Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act 2015 was brought into force to deal with the menace of black money stashed away abroad.

After coming into force w.e.f. 1.07. 2015, the Act allowed a onetime window to declare undisclosed asset located outside India and acquired from income chargeable to tax under the Income-tax Act for any assessment year prior to the assessment year 2016-17 subject to payment of 30% tax of the value of such undisclosed asset and equal amount of penalty.

Can a NRI be penalized for failure to disclose assets acquired out of income earned while he was a non-Resident?

Section 2(11) of the Act, defines undisclosed asset located outside India as an asset located outside India, held by the assessee in his name or in respect of which is a beneficial owner, and has no explanation about the source of investment in such asset or explanation given to him is in the opinion of the Assessing Officer unsatisfactorily.

In my view Black Money Act applies only to the assets for which there is no explanation as to the source. Mere nondisclosure should not make any asset liable to penalty under the Act, if the said asset is acquired out of income not chargeable to tax under the Income-tax Act.

The fundamental jurisdictional pre-requisite for initiating proceedings under Black Money Act is that the foreign asset or income has been acquired from income chargeable to tax under the Income Tax Act; 1961 which has escaped assessment for reasons attributable inter alia to tax evasion. Accordingly, it is imperative for the AO to establish prima facie, on the basis of cogent information, that such person against whom proceedings are initiated under BMA has contributed to that foreign asset from out of income that was chargeable to tax in India but which has escaped assessment for reasons of tax evasion, and accordingly that such person is either the `beneficial owner’ or ‘beneficiary’ of such asset or income on account of a clear nexus with such asset or income, in order to be rendered amenable to BMA.

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February 2024