{"id":7958,"date":"2020-06-23T10:01:55","date_gmt":"2020-06-23T04:31:55","guid":{"rendered":"https:\/\/itatonline.org\/articles_new\/?p=7958"},"modified":"2020-06-23T10:01:55","modified_gmt":"2020-06-23T04:31:55","slug":"interplay-between-the-income-tax-act-the-benami-transactions-act-the-money-laundering-act-and-allied-laws","status":"publish","type":"post","link":"https:\/\/itatonline.org\/articles_new\/interplay-between-the-income-tax-act-the-benami-transactions-act-the-money-laundering-act-and-allied-laws\/","title":{"rendered":"Interplay Between The Income-tax Act, The Benami Transactions Act, The Money Laundering Act And Allied Laws"},"content":{"rendered":"<p><img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/itatonline.org\/articles_new\/wp-content\/uploads\/Justice-Harsha-Devani.png\" alt=\"\" width=\"99\" height=\"100\" class=\"alignleft size-full wp-image-7960\" \/><strong>Justice (Retd) Harsha N. Devani, the former Judge of the Gujarat  High Court, delivered a talk recently under the auspices of the AIFTP, in which she explained in detail the interplay between the Income-tax Act, 1961, the Black Money (Undisclosed Foreign Income and  Assets) and Imposition of Tax Act, 2015, the Prevention of Money Laundering Act,  2002, The Prohibition of Benami Property Transactions Act, 1988 and other allied laws. A transcript of the presentation together with the recording of the video is available<\/strong> <\/p>\n<p>1. While the  Income -tax Act is primarily an Act to consolidate and amend law relating to  income tax, a common thread running between the Black Money Act, Benami Transactions Act and the Money Laundering Act is black money. These three Acts  have been enacted to curb the generation of black money and to recover the  benefits of the ill-gotten gains from the persons possessing black money.<\/p>\n<p><!--more--><\/p>\n<p><iframe loading=\"lazy\" width=\"560\" height=\"315\" src=\"https:\/\/www.youtube.com\/embed\/keLohlFnMow\" frameborder=\"0\" allow=\"accelerometer; autoplay; encrypted-media; gyroscope; picture-in-picture\" allowfullscreen><\/iframe><\/p>\n<p>\n  2. To  understand the interplay between the Income -Tax Act, and the Black Money Act,  the Benami Transactions Act and the Money Laundering Act and the background in  which the latter three Acts have been enacted and operate, it would be  necessary to understand the concept of black money and how it is generated and  laundered to untainted money.<\/p>\n<p>\n  3. There is no  uniform or accepted definition of &lsquo;black&rsquo; money. Several terms are in use &ndash;  such as &lsquo;black money&rsquo;, &lsquo;black income&rsquo;, &lsquo;dirty money&rsquo;, &lsquo;black wealth&rsquo;,  &lsquo;underground wealth&rsquo;, &lsquo;black economy&rsquo;, &lsquo;parallel economy&rsquo;, &lsquo;shadow economy&rsquo;,  &lsquo;underground&rsquo; or &lsquo;unofficial&rsquo; economy. If money breaks laws in its origin,  movement or use, and is not reported for tax purposes, then it would fall  within the meaning of black money. The broader meaning would encompass and  include money derived from corruption and other illegal ways &ndash; to include drug  trafficking, counterfeiting currency, smuggling, arms trafficking, etc. It  would also include all market based legal production of goods and services that  are concealed from public authorities for the following reasons &ndash; (i) to evade  payment of taxes (income tax, excise duty, sales tax, stamp duty, etc); (ii) to  evade payment of other statutory contributions; (iii) to evade minimum wages,  working hours and safety standards, etc.; and (iv) to evade complying with laws  and administrative procedures.<\/p>\n<p>\n  4. There are  three sources of black money &ndash; crime, corruption and business. The &lsquo;criminal&rsquo;  component of black money would normally include proceeds from a range of activities  including racketeering, trafficking in counterfeit and contraband goods,  forgery, securities fraud, embezzlement, sexual exploitation and prostitution,  drug money, bank frauds and illegal trade in arms. The &lsquo;corrupt&rsquo; component of  such money would stem from bribery and theft by those holding public office &ndash;  such as by grant of business, bribes to alter land use or to regularize  unauthorized construction, leakages from government social spending programmes,  speed money to circumvent or fast-track procedures, black marketing of price  controlled services, etc.<\/p>\n<p>\n  5. The  &lsquo;commercial&rsquo; limb of black money usually results from tax evasion by attempting  to hide transactions and any audit trail relating thereto, leading to evasion  of one or more taxes. The main reason for such black economy is underreporting  revenues \/ receipts \/ production, inflating expenses, not correctly reporting  workers employed to avoid statutory obligations for their welfare. Opening of  the economy permits contracts of all kinds &ndash; particularly for allocation of  scarce resources such as mineral and spectrum&ndash; which, in the absence of  transparent rules and procedures for licenses and non compliance of contractual  obligations of the persons concerned, leads to increased generation of black money.  In all the three forms of black money &ndash; &lsquo;criminal&rsquo;, &lsquo;corrupt&rsquo; and &lsquo;commercial&rsquo;  &ndash; subterfuges are created which include false documentation, sham transactions,  benami entities, mispricing and collusion. This is often done by layering  transactions to hide their origin.<\/p>\n<p>\n  6. The primary  method of generation of black money remains suppression of receipts and  inflation of expenditure. The suppression could be over a range of businesses  and industrial activities which are covered by what may be called &lsquo;primary&rsquo;  enactments like the Central Excise Act, the State Sales Tax Laws, GST laws,  Entertainment Tax Acts, Luxury Tax Acts, etc. to regulate sale receipts, actual  production, charging amount in excess of statutory amounts, etc. The primary  and fundamental reason for suppression of receipts or values is to lower the  incidence of tax. Therefore, the Income Tax Act becomes a &lsquo;secondary&rsquo; Act. What  is hidden from state authorities cannot be shown for the purpose of income tax;  as such hidden element is already a part of the &lsquo;black&rsquo; economy.<\/p>\n<p>\n  7. However, as  manipulation of income is not always possible by suppression of receipts,  tax-payers may try to inflate expenses by obtaining bogus or inflated invoices  from &lsquo;bill masters&rsquo;, who make bogus vouchers and charge nominal commission.  Similarly, there are other categories of small &lsquo;entry operators&rsquo;, who provide  accommodation entries by accepting cash in lieu of cheque\/ demand draft given  as loans \/ advances \/ share capital, etc and thereby launder large sums of  money at miniscule commissions. Land and real estate are possibly the most  important class of assets used for investment of &lsquo;black&rsquo; money. As immovable  properties are not usually comparable, valuations are different. This imparts  flexibility to the valuation process, and makes it an ideal investment for  &lsquo;black&rsquo; money. As an asset class both &lsquo;black&rsquo; and &lsquo;white&rsquo; savings are utilized  for investment in land and real estate, which provides hedge against inflation  apart from a profitable alternative for investment for black savings. The  cancerous growth of corruption at every stage of interface of the public with  officials by way of commissions on mega-projects, kick-backs on mega purchases  abroad, leakages in public spending, were all a matter of serious concern.<\/p>\n<p>\n  8. Financial  Action Task Force (FATF) defines Trade Based Money Laundering (TBML) as the  process of disguising the proceeds of crime and moving value through the use of  trade transactions in an attempt to legitimize their illicit origins. In  simpler terms, Trade Based Money Laundering is the process of transferring \/  moving money through trade transactions. In practice, this can be achieved  through the misrepresentation of the price, quantity or quality of imports or  exports.<\/p>\n<p>\n  9. The basic  techniques of trade-based money laundering include, over-invoicing and under  invoicing of goods and services; multiple invoicing of goods and services;  over-shipment and under-shipment of goods and services or even phantom  shipment, where no goods are shipped at all, but the exporter colludes with an  importer to ensure that all shipping and customs documents associated therewith  are routinely processed; falsely described goods and services; misuse of export  promotion schemes also lead to generation and flow of black money. Fake Indian  Currency Notes, drug trafficking, arms deal and other illegal activities thrive  on black money. These activities by their very nature are clandestine and can  only operate through use of black money. Evasion of service tax, misuse of  cenvat etc. also generate black money.<\/p>\n<p>\n  10. India is a  member of the Financial Action Task Force (FATF), an intergovernmental body  which develops and promotes policies to protect the global financial system  against money laundering and financing of terrorism.<\/p>\n<p>\n  11. As the  sources of generation of black money, and the forms it takes, vary, there can  be no single or omnibus law to deal with the menace. The legal framework  against black money generation and its control is, accordingly, dispersed in  penal laws, economic laws, tax laws and various regulatory mechanisms, and the  concomitant administrative machinery to enforce these laws and regulations.<\/p>\n<p>\n  12. Insofar as  the Income -tax Act is concerned various safeguards and other provisions have  been made to ensure that no taxable income escapes the tax net. Section 139  thereof casts an obligation on the persons specified thereunder to furnish a  return of his total income in the prescribed manner and setting forth such  other particulars as may be prescribed. For income tax purposes, all such  income which has been concealed and on which tax has been evaded, irrespective  of the source of such income or the motive for earning such income, acquires  the character of black money. Thus, all income which is not reported to the tax  authorities becomes black income even though there may have been no illegality  involved in earning such income.