Demonetisation: Deposits above Rs 10 lakh to be presumed as cases of tax evasion

But the presumption that deposits of more than Rs 10 lakh are cases of tax evasion is not agreeable, he added.Below is the verbatim transcript of Dinesh Kanabar and Sandeep Parikh\\'s interview to Shereen Bhan on CNBC-TV18. Q: These are exactly the questions that we were asking last night and now the government has clarified, what do you make of the penalty amount? Kanabar: As I was telling you yesterday and there is no inconsistency which I did hear a counterpoint of you, which I must say I never agreed with that this is a voluntary disclosure scheme it isn’t really. I mentioned to you yesterday and I will just repeat that when you deposit money into bank, you will need to substantiate that this happens to be something which you have drawn otherwise or it is out of income, which you have earned and unless you are able to substantiate that the amount will be treated as tax evasion. It cannot be treated as income of the current year for a very simple reason that you just had a voluntary disclosure scheme where people paid about 45 percent tax and now you cannot have within a couple of months thereafter people paying 30 percent tax. For evasion of tax India is one of those countries which levies a penalty of between 100 and 300 percent, that is provided under the Income Tax Act itself that if there is a concealment of income detected by the tax office, then a penalty of between 100 percent and 300 percent can be levied by the tax office and last year the law got amended to say that instead of 100 percent to 300 percent it will be a standard 200 percent - - what I cannot agree is that merely because an amount is more than Rs 10 lakh there should be a presumption of an evasion. It is up to an assessee to prove, somebody may have withdrawn cash for paying salary for example and a crore of rupees is lying as salary payment simply redeposited and so long as you can explain that can’t be a presumption, but clearly the position in law is that if you deposit monies into a bank account and you are unable to explain to the satisfaction of the tax office that it does not constitute evasion, it would be liable to a penalty of 200 percent. Q: I am just trying to look at the press release it very categorically states that the deposits above Rs 10 lakh will be treated as the case of tax evasion, though it also says that the IT department will match this with the IT returns filed by the depositors and suitable action may follow. You believe that is the one area of concern, but in principle you agree with the decision and you believe that in fact this is consistent with what the government intends to do? Kanabar: Absolutely, so let us assume that somebody has got huge unaccounted cash and goes and deposit, a person cannot say that money is income which I have earned in the current year and I am going to pay 30 percent tax, because you had people making a declaration and paying 45 percent tax and you cannot now go and say, I did not avail of that opportunity but I will simply pay a 30 percent tax” and therefore the avowed intention of the government is to say, prove your source and if you are unable to prove your and it will be treated as undisclosed income, unaccounted income and you pay a 200 percent penalty, what I cannot agree is a presumption that if it is more than Rs 10 lakh it will be presumed to be unaccounted, I don’t think that is consistent and I don’t think that is something which will stand up in a court of law. Q: This was the fine print that we were waiting for and now the government has issued that clarification. A tax penalty of 200 percent on undisclosed income and the government at least if you go by what the tweet suggests by the revenue secretary, the government will presume it to be unaccounted income and a case of tax evasion if the deposit is above Rs 10 lakh, what do you make of it? Parekh: The word presumption is well understood by lawyers. Typically all presumptions are rebuttable presumptions which means that something is considered to be x unless facts prove otherwise. So, this seems to be a case of that. If it is over Rs 10 lakh, if it is Rs 1 crore then you can easily rebut it by saying that you had withdrawn this on so and so date and you are just re-depositing in that because of so and so reason. It may not be as unconstitutional as it sounds because ultimately it is going to be a rebuttal presumption. This is more of a red flag rather than irrebuttable presumption as we lawyers call it. Q: Overall what do you make of the fine print now, now that the government clarification is in? Parekh: This seems to be quite reasonable in terms of accepting smaller amounts and putting a red flag over large transactions. If somebody has got Rs 10 crore, obviously they are not going to get away by just disclosing it and paying 30 percent tax. So, seems to be kind of a good workable solution. I just hope they have the bandwidth to handle, you are looking at Rs 16 lakh crore. So, even if 60 or 70 percent of that comes back into the banking system, we are looking at very high bandwidth both for banks and for the tax authorities.