 5 : Accused statement is recorded under section 313.

v  Opportunity is given to the accused to examine any witnesses, defence witness (under section 247, provisions of section 243 if applied here).

v  The accused enters his defence and produces his evidence, can file written statement too which is taken on record.

v  Accused can call for his defence witnesses too or for examination or cross examination of witnesses. Arguments by both the parties. Judgement.

Text of Section 313 of The Code of Criminal Procedure, 1973

313. POWER TO EXAMINE THE ACCUSED.

(1) In every inquiry or trial, for the purpose of enabling the accused personally to explain any circumstances appearing in the evidence against him, the Court-

(a) may at any stage, without previously warning the accused, put such questions to him as the Court considers necessary;

(b) shall, after the witnesses for the prosecution have been examined and before he is called on for his defence, question him generally on the case: Provided that in a summons- case, where the Court has dispensed with the personal attendance of the accused, it may also dispense with his examination under clause (b).

(2) No oath shall be administered to the accused when he is examined under sub- section (1).

(3) The accused shall not render himself liable to punishment by refusing to answer such questions, or by giving false answers to them.

(4) The answers given by the accused may be taken into consideration in such inquiry or trial, and put in evidence for or against him in any other inquiry into, or trial for, any other offence which such answers may tend to show he has committed.

STEP – 6 : If the trial results in a conviction, then an appeal to the court of session will lie under Section  374(3) of the Criminal Procedure Code

The said appeal will be heard under Section 381 of the CrPC, either by the a Sessions Judge or by an Additional Sessions Judge. The petition of appeal is to be presented in the form prescribed accompanied by a copy of the Judgment appealed against within a period of 30 days from the date of order, as per the Limitation Act.

Taxation and Investment Regime for Pradhan Mantri Garib Kalyan Yojana, 2016 (PMGKY 2016)

The PMGKY was an amnesty scheme announced in November 2016 for the period running up to 10.05.2017. This scheme was for people who had not taken advantage of the previously concluded IDS and who continued to hold unaccounted-for money or had deposited it in their bank accounts after demonetisation.

The PMGKY scheme, which ended on 10.05.2017, saw income amounting to Rs. 4,900 crore being declared by 21,000 people with tax and penalty collections totalling Rs. 2,451 crore. This was much lower than the earlier four-month long tax compliance window of the IDS.

Name of the scheme

This scheme may be called the PRADHAN MANTRI GARIB KALYAN YOJANA, 2016. Taxation and Investment Regime for Pradhan Mantri Garib Kalyan Yojana, 2016 (PMGKY 2016) has commenced since 17.12.2016 and last date for declarations under the Scheme has been extended upto 10.05.2017.

Eligibility for Deposits

The deposit under this Scheme shall be made by any person who intends to declare undisclosed income under sub-section (1) of section 199C of the Taxation and Investment Regime for Pradhan Mantri Garib Kalyan Yojana, 2016.

This scheme can be availed by any person to whom below notices under any of the following provisions of the Act have been issued for any Assessment year:

(a)          Section 142(1) – Inquiry before assessment;

(b)         Section 143(2) – Assessment;

(c)          Section 148 – Issue of notice where income has escaped assessment;

(d)         Section 153A – Assessment in case of search or requisition;

(e)          Section 153C – Assessment of income of any other person.

The scheme can be availed by any person against whom a search/ survey operation has been initiated, and cash seized during search/ survey can also be declared.

The scheme can be availed on the deposits made in bank accounts prior to the financial year (FY) 2016-17 also

The scheme can be availed on cash deposits made in an account during the period 01 April, 2016 to 15 December, 2016 (i.e., prior to effective date of this scheme).

The scheme can also be availed for the undisclosed income deposited or repaid against an overdraft account/ cash credit account/ any loan account maintained with a bank or any specified entity.

"Declarant" means a person making the declaration under sub-section (1) of section 199C;

“Person” as defined under section 2(31) of the Income Tax Act

"person" includes—

(i)           an individual,

(ii)         a Hindu undivided family,

(iii)       a company,

(iv)       a firm,

(v)         an association of persons or a body of individuals, whether incorporated or not,

(vi)       a local authority, and

(vii)     every artificial juridical person, not falling within any of the preceding sub-clauses

Explanation.— For the purposes of this clause, an AOP or BOI or a local authority or an artificial juridical person shall be deemed to be a person, whether or not such person or body or authority or juridical person was formed or established or incorporated with the object of deriving income, profits or gains;

Declarations not eligible for the scheme in certain cases

The provisions of the scheme shall not be applicable in the following cases:—

(i)           CONSERVATION OF FOREIGN EXCHANGE AND PREVENTION OF SMUGGLING ACTIVITIES ACT, 1974,

Declarations in relation to any person in respect of whom an order of detention has been made under the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974 subject to the conditions specified under the Scheme.

