Some of those named in the orders may move the court on the grounds that they were not given a fair chance to respond to the tax department’s show-cause notices which precede the assessment orders.
The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act (BMA), which came into force from July 1, 2015, aims to tax hidden wealth of Indians stashed in tax havens, banks, properties and other assets through individual names, closely-held companies and discretionary trusts and foundations. A failure to disclose offshore assets also puts someone on the wrong side of the harsh statute. The I-T department has to complete the assessment order within two years from the end of the financial year in which the initial notice is served.
March 31, 2023 was the due date for the issuance of orders linked to notices sent during FY2020-21.
“Several orders, which would have got time-barred on March 31 under the BMA, have been passed. In many cases the effective proceedings commenced in the month of March 2023 even though the first notice under section 10(1) of the Act was issued two years before. Many aggrieved assessees will take the writ petition route as natural justice has been denied,” said Rajesh Shah, partner at the CA firm Jayantilal Thakkar & Company.
The initial notice, which is the first communique for suspicion of tax evasion, shares very little details of the offshore assets or the quantum of income that has escaped the tax net. The show-cause notice that follows later spells out the extent of offence. Faced with a law that can lead to huge tax, penalty and even prosecution, assessees expect the department to give them enough time to respond so that their explanations are incorporated in the assessment order.
According to Ashish Mehta, partner at the law firm Khaitan & Co, “Principles of natural justice as well as fair play require sharing information collected by the tax authorities with the taxpayers and a fair opportunity given to taxpayers to take their defenses before any adverse assessment orders are passed. There have been instances of denial of requisite information to taxpayers as well as non-granting of sufficient time to respond to notices. Taxpayers have in such cases taken the writ route to assert their constitutional rights and have sought stay on such proceedings.”There has been a surge in BMA cases since the last few years, as a lot of information from various jurisdictions flow in under the automatic information sharing mechanisms, prompting authorities like the I-T and Enforcement Directorate to act on such information. “This has resulted in a steady rise in the issuance of section 10 notices (or assessments related notices) under the BMA. A large batch of assessment orders were passed in the month of March 2023. March 31, 2023 was the normal deadline for concluding assessments in cases where section 10 notices were issued between April 1, 2020 and March 31, 2021,” said Mehta.
The tax department, according to an internal rule, is required to issue the initial notice within 30 days from the end of the fiscal year in which it receives information on the undisclosed foreign asset. However, there is no rule that sets the deadline (counted from the day the first notice is issued) for serving the show-cause notice. Thus, there are instances where an assessment order closely follows the show-cause notice, leaving the assessee with very little time to prepare the response.
Besides chasing the March 31 deadline on the BMA cases, the IT department has also reopened assessments for the financial year 2018-19 as those cases too would have got time-barred. The department can go back three years if the tax evaded is suspected to be within Rs 50 lakh and 10 years if the income that escaped tax is said to be over Rs 50 lakh.
The Black Money law was passed to overcome the limitations in the I-T Act. While the I-T Act can be used to claim tax on 10-year old undisclosed income, BMA arms the department to question assets acquired decades ago but discovered now. So, under the Black Money Act, the year in which the tax department gets hold of the information is the year in which the asset was acquired by the person.
