ACIT Vs Deepak Jain (ITAT Delhi)
ITAT Deletes ₹31.48 Crore Black Money Addition for Lack of Beneficial Ownership; No Black Money Liability When Assets Belong to Foreign Partner: ITAT Delhi; ITAT Delhi Quashes Black Money Additions Based on Nominee Shareholding; Penalties Under Black Money Act Unsustainable When Asset Ceased Before 2012–13; Tribunal Holds No Jurisdiction to Tax Non-Existent Foreign Assets Under BMA; Revenue Cannot Switch from Income Tax Act to BMA: ITAT Delhi Applies Doctrine of Election; ITAT Delhi Rules BMA Inapplicable to Defunct Foreign Companies and Accounts Closed Before 2015
The case involved cross-appeals filed by both the Revenue and the assessee under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (BMA) for Assessment Year 2018–19. The Assessing Officer (AO) had determined undisclosed foreign income and assets of ₹31.48 crore under Section 10(3) of the BMA, treating the assessee as the beneficial owner of two foreign companies—Alabama Assets Ltd. and Meadow Offshore Ltd., incorporated in the British Virgin Islands—and levied penalties under Sections 41 and 43.
The Revenue appealed against the Commissioner of Income Tax (Appeals) [CIT(A)]’s order that reduced the addition to ₹3.14 lakh and deleted penalties, contending that the CIT(A) wrongly restricted the addition to the assessee’s nominal 1/1000 shareholding despite the AO’s finding that he was the beneficial owner of the companies’ entire bank deposits. The assessee appealed against the partial sustenance of addition and penalty, contending that the BMA could not apply retrospectively to companies and accounts that had ceased to exist years before the law came into force on 1 July 2015.
The assessee maintained that both companies were struck off in 2010–2011, their bank accounts closed by 2010, and that all funds were invested by a UAE national, Mr. Alhammadi, under a joint venture for lighting projects in the Middle East. He claimed to have held only one share in each company as a nominee shareholder, with no capital contribution, control, or income. The AO, however, concluded that Alhammadi was merely a façade to conceal true ownership and made additions of the entire credits in the companies’ bank accounts, amounting to ₹31.48 crore, applying Rule 3 of the BMA Valuation Rules.
Before the CIT(A), the assessee challenged the jurisdiction of the AO under Section 10(1) of the BMA, arguing that the information received from the International Consortium of Investigative Journalists (ICIJ) had already been investigated under the Income Tax Act (IT Act) since 2013, and that proceedings under the BMA were impermissible once action had been initiated under another statute. He also contended that the assessment was time-barred and violated natural justice.
The CIT(A) upheld the jurisdictional validity but accepted the assessee’s contention that his ownership was only nominal. The CIT(A) restricted the addition to ₹3,14,855, representing 1/1000th of the total credits, and proportionately reduced the penalty under Section 41. The penalty under Section 43 was deleted, as the requirement to disclose foreign assets in return forms arose only from Assessment Year 2012–13, whereas the foreign entities and their accounts had ceased to exist prior to that period.
During the proceedings, the AO had relied on information received under the Foreign Tax and Tax Research (FT&TR) Division of CBDT, which showed that the companies’ records were maintained in Singapore and were set up for investment purposes, not for lighting business. The AO further observed that the assessee failed to produce the Memorandum of Understanding (MOU) and its termination documents, despite being directed to do so. The assessee, however, relied on contemporaneous evidence and the affidavit of Mr. Alhammadi, notarized in the UAE, confirming that he had funded both companies entirely, that the assessee held one share merely as a nominee, and that after termination of the MOU in 2010, all assets and bank balances remained with him.
The ITAT Delhi noted that these facts were supported by contemporaneous records, including incorporation documents, balance sheets, and the affidavit of Alhammadi found during a 2017 search. The Tribunal observed that the assessee had consistently stated, since the initial investigation in 2013, that he had not made any investment in the foreign companies and that the bank accounts were closed years before the BMA came into force.
On examining the evidence, the ITAT held that the credits in the bank accounts of the foreign entities could not be treated as undisclosed foreign income or assets of the assessee, as the companies were distinct legal entities and the funds belonged to Alhammadi. The affidavit, balance sheets, and correspondence found during search had evidentiary value under Sections 132(4A) and 292C of the IT Act, creating a presumption of truth that was not rebutted by the Revenue.
Importantly, the ITAT held that the BMA cannot be applied to foreign companies or bank accounts that had ceased to exist before 1 July 2015, the date on which the Act came into force. Further, once the Revenue had initiated and pursued proceedings under the Income Tax Act, it could not later invoke the BMA for the same facts under the doctrine of election.
The Tribunal concluded that the entire addition under Section 10(3) of the BMA was unsustainable and directed its deletion. Consequently, penalties under Sections 41 and 43 were also set aside.
In conclusion, the ITAT partly allowed the assessee’s appeals and dismissed all three appeals of the Revenue. The Tribunal held that the assessee could not be treated as the beneficial owner of the foreign bank deposits, as his role was only that of a nominee shareholder, and that the BMA had no retrospective application to assets or companies that no longer existed prior to its commencement.
FULL TEXT OF THE ORDER OF ITAT DELHI
