The Modi government has been criticized by its detractors for making a virtual midnight crackdown on high value currency notes---Rs 500 and Rs 1000.
True, the sudden and peremptory declaration of these two denominations as not making muster as legal tender has inconvenienced common folks like farmers, householders, etc for a day but it did catch the crooks hoarding black money with their pants down. To be sure, the fleet-footed among them rushed to obliging jewellers post-haste on the night of November 8 to beat the 12 AM 9
November deadline but the government has girded up its loins to gun after the jewellers by asking them to disclose the PAN of such buyers. The point is demonetisation required a peremptory and sudden declaration lest the wily black money owners took advantage of the latitude offered.
However, the same government seems to have goofed up on the follow-up action by going to town of what it intends to do with the deposits between 10 November and 30 December 2016 into bank accounts of such currency notes----deposits of Rs 2.5 lakh and more to attract scrutiny by the tax sleuths who would impose 30 percent tax plus penalty of 200 percent thus making a grand tally of 90 percent on those who had not declared the income represented by such cash in their income tax returns. Pray where was the need? The shock and awe factor characterizing the demonetization should have characterised the follow up plans too. In other words, the crooks should have been allowed to stew in their own juice. But in the wake of this goof-up, they would take care to steer clear of the dreaded figure while depositing cash of 500 and 1000 rupee notes. Deposits of Rs 2.49 lac could be common.
As it is, cash deposits of Rs 50,000 and more requires mandatory furnishing of PAN to the bank which in turns passes on the information to the income tax department for whatever action it deems fit. Now it seems in the wake of demonetization the threshold has been upped to Rs 2.5 lakh for those depositing the discredited notes during 10 November and 30 December, 2016.
The exchange window is likely to be more popular than the deposit window in banks during 10th November to 25th November. One can exchange the old discredited notes for new ones carrying legitimacy upto Rs 4,000 during this fortnight.
For crooks this is a godsend opportunity, the one that is infinitely better than offering themselves in the chopping block by depositing into their accounts though it would call for frequent and numerous visits to hundreds of such exchange counters especially if their stash is heavy.
Furthermore, why on earth should the government declare a universal penalty of 200 percent on mismatch between deposits during 10th November to 30th December and the income tax returns given the fact that section 271(1(C) gives the commissioner the power to slap a penalty ranging from 100 percent to 300 percent of the tax sought to be evaded? By doing this it has in a way interfered with the work of the tax administration even though it must be conceded that wrenching away of the discretionary power would end corruption.
Universal penalty of 200 percent removes the scope for mutual back-scratching. But the fact remains the government is guilty of overreach by limiting penalty to 200%.
Last, but not the least, will the cash deposits during 10 November 2016 and 30 December, 2016 of the disagreeable notes be matched with the latest return or with the returns of the last few years.
To wit, if someone has deposited Rs 10 lakh whereas he has declared an income of just Rs 3 lakh for the previous year 2015-16, will it give rise to the presumption of tax evasion on Rs 7 lakh warranting a tax plus penalty of 90 percent on this amount? The equally plausible contention, the one offered by the alleged tax evader, could be the assessing officer should spread the deposits over the last couple of years.
In other words, has the government been high-handed in slapping the maximum marginal rate of 30% on even genuine cases warranting attribution of cash deposits to the financial years when they were earned instead of to the latest year? The 90 percent tax plus penalty scheme is one-size-fits-all and could be challenged as unconstitutional as it has no Parliamentary sanction.
Published Date: Nov 10, 2016 09:12 am | Updated Date: Nov 10, 2016 12:47 pm