Income Declaration Scheme declarations retain their original character despite non-payment, so declared capital gains cannot be reclassified as unexplained income.
Non-payment of tax, surcharge and penalty under the Income Declaration Scheme, 2016 does not change the character of income declared under the scheme. Where the declared amount was undisputedly shown as capital gains from sale of agricultural land, it could not be recharacterised as unexplained income under section 68 read with section 115BBE merely because the scheme liability was not discharged. The amount was therefore required to be assessed under the declared head of capital gains in the year of declaration, and the addition as unexplained income was unsustainable.
Issues: Whether the amount declared under the Income Declaration Scheme, 2016, on non-payment of tax, surcharge and penalty, could be assessed as unexplained income under section 68 read with section 115BBE of the Income-tax Act, 1961, or was required to be taxed under the head capital gains in the year of declaration.
Analysis: The scheme provided that where tax was not paid, the undisclosed income would be chargeable to tax in the previous year in which the declaration was made. Non-payment of tax under the scheme did not alter the character of the income originally declared. The declared amount was shown as capital gains arising from sale of agricultural land, and that factual position was not disputed. The Assessing Officer was therefore not justified in recharacterising the declared income as unexplained income under section 68 read with section 115BBE merely because the declarant failed to discharge the tax liability under the scheme.
Conclusion: The amount had to be taxed as capital gains in the year of declaration, and the addition as unexplained income was unsustainable.
Final Conclusion: The appellate order directing recomputation of income under the head capital gains was upheld and the Revenue's challenge failed.
Ratio Decidendi: Failure to pay tax under the Income Declaration Scheme, 2016 does not change the character of the income declared, and the income must be assessed under its declared head in the year of declaration.
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