Bombay HC Bars Double Taxation, Directs Credit of Self-Assessment Tax Paid After IDS Default

While protecting taxpayers from double taxation arising out of procedural lapses under the Income Declaration Scheme (IDS), 2016, the Bombay High Court has directed the Income Tax Department to treat self-assessment tax paid under the Income-tax Act as valid payment towards the revived IDS liability and to issue Form-4 acknowledging acceptance of the declaration. The Bench of Justice B.P. Colabawalla and Justice Amit S. Jamsandekar held that the Revenue’s refusal to give credit for tax already paid on undisclosed income was arbitrary, hyper-technical, and violative of Article 265 of the Constitution. The petitioner, an individual engaged in the restaurant and bar business, had availed the Income Declaration Scheme, 2016 by filing Form-1 on September 26, 2016, declaring undisclosed income of ₹3.51 crore. The total liability under the Scheme—comprising tax, surcharge, and penalty—was computed at ₹1.57 crore, payable in three instalments. While the petitioner paid the first two instalments amounting to ₹78.99 lakh, he defaulted on the third instalment due to acute financial distress. His request for extension of time was rejected, and consequently, the declaration was treated as invalid. As mandated under Section 197(b) of the Finance Act, 2016, upon failure of the declaration, the undisclosed income became taxable under the Income-tax Act for Assessment Year 2017-18. Acting bona fide, the petitioner filed a revised return offering the undisclosed income to tax and paid ₹45 lakh as self-assessment tax. Though the Assessing Officer accepted the revised return and assessed the income under Section 143(3), the system failed to grant credit for taxes paid under IDS, resulting in a demand of over ₹1.26 crore. In 2019, the Government introduced a second chance for defaulters under IDS through a statutory amendment and notification, allowing payment of the balance amount with interest. Acting on this opportunity, the petitioner paid the remaining amount and interest in January 2020 and applied for issuance of Form-4, which signifies final acceptance of the declaration. However, the Department refused to treat the ₹45 lakh self-assessment tax as part of IDS payment and failed to issue Form-4, while simultaneously continuing recovery proceedings for the same income under regular assessment—effectively subjecting the petitioner to double taxation. The central issue before the High Court was whether self-assessment tax paid on undisclosed income after failure of IDS declaration could be adjusted against revived IDS liability, despite the absence of an explicit statutory provision permitting such adjustment. The High Court ruled in favour of the taxpayer, holding that the self-assessment tax payment was inextricably linked to the same undisclosed income declared under IDS. The tax was paid solely because the declaration was initially deemed invalid, and not for any independent income. Once the law revived the declaration and granted a second opportunity, the Revenue could not insist on re-payment of tax already collected for the same income. Rejecting the department’s argument that different challan heads barred adjustment, the Court termed the stand “hyper-technical” and contrary to the intent of the beneficial scheme. The Bench observed that allowing the Department to retain tax paid under both regimes would amount to collection of tax without authority of law, prohibited under Article 265 of the Constitution. The Court also relied on CBDT Circular No. 25/2016, which clarifies that taxes relating to income declared under IDS must be given credit where such income is accepted under the Scheme. The Bench held that this clarification applied with even greater force in the present case. Allowing the writ petition, the High Court directed the ₹45 lakh self-assessment tax to be treated as valid payment towards the third instalment under IDS. Issuance of Form-4 acknowledging acceptance of the declaration. Exclusion of ₹3.51 crore undisclosed income from the regular assessment for AY 2017-18. Revision of assessment order and demand notice within 60 days. Case Details Case Title: Vishnu Trimbak Thakur Versus PCIT Case No.: Writ Petition No. 6622 Of 2025 Date: 23/12/2025 Counsel For Petitioner: Dharan Gandhi Counsel For Respondent: Akhileshwar Sharma Click Here To Read Order Read More: Capital Gains Exemption Allowed Despite Demolition of Residential House After JDA: Madras HC

Bombay HC Bars Double Taxation, Directs Credit of Self-Assessment Tax Paid After IDS Default

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