(ii)   Declarations in relation to prosecution for any offence punishable under Chapter IX or Chapter XVII of the Indian Penal Code, the Narcotic Drugs and Psychotropic Substances Act, 1985, the Unlawful Activities (Prevention) Act, 1967, the Prevention of Corruption Act, 1988, the Prohibition of Benami Property Transactions Act, 1988 and the Prevention of Money- Laundering Act, 2002;

(iii)  If the declarant is a person notified under section 3 of the Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992;

(iv) BLACK MONEY (UNDISCLOSED FOREIGN INCOME AND ASSETS) AND IMPOSITION OF TAX ACT, 2015

The scheme shall not apply to undisclosed income in the form of deposits in foreign bank account, as that is chargeable to tax under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015.

(v)  The scheme is not available for declaration of income which is represented in the form of any asset other than cash, and deposits like jewellery, stock or immovable property.

Declaration not admissible in evidence against declarant

Declaration made under this scheme shall not be admissible in evidence against the declarant for the purpose of any proceeding under any Act, other than the following specified Acts:

(i)              Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974,

(ii)            Indian Penal Code,

(iii)          Narcotic Drugs and Psychotropic Substances Act, 1985,

(iv)          Unlawful Activities (Prevention) Act, 1967,

(v)            Prevention of Corruption Act, 1988,

(vi)          Prohibition of Benami Property Transactions Act, 1988

(vii)        Prevention of Money-Laundering Act, 2002

(viii)      Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992

(ix)          Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015

Deposits can be declared

Any form of deposits maintained with a Bank or Post Office like:-

(a)       Savings Account

(b)      Current Account

(c)       Recurring Deposit Account

(d)      Fixed Deposits

(e)       Senior Citizen Savings Scheme

(f)       Monthly Income Scheme

(g)       Jan-Dhan Yojana Account Can be Declared under the PMGKY.

Tax rate to be paid

In respect of undisclosed income in the form of cash & bank deposit for period upto Financial Year ended 31 March 2016 (i.e. upto Assessment year 2016-17), a declarant is required to pay: the exact is 49.9 percent, the breakup for which is as follows: (A)  Tax, Surcharge, Penalty payable:

(i) Tax @ 30% of income declared

(ii) Pradhan Mantri Garib Kalyan Cess @33% of tax

(iii) Penalty @10% of income declared

(B) Pradhan Mantri Garib Kalyan Deposit Scheme, 2016 25% of declared income to be deposited in interest free Deposit Scheme for four years. This amount is proposed to be util ised for the schemes of irrigation, housing, toilets, infrastructure, primary education, primary health, livelihood, etc.

       “TAX” AND “DEPOSIT” – IN BRIEF

A	Income Tax	Rate
(i)	Tax	@30% of income declared ii. Surch
(ii)	Surcharge (also referred to as, Pradhan Mantri Garib Kalyan Cess)	@33% of tax (i.e. appx 10%)
(ii)	Penalty	@10% of income declared
	Total [(i) + (ii) + (iii)]	@50% of income (approx.)
B	Deposit
	Additionally, a declarant is required to deposit 25% of declared income to be deposited in interest free Deposit Scheme (referred to as Pradhan Mantri Garib Kalyan Deposit Scheme, 2016) for 4 years from the date of deposit.

EXAMPLE

For Undisclosed income of Rs. 10,00,000

v    Tax @ 30% of the undisclosed income, Tax will be Rs. 3,00,000

v    Penalty @ 10% of the undisclosed income, penalty will be Rs. 1,00,000

v    Surcharge @ 33% of tax i.e. 33% of Rs. 3,00,000 will be Rs. 99,000

Total tax & penalty payable: Rs 4,99,000

And above that 25% of undisclosed income in a Deposit Scheme i.e Rs. 2,50,000 will be locked in for 4 years without accruing any interest.

Cash seized by the Department during search/ seizure operation and deposited in the Public Deposit Account may be allowed to be adjusted for making payment of tax at the rate of 49.9% under the scheme, on the request of a person from whom the cash is seized. However, the amount shall not be allowed to be adjusted for making at least 25% deposit under PMGKD scheme.

