Tax Insights
from India Tax & Regulatory Services
www.pwc.in
HC upholds sanction for
prosecution under the Black Money Act for non-disclosure of bank
accounts; parallel penalty
proceedings under the Income-tax Act not relevant at such stage
February 19, 2019
In brief
Recently,1 the Calcutta High Court (HC) upheld the initiation of prosecution proceedings under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (BM Act) for non-disclosure of foreign bank accounts by the taxpayer in his return of income. The HC rejected the taxpayer’s contention that the said accounts belonged to his deceased mother and the same was inherited. The HC further held that where an offence constituted under two enactments, the offender may be prosecuted and punished under either or both the enactments.
In detail
Facts
A search and seizure was executed at the taxpayer’s residence on 17 March 2015 under the Income-tax Act, 1961 (Act).
During the search, the Tax Officer (TO) found that the taxpayer was in possession of four foreign bank accounts, which he claimed to have inherited from his deceased mother.
The TO issued a notice under section 153A of the Act and called upon the taxpayer to furnish a return of income for the financial
1 Writ Petition No. 568 of 2018, order dated 14 February 2019
years (FYs) 2008-09 to 2014-15.
The taxpayer filed the returns in response to the notice. During the pendency of assessment, the taxpayer approached the settlement commission, which considered the application as invalid.
The TO concluded his assessment proceedings and raised demand after taking into consideration the foreign bank accounts of the taxpayer and the amount lying therein.
Further, penalty
proceedings were initiated under the Act.
The taxpayer received show cause notices under the BM Act, to which it replied.
Ultimately, the authorities purporting to exercise jurisdiction under the BM Act granted a sanction to prosecute the taxpayer.
Aggrieved, the taxpayer filed a writ petition.
Taxpayer’s contentions
The taxpayer contended that the BM Act is
prospective in nature, hence applicable with effect from FY 2015-16. The BM Act cannot have a retrospective effect, as it came into force
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on 1 April 2016. Therefore, there is no mens rea on his part.
Further, since the taxpayer was debarred from voluntary disclosure of foreign bank accounts under the one time compliance window,2 the prosecution proceedings should not have been initiated against him.
The taxpayer also contended that he could not suffer double jeopardy, since the TO had already launched proceedings under the Act for the same period.
Revenue’s contention
The Revenue contended that this was not a case of double jeopardy, as the Act and the BM Act operate in different fields. The BM Act has been invoked for the failure of taxpayer in disclosing the foreign assets in his returns. Apart from the opportunity to file a return under the Act, the taxpayer was given two more opportunities to make a true and honest disclosure of foreign assets (one during the search assessment proceedings and another before the settlement commission). However, the taxpayer failed to make a true and honest disclosure of his assets.
2 Opened between 1 July, 2015 to 30 September, 2015 under the BM Act
Under the Act, a taxpayer is penalised financially, while a taxpayer found guilty is punished with imprisonment under the BM Act.
High Court’s decision
While dismissing the taxpayer’s petition, the HC held that the plea of mens rea can be decided in the criminal proceeding itself and it need not enter into such issues, as this is merely a sanction to prosecute, without any actual prosecution being launched.
Further, the HC rejected the taxpayer’s contention of double jeopardy to hold that there is no bar to a trial or conviction of an offence under two different enactments. In the facts of the present case, the Act does not impose a punishment of imprisonment, while the BM Act does, and therefore, it cannot be said that the taxpayer had been sought to be punished twice for the same offence.
The takeaways
Residents and ordinarily
residents are required to disclose their overseas income and assets under the Act in their tax returns.
Non-disclosures attract not only the penalty but also initiation of
prosecution proceedings under the BM Act. Although the Act contains provisions of penalty and prosecution for non-
disclosure, to check black money stashed overseas, the Government specifically brought in the BM Act in 2015, which contains much more severe provisions of penalty and prosecution in relation to non-disclosure of foreign income and assets. In fact, the
Government had also provided a one-time window in 2015 for those who failed to disclose any foreign income or assets in the past to rectify such lapses by paying the prescribed tax and penalty. Authorities have now started using the BM Act to punish defaulters by enforcing strict compliance. This decision is likely to boost the confidence of the tax authorities to bring to task those who failed to make accurate disclosures of foreign income and assets in their tax returns.
Taxpayers who are ordinarily residents of India should pay particular attention to disclosing their foreign income and assets accurately in their tax returns, to avoid facing such severe
consequences under the BM Act.
Let’s talk
For a deeper discussion of how this issue might affect your business, please contact your local PwC advisor
Tax Insights
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