Advocate Sameer Bhatia has conducted an in-depth study of The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 and explained its provisions. He has also explained the interplay between this Act and the Income-tax Act and the similarity and differences in their provisions. He has also dealt with the important question whether the said Act can be regarded as being discriminatory in nature
Prologue
The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax act, 2015 (Act No.22 of 2015) in short the Black Money Act (BMA) came into force with effect from 01st July, 2015 i.e. the appointed date substituted for 01st April, 2016 by the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act (Removal of Difficulties) Order, 2015. It is indeed a comprehensive and exhaustive code dealing with the facets of undisclosed foreign income and assets besides undisclosed assets held by the assessees and located outside India with the intent to bring the same within the tax net. A large section of the provisions contained in the BMA inherently refer to the Income Tax Act, 1961 for enforcing attending circumstances leading to assessment/re-assessment. The basic purport was to tackle the menace of money stashed and stockpiled abroad and to bring home the tax due in respect of undisclosed foreign income and assets located outside India with specific reference to the jurisdictions popularly stamped as tax heavens or cooperative/non-cooperative tax jurisdictions. Akin to its principle code i.e. the Income Tax Act, 1961, the BMA also incorporates provisions pertaining to assessment or reassessment for which the due recourse can be made to the provisions of section 10.
Assessment / Reassessment under BMA, 2015
SHORT TITLE, EXTENT AND COMMENCEMENT
Section 1 (1) of the BMA, 2015 provides that this Act may be called the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015. In furtherance, section 1 (2) of BMA, 2015 provides that it extends to whole of India and section 1 (3) provides that save as otherwise provided in this Act, it shall come into force on the [1st day of July, 2015] substituted for 1st day of April, 2016 by the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act (Removal of Difficulties) Order, 2015 w.e.f. 01st July, 2015. This section was the subject matter of litigation before the Hon’ble Delhi High Court in Gautam Khaitan vs. Union of India (2019) 265 Taxman 54 (Delhi) wherein certain notifications in consonance of the provisions of the act were issued prior to coming into force of the statute and thus were accordingly challenged before the Delhi High Court. A brief extract of the notification(s) along with their numbers is cited below for reference purposes.
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An appropriate writ and/or order and/or direction declaring that Notification No.S.O. 1790(E) dated 01.07.2015 issued by the Government of India is ultra vires under the Act and null and void; |
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An appropriate writ and/or order setting aside Notice No.Addl-CIT (CR)-02/2018-19/BMA/1264 dated 08.11.2018, issued by the Respondent No.3 as illegal, ultra vires and null and void; |
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An appropriate writ and/or order setting aside Order No.F.NO.Pr.CIT(C) -01/2017-18/2764 dated 22.01.2019 passed by the Respondent No.2 as illegal, ultra vires and null and void; and |
It was observed by the Hon’ble Delhi High Court in Gautam Khaitan’s case (supra) that in view of provisions of sub-section (3) of section 1, Government cannot exercise its power to issue notifications within meaning of provisions of sections 85 and 86, prior to enactment itself coming into effect as on 1-4-2016. Such finding of the Hon’ble Delhi High Court was challenged before the Hon’ble Supreme Court of India in Union of India vs. Gautam Khaitan (2020) 420 ITR 140 (SC), wherein it was observed in light of the impugned issue as under:-
`Date 1-7-2015, had been substituted by notification in sub-section (3) of section 1 of Black Money Act, in place of 1-4-2016, so as to enable assessee desiring to take benefit of section 59 of Black Money Act and it could not be said that by impugned notification, penal provisions were being made retrospectively applicable’. ub-section (3) of section 1 provides, that Black Money Act shall come into force on 1-4-2016 – However, by notification/order notified on 1-7-2015, it had been provided, that Black Money Act, shall come into force on 1-7-2015, i.e., date on which order is issued under provisions of sub-section (1) of section 86 of Black Money Act – High Court by impugned order held that by exercise of powers under provisions of sections 85 and 86 of Black Money Act, Central Government had made the said Act retrospectively applicable from 1-7-2015 – However, it was found that by virtue of section 59 of Black Money Act an opportunity was given to assessee to make a declaration in respect of any undisclosed asset located outside India and acquired from income chargeable to tax under Income Tax Act, for any assessment year prior to the assessment year beginning on 1-4-2016 – Central Government, in exercise of powers under section 59, published a Notification on 1-7-2015, notifying 30-9-2015 as date on or before which a person is required to make a declaration in respect of an undisclosed asset located outside India – However, in view of date originally prescribed by sub-section (3) of section 1, such a declaration could have been made only after 1-4-2016 – Therefore, in order to give benefit to assessee(s) and to remove anomalies date 1-4-2015, has been substituted in sub-section (3) of section 1 of Black Money Act, in place of 1-4-2016 – By doing so, assessees, who desired to take benefit of one time opportunity, could have made declaration prior to 30-9-2015, and paid tax and penalty prior to 31-12-2015 – Whether therefore, High Court was not right in holding that by impugned notification, penal provisions were made retrospectively applicable and accordingly order passed by High Court was to be set aside – Held, yes [Paras 13, 19, 20 and 22]
Therefore, by way of amendment in sub-section (3) of section 1, the Hon’ble Supreme Court set-aside the pronouncement of the Hon’ble Delhi High Court in Gautam Khaitan’s case and settled that the Central Government was empowered by way of a notification issued under section sub-section 3 of section 1 of the BMA, 2015 to provide for One Time Compliance Scheme referred to in Chapter VI (Tax Compliance for Undisclosed Foreign Income and Assets), Section 59 with effect from 01st day of July, 2015 instead of 01st day of April, 2016.
