Read Order: RASHESHMANHAR BHANSALI vs. ADDITIONAL COMMISSIONER OF INCOME TAX 

Pankaj Bajpai

Mumbai, November 5, 2021: The Income Tax Appellate Tribunal (Mumbai Bench) has recently ruled that the bank account which did not exist at time of coming into force of provisions of Black Money Act (BMA), can be treated as ‘undisclosed asset’ and be brought to tax under this legislation. 

The Coram of Pramod Kumar (Vice President) and Ravish Sood (Judicial Member) therefore observed that when BMA comes in force from April 1, 2016, and an asset held prior to April 1, 2016 comes to the notice of AO, even then AO is within his powers to bring it to tax. 

Going by the background of the case, based on the intelligence inputs with respect to offshore entities in the British Virgin Islands (BVI), that the income tax investigation wing claimed to have learnt that Gold Jewel Corporation (GJC-BVI), a company formed in the BVI had its beneficial owners in India and that GJC-BVI operated certain bank account in the UBS, AG, Singapore branch (UBS Bank). 

It was found that two undisclosed bank accounts reflected credit entries of US$ 122,011,244 and US$ 25,011,282. Accordingly, a search and seizure operation was carried out on the residential and commercial premises of the assessee, resulting in a notice u/s 10(1) of the BMA on the assessee asking to furnish the list of all bank accounts held outside India and to furnish complete details of all such accounts right from the date of opening till date. 

After analyzing the records, the AO came to the conclusion that the assessee was operating the UBS Bank account under his signatures and making several transactions with the Indian entities as well.

However, on March 28,2019, as the assessment proceedings under the BMA were on the verge of completion, the assessee finally owned up the bank accounts and submitted an explanation for the entries in the bank accounts. It was also submitted by the assessee that unexplained entries, not supported by the withdrawals, in account nos. 161753 and 137274 were only US $ 7,15,538.58 and US $ 1,29,688.92 respectively, which, the assessee offered to tax. 

The AO then proceeded to conclude that the assessee was a beneficial owner of offshore entity M/s Gold Jewel Corporation and Bank Account No. 161753 and 137274 maintained in the UBS, AG, Singapore. On appeal, the CIT(A) held that even if an asset had been acquired before commencement of the BMA, the same would be taxable in the year in which it comes to the notice of the AO. 

It was therefore held that it was not a condition precedent for taxation, under the BMA, that the asset must continue to be held at the point of time when it was being brought to tax. So far as the factual part was concerned, the CIT(A) accepted explanation of the assessee so far as credit of US$ 3,213,307.60, as amount received on redemption of investment was concerned. 

After considering the arguments and provisions, the ITAT noted that in the present case, the AO has simply accepted the approach adopted by the assessee and the said approach was that the credits for interest income and the unexplained credits in the undisclosed bank accounts had been offered to tax as undisclosed foreign income. 

So far as bank account no. 137274 was concerned, out of US $ 1,29,688.92 offered to tax by the assessee, US $ 1,24,750 pertained to the interest entries and minor entries which could not be explained by the assessee and accepted as income, added the ITAT. 

Similarly, so far as bank account no. 161753 is concerned, out of US $ 7,15,538.58 offered to tax by the assessee, US $ 4,36,527.78 pertains to interest credits and the remaining amounts have been offered to tax as unexplained receipts. The presumption of an unexplained credit being in the nature of income is not at all alien to the income tax jurisprudence, and, is rather an integral part of the income tax jurisprudence. The same principle, therefore, holds good in the present context, for the computation of income, as well”, observed the Tribunal. 

The Tribunal explained that there is no provision in the BMA that comes in the way of these principles, as the variation from income tax law is only with respect to deduction for expenditure to earn the said income, whether allowable under the Income Tax Act or not, being declined. When an undisclosed foreign income is to be computed under the BMA, 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 ITA. 

In effect, whether it is an undisclosed asset or an undisclosed income, it is treated as ‘income included in the total undisclosed income and assets. Whatever is taxed under the BMA, thus has to get out of the taxation under the Income Tax Act. Clearly, therefore, what is offered to tax even by the assessee is of predominantly of unambiguously income nature, as also unexplained credits in the bank accounts which are also of income nature, added the Tribunal. 

It is, therefore, wrong to proceed on the basis that what has been taxed is only the value of an undisclosed asset and not an income. 

Moving to the question, as had been put by the senior counsel, i.e whether a bank account, which did not exist at the point of time when the provisions of the Black Money (Undisclosed Foreign Income & Assets) and Imposition of Tax Act 2015 came in force, i.e. July 1, 2015, can be treated as an ‘undisclosed asset’ under section 2(11) of the Act and be brought to tax as such, under this legislation,it was opined that Section 2(11) uses the undisclosed foreign assets as “an asset (including financial interest in any entity) located outside India, held by the assessee in his name or in respect of which he is a beneficial owner, and he has no explanation about the source of investment in such asset or the explanation given by him is in the opinion of the Assessing Officer unsatisfactory’. 

There is no indication anywhere that the assessee must continue to hold the asset anywhere, and proviso to Section 3(1) on the contrary, specifically mentions about the assets held in the past inasmuch as it states that ‘Provided 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, clarified the Coram.

The Coram said that perusal of Section 3 of the Black Money Act, would further reveal, that what is relevant is the date on which the Assessing Officer notices the acquisition by an assessee of undisclosed asset located outside India’.

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