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If a PERSON wilfully attempts in any manner whatsoever to evade any tax, penalty or interest chargeable or imposable under this act, he shall be punishable with rigorous imprisonment for term not less than 3 years and may extend till 10 years & with FINE. If sec.
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Read More »The Black Money (Undisclosed Foreign Income & Assets) & Imposition of Tax Act, 2015 Black money or shadow economy, as a phenomenon, is found all over the world. Estimates of this black money economy in India, is difficult and different tools and studies have come out with different estimates of the same. Certain estimates of the yearly growth rate of black money peg it as high as 30 to 40% of the GDP. Estimated GDP of India is about 2800 billion USD (Rs.210 lakh crores) With stronger DTA's and Tax Information exchange mechanisms (TIEM) in place and an International onslaught on shady tax havens, the KYC and AML (Anti Money laundering) mechanisms have strengthened up in many countries esp FATF ones. Countries are co-operating with one another to check and detect tax evasions and flight of illicit money. The process has been further fuelled by leaks be it Wiki leaks or the Panama leaks. In a way these leaks may be treated as a blessing in disguise. The Black Money Act (as popularly known) was promulgated and made applicable w.e.f 1st July 2015 with 88 sections. The Rules (12 rules) & Forms (7 forms) have also been notified on 2-7-2015. This law was made to make provisions to deal with the problem of Black money i.e undisclosed foreign income & assets, to provide for procedures for dealing with such income/assets, impose tax on the same and for other matters connected/incidental therewith. BASIC STRUCTURE Initially, the Act was applicable only to a person RESIDENT of India. However, as per amendment brought in July 2019, it is now also made applicable to a person being Not ordinary residents or Non resident (applicable w.e.f 1-7-15) but who was an ordinary resident of India in the previous year to which the foreign income relates or in the previous year in which foreign asset was acquired. This Act plays a crucial role in assessment proceedings under the Income Tax Act, 1961 (herein after referred as I.T. Act), specially in cases where foreign income or foreign assets are detected. The AO may invoke this Act even during regular Income Tax Assessment proceedings. The return of income u/s 139 under the I. T. Act is the crucial and often originating cause of action for this Act. There is no concept of filing return of income under this Act . This Act covers only 2 issues : Undisclosed foreign income or Undisclosed foreign assets. A base tax of 30% is leviable on any undisclosed foreign income or foreign asset found by the AO. Besides the tax so leviable, penalty at the rate of 90% (three times the amount of tax computed). There are other penalties also leviable on account of non disclosure of required information etc and there are prosecution provisions also within the Act. IMPORTANT DEFINITIONS Section 2(11) “undisclosed asset located outside India” means an asset (including financial interest in any entity) located outside India, held by an assessee in his name or of which he is a beneficial owner AND he has NO explanation about the source of Investment in such asset OR explanation given by him is in the opinion of AO unsatisfactory. Section 2(12) “Undisclosed foreign income and asset” means the total amount of undisclosed income of an assessee from a source outside India & the value of an undisclosed asset located outside India, referred to in Section 4 & computed in the manner in Section 5. ACTUAL WORKING OF THIS ACT As per Section 3(1), the assessee is chargeable with tax of 30% will be charged, on or after the date on which Act has come in force i.e effectively for Asst year : 16-17 & onwards , in respect of undisclosed foreign income & undisclosed asset. Undisclosed asset located outside India shall be charged to tax on its value as on the 1st April of the previous year in which such asset comes to the notice of AO and in addition to tax Interest is also charged over the tax. The value will be determined as per rules which have been notified. What is total undisclosed foreign income or asset : Section 4 includes, Any foreign Income, which has not been disclosed in the return of Income filed within the time specified u/s 139(1)/(4)/(5) of I.T Act. The assessee has earned foreign Income in respect of which he is liable to file return of income but has Not filed his Income Tax return within time limit prescribed u/s 139(1)/(4)/(5) of the I.T. Act the value of any undisclosed asset outside India. Section 4(2) of the Act provides that any income, if is already taxed in assessment or reassessment under the I. T. Act in accordance with the provisions of section 29 to section 43C or section 57 to section 59 or section 92C of the I. T. Act, shall not be included in the total undisclosed foreign assets. Section 4(3) of the Act, provides that any Income which is included in the total foreign income or asset under this Act shall not form part of the total income under I.T. Act. As per Section 5(1), In computing the total undisclosed foreign income and asset, No deduction of Expenditure/Allowance/Set off of any loss shall be allowed, whether or not it is allowable under I. T. Act. However any income : which has been assessed under Income-tax Act prior to the year to which this Act applies or which is assessed/assessable under this Black Money Act. Shall be reduced from the value of undisclosed asset located outside India, if evidence is produced to the satisfaction of the AO that the asset has been acquired from that Income which has been so assessed/assessable to Tax. Eg : Mr. A purchased a immovable property outside India (say in London) in the previous Year: 2009-10 for Rs. 50 lakhs. However