CHARGE OF TAX
Section 3 of the BMA, 2015 (Chapter II) provides the basis of charge of tax in respect of undisclosed foreign income and asset located outside India and is so worded as under:-
3.(1) There shall be charged on every assessee for every assessment year commencing on or after the 1st day of April, 2016, subject to the provisions of thisAct, a tax in respect of his total undisclosed foreign income and asset of the previous year at the rate of thirty per cent of such undisclosed income and asset:
Providedthat an undisclosed asset located outside India shall be charged to tax on its value in the previous year in which such asset comes to the notice of the Assessing Officer.
(2) For the purposes of this section, "value of an undisclosed asset" means the fair market value of an asset (including financial interest in any entity) determined in such manner as may be prescribed.
ASSESSMENT
Section 10 of the BMA, 2015 provides for assessment or reassessment procedure in respect of undisclosed foreign income & assets stashed abroad. There has also been a significant change introduced in the act by substitution of the provisions of section 2 (2) (substituted by the Finance (No.2) Act of 2019, with retrospective effect from 01st July, 2015 Actd) defining an assessee for the purposes of act. Post amendment, for the purposes of the BMA, reference to an assessee would include reference to non-resident assessee or not ordinarily resident as per provisions of clause 6 of section 6 of the Income Tax Act, 1961. Section 2 (2) of the BMA both pre and post amendment reads as below:-
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POST AMENDMENT LAW (w.r.e.f 01st July, 2015 inserted by the Finance (No.2), Act 2019
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In order to have clinical understanding of the subject, it is vital to understand the expressions `undisclosed asset located outside India’ as well as the expression `undisclosed foreign income and asset’ as so used in sections 2 (11) & 2 (12) of the act. Section 2 (11) and 2 (12) of the Black Money Act, 2015 reads as under:-
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(11) |
"undisclosed asset located outside India" means an asset (including financial interest in any entity) located outside India, held by the assessee in his name or in respect of which he is a beneficial owner, and he has no explanation about the source of investment in such asset or the explanation given by him is in the opinion of the Assessing Officer unsatisfactory; |
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(12) |
"undisclosed foreign income and asset" means the total amount of undisclosed income of an assessee from a source located outside India and the value of an undisclosed asset located outside India, referred to in section 4, and computed in the manner laid down in section 5. |
In light of the above, the undisclosed foreign income and assets are put to assessment or reassessment under the BMA, 2015. Section 10 provides that for the purposes of making an assessment or reassessment under this act, the assessing officer may, on receipt of an information from an income-tax authority under the Income Tax Act or on coming of any information to his notice, serve on any person, a notice requiring him to produce in evidence the information called for the purposes of making assessment or reassessment. It is as per literal understanding of the provisions of section 10 of BMA, 2015, an assessee can both be assessed or reassessed in respect of his undisclosed foreign income and asset located outside India. Thus thereby leading to an undisputed proposition that an assessee once assessed under the provisions of BMA, 2015 can further be reassessed in respect of his undisclosed foreign income and assets located outside India in respect of which either he is a beneficial owner or the income/assets are held by him in his independent capacity. Provisions of section 10 as so worded are produced below:-
Assessment
10.(1) For the purposes of making an assessment or reassessment under this Act, the Assessing Officer may, on receipt of an information from an income-tax authority under the Income-tax Act or any other authority under any law for the time being in force or on coming of any information to his notice, serve on any person, a notice requiring him on a date to be specified to produce or cause to be produced such accounts or documents or evidence as the Assessing Officer may require for the purposes of this Act and may, from time to time, serve further notices requiring the production of such other accounts or documents or evidence as he may require.
(2) The Assessing Officer may make such inquiry, as he considers necessary, for the purpose of obtaining full information in respect of undisclosed foreign income and asset of any person for the relevant financial year or years.
(3) The Assessing Officer, after considering such accounts, documents or evidence, as he has obtained under sub-section (1), and after taking into account any relevant material which he has gathered under sub-section (2) and any other evidence produced by the assessee, shall by an order in writing, assess[or reassess]the undisclosed foreign income and asset and determine the sum payable by the assessee.
