The Central Board of Direct Taxes (CBDT) has directed assessing officers to closely examine all revised income tax returns (ITR) filed by taxpayers after the shock demonetization on November 8 last year and slap a higher tax in cases where black money is detected. The CBDT issued a two-page directive to all regional chiefs of the income tax department on November 24, laying out the guidelines for assessing cases which have been taken up for scrutiny on the ground of suspicious financial activity postdemonetisation.

The directive states that unaccounted income detected in scrutiny assessment is liable to be taxed at a higher rate without any set off on losses, expenses etc. under section 115BBE (treatment of tax credits) of the I-T Act.

The directive also states that any claim of enhanced sales (especially by business category of taxpayers) may be compared with the central excise/VAT returns. The rationale behind the CBDT directive is that the legal provision of filing a revised or belated ITR is not misused and black income is not shown as white in the aftermath of demonetisation by a taxpayer.

The assessing officers will follow these new guidelines in carrying out the scrutiny in over 20,000 cases that have already been selected by the department based on their financial activity postdemonetisation. The CBDT had earlier warned taxpayers on the misuse of the provision of revising I-T returns to launder banned currency. It had made it clear that those drastically altering the forms to revise income will face scrutiny and penal action including prosecution.

The provision to file a revised return under the income tax law has been stipulated for revising any omission or wrong statement made in the original return of income and not for resorting to make changes in the income initially declared so as to drastically alter the form, substance and quantum of the earlier disclosed income, the CBDT had earlier said.

Under Section 139(5) of the I-T Act, a revised ITR can only be filed if any person who has filed a return discovers any omission or any wrong statement therein. The CBDT has also asked the assessing officers to check the genuineness and creditworthiness of entities to whom the assessee has reported the additional sales in the revised returns, after the shock demonetization on November 8 last year.

The source of cash in hands of the person who had made payments to the assessee has to be verified carefully and the past profile of the assessee concerned should be thoroughly analysed, the directive states.

The CBDT has also directed assessing officers to closely examine the trend and business practices of a particular assessee while ascertaining the legitimacy of the transactions disclosed in a belated return, filed postdemonetisation. In such cases which are already chosen for scrutiny, it said, some instances might indicate that assessee had filed revised or belated return merely as a cover up to explain the cash deposits in bank accounts.