out of Rs. 50 lakhs , a sum of Rs. 20 lakhs (40% of 50 lacs ) was assessed to Tax in P.Y. 2009-10 and earlier years and the balance amount of Rs. 30 lacs (60% of 50 lacs) was undisclosed. This foreign asset was not disclosed in the tax returns of the assessee. Now suppose in Previous Year 2018-19, this foreign asset comes to notice of AO. The value of Asset is Rs. 1 crore {Value of asset as on first day of P.Y i.e 1-4-18}. The the amount Chargeable to Tax shall be A-B = C. A = Rs 1 crore, B = Rs (100 * 40% ) = Rs 40 lakhs ( This 40% was the amount as assessed to tax earlier as stated above C = Rs (100 – 40) = Rs 60 lakhs – Taxed at 30% + penalty 90% Section 10 deals with assessment proceedings under this Act and is one of most important provision of the Act: The AO shall make an Assessment or Reassessment on receipt of information from the Income Tax authority OR from any other authority under any law OR on Information coming to his notice . For making an Assessment or Reassessment, the AO is required to SERVE notice u/s 10(1) on any person, requiring him to produce or cause to produce accounts or documents or evidence as required for this act. He may serve further notices in order to call for any further information. There is no time limit prescribed under this Act for issuing such notices. However, the Assessment or Reassessment order shall be passed within 2 years from the end of Financial year in which notice u/s. 10(1) was issued by the AO. Since, there is no time limit to issue notice for assessment or reassessment, it means assessment or Reassessment can be carried out at any time without any time barring limit. This means that even during routine 143(3) assessments under the I. T. Act , if the JCIT/Addl CIT finds that some foreign asset or income is undisclosed, he can trigger the Black Money Act and issue notice u/s 10 Section 14 The law also permits the direct assessment of the actual beneficiary of the transaction (behind the scene), along with the person who is under primary scrutiny under the provisions of this Act APPEALS / REVISIONS First Appeal – Provisions of this Act are just like the Income-tax Act. The First appeal is to be filed before the Commissioner (Appeals) within 30 days of date of service of notice of demand – The appeal can be filed, i) if the assessee objects to the tax levied or ii) denies his liability to be assessed under this act, or iii) objects any penalty or iv) objects any rejection order or v) object any order refusing to allow the claim made by the assessee. CIT(A) has power to condone delay in filing of any appeal, on being satisfied of reason causing delay, but not beyond a period of 1 year. The CIT(A) can i) confirm, reduce, annul or enhance the Assessment or ii) confirm, enhance or reduce (Amendment w.e.f 1.9.19) or cancel the penalty – or iii) Consider any other matter which is not considered by the AO or iv) Consider and decide upon any matter arising out of the proceedings in which the order appealed against was passed, even if such matter is not raised before him. Second appeal - Before ITAT : Section 18 Provisions of second appeals are also similar to provisions in I. T. Act. Appeal may be preferred before Income Tax Appellate Tribunal against the order of CIT(A) or CIT. within 60 days of receipt of order. The assessee or Assessing Officer can file Cross objections within 30 days of receipt of notice if they feel need to file the same. Aggreived by the order of ITAT, further appeals may be filed to Hon’ble High Court & thereafter to Hon’ble Supreme Court, if there arises question of law Section 23 – Revision by Principal Commissioner or the Commissioner As per section 23 of the Act, CIT have power to Revise order passed by the AO if the order so passed is Erroneous or Prejudicial to the interest of the revenue. The CIT may revise any order if the order is passed without making inquiries or verification which should have been made. The time limit for revision is two years from end of the year in which order is made. Section 24 – Revision Application by assessee The CIT may revise any order on application made by the assessee within period of 1 year from end of financial year in which Application is made. Section 32 Following modes of recoveries of taxes are applicable under this Act i) AO or Tax recovery officer may ask employer of the assessee to deduct from the salary of assessee certain amount toward taxes, ii) may ask debtor of an assessee to make payment of his debt towards recovery of taxes and not to pay to the assessee, iii) attach bank account of the assessee, iv) from the property of the assessee in India. In case of Companies, demand recoveries can be made from Managing Director or Manager, unless his innocence is proved. All demands have to be paid in 30 days unless stayed. Else assessee will be in default Section 40 Interest u/s. 234A, 234B or 234C of the I. T. Act will be charged on undisclosed foreign income. PENALTIES Section 41 AO may direct that in a case where Assessment done u/s 10, the assessee shall pay penalty of 3 times the tax i.e. 90%. There is flat rate of penalty prescribed under this Act unlike minimum or maximum limits of penalty prescribed under I. T. Act. There is No concept of waiver of penalty on account of reasonable cause as available under I. T. Act. Section 42 If a PERSON who holds any foreign asset or has any foreign income fails to furnish any Income-tax return (under the IT Act 1961) before the end of Assessment Year, AO may levy penalty of Rs. 10 lakhs. However no such penalty is leviable if the foreign asset, being one or more foreign Bank accounts is having aggregate balance less than Rs 5 lakhs at any time in Previous Year . Section 43 If a PERSON who holds any foreign asset or has any foreign income files his returns but fails to furnish any information on foreign assets or furnishes inaccurate particulars in returns , the AO may levy penalty of Rs 10 