(4) If any person fails to comply with all the terms of the notice under sub-section (1), the Assessing Officer shall, after taking into account all the relevant material which he has gathered and after giving the assessee an opportunity of being heard, make the assessment[or reassessment]of undisclosed foreign income and asset to the best of his judgment and determine the sum payable by the assessee.
ANALYSIS OF SECTION 10 (1)
Section 10(1) of the BMA provides that it is only the ASSESSING OFFICER who can issue a notice under the act with the intent to assess or reassess the undisclosed foreign income and asset. Further section 6 (1) of the BMA provides that the Income Tax authorities specified in section 116 of the Income Tax Act shall be the tax authorities for the purposes of this act. No authority apart from the assessing officer is competent to go in for making assessment or reassessment under the BMA, 2015. Relevant excerpts of the provisions of section 6 of the BMA can be referred to as under:-
Tax authorities
6.(1)The income-tax authorities specified in section 116 of the Income-tax Act shall be the tax authorities for the purposes of this Act.
(2) Every such authority shall exercise the powers and perform the functions of a tax authority under this Act in respect of any person within his jurisdiction.
(3) Subject to the provisions of sub-section (4), the jurisdiction of a tax authority under this Act shall be the same as he has under the Income-tax Act by virtue of orders or directions issued under section 120 of that Act (including orders or directions assigning the concurrent jurisdiction) or under any other provision of that Act.
(4) The tax authority having jurisdiction in relation to an assessee who has no income assessable to income-tax under the Income-tax Act shall be the tax authority having jurisdiction in respect of the area in which the assessee resides or carries on its business or has its principal place of business.
(5) Section 118 of the Income-tax Act and any notification issued thereunder shall apply in relation to the control of tax authorities as they apply in relation to the control of the corresponding income-tax authorities, except to the extent to which the Board may, by notification in the Official Gazette, otherwise direct in respect of any tax authority.
In context of the provisions of section 10 (1) of the BMA, 2015, due reference can be made to the authorities mentioned below in reference to the provisions of section 147/148 of the Income Tax Act, 1961 which stand in pari material to the provisions of BMA and undisputedly provide that in law, it is only the assessing officer having jurisdiction over the assessee can validly proceed to frame assessment in the matter concerned and none else.
1.Pankajbhai Jaysukhlal Shah vs. Assistant Commissioner of Income Tax (2019) 110 taxmann.com 51 (Gujarat) / (2020) 312 CTR (Guj) 300, Special Civil Application No.230 of 2019 dated 19th April, 2019.
2.Hynoup Food & Oil Industries Limited vs. Assistant Commissioner of Income Tax (2008) 219 CTR (Guj) 124 : (2008) 308 ITR 115 (Guj).
3.Jawahar Lal Aggarwal vs. Income Tax Officer (ITA No.336/Agra/2014) reported at (2017) 190 TTJ (Agra) 870.
4.Manju Aggarwal vs. Income Tax Officer (decision dated 23rd August, 2013 in ITA No.550/Agra/2012).
5.Gaurav Joshi vs. Income Tax Officer (ITA No.274/Asr/2018) reported at (2019) 197 TTJ (Asr) 946.
Furthermore, the provisions provide that the assessing officer may, on receipt of an information from an income tax authority under the Income Tax Act or any other authority under any law for the time being in force or on coming of any information to his notice, serve a notice on any person, a notice requiring him to produce, adduce and deduce evidence as the officer may require for the purposes of act. This goes in rhyme with the provisions of section 83 of the BMA, 2015 that provides that any papers, information, return or statement obtained or collected under the Income Tax Act to be made available to the authority acting under BMA which may be used for the purposes of the act. Section 83 of the BMA, 2015 reads as under:-
Income-tax papers to be available for purposes of this Act
83.Notwithstanding anything contained in the Income-tax Act, all information contained in any statement or return made or furnished under the provisions of that Act or obtained or collected for the purposes of the said Act may be used for the purposes of this Act.
In addition, considering the first facet embedded in section 10, for the purposes of making assessment or reassessment, the assessing officer may on RECEIPT OF INFORMATION FROM AN INCOME TAX AUTHORITY, proceed under the provisions of BMA, 2015. This provision by itself is not far from debate as under the Income Tax Act, 1961, it has been settled by various appellate forums that merely because information sprouts from a coordinate income tax authority, the authority incumbent cannot step into assessment/reassessment proceedings. Information which erupts from a coordinate tax authority should be preceded by a lawful positive enquiry on the part of officer acting under BMA so as to warrant inference of any action under the provisions of section 10 of the act.References can be made to the ratio of undernoted pronouncements of various appellate forums under the Income Tax Act, 1961:-
- Hon’ble Punjab & Haryana High Court in Commissioner of Income Tax vs. Paramjit Kaur 168 Taxman 39 (P&HHC)(Para No.6).