<\/p>\n<p>\n  13. By Finance  Act 2012, the fourth proviso came to be inserted in sub-section (1) of section  139 with effect from 1st April, 2012 whereby it was made mandatory for  residents, other than not ordinarily resident in India within the meaning of  clause (6) of section 6, who are not required to furnish a return under that  sub-section and who during the previous year has any asset (including any  financial interest in any entity) located outside India or signing authority in  any account located outside India to furnish, on or before the due date, a  return in respect of his income or loss for the previous year in such form and  verified in such manner and setting forth such particulars as may be  prescribed. Thus with effect from 1st April, 2012 an obligation was cast upon a  resident other than not ordinarily resident in India to disclose any asset held  by him in any location outside India.<\/p>\n<p>\n  14. The Income  Tax Act also contains various provisions for detecting undisclosed income and  assets. Section 131 thereof bears the heading power regarding discovery,  production of evidence, etc. and vests in the income tax authorities specified  therein the same powers as are vested in a court under the Code of Civil  Procedure, 1908, when trying a suit in respect of the following matters,  namely:&mdash;<\/p>\n<p>\n  (a) discovery  and inspection;<\/p>\n<p>\n  (b) enforcing  the attendance of any person, including any officer of a banking company and  examining him on oath;<\/p>\n<p>\n  (c) compelling  the production of books of account and other documents; and<\/p>\n<p>\n  (d) issuing  commissions.<\/p>\n<p>\n  15. Section 132  makes provision for search and seizure and the powers thereunder include the  power to seize books, documents, cash, jewellery, other valuables etc and  retention of the same for a certain period of time. Section 133 vests in the  authorities the power to requisition information from third parties. Section  133A makes provision for survey at business premises for inspecting books of  accounts, tallying stock, verification of cash, etc. Section 133B provides for  collection of information from tax-payers.<\/p>\n<p>\n  16. There are penal  provisions for non disclosure of taxable income to deter assessee&rsquo;s from  suppressing their income. Chapter XXI of the Income Tax Act provides for  monetary penalties at different rates for various defaults such as concealment  of income; failure to comply with statutory notices, file tax returns\/sign  statements, maintain\/retain books of account or documents, deduct\/collect taxes  at source; etc. The maximum penalty prescribed is 300% for the tax sought to be  evaded.<\/p>\n<p>\n  17. Chapter  XXII of the Income -tax Act provides for prosecutions against various offences  such as willful evasion of tax; failure to furnish tax returns or produce  accounts \/ documents, falsification of accounts \/ false statement in affidavit;  failure to deduct and deposit taxes; etc. The maximum sentence is for 7 years  rigorous imprisonment with fine.<\/p>\n<p>\n  18. There are  provisions under which undisclosed or unexplained income can be added to the  total income of an assessee. Clause (x) has been introduced in sub-section 2 of  section 56 of the Income Tax Act, 1961 which provides that:<\/p>\n<p>\n  (x) where any  person receives, in any previous year, from any person or persons on or after  the 1st day of April, 2017,&mdash;<\/p>\n<p>\n  (a) any sum of  money, without consideration, the aggregate value of which exceeds fifty  thousand rupees, the whole of the aggregate value of such sum;<\/p>\n<p>\n  (b) any  immovable property,&mdash;<\/p>\n<p>\n  (A) without  consideration, the stamp duty value of which exceeds fifty thousand rupees, the  stamp duty value of such property;<\/p>\n<p>\n  (B) for a  consideration, the stamp duty value of such property as exceeds such  consideration, if the amount of such excess is more than the higher of the  following amounts, namely:&mdash;<\/p>\n<p>\n  (i) the amount  of fifty thousand rupees; and<\/p>\n<p>\n  (ii) the amount  equal to five per cent. of the consideration:<\/p>\n<p>\n  (c) any property,  other than immovable property,&mdash;<\/p>\n<p>\n  (A) without  consideration, the aggregate fair market value of which exceeds fifty thousand  rupees, the whole of the aggregate fair market value of such property;<\/p>\n<p>\n  (B) for a  consideration which is less than the aggregate fair market value of the  property by an amount exceeding fifty thousand rupees, the aggregate fair  market value of such property as exceeds such consideration:<\/p>\n<p>\n  shall be shall  be chargeable to income tax under the head &ldquo;Income from other sources&rdquo;. The  proviso thereto carves out exceptions where such sum of money or any property  has been received from any relative, or on the occasion of the marriage of the  individual etc.<\/p>\n<p>\n  Thus, where any  amount of more than Rs.50,000\/- is received by any person, or any property  valued at more that Rs.50,000\/- is received without consideration, or received  with consideration but the difference between the consideration so paid and the  value of the property is more than Rs.50,000, such difference is considered to  be the income from other sources of such person.<\/p>\n<p>\n  19. Section 68  of the Income -tax Act provides for charging unexplained cash credit to income  tax as the income of the assessee, section 69 provides that the value of  unexplained investments may be deemed to be the income of the assessee for the  financial year preceding the assessment year in which the investment is made;  under section 69A, if an assessee is found to be owner of any money, bullion,  jewellery or other valuable article which is not recorded in the books of account  and which is not explained by him to be deemed to be the income of the  assessee; if the assessee does not fully disclose the amount of investments in  the books of account, the excess amount may be deemed to be his income if he  cannot explain the same; where the assessee incurs any expenditure or part  thereof and is not able to explain the source thereof, to the extent the  expenditure is unexplained the same may be deemed to be his income.<\/p>\n<p>\n  20. There is a  common modus operandi adopted by many private companies for introduction of  black money, i.e. by way of share application money, share capital or unsecured  loan. The idle share application money is just like unsecured loan but without  interest. Accordingly amendment to the Income Tax Act came be introduced vide  Finance Act, 2012 whereby a proviso came to be introduced in section 68 which  provides that where the assessee is a company, (not being a company in which  the public are substantially interested) and the sum so credited consists of  share application money, share capital, share premium or any such amount by  whatever name called, any explanation offered by such assessee-company shall be  deemed to be not satisfactory, unless&mdash;<\/p>\n<p>\n  (a) the person,  being a resident in whose name such credit is recorded in the books of such  company also offers an explanation about the nature and source of such sum so  credited; and<\/p>\n<p>\n  (b) such  explanation in the opinion of the Assessing Officer aforesaid has been found to  be satisfactory:<\/p>\n<p>\n  21. It appears  that the provisions of the Income Tax Act had limitations and the Central  Government was strongly committed to the task of tracking down and bringing  back undisclosed foreign assets and income and accordingly, a new legislation  came to be introduced to deal with undisclosed assets and income stashed away  abroad namely the Black Money (Undisclosed Foreign Income and Assets) Act, 2015  (commonly known as the Black Money Act) to make provisions to deal with the  problem of Black money that is undisclosed foreign income and assets, the  procedure for dealing with such income and assets and to provide for imposition  of tax on any undisclosed foreign income and asset held outside India and for  matters connected therewith or incidental thereto.<\/p>\n<p>\n  22. The Black  Money Act came to be brought into force with effect from 1st April, 2015.  Simultaneously, the above fourth<\/p>\n<p>\n  proviso as well  as the fifth proviso to sub-section (1) of section 139 of the Income Tax Act,  came to be substituted by the Finance Act, 2015 with effect from 1.4.2016  making it obligatory for a resident other than not ordinarily resident in India  within the meaning of clause (6) of section 6, who is not required to furnish a  return under that sub-section and who at any time during the previous year, &#8211;<\/p>\n<p>\n  (a) holds, as a  beneficial owner or otherwise, any asset (including any financial interest in  any entity) located outside India or has signing authority in any account  located outside India; or<\/p>\n<p>\n  (b) is a  beneficiary of any asset (including any financial interest in any entity)  located outside India,<\/p>\n<p>\n  to furnish, on  or before the due date, a return in respect of his income or loss for the  previous year in such form and verified in such manner and setting forth such  other particulars as may be prescribed:<\/p>\n<p>\n  23. The fifth  proviso provided that nothing contained in the fourth proviso shall apply to an  individual, being a beneficiary of any asset (including any financial interest  in any entity) located outside India where, income, if any, arising from such  asset is includible in the income of the person referred to in clause (a) of  that proviso in accordance with the provisions of this Act:<\/p>\n<p>\n  24. Sub-section  (6) of section 139 came to be amended with effect from 1st April 2016 by  substitution of the words &ldquo;assets of the prescribed nature, value and belonging  to him&rdquo; by &ldquo;assets of the prescribed nature and value, held by him as  beneficial owner or otherwise or in which he is a beneficiary&rdquo; so that it shall  be mandatory for persons covered by the sub-section to declare in their return,  the assets held by them in beneficial capacity also.<\/p>\n<p>\n  25. Thus,  income earned from a source located outside India or asset acquired or made  located outside India including assets held by a person as beneficial owner or  otherwise or in which he is a beneficiary, are required to be disclosed in the  return filed under sub-section (1) of section 139 of the Income Tax Act. In  case of failure to do so, the assessee shall be chargeable to tax under section  3 of the Black Money Act for every assessment year commencing on or after 1st  April, 2016.<\/p>\n<p>\n  26. Under  section 4 of the Black Money Act, the undisclosed foreign asset of any previous  year of an assessee is chargeable to tax as provided therein. However, section  59 of the Act gives an opportunity to an assessee to disclose the undisclosed  income and asset within the window provided therein. If any assessee (except a  person specified in section 71) avails of the benefit of section 59, the other  provisions of Chapter VI relating to tax compliance of foreign income and  assets are attracted and such person would be liable to pay tax under section  60 of the Act at thirty per cent of the value of such undisclosed asset and  penalty at the rate of one hundred percent of such tax, viz. 30% of the value  of such undisclosed asset. The assessee is also entitled to the benefit of the  provisions of section 64 of the Black Money Act namely the undisclosed foreign  asset declared shall not be included in the total income under the Income Tax  Act, and section 67 which provides that the declaration made under section 59  shall not be admissible as evidence against the declarant as provided  thereunder.