1. RAKESH RAJ & ASSOCIATES PRACTICAL ASPECTS RELATING TO SURRENDER OF UNDISCLOSED INCOME DURING SEARCH OR SURVEY UNDER THE INCOME TAX ACT PRESENTATION BY: Dr. RAJ K. AGARWAL FCA, FCS, AICWA, LL.M., MBA Ph.D. M/s. Rakesh Raj & Associates Chartered Accountants Faridabad & Delhi

2. RAKESH RAJ & ASSOCIATES Surrender of Undisclosed Income Why to make surrender?  To avoid penalty Deeming fiction of undisclosed income U/s 271AAA  To mitigate rigors of search  To wrap up the search proceedings Penalty Provisions  For earlier years U/s 271(1)(c)  For specified years U/s 271AAA / 271AAB

3. RAKESH RAJ & ASSOCIATES Introduction of Section 271AAB by Finance Act, 2012. Penalty for undisclosed income even for specified previous year in staggered manner:-  Declared during search in statement under section 132(4) – 10%  Declared in the return of income filed under section 153A – 20%  Not Declared, addition made during assessment – 30%-90%

4. RAKESH RAJ & ASSOCIATES Surrender of Undisclosed Income No surrender for earlier years otherwise admitted concealment Surrender subject to no penalty Weighing the option to approach to Settlement Commission

5. RAKESH RAJ & ASSOCIATES Surrender of Undisclosed Income When to make surrender?  Depends upon object  To avoid penalty- till search is concluded  Don’t surrender under pressure Conditions of surrender  State the manner how undisclosed income has been derived  Substantiate the manner  Pay the taxes  Precautions while recording statements / disclosure

6. RAKESH RAJ & ASSOCIATES Surrender of Undisclosed Income Retraction of Surrender To be made at the earliest Department may view it adversely Ultimately nature of evidences will decide Challenging valuation, not retraction Challenging calculation, not retraction Conditional surrender- fulfilling conditions

7. RAKESH RAJ & ASSOCIATES Surrender of Undisclosed Income Why department insist for surrender?  Assessee is in the best position to make surrender during search  To bind the assessee  Parameter of success of search

8. RAKESH RAJ & ASSOCIATES Surrender of Undisclosed Income Planning of Surrender  Cover incriminating material found  Creation of capital  Generation of income v. Application in assets  Set-off of losses  Assets acquired prior to seven financial years  Current year income not recorded, advance tax not paid  Conditional surrender  Principle of Peak Balance  No surrender for third party

9. RAKESH RAJ & ASSOCIATES Surrender of Undisclosed Income Declaration by Listed companies Corporates Business entities

10. RAKESH RAJ & ASSOCIATES Surrender of Undisclosed Income Surrender of different kind of assets  Cash  Jewellery  Stock-in-trade/ WIP  Investment in Fixed Assets  Investment in FD/ Shares/ Bonds  Advances given for properties  Creditors not verifiable vs. bogus  Share capital  Notings in loose papers- dumb documents  Household expenses  Capital gains  Immovable property- Registered Value vs. FMV

11. RAKESH RAJ & ASSOCIATES Surrender of Undisclosed Income Introduction of surrendered income in the books  Whether to introduce in the books?  Whether asset created?  Payment of taxes out of undisclosed income  Creation of capital out of income surrendered

12. RAKESH RAJ & ASSOCIATES Surrender of Undisclosed Income Drafting of surrender letter  Break up- entity wise/ year wise/ nature wise  Statement U/s 132(4)  Manner and its substantiation  Subject to no penalty  Joint surrender to be signed by all  In case of amendment of earlier statement  Cash seized to be treated as advance tax

13. RAKESH RAJ & ASSOCIATES Surrender of Undisclosed Income Role of Counsel  Whether presence during search is permissible?  Key role in deciding surrender  To handle situation tactfully and objectively  To keep future planning in mind  Survey / search at consultant office / other related parties

14. RAKESH RAJ & ASSOCIATES Surrender of Undisclosed Income Appraisal report  Finding of investigation  Decision of jurisdiction  Significance of appraisal report Centralization of assessment—How for relevant Replying questionnaire issued by A.O. Summons U/s 131 issued after search Records/ Income belonging to other persons

15. RAKESH RAJ & ASSOCIATES