- Hon’ble ITAT Amritsar Special Bench in the case of Durga Prasad Goyal vs. Income Tax Officer, Ward – 1, Moga (2006) 98 ITD 227 (Asr)(SB)(Para No.13)
- Charanjiv Lal Aggarwal vs. Income Tax Officer (2017) 54 ITR(Trib) 349 (Asr).
- Karanvir Verma vs. Income Tax Officer (ITA No.352/ASR/2014 dated 18th May, 2016 (Relevant Para No.10 & 11),
- Mohd. Yousuf Wani vs. Income Tax Officer (ITA No.372/ASR/2009 dated 06th June, 2011 (Relevant Para No.3).
- National Finance Company Limited, Jammu vs. Income Tax Officer, Ward 2(2), Jammu (ITA No.181/ASR/2013) dated 26th June, 2013.
- Hon’ble Delhi High Court in 1) PCIT vs. Meenakshi Overseas 395 ITR 677, 2) PCIT vs. G&G Pharma (I) Ltd 384 ITR 147, 3) PCIT vs. RMG Polyvinyl (I) Ltd 396 ITR 5 / 249 Taxman 610.
In so far as the second and third facet of the provision of section 10 (1) confirming to requisition of information, the assessing officer acting UNDER INFORMATION OF ANY OTHER AUTHORITY CONSTITUTED UNDER ANY OTHER LAW FOR THE TIME BEING IN FORCE OR ON COMING INTO CONTACT WITH ANY INFORMATION proceed to frame assessment/reassessment under BMA. These provisions are also not far from being designated as discriminatory and one-sided as it has also been settled by the appellate courts that information from any other authority constituted under the provisions of any other law by itself provides no sound basis to the officer to step in assessment/reassessment. Hon’ble Supreme Court in Principal Commissioner of Income Tax vs. Manzil Dinesh Kumar Shah (2019) 261 Taxman 1 (SC)settled by confirming view of the Hon’ble Gujarat High Court in Principal Commissioner of Income Tax vs. Manzil Dinesh Kumar Shah (2018) 406 ITR 326 (Gujarat) dated 07th May, 2018 that reassessment notice issued under section 148 just to verify information received by Assessing Officer from VAT Department relating to purchase made by assessee from hawala dealers, was not justified. Similarly ratio of the following pronouncements can also be referred to touching upon second facet of the provision concerned.
1.Commissioner of Income Tax vs. Nikunj Eximp Enterprises Private Limited (2013) 216 Taxman 171 (Bom)
2.Hon’ble ITAT Mumbai `E’ Bench in DCIT, Mumbai vs. M/s Sunrise Metallic (India) Pvt Ltd (ITA No.3628/Mum/2017)
3.Hon’ble ITAT Mumbai `D’ Bench in DCIT vs. Rajeev G.Kalathil (2014) 51 taxmann.com 514 (Mum Trib) / (2015) 67 SOT 52 (Mumbai)(URO)
4. JSW Steel Limited (Successor on amalgamation with JSW Ispat Steel Limited) vs. DCIT, Mumbai (ITA No.4068/Mum/2018 dated 03rd July, 2019) etc.
Coming to the third facet / expression used in section 10 (1) of the BMA, 2015 i.e ` ON COMING OF ANY INFORMATION TO HIS NOTICE, the assessing officer can proceed to issue notice under the act. Such expression as has so been legislated can be debated as being discriminatory to the extent that the information so received by the assessing officer is clothed and robed with suspicion and the same however strong cannot partake the character of evidence in law. The credibility of the information in the possession of the department must be disclosed to the assessee so as to usher an era of a fair decision making process thereby leading to a lawful assessment being made. The above said principle has been delineated by the Hon’ble Supreme Court in a number of pronouncements and to name a few, reference can be made as below:-
1.Umacharan Shaw & Brother vs. Commissioner of Income Tax (1959) 37 ITR 271 (SC) (Three judge bench pronouncement) – Taking into consideration the entire circumstances of the case, we are satisfied that there was no material on which the Income-tax Officer could come to the conclusion that the firm was not genuine. There are many surmises and conjectures, and the conclusion is the result of suspicion which cannot take the place of proof in these matters.