lakhs. However no such penalty is leviable if the foreign asset, being one or more foreign Bank accounts is having aggregate balance less than ₹ 5 lakhs at any time in Previous Year . Section 44(1) Every assessee who is in default or deemed to be in default, in making payment of tax in 30 days AND in case of continuing default by such assessee, shall be liable to a penalty of the amount, equal to the amount of Tax arrear. The Assessee shall be liable to the penalty u/s. 44(1), even if he has paid the tax before levy of such penalty. Section 45 If the assessee without reasonable cause , fails to – answer any question put to him by AO. sign any statement made by him in course of any proceedings. attend or produce books of account or documents at the place or time in response to summons issued u/s. 8. Then he shall be charged with penalty not less than Rs. 50,000 but may extend to Rs. 2 lakhs. The AO shall issue a show cause notice i) before levying any penalty and such notice shall be issued during the pendency of any proceeding in case of penalty u/s 41 (90% penalty) or ii) within a period of 3 years from the end of F.Y in which default is committed for Section 45 of the Act. Hence, as such there is no time limit set for Penalties u/s. 42 & 43. Order imposing a penalty shall be passed before expiry of one year from the end of F.Y/ in which notice of penalty is issued. An order imposing, or dropping the proceedings for imposition of penalty may be revised or revived on the basis of assessment after giving effect of higher authorities like the CIT(A)/ITAT/HC/SC. PROSECUTION Section 48 Prosecution provisions are in addition to penalty provisions. Prosecution provision under the Act are independent of any order made or not made under this Act, and prosecution under any other law. Lapse of time to pass an order under this Act shall not hamper provisions of prosecution under the Act. Sections 49/50 A Resident who at any time in the previous year held any foreign asset/foreign income &wilfully fails to furnish Return of Income or wilfully fails to furnish information in such returns shall be punishable with rigorous imprisonment for the term which shall not be less than 6 months but may be extended to 7 years AND FINE. Section 51 If a PERSON wilfully attempts in any manner whatsoever to evade any tax, penalty or interest chargeable or imposable under this act, he shall be punishable with rigorous imprisonment for term not less than 3 years and may extend till 10 years & with FINE. If sec. 51 is attracted then provisions of Prevention and Money Laundering Act (“PMLA”) can also be triggered. Section 51(2) If a PERSON wilfully attempts to evade payment of tax/interest/penalty shall be punishable with imprisonment for term not less than 3 months but extend to 3 years & with fine. Section 51(3) A wilful attempt will include any case wherein any person: has in his possession or control books of account or other document containing a false entry or statement relevant to any proceedings.
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Read More »or control books of account or other document containing a false entry or statement relevant to any proceedings. makes or cause to be made any false entry or statement in such books of account or other documents. Wilfully omits or cause to be omitted any relevant entry or statement in books/doc. Cause any other circumstances to exist which will have the effect of enabling such person to evade any tax, penalty, interest chargeable/imposable under this Act. Section 52 If a Person, makes a statement in any verification under this act or rule or delivers an account or statement which is false & he knows that it is false or does not believe it to be true shall be punishable with rigorous imprisonment for a term which shall not be less than 6 months but which may extend to 7 years and with fine.. Section 53 If a person abets or induces in any manner another person to make or deliver an account or statement which is false & which he knows is false or does not believe to be true, he shall be punishable with rigorous imprisonment for term not less than 6 months but extend to 7 years & be fined Section 56 If an offence is committed by a company then, every person who, at the time the offence was committed, was in charge of & was responsible to the company for conduct of business as well as the company shall be deemed to be guilty of the offence and shall be liable to be punished accordingly. Company includes unincorporated body & HUF. In HUF all adult members are treated as director, thus liable, In firm – all partners are treated as Director and are thus liable. Section 58 For 2nd offence – Minimum imprisonment term is not less than 3 years but extendable to 10 years & be fined of Rs 5 lakhs to Rs 1 crore. Wilful attempt to evade tax, interest or penalty will now be a recognized offence under PMLA, 2002 – Part C. Section 72 Section 72(c) of the BM Act 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, 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 Assessing Officer and the provisions of this Act shall apply accordingly. However, for the purpose of determining the residency status of the person, the deeming provisions of section 72(c) would not apply and the actual year in which the undisclosed asset was acquired would be considered. The JCIT/Addl CIT are the authorized AO's for the purpose of this Act. WORD OF CAUTION TO ALL PRACTISING CA's Considering the consequences that may follow for the infraction of the provisions of the BM Act, the practitioners should be vigilant in obtaining the requisite information from their clients in order to make appropriate disclosures about the foreign assets and foreign income. With the use of different softwares for filing return of income, due care shall be taken about the auto-populated data and figures from the last year Back to Top
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