Demonetization has encouraged people to shift towards digital mode of payment while making financial transactions. By adopting digital mode of payment, no financial transactions would remain undisclosed and consequently an enhanced turnover of business might get reflected in the books of accounts.
Under the circumstances, an apprehension has been raised that increased turnover in the current year may lead to reopening of earlier years' cases causing undue harassment to tax payers. Thus, CBDT and CBEC (vide Circular No. 40/2016 and Circular No. 137/155/2012-Service tax) have advised tax officials not to re-open past assessments in income-tax and indirect tax cases only because increased turnover is reflected in books of accounts of business on account of increased use of digital means of payment.
It would be incorrect to construe the above Circulars as giving any amnesty to taxevaders. Nor do the above circulars say that any spurt in turnover reported in books of account of businesses of current financial year (and consequently in their ITRs or indirect taxes returns) would not need to be explained.
The Circulars do not give businessmen a license to show their accumulated black money in the form of demonetized notes as current year’s turnover and get away scot-free without any interest or penalty and by paying normal tax for current year. If such a license is given by the circulars, the proposed PMGKY Scheme and proposed amendments to section115BBE of Income-Tax Act and proposed new section 271AAC of that Act would be redundant. The Circulars are innocuous and merely caution tax oicials to adopt systematic approach under the law to enquire into sudden jumps and reopen past assessment only if enquiry
throws up reason to believe that past turnovers/incomes escaped assessment.