2.Dhakeshwari Cotton Mills vs. Commissioner of Income Tax (1954) 26 ITR 775 (SC) (Constitution Bench pronouncement) – Whether though ITO is not fettered by technical rules of evidence and pleadings and he is entitled to act on material which may not be accepted as evidence on account of law, but in making assessment under section 23(3) of 1922 Act he is not entitled to make a pure guess and make an assessment without reference to any evidence or any material at all – Held, yes – Whether where, on request of Tribunal, departmental representative had produced certain material, Tribunal should have given an opportunity to assessee to rebut such material and should have also taken into account material produced by assessee on issue in question – Held, yes
3.Sheo Narain Duli Chand vs. Commissioner of Income Tax (1969) 72 ITR 766 (All) – Whether since assessee had produced oral and documentary evidence to effect that there had been partial partition in family and same was rejected by Tribunal mainly on suspicion and conjectures, findings of Tribunal that there was no partial partition of assessee – HUF were not legally sustainable – Held, yes
4.Smt.Purnima Beri vs. Deputy Commissioner of Income Tax (2002) 82 ITD 137 (ASR)(TM) / (2002) 123 Taxman 61 (ASR)(TM) – Whether, other than meresuspicion, there was noevidencewith department to support its observation that amount paid by assessee to V subsequent to date of search came back to assessee either in cash or by other mode – Held, yes – Whether department could not establish nexus between any alleged outgoing from assessee and huge amount and substantial investments/assets found during search from V’s possession – Held, yes – Whether unless there is cogentevidencewith department, no addition can be made on surmises, conjectures and suspicion, ignoring in processevidenceon record in favour of assessee or lack ofevidenceto support revenue’s case – Held, yes
However, it is noticeable in context of the provisions of section 10 (1) that the words `Reason to Believe’ are per se absent and are not referred to in the statute unlike its parallel provision in section 147 of the Income Tax Act, 1961. Can lawfully inference be drawn that in absence of the words `Reasons to Believe’, assessments/reassessments can be resorted to under the BMA, 2015. In this context, it is pertinent to refer to the pronouncement of the Hon’ble Madras High Court in Srinidhi Karti Chidambaram& Ors vs. Principal Chief Commissioner of Income Tax & Ors (2018) 172 DTR (Mad) 113 / (2019) 411 ITR 1 (Mad), wherein it was observed as under:-
37. Almost a quarter century back, this Court in S.G. Jaisinghani v. Union of India and Ors., [1967] 2 SCR 703, at p. 7 18-19, indicated the test of arbitrariness and the pit- falls to be avoided in all State actions to prevent that vice, in a passage as under:
"In this context it is important to emphasize that the absence of arbitrary power is the first essential of the rule of law upon which our whole constitutional system is based. In a system governed by rule of law, discretion, when conferred upon executive authorities, must be confined within clearly defined limits. The rule of law from this point of view means that decisions should be made by the application of known principles and rules and, in general, such decisions should be predictable and the citizen should know where he is. If a decision is taken without any principle or without any rule it is unpredictable and such a decision is the antithesis of a decision taken in accordance with the rule of law. (See Dicey–"Law of the Constitution"-Tenth Edn., Introduction cx). "Law has reached its finest moments", stated Douglas, J. in United States v. Wunderlick, (*), "when it has freed man from the unlimited discretion of some ruler … Where discretion is absolute, man has always suffered". It is in this sense that the rule of law may be said to be the sworn enemy of caprice. Discretion, as Lord Mansfield stated it in classic terms in the case of John Wilker (*), "means sound discretion guided by law. It must be governed by rule, not humour: it must not be arbitrary, vague and fanciful."
38. After Jaisinghani’s case (supra), long strides have been taken in several well-known decisions of this Court expanding the scope of judicial review in such matters. It has been emphasized time and again that arbitrariness is anathema to State action in every sphere and wherever the vice percolates, this Court would not be impeded by technicalities to trace it and strike it down. This is the surest way to ensure the majesty of rule of law guaranteed by the Constitution of India. It is, therefore, obvious that irrespective of the nature of appointment of the Government Counsel in the districts in the State of U.P. and the security of tenure being even minimal as claimed by the State, the impugned circular, in order to survive, must withstand the attack of arbitrariness and be supported as an informed decision which is reasonable.
39. No doubt, it is for the person alleging arbitrariness who has to prove it. This can be done by showing in the first instance that the impugned State action is uninformed by reason inasmuch as there is no discernible principle on which it is based or it is Contrary to the prescribed mode of exercise of the power or is unreasonable. If this is shown, then the burden is shifted to the State to repel the attack by disclosing the material and reasons which led to the action being taken in order to show that it was an informed decision Which was reasonable. If after a prima facie case of arbitrariness is made out, the State is unable to show that the decision is an informed action which is reasonable, the State action must perish as arbitrary.’
197.At this juncture, it is useful to refer,De Smith’s Judicial Review of Administrative Action, Fourth Edition Page 283 and 285, considered inAndhra Pradesh S.R.T.C. v. State Transport Appellate Tribunal,[1998] 7 SCC 353, held as follows:—
"An authority may have a discretion whether to exercise a power, and a discretion in the manner of exercising it. But discretionary powers are frequently coupled with duties. A Minister may be empowered to confirm or refuse to confirm a compulsory purchase order. In making his decision he is entitled to exercise a very wide discretion, but he is under a legal duty to determine the application for confirmation one way or the other. Again, to the extent that a discretionary power is not absolute, the repository of a discretion is under a legal duty to observe certain requirements that condition the manner in which its discretion may be exercised." Page 285:-
"The relevant principles formulated by the courts may be broadly summarised as follows. The authority in which a discretion is authority in which a discretion is vested can be compelled to exercise that discretion, but not to exercise it in any particular manner. In general, a discretion must be exercised only by the authority to which it is committed. That authority must genuinely address itself to the matter before it: it must not act under the dictation of another body or disable itself from exercising a discretion in each individual case. In the purported exercise of its discretion it must not do what it has been forbidden to do, nor must it do what it has not been authorised to do. it must act in good faith, must have regard to all relevant considerations and must not be swayed by irrelevant considerations, must not seek to promote purposes alien to the letter or to the spirit of the legislation that gives it power to act, and must not act arbitrarily or capriciously."