<\/p>\n<p>\n  27. However, if  a person does not take the benefit of section 59 of the Black Money Act, the  Assessing Officer, upon receipt of information from an income-tax authority  under the Income Tax Act, or any other authority issue a notice to the assessee  under section 10 of that Act and make assessment or reassessment of such  undisclosed foreign income or asset for the relevant financial year or years.<\/p>\n<p>\n  28. Section 5  of the Black Money Act provides for computation of total undisclosed foreign  income and asset and lays down that in computing the total undisclosed foreign  income and asset of any previous year of an assessee,-<\/p>\n<p>\n  (i) No deduction  in respect of any expenditure or allowance or set off of any loss shall be  allowed to the assessee, whether or not it is allowable in accordance with the  provisions of the Income Tax Act.<\/p>\n<p>\n  (ii) Any  income,-<\/p>\n<p>\n  (a) which has  been assessed to tax for any assessment year under the Income Tax Act prior to  the assessment year to which this Act applies; or<\/p>\n<p>\n  (b) which is  assessable or has been assessed to tax for any assessment year under this Act,<\/p>\n<p>\n  shall be  reduced from the value of the undisclosed asset located outside India, if, the  assessee furnishes evidence to the satisfaction of the Assessing Officer that  the asset has been acquired from the income which has been assessed or is  assessable, as the case may be, to tax.<\/p>\n<p>\n  [Thus, if an  assessee discloses his foreign income or asset in his income tax return, he  would be entitled to deduction of any expenditure or allowance or set off of  any loss, however, if he is assessed for the very same income or asset under  the Black Money Act, he is not entitled to any such deduction. However, any  amount of tax paid income used for purchase of any undisclosed asset located  outside India shall not attract charge of tax under the Black Money Act.]<\/p>\n<p>\n  29. Thus, when  an assessee is assessed under the Black Money Act, he is not entitled to  deduction of any expenditure or allowance or set off of any loss or other  benefits otherwise available under the Income Tax Act.<\/p>\n<p>\n  30. Moreover,  where tax has been computed under section 10, the assessee shall also be liable  to penalty under Chapter IV of the Act. Under section 41, the Assessing Officer  may direct the assessee to pay by way of penalty, in addition to tax, if any,  payable by him, a sum equal to three times the tax computed under that section.  Also under section 42 of the Act, the assessee may be directed to pay a sum of  ten lakh rupees for failure to furnish return of income under sub-section (1)  of section 139 of the Income -tax Act, in respect of any asset held by him  located outside India as beneficial owner or otherwise, where he was a  beneficiary of any asset located outside India or had any income from any  source located outside India. In case where any inaccurate particulars about an  asset located outside India have been furnished in the income tax return, the  assessee may be liable to pay a sum of ten lakh rupees.<\/p>\n<p>\n  31. Under  section 44, a person who is an assessee in default or deemed to be assessee in  default in making payment of tax, and in case of continuing default by such  assessee, he shall be liable to penalty of any amount, equal to the amount of  tax arrear. Further penalty has been provided for in case of other defaults as  contemplated under section 45 of the Black Money Act.<\/p>\n<p>\n  32. Thus a  person who does not avail the benefit of Chapter VI of the Act is exposed to  much more stringent provisions under the Act.<\/p>\n<p>\n  33. The Black  Money Act also provides for penalty for not furnishing return of income in  respect of undisclosed foreign income and asset under sub-section (1) of  section 139 of the Income Tax Act and for furnishing inaccurate particulars in  respect of foreign income or assets in the return of income filed under  sub-section (1) of section 139.<\/p>\n<p>\n  34. Section 3  of the Black Money Act which is the charging section provides that there shall  be charged on every assessee for every assessment year commencing from 1st  April 2016 a tax in respect of his total undisclosed foreign income and asset  of the previous year at the rate of 30% of such undisclosed income and asset,  which is subject to the provisions of the Act. Thus the charge under the Black  Money Act is on undisclosed foreign income and asset.<\/p>\n<p>\n  35. The proviso  to section 3 provides that 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. Thus, while in case of undisclosed foreign  income of an assessee, the same would be subject to tax under the provisions of  the Black Money Act only for every assessment year commencing on or after the  1st day of April 2016, namely assessment year 2016-17 onwards, insofar as  undisclosed foreign asset located outside India is concerned, the previous year  in which such asset is acquired is not relevant. In other words an undisclosed  foreign asset would be subject to tax under the Black Money Act notwithstanding  the date of its acquisition, which may even be a previous year prior to the  assessment year commencing on 1st April 2016; and shall be charged to tax under  this provision on the value of such asset in the previous year in which such  asset comes to the notice of the Assessing Officer.<\/p>\n<p>\n  36. While  undisclosed foreign income or asset become chargeable to tax under the Black  Money Act from assessment year 2016-17; insofar as undisclosed foreign asset is  concerned, while it becomes chargeable to tax from assessment year 2016-17  onwards, the date of acquisition of such asset may relate to any assessment  year prior to assessment year 2016-17. Therefore, even after the coming into  force of the Black Money Act, insofar as assessment years prior to assessment  year 2016-17 are concerned, the undisclosed foreign income would be chargeable  to tax under the relevant provisions of the Income -tax Act.<\/p>\n<p>\n  37. Under  section 4 of the Income Tax Act, which is the charging section, there is a  charge on the total income of the previous year of every person. Thus the total  income of a person is chargeable to tax under section 4 of the Income Tax Act,  which would include foreign income and assets also. But if a person does not  disclose his foreign income or assets in the return of income and is  consequently not taxed under that Act, he exposes himself to the rigours of the  Black Money Act and is chargeable to tax under section 3 of that Act and also  become amenable to the other stringent provisions of that Act. Therefore if a  person does not want to fall within the clutches of the Black Money Act, he is  required to disclose his income and assets under the IT Act and pay the tax  chargeable thereunder.<\/p>\n<p>\n  38. The second  proviso to section 147 of the Income Tax Act provides that nothing contained in  the first proviso to section 147 shall apply in a case where any income in  relation to any asset (including financial interest in any entity) located  outside India, chargeable to tax, has escaped assessment for any assessment  year. The first proviso provides that where an assessment under sub-section (3)  of section 143 or this section has been made for the relevant assessment year,  no action shall be taken under this section after the expiry of four years from  the end of the relevant assessment year, unless any income chargeable to tax  has escaped assessment by reason of failure on the part of the assessee to make  a return under section 139 or in response to a notice issued under sub-section  (1) of section 142 or section 148 or to disclose fully and truly all material  facts necessary for his assessment, for that assessment year. Thus, the second  proviso does away with the limitation of four years as provided in the first  proviso to section 147 in case of undisclosed foreign income.<\/p>\n<p>\n  39. Section  149(1)(c) of the Income Tax Act provides that no notice under section 148 shall  be issued for the relevant assessment year if four years, but not more than  sixteen years, have elapsed from the end of the relevant assessment year unless  the income in relation to any asset (including financial interest in any  entity) located outside India, chargeable to tax, has escaped assessment.  Clause (c) of sub-section (1) of section 149 of the IT Act came to be inserted  vide Finance Bill 2012 with effect from 1st July, 2012. Thus by virtue of  clause (c) of sub-section (1) of section 149, the time limit for reopening of  assessment has been extended to sixteen years in respect of any asset including  financial interest in any entity located outside India, so that the bar applies  for periods beyond sixteen years in such cases. Thus, undisclosed foreign  income of a person prior to the assessment year commencing on or after 1st  April, 2016 would continue to be assessed under the Income Tax Act.<\/p>\n<p>\n  40. Under the  Black Money Act, &quot;Assessee&rdquo; is defined under section 2(2) to mean a person  &#8211; &lsquo;<\/p>\n<p>\n  (a) Being a  resident in India within the meaning of section 6 of the Income Tax Act, 1961  in the previous year, or<\/p>\n<p>\n  (b) Being a  non-resident or not ordinarily resident in India within the meaning of clause  (6) of section 6 of the Income Tax Act, 1961 in the previous year, who was a  resident in India either in the previous year to which the income referred to  in section 4 relates; or in the previous year in which the undisclosed asset  located outside India was acquired.<\/p>\n<p>\n  Provided that  the previous year, in case of acquisition of undisclosed asset outside India,  shall be determined without giving effect to the provisions of clause (c) of  section 72.<\/p>\n<p>\n  Clause (c) of  section 72 provides that where any asset has been acquired or made prior to commencement  of this Act, and no declaration in respect of such asset is made under this  Chapter, such asset shall be deemed to have been acquired or made in the year  in which a notice under section 10 is issued by the<\/p>\n<p>\n  Assessing  Officer and the provisions of this Act shall apply accordingly.<\/p>\n<p>\n  Thus, in case  where no declaration as contemplated in Chapter VI, namely tax compliance for  undisclosed foreign income and assets, by virtue of a deeming fiction contained  in clause (c) of section 72, such asset is deemed to be acquired or made in the  year in which a notice under section 10 of the Act is issued.