Any advance taxes paid, taxes withheld or taxes collected at source (TCS) on the declared undisclosed income under this scheme shall not be given credit against the taxes to be paid at the rate of 49.9%.

No Refund of taxes paid under the Scheme

Section 199K of the Finance Act, 2016 states that tax, surcharge and penalty paid under the scheme shall not be refundable.

Forms under Pradhan Mantri Garib Kalyan Yojana

(a)    Form 1 (Form of Declaration under section 199C)

(b)  Form 2 (Certificate of Declaration under section 199C issued by the Principal CIT/PDIT or CIT)

Filing of declaration

A declaration under the Scheme can be filed:

(a)  Electronically under digital signature with CIT(CPC) Bengaluru or jurisdictional Principal CIT/PDIT or CIT notified under section 120 of the Income-tax Act, 1961.

(b)  Electronically through Electronic Verification Code (EVC) or in print form with jurisdictional Principal CIT /CIT notified under section 120 of the Income-tax Act, 1961.

Requirement of deposit of 25 percent of undisclosed income

After paying tax as specified above, the person shall also have to deposit 25 percent of the undisclosed income in the Pradhan Mantri Garib Kalyan Deposit Scheme, 2016 with a lock-in period of four years.

Along with the above-said tax, penalty, and cess, the declarant will have to deposit 25% of undisclosed income in a Deposit Scheme to be notified by the RBI under the ‘Pradhan Mantri Garib Kalyan Deposit Scheme, 2016’. This amount is proposed to be utilized for the schemes of irrigation, housing, toilets, infrastructure, primary education, primary health, livelihood, etc., so that there is justice and equality. This is a FREE deposit scheme of four years. The withdrawal of amount shall be after four years and will be subject to some conditions as may be specified.

No interest on deposit

The 25 percent deposited shall not carry interest.

Form of the deposits

(1) The deposits shall be held at the credit of the declarant in Bonds Ledger Account maintained with Reserve Bank of India.

(2) A certificate of holding the deposit shall be issued to declarant in Form I.

(3) The Reserve Bank of India shall transfer the deposit received under this Scheme into the designated Reserve Fund in the Public account of the Government of India.

Effect of Valid Declaration

Where a valid declaration as detailed above has been made, the following consequences will follow:

(a) The amount of undisclosed income declared shall not be included in the total income of the declarant under the Income-tax Act for any assessment year;

(b)  A declarant under this Scheme shall not be entitled, in respect of undisclosed income or any amount of tax and surcharge paid thereon, to re-open any assessment or reassessment made under the Income-tax Act or the Wealth-tax Act, 1957, or to claim any set-off or relief in any appeal, reference or other proceeding in relation to any such assessment or reassessment.

(c) The contents of the declaration shall not be admissible in evidence against the declarant for the purpose of any proceeding under any Act, other than the Acts referred in section 199O (scheme not to apply to certain persons)cases where scheme shall not be applicable.

No Double Taxation

Section 199-I of the scheme makes it clear that in future years, if the assessee claims before the Assessing Officer that he had made certain disclosures under this scheme and then Assessing Officer shall reduce amount of undisclosed income declared under this scheme from the total income of the declarant for any tax year.

Secrecy of Information

Under this scheme, there is a specific reference to section 138 of the Income Tax Act, in section 199N of the scheme. Thus, under this scheme the information contained in the declaration will be kept confidential.

Non declaration of undisclosed cash or deposit in accounts under the Scheme

(a)    Non declaration of undisclosed cash or deposit in accounts under the Scheme will render such undisclosed income liable to tax under section 115BBE (leviable on income under section 68, 69, 69A, 69B, 69C or 69D).

(b)  Tax payable under section 115BBE increased from 30% to 60%. Surcharge on income taxable under section  115BBE is also leviable @ 25% of tax payable. Effective tax rate for income assessable under section 68, 69, 69A, 69B, 69C or 69D comes to 75% plus cess totaling to 77.25% of such income. (Amended by “The Taxation Laws (Second Amendment) Act, 2016”)

(c)    Further, penalty @ 10% of tax payable under section 115BBE could be levied under new section 271AAC. No penalty would be leviable if income is declared in return of income & tax is paid before the end of previous year.