198.Before proceeding with any action, it is the duty of the assessing officer to arrive at a conclusion, as to whether, there is an undisclosed income under Section 2(11) and a duty is cast on the assessing officer to form an opinion, under Section 2(11). Expression, "undisclosed source of investment" depends on the existence of the above and the opinion is dependent on each one of the facts. Show cause notice issued is totally extraneous to Section 2(11) of the Act.
199.At this juncture, it is pertinent to consider, what "satisfaction" means. "Satisfaction" means to be satisfied with a state of things, meaning thereby, to be satisfied in one’s own mind. Satisfaction is essentially a conclusion of mind. The word "satisfied" means, "makes up its mind". Reference can be made to the decision,Blythv.Blythreported in (1966) 1 All England Reporter 541, Smith,J., inAnglandv.Payne reportedin (1944) NLLR 610, 626 stated that "satisfied" means, a mind which has reached a clear conclusion.
Hon’ble Supreme Court in context of the powers of Income Tax Officer to reopen assessment observed in its pronouncement Income Tax Officer vs. Lakhmani Mewal Das (1976) 103 ITR 437 (SC) as below:-
`The reasons for the formation of the belief must have a rational connection with or relevant bearing on the formation of the belief. Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the Income-tax Officer and the formation of his belief that there has been escapement of the income of the assessee from assessment in the particular year because of his failure to disclose fully and truly all material facts. It is no doubt true that the court cannot go into the sufficiency or adequacy of the material and substitute its own opinion for that of the Income-tax Officer on the point as to whether action should be initiated for reopening assessment. At the same time we have to bear in mind that it is not any and every material, howsoever vague and indefinite or distant, remote and farfetched, which would warrant the formation of the belief relating to escapement of the income of the assessee from assessment. The fact that the words "definite information" which were there in section 34 of the Act of 1922, at one time before its amendment in 1948, are not there in section 147 of the Act of 1961, would not lead to the conclusion that action can now be taken for reopening assessment even if the information is wholly vague, indefinite, far-fetched and remote. The reason for the formation of the belief must be held in good faith and should not be a mere pretence.
The powers of the Income-tax Officer to reopen assessment, though wide, are not plenary. The words of the statute are "reason to believe" and not "reason to suspect". The reopening of the assessment after the lapse of many years is a serious matter. The Act, no doubt, contemplates the reopening of the assessment if grounds exist for believing that income of the assessee has escaped assessment. The underlying reason for that is that instances of concealed income or other income escaping assessment in a large number of cases come to the notice of the income-tax authorities after the assessment has been completed. The provisions of the Act in this respect depart from the normal rule that there should be, subject to right of appeal and revision, finality about orders made in judicial and quasi-judicial proceedings. It is, therefore, essential that before such action is taken the requirements of the law should be satisfied. The live link or close nexus which should be there between the material before the Income-tax Officer in the present case and the belief which he was to form regarding the escapement of the income of the assessee from assessment because of the latter’s failure or omission to disclose fully and truly all material fact was missing in the case. In any event, the link was too tenuous to provide a legally sound basis for reopening the assessment.’
