Unexplained income from unpaid IDS declarations may be taxed in the year of declaration if nature and source remain unsubstantiated.

Whether amounts declared under the Income Declaration Scheme but not paid within the prescribed time can be treated as unexplained income and taxed in the year of declaration: clause (b) of the Finance Act, 2016 makes such undeclared/unpaid amounts chargeable in the previous year of declaration; non-payment and cancellation of declaration furnish reason to reopen assessments under taxation law; where the assessee fails to substantiate nature and source despite opportunities, the amounts may be treated as unexplained money under the tax code and taxed under the special regime for unexplained income. The appeal is dismissed and the addition upheld.

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Issues: Whether amounts declared under the Income Declaration Scheme, 2016 but not paid within the specified time can be treated as undisclosed / unexplained money and brought to tax in the year of declaration and taxed under special tax provisions applicable to unexplained money.

Analysis: Clause (b) of section 197 of the Finance Act, 2016 provides that where a declaration is made under section 183 but tax, surcharge and penalty referred to in sections 184 and 185 are not paid within the time specified under section 187, the undisclosed income shall be chargeable to tax under the Income-tax Act in the previous year in which the declaration is made. Reopening of assessment under section 147/148 of the Income-tax Act is justified where there is reason to believe income has escaped assessment; non-payment under the IDS scheme and cancellation of the declaration provide such reason. Where the assessee fails to furnish evidence to substantiate the nature and source of declared amounts despite opportunities (for example, profit and loss account, balance sheet, audit report, bank statements and details of investments), the amounts may be treated as unexplained for the year in which they are chargeable. Section 69A permits treatment of unexplained money as income of the assessee when its nature or source remains unestablished. Section 115BBE prescribes special tax treatment for income treated as unexplained money. Distinguishing decisions where the assessee proved nature and source of declared amounts, the absence of such proof permits treating the declared amounts as unexplained and taxing them in the year of declaration.

Conclusion: The declared amounts that were not paid as required under the Income Declaration Scheme, 2016 are chargeable to tax in the previous year in which the declaration was made and, in the absence of substantiation of nature and source by the assessee, can be treated as unexplained money and taxed under the special provisions applicable to unexplained income. The appeal is dismissed and the addition of the declared amount as unexplained money is upheld.

Ratio Decidendi: Where a declaration under the Income Declaration Scheme, 2016 remains unfinalised by non-payment within the prescribed time and the assessee fails to substantiate the nature and source of the declared amounts, those amounts are chargeable in the year of declaration and may be treated as unexplained money for taxation under the Income-tax Act.

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