<\/p>\n<p>\n  41. Thus, a  person who is a resident of India; or is a non-resident or not ordinarily  resident in India who in the previous year in which he was a resident of India  had foreign income or acquired any assets located outside India and had failed  to disclose them under the Income Tax Act, is an assessee under the Black Money  Act.<\/p>\n<p>\n  42. Thus, the  provisions of the Black Money Act and the Income Tax Act appear to be inextricably  linked with each other. Moreover, the authorities under both the Acts are also  the same.<\/p>\n<p>\n  43. In an  effort to further check generation and use of black money, around the same time  as the enactment of the Black Money Act, certain amendments came to be made in  the Benami Transactions Act, which is an Act to prohibit benami transactions  and the right to recover property held benami and for matters connected  therewith and incidental thereto.<\/p>\n<p>\n  44. When  purchases are made in the false name of another person who does not pay  consideration while the real title rests in another person who purchased the  property and who is the beneficial owner, such transactions are called benami  transactions. These transactions are entered into to defraud creditors as well  as public revenues. Such transactions were prevalent in India from time  immemorial but they came to light when the British established their rule in  India. When the British found benami transactions as a custom of the country,  it was decided to recognise all such transactions till otherwise ordered by  law. The India Trusts Act vide sections 81 and 82 gave recognition to the  practice of benami transactions.<\/p>\n<p>\n  45. In the  implementation of the Income Tax Act, it was found that many persons entered  into benami transactions to distance themselves from the real transactions.  Therefore, in 1976, the Parliament introduced section 281A of the Income Tax  Act, which bears the heading &ldquo;Effect of failure to furnish information in  respect of property held benami&rsquo; and provided that : (1) No suit to enforce any  right in respect of any property held benami, whether against the person in  whose name the property is held or against any person, shall be instituted in  any court by or on behalf of a person (hereafter in this section referred to as  the claimant) claiming to be the real owner of such property unless notice in  the prescribed form and containing the prescribed particulars in respect of the  property has been given by the claimant within a period of one year from the  date of acquisition of the property to the Chief Commissioner or Commissioner.<\/p>\n<p>\n  46. The object  of the insertion was to curb the widespread practice of benami holding of  property with a view to tax evasion by debarring the real owner from enforcing  his claim to such property in a court of law unless he had declared the income  from that property, or the property itself, for the purposes of income-tax and  wealth-tax or had given notice of his claim to the property to the income-tax  authorities.<\/p>\n<p>\n  47. But since  section 281A of the Income -tax Act did not stop benami transactions and the  resultant repercussions, Parliament enacted the Benami Transactions  (Prohibition) Act, 1988.<\/p>\n<p>\n  48. The Benami  Transactions (Prohibition) Act, 1988 was enacted to prohibit benami  transactions and the right to recover property held benami. The said Act, inter  alia, provided that &ndash; (a) all the properties held benami shall be subject to  acquisition by such authority in such manner and after following such procedure  as may be prescribed; (b) no amount shall be payable for acquisition of any  property held benami; (c) the purchase of property by any person in the name of  his wife or unmarried daughter for their benefit would not be benami  transaction; (d) securities held by a depository as registered owner under the  Depositories Act, 1996 or participant as an agent of a depository would not be  benami transactions.<\/p>\n<p>\n  49. But it was  found that the provisions of the aforesaid Act were inadequate to deal with  benami transactions as the Act did not &ndash; (i) contain any specific provision for  vesting of confiscated property with the Central Government; (ii) have any  provision for an appellate mechanism against an action taken by the authorities  under the Act, while barring jurisdiction of a civil court; (iii) confer the  powers of the civil court upon the authorities for its implementation; and (iv)  provide for adequate enabling rule making powers.<\/p>\n<p>\n  50. With a view  to remove these inadequacies, the Benami Transactions (Prohibition) Amendment  Act, 2016 came to be enacted, which prohibits benami transactions and provides  for confiscating benami properties; amends the definition of benami  transactions, provides for establishment of adjudicating authorities and an  Appellate Tribunal to deal with benami transactions; and specifies the penalty  for entering into benami transactions.<\/p>\n<p>\n  51. As per the  amended definition, a benami transaction is a transaction or arrangement (i)  where a property is held by or transferred to a person, but the consideration  for such property has been provided, or paid by, another person and the  property is held for the immediate or future benefit, direct or indirect of the  person who has provided the consideration, which is subject to the exceptions  provided therein; (ii) the transaction is made in a fictitious name; (iii) the  owner of the property is not aware of or denies knowledge or such ownership; or  (iv) the person providing the consideration is not traceable or is fictitious.<\/p>\n<p>\n  52. Benamidar  is a person or a fictitious person in whose name the benami property is  transferred or held and includes a person who lends his name.<\/p>\n<p>\n  53. Clause (26)  of section 2 of the Benami Transactions Act defines property to mean assets of  any kind, whether movable or immovable, tangible or intangible, corporeal or  incorporeal and includes any right or interest or legal documents or  instruments evidencing title to or interest in the property and where the<\/p>\n<p>\n  property is  capable of conversion into some other form, then the property in the converted  form and also includes the proceeds from the property. Thus the definition of  property is expansive and is very wide in its amplitude.<\/p>\n<p>\n  54. While  section 281A of the Income -tax Act, barred suits in respect of property held  benami it was subject to an exception, namely if notice in the prescribed form  in respect of the property was given by the claimant to the Commissioner within  one year from the date of acquisition, section 4 of the Benami Transactions Act  totally bars suits in respect of benami property.<\/p>\n<p>\n  55. Section 3  of the Benami Transactions Act prohibits any person from entering into a benami  transaction; provides that anyone who enters into any benami transaction shall  be punishable with imprisonment as provided therein; and anyone who enters into  a benami transaction on or after the date of commencement of the amendment act  shall notwithstanding anything contained in sub-section (2) be punishable in  accordance with the provisions contained in Chapter VII.<\/p>\n<p>\n  56. Section 4  of the Benami Transactions Act prohibits the right to recover property held  benami and provides that no suit, claim or action to enforce any right in  respect of any property held benami shall lie against any other person by or on  behalf of a person claiming to be the real owner of the property. Section 5  provides that property held benami shall be liable to confiscation. Section 6  prohibits the benamidar from re-transferring the property to the beneficial  holder or any person acting on his behalf. It further provides that the  consequence of such retransfer is that the transaction of such property shall  be deemed null and void.<\/p>\n<p>\n  57. Under  section 20 of the Benami Transactions Act certain officers are required to  assist the authorities in the enforcement of the Act which includes income-tax  authorities appointed under sub-section (1) of section 117 of the Income Tax  Act.<\/p>\n<p>\n  58. Section 23  of the Benami Transactions Act empowers the initiating officer after obtaining  prior approval of the Approving Authority to conduct or cause to be conducted  any inquiry or investigation in respect of any person, place, property, assets,  documents, books of account or other documents in respect of any other relevant  matters under the Act. Chapter IV of the Act makes provision for attachment,  adjudication and confiscation. Chapter VI makes provision for Special Courts  for trial of offence punishable under the Act.<\/p>\n<p>\n  59. Sub-section  (1) of section 53 of the Benami Transactions Act which falls under Chapter VII namely offences and prosecution &#8211;  provides for penalty for benami transaction and lays down that where any person  enters into a benami transaction in order to defeat the provisions of any law  or to avoid payment of statutory dues or to avoid payment to creditors, the  beneficial owner, benamidar and any other person who abets or induces any  person to enter into the benami transaction, shall be guilty of the offence of  benami transaction. Sub-section (2) thereof provides for the punishment for the  offence and lays down that whoever is found guilty of the offence of benami  transaction referred to in sub-section (1) shall be punishable with rigorous  imprisonment for a term which shall not be less than one year, but which may  extend to seven years and shall also be liable to fine which may extend to  twenty-five per cent of the fair market value of the property.<\/p>\n<p>\n  60. Section 55  prohibits institution of prosecution against any person in respect of any  offence under section 3, 53 or 54 of the Act without the prior sanction of the  competent authority. The Explanation thereto defines competent authority to  mean a Commissioner, Director, a Principal Commissioner of Income-tax or a  Principal Director of Income-tax as defined in clause (16), clause (21), clause  (34B) and clause (34C) respectively, of section 2 of the Income Tax Act. Thus,  it is the income tax authorities who are competent authorities to grant  sanction to prosecute for an offence under the Benami Transactions Act.<\/p>\n<p>\n  61. Section 56  of the Act repeals section 281A of the Income Tax Act, 1961.<\/p>\n<p>\n  62. Section 60  provides that the provisions of the Act shall be in addition to, and not, save  as hereinafter expressly provided, in derogation of any other law for the time  being in force.