Updated return algorithm
The Memorandum fact and object
The memorandum to the Finance Bill 2022 in mooting a proposal for updated return reads out the following as basic understanding of win-win both for the revenue and the taxpayer:
“The proposal for updated return over a period longer than that is provided in the existing provisions of Income-tax Act would on the one hand bring use of huge data with the IT Department to a logical conclusion resulting in additional revenue realization and on the other hand, it will facilitate ease of compliance to the taxpayer in a litigation free environment.”
Apparently the purpose is to tell the taxpayers that the department carries with it data on the basis of which it can reopen assessments and in order to escape such action taxpayer may suo motu voluntarily submit a return or updated return and declare what is missed out within a period no more than 24 months from the end of the relevant assessment year.
This window is however not open to certain specified persons who are singled out and discriminated against and who have therefore every reason to challenge this amendment on the ground of equality principle under the law especially for the following three reason:
- the revenue as it claims hold with it data or information in respect of taxpayers in the sense therefore both who are eligible in whose cases no action is initiated as well those ineligible in whose cases some action was initiated to detect evasion stand on equal footing;
- the updated return is an invention out of necessity to end litigation;
- The updated return is part of the Act provisions.
The three provisos to sub-section (8A) in section 139 draw a long list of specified persons in whose case some proceedings are initiated or pending such as survey or search action or pending assessment all of whom are not entitled to furnish an updated return. For instance the provisos seek to differentiate between persons who have been searched and persons who have not been searched.
The grounds for parity and totality
Initiation of action for search under section 132 or requisition under section 132A or survey u/s 133A is authorized by the empowered authority, only where, in consequence of information in his possession, he has reason to believe that there is some concealment or existence of other conditions stipulated in the said sections. The memorandum to the bill also suggests that the department is in possession of data or information which suggests concealment of incomes which can be used against the taxpayer. This fact bring the two classes of taxpayers into some kind of parity.
When we talk of litigation free environment it is not only the litigation that is initiated by the taxpayer but also litigation entered by the revenue. Search and survey matters are prone to long drawn litigation and complexities both for the revenue and the taxpayer.
If these class of taxpayers in whose cases survey is conducted or search is initiated are also prompted to fall back on updated return scheme which they actually end up doing post search/survey actions, then the revenue can garner much of the taxes upfront even before completing assessments/reassessments in their cases. Additional taxes realized would effectively be more than present value of taxes realized say after not earlier than ten years of long drawn litigation with lateral risks.
Also those opting to file updated returns are actually tax evaders just as those in whose cases action has been initiated for evasion of tax by way of search or survey or for that matter subjected to an assessment or reassessment action based on information or data held, whether communicated or not.
As long as an assessment is pending all the taxpayers must have a equal right to submit updated return with payment of additional taxes.
The income tax provisions dealing with revision of return or belated return also provide for extended time for submission up to the date of completion of assessment.
Since the new provision is part of the income tax act and does not operate as any amnesty scheme there is no rationale to prevent a certain class of taxpayers from availing the benefit of new provision for submitting updated return on the equality principle enshrined in our constitution. As a matter of fact additional safeguard may be provided stating that in cases of specified persons those suppressing a material fact would stand disqualified from obtaining relief under the new provision.
In fact this classic idea of updated return is self-imposing trust and confidence in the taxpayers community apart from benefiting the revenue and the nation. Hence there is a need to implement this scheme in the totality to gain the maximum advantage.
CA Gopal Nathani