No offence u/s 50 of Black Money Act is made if foreign assets stand disclosed in revised return: Karnataka HC

Read Order: K. Mohammed Haris vs. Income Tax Department 

Pankaj Bajpai

Bengaluru, October 27, 2021: Following the Madras High Court ruling in Srinidhi Karti Chidambaram vs. Principal Chief Commissioner of Income Tax (Tamil Nadu and Puducherry) and others , the Karnataka High Court has quashed a criminal complaint for offence u/s 50 of the Black Money Act, 2015 since the Assessee had made the disclosure of foreign assets and interest in the revised return. 

The Bench of Justice K.Natarajan observed that there was no mens rea on the part of the Assessee requiring the rebuttal of the presumption, and hence the complaint and continuation of criminal proceedings was an abuse of the process of law. 

Going by the background of the case, the Assessee-Individual preferred a Criminal Revision Petition against the complaint filed by the Revenue u/s 50 of the Black Money Act for AY 2017-18. 

The criminal complaint was filed on the basis of material gathered from a search operation on a private company which revealed that the Assessee had purchased a property in UAE and also acquired interest in the UAE-based company of which he continued to be a shareholder and managing director. 

Revenue’s allegation was that the Assessee did not make any voluntary and willful disclosure of foreign assets in the Income tax return (ITR) which is a punishable offence u/s 50 of the Black Money Act (BMA) and made the disclosure in the revised return only after the search was conducted and a notice was issued to the Assessee. 

On the other hand, Assessee submitted that a revised return was filed as per the stipulated time limit with the necessary disclosure and thus, there was no offence committed u/s 50 of BMA as the law does not differentiate between disclosure made in the original return or revised return or prohibits disclosure made after the search is conducted or a notice is issued. 

The Revenue Department emphasized on presumption against the Assessee provided for u/s 54 and thus, the accused was required to rebut the presumption and has to go through the trial and disprove the case. 

After considering the arguments, the High Court noted that it was not in dispute that the Assessee made the disclosure of foreign assets in its revised return.

On an analysis of the legal provisions, the Bench also observed, “Section 4(1)(b) refers that, the income, from a source located outside India, in respect of which a return is required to be furnished u/s 139 of the Income-tax Act but no return of income has been furnished within the time specified in Explanation 2 to sub-section (1) or under sub-section (4) or sub-section (5) of section 139 of the Act. Then it is an offence which is punishable u/s 50 of BMA”. 

Thus, Justice Natrajan held the Revenue’s allegation to be unsustainable since the Assessee had filed the return as per stipulated time limit and offence u/s 50 can be said to have been committed if no disclosure was made in the revised return. 

In the Madras HC ruling in Srinidhi Karti Chidambaram’s case(Supra), it was observed that it is trite law that a Section which has a penal consequence has to be read strictly and therefore, the words, “or sub-Section (4) or sub-Section (5) of Section 139” has to be given some meaning and an offence, under Section 50 of the BM Act, would be attracted, only after the period to file the revised return, under Section 139(5) is over and if there is a willful failure to furnish the information of a foreign asset/financial interest in the return. Except in cases, of course, where there is a complete fraud played by the assessee, by filing a false return.

The High Court, therefore, held that the initial burden of proving the case is always on the prosecution and the burden shifts on Assessee only when the initial burden is discharged by the prosecution i.e., Revenue and since the assets were already disclosed in the revised ITR it couldnot be said that there was any willful non-disclosure.