The Income Tax Appellate Tribunal (ITAT), Visakhapatnam recently upheld an order passed by the Commissioner of Income Taxes – National Faceless Appeals Centre (CIT(A)-NFAC) directing an Assessing Officer (AO) to recompute the Income declared by Assessee as ‘Capital Gains’ under Section 68 read with Section 115BBE of the Income Tax Act, 1961.
The decision was rendered by the ITAT while hearing an Appeal filed by the Assistant Commissioner of Income Tax, Circle-1, Karnataka against the Assessee, Sri Jiyyana Venkatarayudu, a Hindu Undivided Family (HUF).
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The factual matrix follows the Assessee’s disclosure of income of Rs. 2,15,48,400/- in the form of cash for the Assessment Year (A.Y.) 2015-16 through Form No.1 under the Income Declaration Scheme, 2016 (IDS).
The declaration by the Assessee was met with allegations citing the Assessee’s failure to pay tax as per the IDS.
The Assessee was subsequently served with Show-Cause Notices querying the Assessee’s failure to pay tax on the Undisclosed Income within the due date, while indicating a penalty levy under Section 271F of the Income Tax Act, 1961.
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Owing to the lack of response from the Assessee, the AO proceeded to complete the scrutiny assessment of the Assessee for A.Y. 2017-18 employing ‘best judgment assessment’ under Section 144 of the Act, and determined the income of the Assessee at Rs. 2,15,48,400/- while including additions under Section 68 read with Section 115BBE of the Income Tax Act, 1961.
The Assessment was challenged by the Assessee before the CIT(A)-NFAC which allowed the Appeal in relief to the Assessee.
Order passed by the CIT(A)-NFAC has been challenged by the Department through the present Appeal averring that the CIT(A) had erred in accepting the Asseessee’s contentions that the amount disclosed in IDS are capital gains arising out of agricultural land sold through M/s Sri Satya Sai Housing among other grounds.
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The two-member bench of Income Tax Appellate Tribunal, Visakhapatnam constituted by Duvvuru RL Reddy, Judicial Member and S Balakrishnan, Accountant Member found merit in the Assessee’s argument that the non-payment of tax under the IDS, 2016 cannot change the character of income declared under the IDS.
ITAT observed that the declaration of Rs.2,15,48,400/- as capital gains from sale of agricultural land by M/s Sri Satya Sai Housing had not been refuted by the Department, but had been erroneously reclassified as ‘undisclosed income’ under Section 68 read with Section 115BBE of the Income Tax Act, 1961.
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In light of such findings, ITAT held that mere failure to discharge tax liability under the IDS does not call for the change of the character of income declared; further noting that the IDS, 2016 is silent on the nature of income to be taxed upon failure of the Declarant to pay the taxes.
Concludingly, the Bench ruled that the CIT(A)-NFAC had rightly directed the AO to re-compute the total income of the Assessee under the HUF status under the head of ‘capital gains’, vitiating the need for any interference in the order of the CIT(A)-NFAC.
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