<\/p>\n<p>\n  63. Thus, while  proceedings under the Benami Transactions Act may be taken against the person  in respect of any benami transaction or arrangement and the benami property may  be attached and confiscated and he may be prosecuted under the penal provisions  of that Act, he can still be proceeded against under the provisions of the  Income Tax Act, in respect of the undisclosed income employed to purchase any  benami property.<\/p>\n<p>\n  64. To deal  with the menace of benami transactions and to ensure that an assessee also  discloses properties in which he has a beneficial interest, sub-section (6) of  section 139 of the Income Tax Act, has been amended vide Finance Act, 2015. The  amended sub-section (6) lays down that the prescribed form of the returns  referred to in sub-sections (1) and (3) of this section and in clause (i) of  sub-section (1) of section 142 shall, in such cases as may be prescribed,  shall, in such cases as may be prescribed, require the assessee to furnish the  particulars of income exempt from tax, assets of the prescribed nature and  value, held by him as a beneficial owner or otherwise or in which he is a  beneficiary, his bank account and credit card held by him, expenditure  exceeding the prescribed limits incurred by him under prescribed heads and such  other outgoings as may be prescribed.<\/p>\n<p>\n  64.1  Furthermore, significant beneficial owner disclosure under Companies Act, 2013  also helps in uncovering benami holdings. Section 89 of the Companies Act  provides for declaration in respect of beneficial interest in any share.  Sub-section (1) thereof provides that where the name of a person is entered in  the register of members of a company as the holder of shares in that company  but who does not hold the beneficial interest in such shares, such person shall  make a declaration within such time and in such form as may be prescribed to  the company specifying the name and other particulars of the person who holds  the beneficial interest in such shares. Sub-section (2) thereof provides that  every person who holds or acquires a beneficial interest in share of a company  shall make a declaration to the company specifying the nature of his interest,  particulars of the person in whose name the shares stand registered in the  books of the company and such other particulars as may be prescribed.  Sub-section (6) of section 89 provides that where any declaration under this  section is made to a company, the company shall make a note of such declaration  in the register concerned and shall file, within thirty days from the date of  receipt of declaration by it, a return in the prescribed form with the  Registrar in respect of such declaration with such fees or additional fees as  may be prescribed. Thus, section 89 of the Companies Act casts an obligation on  both the benamidar as well as the person who holds beneficial interest to file  declarations in respect of beneficial interest in any share and a further  obligation upon the company to file a return with the Registrar in respect of  such declaration.<\/p>\n<p>\n  64.2 Section 90  of the Companies Act provides for Register of significant beneficial owners in  a company. Sub-section (1) thereof provides that every individual, who acting  alone or together, or through one or more persons or trust, including a trust  and persons resident outside India, holds beneficial interests, of not less  than twenty-five per cent or such other percentage as may be prescribed, in  shares of a company or the right to exercise, or the actual exercising of  significant influence or control as defined in clause (27) of section 2, over  the company (referred to as &ldquo;significant beneficial owner&rdquo;), shall make a  declaration to the company, specifying the nature of his interest and other  particulars, in such manner and within such period of acquisition of the  beneficial interest or rights and any change thereof, as may be prescribed.  Sub-section (2) provides that every company shall maintain a register of the  interest declared by individuals under sub-section (1) and changes therein  which shall include the name of individual, his date of birth, address, details  of ownership in the company and such other details as may be prescribed.  Sub-section (4) of section 90 casts an obligation on every company to file a  return of significant beneficial owners of the company and changes therein with  the Registrar containing names, addresses and other details as may be  prescribed within such time, in such form and manner as may be prescribed.  Sub-section (10) provides that if any person fails to make a declaration as  required under sub-section (1), he shall be punishable with fine which shall  not be less than one lakh rupees but which may extend to ten lakh rupees and  where the failure is a continuing one, with a further fine which may extend to  one thousand rupees for every day after the first during which the failure  continues. Sub-section (12) provides that if any person wilfully furnishes any  false or incorrect information or suppresses any material information of which  he is aware in the declaration made under this section, he shall be liable to  action under section 447.<\/p>\n<p>\n  65. The  Prevention of Money-Laundering Act, 2002 seeks to prevent money-laundering  which in plain terms means the preventing legitimising of the money earned  through illegal and criminal activities by investments in movable and  immoveable properties. The need for a law on the subject has been the focus of  the Governments world over in recent times and that of the United Nations also  because the scourge of money-laundering has threatened to wreck the foundations  of the States and even undermine their sovereignty. The terrorist outfits and  smuggling gangs have been depending on money laundering to finance their  operations and it is known that moneys for such operations are arranged through  laundering. Many such illegal outfits have set up ostensibly legal front  organisations. The money generated through illegal activities is ultimately  inducted and integrated with legitimate money and its species like movable and  immovable property. Thus certain economic offences, commercial frauds, crimes  like murder, extortion have contributed to money laundering in a significant  manner. The perpetrators of such heinous crimes should not be allowed to enjoy  the fruits of the money that passed such activity and therefore the object of  the enactment is to deprive the property which is related to the proceeds of  specific crimes listed in the Schedule to the Act.<\/p>\n<p>\n  66. The Money  Laundering Act is a criminal law which came into force from 1.7.2005. Under the  scheme of the Act, money laundering linked to the predicate scheduled offences  is liable for punishment. A large number offences in about 30 different  statutes are Scheduled Offences under the Money Laundering Act. Section 3 of  the Money Laundering Act defines the offence of money laundering. Once the  agency concerned with a predicate scheduled offence registers a case,  Enforcement Directorate takes up investigations under the Money Laundering Act  to ascertain the proceeds of crime generated from the predicate offence booked  by the Law Enforcement Agency. In case, a prima-facie case of generation of  proceeds of crime and laundering thereof is made out, section 17 of the Money  Laundering Act provides for seizure and section 5 thereof provides for  attachment of properties involved in money laundering. The action of seizure and  attachment is required to be adjudged by the Adjudicating Authority under  section 10 of the Money Laundering Act. The persons, both natural and legal  entities, who are accused of the offence of money laundering linked to the  scheduled offence, can be prosecuted in Special Courts as per section 44 of the  Money Laundering Act. Section 4 of the Money Laundering Act provides for  rigorous imprisonment of minimum three years which can extend up to seven years  and a fine of up to Rs.5 lakhs on conviction by the Court of persons who have  been accused of the offence of money laundering. The conviction can extend up  to 10 years if the offence of money laundering is linked to narcotic  trafficking. The property attached under the Money Laundering Act can be  confiscated by the Adjudicating Authority under section 8 thereof after the  conviction by the Court of the accused in the trial for scheduled offence.  Chapter IX of the Money Laundering Act provides for reciprocal arrangements for  processes and assistance for transfer of accused persons with Contracting  States and the procedure for seizure, attachment and confiscation of assets  found lying overseas. India has signed Mutual Legal Assistance Treaties (MLAT)  with 42 countries for cooperation in criminal matters and the home ministry is  the designated &#8216;central authority&#8217; for the country for it. The home ministry  has also taken steps to enhance and streamline the process of international  mutual legal assistance in criminal matters.<\/p>\n<p>\n  67. Section 12  of the Money Laundering Act requires financial sector entities (banking  companies, financial institutions and intermediaries) to verify the identity of  their clients, maintain records and report suspicious transactions \/ cash  transactions (STR \/ CTR) to the Financial Intelligence Unit &#8211; India. The  Director, Financial Intelligence Unit &#8211; India is empowered to conduct inquiry  and impose sanctions against financial sector entities for non-compliance with  section 12. Financial Intelligence Unit &ndash; India conducts analysis of information  received under the Money Laundering Act and in appropriate cases disseminates  information to relevant intelligence \/ enforcement agencies, which include  Central Board of Direct Taxes, Central Board of Excise &amp; Customs,  Enforcement Directorate, Narcotics Control Bureau, Central Bureau of  Investigation, Intelligence agencies and regulators of financial sector.<\/p>\n<p>\n  68. Thus  information received under the Money Laundering Act is also used by the income  tax authorities to unearth undisclosed income.