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Tax officials are using an IDS provision to question transactions beyond six-year-limit
October, 12th 2016

Income tax officials are said to be asking questions about transactions older than the six-year statute of limitations by invoking a provision that was put in place as part of the just-concluded Income Disclosure Scheme (IDS), throwing assessees into turmoil.

While no fresh notices are being issued on such assets, some income tax officials believe the IDS-related provision allows them to raise such matters when they conduct assessments of returns made within the six-year ceiling. “It’s not an unlimited power for the income tax department to go after whomsoever they want to go,” a tax official told ET.

“But tax officers can raise questions under ongoing assessments, even about properties bought say 20 years ago and source of income.” Section 197c, which was recently added to the Finance Act, allows tax officials to examine transactions much older than six years.

This was believed to have been solely related to IDS--the June-September programme aimed at persuading people to declare their black money holdings--but the tax department has in the past week begun questioning people about properties older than six years in some ongoing assessments.

“The government had introduced section 197c for the IDS, but now the concern is whether tax officials can still open assessments which are older than six years,” said Sanjay Sanghvi, tax partner at law firm Khaitan and Co.

“There is a view that the tax officials can do that, but this could lead to a lot of litigations going ahead as it contradicts provisions of Income Tax Act.” One instance relates to the New Delhi income tax department last week asking a tax payer for documents related to a house that was purchased more than six years ago.

Tax officials are using an IDS provision to question transactions beyond six-year-limit

The officials said it would be included in the past year’s income and penalties would be imposed, according to a tax adviser who was involved. “It’s a damaging provision of IDS which allows IT officers to go back several years to catch undisclosed income and deem it as current year’s income. This is not limited by time given under the income tax provisions,” said Amit Maheshwari, partner at Ashok Maheshwari and Associates.

It couldn’t be independently verified whether this was a view held by the department or just a few tax officers. ET also understands that income tax officers had raised the matter with the Central Board of Direct Taxed (CBDT) in July, with some making the point that litigation could follow as other regulations still bar assessments older than six years.

To be sure, Prime Minister Narendra Modi has made it clear to tax officials that they shouldn’t unnecessarily harass bonafide tax payers and encourage voluntary compliance.

“The government has not come out with clear regulations around using this provision but the thinking could be to go hard at the tax evaders,” another person close to the development said. Experts said some tax payers are worried their ancestral properties may also come under the tax net.

They wouldn’t have been too encouraged by the statement of a top government minister at a public event in Mumbai about a month back. “You want to enjoy the ancestral property but you don’t want to pay taxes on that. How can that happen?”

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