Declaration to be void in certain cases

In the following cases, the declaration shall be treated as void:

(i)     Declaration made by misrepresentation or suppression of facts; or

(ii)   Declaration made without payment of tax , surcharge or penalty or without depositing the amount in the Deposit Scheme

Subscription and Mode of investment in the Bonds Ledger Account

(i) The deposits shall be accepted at all the authorised banks notified by Government of India.

(ii) The deposits shall be made in multiples of rupees one hundred.

(iii) The deposit under sub-section (1) of section 199F by a declarant shall not be less than twenty-five per cent. of the undisclosed income to be declared under sub-section (1) of section 199C of the Act.

(iv) The entire deposit to be made under sub-section (1) of section 199F under this Scheme shall be made, in a single payment, before filing declaration under sub-section (1) of section 199C.

(v) The deposit shall be made in the form of cash or draft or cheque or by electronic transfer and shall be drawn in favour of the authorised bank accepting such deposit.

Effective date of deposit

The effective date of opening of the Bonds Ledger Account shall be the date of tender of cash or the date of realisation of draft or cheque or transfer through electronic transfer.

Applications

(1) An application for the deposit under this Scheme shall be made in Form II clearly indicating the amount, full name, Permanent Account Number (hereinafter referred to as ‘PAN’), Bank Account details (for receiving redemption proceeds), and address of the declarant: Provided that if the declarant does not hold a PAN, he shall apply for a PAN and provide the details of such PAN application along with acknowledgement number.

(2) The application under sub-paragraph (1) shall be accompanied by an amount which shall not be less than twenty-five per cent. of the undisclosed income to be declared in the form of cash or draft or cheque or through electronic transfer as provided under sub-paragraphs (3) and (4) of paragraph 4.

Nomination

(1) A sole holder or a sole surviving holder of a Bonds Ledger Account, being an individual, may nominate in Form III, one or more persons who shall be entitled to the Bonds Ledger Account and the payment thereon in the event of his death.

(2) Where any amount is payable to two or more nominees and either or any of them dies before such payment becomes due, the title to the Bonds Ledger Account shall vest in the surviving nominee or nominees and the amount being due thereon shall be paid accordingly. In the event of the nominee or nominees predeceasing the holder, the holder may make a fresh nomination.

(3) A nomination made by a holder of Bonds Ledger Account may be varied by a fresh nomination, or may be cancelled by giving notice in writing to the Authorised Bank in Form IV.

(4) Every nomination and every cancellation or variation shall be registered at the Reserve Bank of India through the authorised bank and shall be effective from the date of such registration.

(5) If the nominee is a minor, the holder of Bonds Ledger Account may appoint any person to receive the Bonds Ledger Account or the amount due in the event of his death.

Transferability

The transferability of the Bonds Ledger Account shall be limited to nominee or to the legal heir of an individual holder, in the event of his death.

Tradability against Bonds

The Bonds Ledger Account shall not be tradable.

Repayment of the deposit will be made after a period of 4 years

The Bonds Ledger Account shall be repayable on the expiration of four years from the date of deposit and redemption of such Bonds Ledger Account before its maturity date shall not be allowed.

Declaration under Pradhan Mantri Garib Kalyan Yojana Scheme, 2016 after search and seizure – Retention was held to be valid – Court directed to release of small part of seized amount

The assessee filed a writ petition challenging a portion of Circular No. 2 of 2017 dated January 18, 2017 (2017) 390 ITR (St.) 125) by which the Board disabled a person from seeking adjustment of the cash seized by the Department and deposited in the public deposit account, towards payment of tax, surcharge and penalty under the Scheme. The Court held that, retention was held to be valid however the Court directed to release of small part of seized amount. The Court also observed that release would not hamper either any investigation or further proceedings on the part of the Department. [Jaya Balajee Real Media (P) Ltd. v. CIT (2018) 404 ITR 124 : 303 CTR 489 : 167 DTR 465 (T&AP)]

Pradhan Mantri Garib Kalyan Yojna, 2016 – Court declined to enter into or encroach upon policy making arena and suggest a different policy on ground that it was not within its domain [Constitution of India]

Challenging Section 199A of the Finance Act, 2016, Pradhan Mantri Garib Kalyan Yojna, 2016, the petitioner urged for a different and better scheme which could have got more good money in banks and honest taxpayers would have deposited amount. However, Court declined to enter into or encroach upon policy making arena and suggest a different policy on ground that it was not within its domain court, therefore there was no justification to issue notice in instant petition and accordingly it was dismissed. [Siddharth Mehta v. UOI (2017) 244 Taxman 289 (SC)]