<\/p>\n<p>\n  69. To  strengthen the provisions of the Money Laundering Act, amendments were carried  out in 2009. These amendments have introduced new definitions to clarify and  strengthen the Act and strengthened provisions related to attachment of  property involved in money laundering and its seizure and confiscation. More  offences have been added in Parts A and B of the Schedule to the Act, including  those pertaining to insider trading and market manipulation as well as  smuggling of antiques, terrorism funding, human trafficking other than  prostitution, and a wider range of environmental crimes. A new category of  offences with cross-border implications has been introduced as Part C. Part C  has been amended vide Act 22 of 2015 with effect from 1.7.2015 whereby the  offences of wilful attempt to evade any tax, penalty or interest referred to in  section 51 of the Black Money (Undisclosed Foreign Income and Assets) and  Imposition Act, 2015 has been inserted. Thus, an assessee who has not disclosed  his foreign income in his return of income for any assessment year commencing  from 1st April, 2016 or any undisclosed asset located outside India acquired at  any point of time, is liable to be assessed to tax under the provisions of the  Black Money Act and in case of any wilful attempt in any manner to evade any  tax, penalty and interest chargeable under the Act is liable to punishment  under section 51 of the Act, which is also a scheduled offence under the Money  Laundering Act. As noticed earlier, sub-section (12) of section 90 of the  Companies Act provides that if any person wilfully furnishes any false or  incorrect information or suppresses any material information of which he is  aware in the declaration made under this section, he shall be liable to action  under section 447. Section 447 of the Companies Act makes provision for  punishment of fraud and is a scheduled offence under Part A of the schedule to  the PMLA. Thus, stringent provisions have been made to ensure due compliance  with the provisions of section 90 of the Companies Act by making section 447  thereof a scheduled offence.<\/p>\n<p>\n  70. Money  laundering has been defined under section 3 of the Money Laundering Act to have  the meaning assigned to it in section 3.<\/p>\n<p>\n  71. Section 3  of the Money Laundering Act bears the heading Offence of money-laundering and  provides that whosoever directly or indirectly attempts to indulge or knowingly  assists or knowingly is a party or is actually involved in any process or  activity connected with the proceeds of crime including its concealment,  possession, acquisition or use and projecting or claiming it as untainted  property shall be guilty of offence of money-laundering. The Explanation  thereto which came to be inserted with effect from 1.8.2019 clarifies that (i)  a person shall be guilty of offence of money laundering if such person is found  to have directly or indirectly attempted to indulge or knowingly assisted or  knowingly is a party or is actually involved in one or more of the following  processes or activities connected with proceeds of crime namely &ndash;<\/p>\n<p>\n  (a)  Concealment; or<\/p>\n<p>\n  (b) Possession;  or<\/p>\n<p>\n  (c) Acquisition  ; or<\/p>\n<p>\n  (d) Use; or<\/p>\n<p>\n  (e) Projecting  as untainted property; or<\/p>\n<p>\n  (f) Claiming as  untainted property;<\/p>\n<p>\n  in any manner  whatsoever.<\/p>\n<p>\n  It is further  clarified that the process or activity connected with proceeds of crime is a  continuing activity and it continues till such time a person is directly or  indirectly enjoying the proceeds of crime by its concealment or possession or  acquisition or use or projecting it as untainted property or claiming it as  untainted property.<\/p>\n<p>\n  72. Thus, any  person who in any manner whatsoever is connected with proceeds of crime is  guilty of the offence of money laundering.<\/p>\n<p>\n  73. The  expression &ldquo;proceeds of crime&rdquo; has been defined under clause (u) of section 2  of the Act to mean any property derived or obtained, directly or indirectly, by  any person as a result of criminal activity relating to a scheduled offence or  the value of any such property or where such property is taken or held outside  the country; then the property equivalent in value held within the country or  abroad. The Explanation thereto clarifies that proceeds of crime include  property not only derived or obtained from the scheduled offence but also any property  which may directly or indirectly be derived or obtained as a result of any  criminal activity relatable to the scheduled offence.<\/p>\n<p>\n  74. Property is  defined under clause (v) of section 2 of the Act to mean any property or assets  of every description, whether corporeal or incorporeal, movable or immovable,  tangible or intangible and includes deeds and instruments evidencing title to,  or interest in, such property or assets, wherever located. The Explanation  thereto clarifies that the term property includes property of any kind used in  the commission of an offence under the Act or any of the scheduled offences.<\/p>\n<p>\n  75. Thus, any  property connected with a scheduled offence falls within the ambit of the  expression proceeds of crime and any person involved in any process connected  therewith is guilty of the offence of money laundering. Accordingly, a person  who is in any manner connected with the proceeds of crime derived by committing  the offence under section 51 of the Black Money Act also commits the offence of  money laundering and is amenable to the other provisions of the Money  Laundering Act.<\/p>\n<p>\n  76. Section 4  of the Money Laundering Act provides for the punishment for money-laundering.  Section 5 provides for attachment of property involved in money laundering. Sub-section  (1) thereof provides for provisional attachment of such property which the  authority specified therein has reason to believe on the basis of material in  his possession that any person is in possession of any proceeds of crime; and  such proceeds of crime are likely to be concealed, transferred or dealt with in  any manner which may result in frustrating any proceedings relating to  confiscation of such proceeds of crime under Chapter III of the Act. The  proviso thereto provides that no such attachment shall be made unless a report  has been forwarded to the Magistrate under section 173 of the Criminal  Procedure Code, 1973 in relation to the scheduled offence or a complaint has  been filed before a Magistrate or court taking cognizance of the scheduled offence.<\/p>\n<p>\n  77. While the  authorities under the Money Laundering Act have the powers of attachment,  summoning, production of documents and evidence etc., access to information, to  impose fine, power of survey, search and seizure and freezing of property,  search of persons, to arrest, retention of property, retention of records, and  adjudication for the purpose of attachment; the offence under section 4 of the  Money Laundering Act and any scheduled offence connected to the offence are  required to be tried by Special Courts constituted under section 43 of the Act  in the manner provided under section 44 thereof. Sub-section (5) of section 8  of the Money Laundering Act provides that where on conclusion of a trial of an  offence under the Act, the Special Court finds that the offence of  money-laundering has been committed, it shall order that such property involved  in the money-laundering or which has been used for commission of the offence of  money-laundering shall stand confiscated to the Central Government.<\/p>\n<p>\n  78. Thus, any  property involved in the money laundering or which has been used for commission  of the offence of money-laundering would be confiscated to the Central  Government. Therefore, apart from punishment for commission of the scheduled  offence and the offence of money laundering, the property involved in money  laundering or used in the commission of such offence would also be confiscated.<\/p>\n<p>\n  79. Thus, by  way of money laundering there is an attempt or actual involvement in converting  proceeds of crime which would be in the nature of income which is not disclosed  under the Income Tax Act, to untainted property, namely property which  ostensibly appears to have been disclosed under the Income Tax Act.<\/p>\n<p>\n  80. As  discussed earlier black money is also generated by suppressing profits, stocks,  over-invoicing, under-invoicing, evasion of tax under the commercial tax  statutes like the sales tax Acts, the Stamp Act, service tax act, GST etc. To  curb such evasion of taxes, various safeguards have been provided under the  CGST Act.<\/p>\n<p>\n  81. Section 22  of the CGST Act provides that every supplier shall be liable to be registered  under the Act in the State or Union Territory, other than special category of  States, from where he makes a taxable supply of goods or services or both, if  his aggregate turnover in a financial year exceeds twenty lakhs.<\/p>\n<p>\n  82. Section 51  of the CGST makes provision for tax deduction at source whereby a department of  the Central Government or State Government, or local authority or Governmental  agencies or such persons or categories of persons as may be notified who are  referred to as deductors to deduct tax at the rate of one per cent from the  payment made or credited to the supplier who is called the deductee of taxable  services or both, where the total value of such supply under a contract,  exceeds two lakh and fifty thousand rupees.<\/p>\n<p>\n  81. At this  juncture, before proceeding further with the relevant provisions of the CGST  Act, it would be necessary to refer to section 139AA of the Income Tax Act,  which provides for quoting of Aadhaar number in the application for allotment  of Permanent Account Number as well as in the return of income. It further  provides that every person who has been allotted Permanent Account Number as on  the 1st day of July, 2017, and who is eligible to obtain Aadhaar number, shall  intimate his Aadhaar number to such authority in such form and manner as may be  prescribed, on or before a date to be notified by the Central Government in the  Official Gazette. The proviso thereto provides that in case of failure to  intimate the Aadhaar number, the Permanent Account Number allotted to the  person shall be deemed to be invalid and the other provisions of this Act shall  apply, as if the person had not applied for allotment of Permanent Account  Number.<\/p>\n<p>\n  82. To  understand the significance of linking the Permanent Account Number with  Aadhaar number, it may be germane to refer to the following extract from the  decision of the Supreme Court in Binoy Viswam v. Union of India, (2017) 7 SCC  59, wherein the court in the context of section 139AA of the Income Tax Act,  has observed thus:<\/p>\n<p>\n  <em>&ldquo;53. Even a  cursory look at the aforesaid provision makes it clear that in the application  forms for allotment of Permanent Account Number (for short &ldquo;PAN&rdquo;) as well as in  the income tax returns, the assessee is obliged to quote Aadhaar number. This  is necessitated on any such applications for PAN or return of income on or  after 1-7-2017, which means from that date quoting of Aadhaar number for the  aforesaid purposes becomes essential. Proviso to sub-section (1) gives  relaxation from quoting Aadhaar number to those persons who do not possess  Aadhaar number but have already applied for issuance of Aadhaar card. In their  cases, the Enrolment ID of Aadhaar application form is to be quoted. It would  mean that those who would not be possessing Aadhaar card as on 1-7-2017 may  have to necessarily apply for enrolment of Aadhaar before 1-7-2017.