Budget 2025 Expectations : Restore word “False” in Undisclosed Income defination

This article discusses a subtle but potentially significant change in the definition of “undisclosed income” under India’s new block assessment scheme for income tax. Here’s a breakdown:

New Definition of “Undisclosed Income” (Section 158B(b)):

• Includes: Money, bullion, jewelry, valuable items, expenditures, income based on entries in books of account, or any expense, deduction, or allowance claimed that is found to be “incorrect” in respect of the block period.

Comparison with Previous Definition:

• Old Definition: Similar to the definition in the old block assessment scheme and other sections (271AAA, 271AAB), but used the term “false” instead of “incorrect” when referring to expenses, deductions, or allowances.

Concern:

• Ambiguity of “Incorrect”: The term “incorrect” is broader than “false” and could potentially encompass legitimate claims that are technically incorrect due to differences in interpretation or legal opinions.
• Potential for Litigation: This ambiguity could lead to unnecessary litigation as taxpayers may need to defend even bona fide claims that are deemed “incorrect” by the tax authorities.
• No Explanation: The explanatory memorandum to the Finance Budget does not clarify the reason for this change in terminology.

Argument for Retaining “False”:

• Established Precedent: The term “false” has been used in previous search assessment schemes and is well-defined through judicial pronouncements. It is understood to cover fraudulent or intentionally misleading claims.
• Clarity and Certainty: Using “false” would provide greater clarity and certainty for taxpayers, reducing the scope for disputes and litigation.

Suggestion:

• Restore “False”: It is recommended that reverting to the earlier language and using the term “false” instead of “incorrect” in the definition of “undisclosed income” under the new block assessment scheme.

In conclusion, the article highlights a potential issue with the new definition of “undisclosed income” that could create uncertainty and increase litigation. The author suggests retaining the previously used term “false” to maintain clarity and consistency in tax laws.