On a similar note, reliance can be placed upon the ratio of pronouncements of the Hon’ble Supreme Court in the below mentioned cases:-
1.Commissioner of Income Tax vs. Kelvinator of India Limited (2010) 187 Taxman 312 / 320 ITR 561 / 228 CTR 488 (SC) (Three Judge Bench) –
3.2After the Amending Act, 1989 , section 147 reads as under :
"147.Income escaping assessment.—If the Assessing Officer hasreason to believethat any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153 , assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year)." [ Emphasis supplied]
4.On going through the changes, quoted above, made to section 147 of the Act, we find that, prior to Direct Tax Laws (Amendment) Act, 1987 , re- opening could be done under above two conditions and fulfilment of the said conditions alone conferred jurisdiction on the Assessing Officer to make a back assessment, but in section 147 of the Act [with effect from 1-4-1989], they are given a go-by and only one condition has remained,viz.,that where the Assessing Officer has reason to believe that income has escaped assessment, confers jurisdiction to re-open the assessment. Therefore, post 1-4-1989 , power to reopen is much wider. However, one needs to give a schematic interpretation to the words "reason to believe" failing which, we are afraid, section 147 would give arbitrary powers to the Assessing Officer to re-open assessments on the basis of "mere change of opinion", which cannot beper sereason to reopen. We must also keep in mind the conceptual difference between power to review and power to re-assess. The Assessing Officer has no power to review; he has the power to reassess. But reassessment has to be based on fulfilment of certain pre-condition and if the concept of "change of opinion" is removed, as contended on behalf of the Department, then, in the garb of re-opening the assessment, review would take place. One must treat the concept of "change of opinion" as an in-built test to check abuse of power by the Assessing Officer. Hence, after 1-4-1989 , Assessing Officer has power to reopen, provided there is "tangible material" to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief. Our view gets support from the changes made to section 147 of the Act, as quoted hereinabove. Under the Direct Tax Laws (Amendment) Act, 1987 , Parliament not only deleted the words "reason to believe" but also inserted the word "opinion" in section 147 of the Act. However, on receipt of representations from the Companies against omission of the words "reason to believe", Parliament re-introduced the said expression and deleted the word "opinion" on the ground that it would vest arbitrary powers in the Assessing Officer. We quote hereinbelow the relevant portion of Circular No. 549 , dated 31-10-1989, which reads as follows :
"7.2Amendment made by the Amending Act, 1989, to reintroduce the expression ‘reason to believe’ in section 147.—A number of representations were received against the omission of the words ‘reason to believe’ from section 147 and their substitution by the ‘opinion’ of the Assessing Officer. It was pointed out that the meaning of the expression, ‘reason to believe’ had been explained in a number of court rulings in the past and was well settled and its omission from section 147would give arbitrary powers to the Assessing Officerto reopen past assessments on mere change of opinion. To allay these fears, the Amending Act, 1989 , has again amended section 147 to reintroduce the expression ‘has reason to believe’ in place of the words ‘for reasons to be recorded by him in writing, is of the opinion’. Other provisions of the new section 147, however, remain the same." [Emphasis supplied]
2.A.N.Lakshman Shenoy vs. Income Tax Officer (1958) 34 ITR 275 (SC)
3.Sheo NathSingh vs. AAC (1973) CTR (SC) 484
4.Calcutta Discount Co. Ltd vs. ITO (1961) 41 ITR 191 (SC)
5.CIT vs. S.Narayanappa (1967) 63 ITR 219 (SC)
The provisions of the Black Money Act, 2015 are in turn dependent upon the provisions immersed in the Income Tax Act, 1961 and in cases where the return of income filed by the assessee stood processed by the department under section 143(1), even then reopening of assessment / reassessment cannot be resorted to per ratio of authorities cited below:-
1.CIT vs. Orient Craft Limited (2013) 263 CTR (Del) 335 – In absence of any tangible material available with Assessing Officer to form requisite belief regarding escapement of income, reopening under section 147, of assessment made under section 143(1) is without jurisdiction.
2.PCIT vs. Tupperware India Pvt Ltd (2016) 236 Taxman 494 (Delhi) – Requirements of section 147 cannot be dispensed with when an assessment made under section 143(1) is sought to be reopened.
3.Telco Dadaji Dhackjee Limited, Mumbai vs. Deputy Commissioner, Circle 2(3), Mumbai (ITA
No.4613/Mum/2005), ITAT Mumbai `F’ Bench (Third Member Bench) etc.
It is also worth noting that unlike its principal legislation i.e. the Income Tax Act, 1961 (with specific reference to section 143(2), the BMA, 2015 does not specify the time limit for issuing notice under section 10 for the purposes of making assessment/reassessment under the act. This provision by itself also plays foul of the constitutional mandate approved by writ courts that powers available to the officers cannot be exercised on the pedestal and architecture of surmises and conjectures, whims and fancies. Thus the very basis of section 10 as it stands on the statute does not provide a roadmap for taking recourse to assessment or reassessment within a set time frame and instead is dependent upon the discretion of the authority exercising such power.
ANALYSIS OF SECTION 10 (2)
Sub-section 2 of the section 10 of the BMA, 2015 provides for the assessing officer may make such inquiry, as he considers necessary, for the purposes of obtaining full information in respect of undisclosed foreign income and assets of any person for the impugned years under consideration. This provision can somehow be understood to have been worked out in consonance with the powers available to an assessing officer under section 142(1) of the Income Tax Act, 1961. However, there are fetters available on lawful exercise of power by the assessing officer under section 142(1) in case he intends to call in question from the assessee a statement of all assets and liabilities not included in accounts without prior approval of Joint Commissioner and he shall also not call in question the production of any accounts relating to a period more than three years prior to the previous year. Relevant proviso appended to section 142(1) can be referred to as below:-
Providedthat—
|
(a) |
the previous approval of the Joint Commissioner shall be obtained before requiring the assessee to furnish a statement of all assets and liabilities not included in the accounts; |
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(b) |
theAssessing Officer shall not require the production of any accounts relating to a period more than three years prior to the previous year. |
The provisions of section 10 (2) do not prescribe any conditions falling in nature of provisos that restrict action of the assessing officer under section 142(1) of the Income Tax Act, 1961. The assessee can be subjected to fishing and roving enquires as well as queries having no concern whatsoever in connection with the impugned assessment or reassessment of transactions under the BMA, 2015. The absence of checks and balances in form of approvals from higher authorities can seriously dent the entire lawful exercise of power on the part of assessing officer and arbitrary, whimsical and mercurial assessments or reassessments framed cannot be wholly ruled out. Systematic checks as prevalent and prescribed for in section 142 (1) of the Income Tax Act, 1961 may also be incorporated in section 10 of the BMA, 2015 so as to transpire accountability, indulgence, transparency and exercise of power within the framework of law.