<\/em><\/p>\n<p>\n  <em>54. The  effect of this provision, thus, is that every person who desires to obtain PAN  card or who is an assessee has to necessarily enrol for Aadhaar. It makes  obtaining of Aadhaar card compulsory for those persons who are income tax  assessees. Proviso to sub-section (2) of Section 139-AA of the Act stipulates  the consequences of failure to intimate the Aadhaar number. In those cases, PAN  allotted to such persons would become invalid not only from 1-7-2017, but from  its inception as the deeming provision in this proviso mentions that PAN would  be invalid as if the person had not applied for allotment of PAN i.e. from the  very beginning. Sub-section (3), however, gives discretion to the Central  Government to exempt such person or class or classes of persons or any State or  part of any State from the requirement of quoting Aadhaar number in the  application form for PAN or in the return of income.<\/em><\/p>\n<p>\n  <em>59. Mr  Rohatgi thereafter read extensively from the counter-affidavit filed on behalf  of the Union of India detailing the rational and objective behind introduction  of Section 139-AA of the Act. He submitted that the provision aims to achieve,  inter alia, the following objectives:<\/em><\/p>\n<p>\n  <em>59.1. This  provision was introduced to tackle the problem of multiple PAN cards to same  individuals and PAN cards in the name of fictitious individuals are common  medium of money laundering, tax evasion, creation and channelling of black  money. PAN numbers in name of firm or fictitious persons as directors or  shareholders are used to create layers of shell companies through which the  aforesaid activities are done. A de-duplication exercise was done in the year  2006 and a large number of PAN numbers were found to be duplicate. The problem  of some persons fraudulently obtaining multiple PANs and using them for making  illegal transactions still exists. Overall 11.35 lakh cases of duplicate  PAN\/fraudulent PAN have been detected and accordingly such PANs have been  deleted\/deactivated. Out of this, around 10.52 lakh cases pertain to individual  assessees. Total number of Aadhaar for individuals exceeds 113 crores whereas  total number of PAN for individuals is around 29 crores. Therefore, whereas the  Aadhaar Act applies to the entire population, the Income Tax Act applies to a  much smaller subset of the population i.e. the taxpayers. In order to ensure  One PAN to One Person, Aadhaar can be the sole criterion for allotment of PAN  to individuals only after all existing PAN are seeded with Aadhaar and quoting  of Aadhaar is mandated for new PAN applications. The counter-affidavit filed by  the Union of India also gives the following instances of misuse of PAN:<\/em><\/p>\n<p>\n  <em>(a) In NSDL  scam of 2006, about one lakh bogus bank and demat accounts were opened through  use of PANs. The real PAN owners were not aware of these accounts.<\/em><\/p>\n<p>\n  <em>(b) As banks  progressively started insisting on PANs for opening of bank accounts,  unscrupulous operators managed multiple PANs for providing entries and  operating undisclosed accounts for making financial transactions.<\/em><\/p>\n<p>\n  <em>(c) Entry  operators manage a large number of shell companies using duplicate PANs or PANs  issued in the name of dummy directors and name lenders. As the persons involved  as bogus directors are usually the same set of persons, linkage with Aadhaar  would prevent such misuse. Further, it will also be expedient for the  enforcement agencies to identify and red flag such misuses in future.<\/em><\/p>\n<p>\n  <em>(d) Cases  have also been found where multiple PANs are acquired by a single entity by  dubious means and used for raising loans from different banks. In one such case  at Ludhiana, multiple PANs were found acquired by a person in his individual  name as well as in the name of his firms by dubious means. During  investigation, he admitted to have acquired multiple PANs for raising multiple  loans from banks and to avoid adverse CIBIL information. Prosecution has been  launched by the Income Tax Department in this case under Sections 277-A, 278,  278-B of the Act in addition.<\/em><\/p>\n<p>\n  <em>59.2. To  tackle the problem of black money, Mr Rohatgi pointed out that the Second  Report of the Special Investigation Team (SIT) on black money, headed by  Justice M.B. Shah (Retd.), after observing the menace of corruption and black  money, recommended as follows:<\/em><\/p>\n<p>\n  <em>&ldquo;At present,  for entering into financial\/business transactions, persons have option to quote  their PAN or UID or passport number or driving licence or any other proof of  identity. However, there is no mechanism\/system at present to connect the data  available with each of these independent proofs of ID. It is suggested that  these databases be interconnected. This would assist in identifying multiple  transactions by one person with different IDs.&rdquo;<\/em><\/p>\n<p>\n  <em>The SIT in  its Third Report has recommended the establishment of a Central KYC Registry.  The rational for the SIT recommendations was to prove a verifiable and  authenticable identity for all individuals and Aadhaar provides a mechanism to  serve that purpose in a federated architecture without aggregating all the  information at one place. The Committee headed by the Chairman, CBDT on  &ldquo;Measures to tackle black money in India and abroad&rdquo; reveals that various  authorities are dealing with the menace of money laundering being done to evade  taxes under the garb of shell companies by the persons who hold multiple bogus  PAN numbers under different names or variations of their names, providing  accommodation entries to various companies and persons to evade taxes and  introduce undisclosed and unaccounted income of those persons into their  companies as share applications or loans and advances or booking fake expenses.  These are tax frauds and devices which are causing loss to the revenue to the  tune of thousands of crores.<\/em><\/p>\n<p>\n  <em>59.3.  Another objective is to curb the menace of shell companies. It is submitted in  this regard that PAN is a basis of all the requirements in the process of  incorporation of a company. Even an artificial juridical person like a company  is granted PAN. It is required as an ID proof for incorporation of a company,  applying for DIN, digital signature, etc. PAN is also required for opening a  bank account in the name of a company or individuals. Basic documents required  for obtaining a PAN are ID proof and address proof. It has been observed that  these documents which are a basis of issuance of PAN could easily be forged  and, therefore, PAN cards issued on the basis of such forged documents cannot  be genuine and it can be used for various financial frauds\/crime. Aadhaar will  ensure that there is no duplication of identity as biometric will not allow  that. If at the time of opening of bank accounts itself, the more robust  identity proof like Aadhaar had been used in place of PAN, the menace of  mushrooming of non-descript\/shell\/jamakharchi\/bogus companies would have been  prevented. There is involvement of natural person in the complex web of shell  companies only at the initial stage when the shareholders subscribe to the  share capital of the shell company. After that many layers are created because  there is company-to-company transaction and much more complex structure of  shell company compromising the financial integration of nation is formed which  makes it almost impossible to identify the real beneficiary (natural person)  involved in these shell companies. These shell companies have been used for  purpose of money laundering at a large scale. The fake PAN cards have  facilitated the enormous growth of shell companies which were being used for  layering of funds and illegal transfer of such funds to some other  companies\/persons or parked abroad in the guise of remittances against import.  The share capital of these shell companies are subscribed by fake shareholders  through numerous bank accounts opened with the use of fake PAN cards at the  initial stage.<\/em><\/p>\n<p>\n  <em>Thus, the  purpose behind introducing section 139AA of the Income -tax Act is to check the  menace of black money as well as money laundering and also to widen the income  tax net so as to cover those persons who are evading payment of tax. This  provision was required to tackle the problem of multiple PAN cards to same  individuals and PAN cards in the name of fictitious individuals are common  medium of money laundering, tax evasion, creation and channelling of black  money since PAN numbers in name of firm or fictitious persons as directors or  shareholders are used to create layers of shell companies through which the  aforesaid activities are done.<\/em><\/p>\n<p>\n  <em>83. Section  203A of the Income -tax Act, makes provision for tax deduction and collection  account number and provides that (1) Every person, deducting tax or collecting  tax in accordance with the provisions of this chapter, who has not been  allotted a tax deduction account number or, as the case may be, a tax  collection account number, shall, within such time as may be prescribed, apply  to the Assessing Officer for the allotment of a &ldquo;tax deduction and collection  account number&rdquo;.<\/em><\/p>\n<p>\n  84. This  requirement of having a Permanent Account Number or tax deduction and  collection account number under the Income Tax Act is also introduced in the  CGST Act.<\/p>\n<p>\n  85. Section 25  of the CGST Act provides for procedure for registration. Sub-section (6)  thereof provides that every person shall have a Permanent Account Number issued  under the Income Tax Act, 1961 in order to be eligible for grant of  registration. The proviso thereto provides that a person required to deduct tax  under section 51, may have in lieu of a Permanent Account Number, a Tax  Deduction and Collection Account<\/p>\n<p>\n  Number issued  under the said Act in order to be eligible for grant of registration.<\/p>\n<p>\n  86. Sub-section  (6A), (6B), (6C) and (6D) have been inserted in section 25 of the CGST Act by  Finance Act, 2019.<\/p>\n<p>\n  Sub-section  (6A) provides that every registered person shall undergo authentication, or  furnish proof of possession of Aadhaar number, in such form and manner and  within such time as may be prescribed. The first proviso thereto postulates  that if an Aadhaar number is not assigned to the registered person, such person  shall be offered alternate and viable means of identification in such manner as  the Government may, on the recommendations of the Council prescribe. The second  proviso ordains that in case of failure to undergo authentication or furnish  proof of possession of Aadhaar number or furnish alternate and viable means of  identification, registration allotted to such person shall be deemed to be  invalid and the other provisions of the Act shall apply as if such person does  not have a registration.