ANALYSIS OF SECTION 10 (3)
Sub-section (3) of section 10 provides that the assessing officer after considering such accounts, documents or evidence as he has obtained under sub-section (1), and after taking into account any relevant material which he has gathered under sub-section (2) and any other evidence produced by the assessee, shall be an order in writing, assess the attributable undisclosed foreign income and asset and determine the sum payable. The assessing officer after consideration of material gathered under sub-section (1) i.e. the three facets of the provisions i.e. on receipt of an information from an income-tax authority under the Income-tax Act or any other authority under any law for the time being in force or on coming of any information to his notice, proceed to pass an order under section 10 (3) of the BMA, 2015. This provision concentrates more on the evidence collection machinery and empowers the assessing officer to act on the basis of material collected thereby leading to assessment or reassessment of undisclosed foreign income and asset.
ANALYSIS OF SECTION 10 (4)
Section 10 (4) of the BMA, 2015 provides that in the event of failure on the part of the person in making due compliance with the terms of notice issued under sub-section (1) in its entirety, the assessing officer shall after taking into consideration the relevant material gathered and after affording an opportunity of being heard to the assessee proceed to assess the undisclosed foreign income and asset to the best of his judgement and determine the sum payable. This provision primarily places onerous duty on the assessee to make compliance with the terms of notice issued under sub-section (1) and such compliance has to be with all terms/contents/queries requisitioned in connection with assessment of undisclosed foreign income and assets. The section as is so worded `IF ANY PERSON FAILS TO COMPLY WITH ALL THE TERMS OF THE NOTICE UNDER SUB SECTION (1)’ demonstrates that in the event of failure on the part of assessee, the assessing officer after affording an opportunity of being heard proceed to frame assessment to the best of his perception though based on material collected pertaining to undisclosed foreign income and asset. This provision by itself is capable of being arbitrary used as the assessing officer in the situation wherein the assessee has reasonably answered/tendered the information required in connection with assessment of undisclosed foreign income and assets, can still proceed to reject such explanation and reach unlawful conclusion that there is failure on the part of assessee as provided in sub-section (4) of section 10, therefore the situation warrants best judgement assessment. Since, the law has provided action by taking recourse to discretion, it is capable of being widely used to the detriment of assessees at large since it involves assessment or reassessment of income/asset categorized as undisclosed one. It has also been settled by the Hon’ble Supreme Court of India in the case of S.R.Venkataraman vs. Union of India (1979) SCR (2) 202 in context of the impugned issue as under:-
`It is trite law that if a discretionary power has been exercised for an unauthorised purpose, it is generally immaterial its repository was acting in good faith or in bad faith’.
However, despite all odds, the provision entails an opportunity of being heard in the event, the assessing officer intends to go for a best judgement assessment which by itself is a substantial safeguard available against the misuse of provision.
EPILOGUE
On an analysis and in light of the deep-rooted examination of the provisions of section 10 of the BMA, 2015, it can safely concluded that it is all the more incumbent upon the assessing officer to act within the defined parameters of jurisprudence settled in context of taxing legislations by the Hon’ble writ courts. In furtherance, as per the understanding available on the subject, even `fishing and roving’ enquiries by themselves are not sufficient to step into the provisions and frame assessment or reassessment lawfully under the BMA, 2015. Even through the statute does not make any specific reference to the words `Reasons to Believe’, that by itself is not sufficient to conclude that department can take recourse to `Reason to Suspect’ as it cannot be the basis of framing assessment or reassessment under any law in force. No action can be conceived on the basis of suspicion, gossip or rumour unless the action contemplated by department falls within the sweep of information which is tangible, intelligently accessible, perceptible, discernible and free from being labeled as an unfinished raw sketch.
Sameer Bhatia,
Advocate, Punjab & Haryana High Court,
C/o J.Bhatia & Company,
Chartered Accountants,
R/o 158/2, Guru Teg Bahadur Nagar,
Opposite Mata Gujri Park,
Jalandhar – 144 003.
Contact No: 9041304900 / 9814218476
Email:- adv.sameerbhatia@gmail.com
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