<\/p>\n<p>\n  87. Sub-section  (6B) of section 25 provides that on and from the date of notification, every  individual shall, in order to be eligible for grant of registration, undergo  authentication, or furnish proof of possession of Aadhaar number, in such  manner as the Government may, on recommendations of the Council specify in the  said notification. The proviso thereto postulates that if an Aadhaar number is  not assigned to the registered person, such person shall be offered alternate  and viable means of identification in such manner as the Government may, on the  recommendations of the Council prescribe.<\/p>\n<p>\n  88. Sub-section  (6C) of section 25 which is extremely significant provides that on and from the  date of notification, every person, other than an individual, shall in order to  be eligible for grant of registration, undergo authentication or furnish proof  of possession of Aadhaar number of the Karta, Managing Director, whole-time  Director, such number of partners, Members of Managing Committee of  Association, Board of Trustees authorised representative, authorised signatory  and such other class of persons, in such manner, as the Government may, on the  recommendations of the Council specify in the said notification. There is  similar proviso as contained in sub-section (6A) and (6B).<\/p>\n<p>\n  89. Thus, to be  eligible for registration under the CGST Act, a person should have a Permanent  Account Number issued under the Income Tax Act, 1961 and a person required to  deduct tax under section 51, may have in lieu of a Permanent Account Number, a  Tax Deduction and Collection Account Number issued under the said Act in order  to be eligible for grant of registration.<\/p>\n<p>\n  90. The  registered person is also required to undergo authentication or produce proof  of Aadhaar number. In case of HUF, companies, trusts, association of persons etc.  the karta, managing director, member of committee, partner etc. as the case may  be, is required to undergo authentication or produce proof of Aadhaar number.<\/p>\n<p>\n  91. Section 16  of the CGST Act provides the eligibility conditions for taking input tax credit  and provides that (1) Every registered person shall, subject to such conditions  and restrictions as may be prescribed and in the manner specified in section  49, be entitled to take credit of input tax charged on any supply of goods or  services or both to him which are used or intended to be used in the course or  furtherance of his business and the said amount shall be credited to the  electronic credit ledger of such person. Sub-section (3) thereof provides that  where the registered person has claimed depreciation on the tax component of  the cost of capital goods and plant and machinery under the provisions of the  Income-tax Act, the input tax credit on the said tax component shall not be  allowed. Thus, a person is not entitled to avail the benefit of both  depreciation on the tax component of capital goods and plant and machinery  under the Income Tax Act as well as input tax credit on such tax component.<\/p>\n<p>\n  92. Under  Section 150 of the CGST Act, 2017, the government mandates the filing of  Information Returns under GST for certain class of persons. Information returns  are not tax returns. They are rather tax documents which are used to report  certain business transactions. The Information returns under GST are required  to be filed by only a certain class of people as defined in the Act<\/p>\n<p>\n  If any person  (out of the ones stated below) is responsible for maintaining any of the  following, he would be required to file an Information Return under GST:<\/p>\n<p>\n  1. Registration  records<\/p>\n<p>\n  2. Statement of  accounts<\/p>\n<p>\n  3. Periodic  Returns<\/p>\n<p>\n  4. Details of  tax payment<\/p>\n<p>\n  5. Other  details of the transaction of goods or services<\/p>\n<p>\n  6. Transactions  relating to bank account<\/p>\n<p>\n  7. Transactions  relating to consumption of electricity<\/p>\n<p>\n  8. Transactions  of purchases<\/p>\n<p>\n  9. Transactions  of sales<\/p>\n<p>\n  10. Exchange of  goods or property<\/p>\n<p>\n  11. Right or  interest in a property<\/p>\n<p>\n  Any income tax  authority also falls within the class of persons obligated to file Information  Returns.<\/p>\n<p>\n  93. After  implementation of GST, the GST officers now have a database of Income Tax  assessees and Income Tax officers have the benefit of the facts and figures  reported under the GST law. Information sharing is made quite easy. The  Government has launched GST with a dedicated digital system, called GST Network  (GSTN), to manage all GST related things online from a single portal. This also  makes it simple for businesses to maintain proper tax records and calculate  their tax liability correctly. Income tax department can also easily figure out  the tax liability of a particular person or business by comparing their returns  for the details of total turnover to find out any discrepancy and catch tax  evaders.<\/p>\n<p>\n  94. In view of  the fact that PAN based registration has been made mandatory, the value of  total turnover reported in all the returns under GST, whether it is CGST or  SGST will be reported to the Income tax department by the GSTN.<\/p>\n<p>\n  95. After  implementation of GST law it is likely that there will be a huge fall in the  tax evasion. Quite often businesses report a different value of stock in their  annual VAT return as compared to their Income Tax return. This valuation is  sometimes inflated to show higher profits to maintain the credit score against  the loans taken from the bank, while on the other hand, many entities deflate  the value of stock to attract less tax liability. Under the GST law, every  movement of taxable goods having invoice value above Rs 50,000\/- is subject to  generation of E-way bill. Further every sale invoice will also get uploaded on  the GST portal. These invoices will, in turn, be referred to the buyer. Insofar  as returns filed under the VAT law or CST laws are concerned, they do not  require validation from the buyer. A major implication of this information  sharing between Income tax and GST departments would be that the tax evaders  who window dress their books at the year end to lessen their tax liability will  find it harder to do so. Such actions or window dressing were possible before  as the Income Tax Department did not have any access to the data which is filed  under the state VAT laws. However, under the new regime, GSTN will be the  single repository to all these transactions and the Income Tax Department will  have a clear picture of the total sales and purchases, and eventually the  overall profitability, of every business. So it is clear that an upward  assessment under one law is going to impact the liability of the assessee under  the other law as well.<\/p>\n<p>\n  96. Thus, while  the Black Money Act, the Benami Transactions Act and the Money Laundering Act,  though they operate in different fields, have all been enacted with the object  of dealing with the menace of black money, namely money that is unaccounted  for, wherein taxes have not been paid on that money, the taxing statutes like  the Income Tax Act and the CGST Act contain provisions to curb evasion of tax.  Moreover, both these taxing statutes as well as the Companies Act contain provisions  for detection of Benami properties and for checking generation of black money.<\/p>\n<p>\n  The information  regarding the methods of generation of black money is gathered from the Black  Money Committee Report, 2012.<\/p>\n<p>Thank you .<\/p>\n<table width=\"103%\" border=\"1\" cellpadding=\"5\" cellspacing=\"0\" bgcolor=\"#FFFFCC\">\n<tr>\n<td><strong>Disclaimer: <\/strong>The  contents of this document are solely for informational purpose. It does not  constitute professional advice or a formal recommendation. While due care has  been taken in preparing this document, the existence of mistakes and omissions  herein is not ruled out. Neither the author nor itatonline.org and its  affiliates accepts any liabilities for any loss or damage of any kind arising  out of any inaccurate or incomplete information in this document nor for any  actions taken in reliance thereon. No part of this document should be  distributed or copied (except for personal, non-commercial use) without  express written permission of itatonline.org<\/td>\n<\/tr>\n<\/table>\n","protected":false},"excerpt":{"rendered":"<p>Justice (Retd) Harsha N. Devani, the former Judge of the Gujarat  High Court, delivered a talk recently under the auspices of the AIFTP, in which she explained in detail the interplay between the Income-tax Act, 1961, the Black Money (Undisclosed Foreign Income and  Assets) and Imposition of Tax Act, 2015, the Prevention of Money Laundering Act,  2002, The Prohibition of Benami Property Transactions Act, 1988 and other allied laws. A transcript of the presentation together with the recording of the video is available<\/p>\n<div class=\"read-more\"><a href=\"https:\/\/itatonline.org\/articles_new\/interplay-between-the-income-tax-act-the-benami-transactions-act-the-money-laundering-act-and-allied-laws\/\">Read more &#8250;<\/a><\/div>\n<p><!-- end of .read-more --><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","default_image_id":0,"font":"","enabled":false},"version":2}},"categories":[1],"tags":[],"class_list":["post-7958","post","type-post","status-publish","format-standard","hentry","category-articles"],"jetpack_publicize_connections":[],"jetpack_featured_media_url":"","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/itatonline.org\/articles_new\/wp-json\/wp\/v2\/posts\/7958","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/itatonline.org\/articles_new\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/itatonline.org\/articles_new\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/itatonline.org\/articles_new\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/itatonline.org\/articles_new\/wp-json\/wp\/v2\/comments?post=7958"}],"version-history":[{"count":0,"href":"https:\/\/itatonline.org\/articles_new\/wp-json\/wp\/v2\/posts\/7958\/revisions"}],"wp:attachment":[{"href":"https:\/\/itatonline.org\/articles_new\/wp-json\/wp\/v2\/media?parent=7958"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/itatonline.org\/articles_new\/wp-json\/wp\/v2\/categories?post=7958"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/itatonline.org\/articles_new\/wp-json\/wp\/v2\/tags?post=7958"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}