2018 (11) TMI 955 - HC - Income Tax

Court quashes sanction orders under Black Money Act, emphasizes Assessing Officer's role. Chief Metropolitan Magistrate not designated Special Court.

Srinidhi Karti Chidambaram Versus Principal Chief Commissioner of Income-tax, Chennai

The court quashed the sanction orders and prosecution complaints filed against the petitioners under Section 50 of the Black Money Act. It held that the ... Black money assessment - undisclosed income under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 - scope of satisfaction - omission to furnish the details in the returns under Section 139(1) - prosecution compliant for offences - Held that:- Before proceeding with any action, it is the duty of the assessing officer to arrive at a conclusion, as to whether, there is an undisclosed income under Section 2(11) and a duty is cast on the assessing officer to form an opinion, under Section 2(11). Expression, 'undisclosed source of investment' depends on the existence of the above and the opinion is dependent on each one of the facts. Show cause notice issued is totally extraneous to Section 2(11) of the Act. At this juncture, it is pertinent to consider, what 'satisfaction” means. 'Satisfaction' means to be satisfied with a state of things, meaning thereby, to be satisfied in one's own mind. Satisfaction is essentially a conclusion of mind. The word 'satisfied' means, 'makes up its mind'. In the case on hand, the assessee have furnished the details of the assets in Schedule FA of the Income-Tax returns, under Section 139(5). Thus, even taking it for granted that the assessee have omitted to furnish the details in the returns under Section 139(1) of the Act, in the light of the decision of Central Board of Direct Taxes, prosecution cannot be launched, but at best, there could only be penal proceedings. As per Section 196(d) of Income Declaration Scheme, 2016, the provision of the scheme shall not apply, in relation to any undisclosed foreign income and asset which is chargeable to tax under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (22 of 2015). Under the Scheme, even in case of (i) failure to furnish a return, under Section 139 of the Income Tax Act; (ii) failure to disclose in a return of income furnished by him under the Income-tax Act, before the date of commencement of this Scheme; and (iii) in the case of escaped assessment, by reason of omission or failure to furnish a return under the Income-tax Act or to disclose fully and truly all material facts necessary for the assessment or otherwise, the assessee can make a declaration to disclose fully or truly, all material facts necessary for assessment or otherwise. The expression, 'or otherwise', has been used in Section 186(1)(c) of the Act, let us consider few decision as to how the words or otherwise has been interpreted by the Courts. We are of the considered view that Section 55 Block Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 is not attracted. There was no failure to furnish any information relating to any foreign asset or investment. The Company has filed the original return of income, as well as the revised return of income within the time stipulated under the Income Tax Act, 1961. A return of income has many schedules and all the schedules are part of the 'return of income' referred to in Section 139 of the Income-tax Act. Offence under Section 50 is made out only if, in the return of income under sub-section (1) or sub-Section (4) or Sub- Section (5) of Section 139 of the Income-tax Act, there has been a wilful failure to disclose any information relating to foreign asset. It is an admitted fact that the foreign asset in each case was acquired with money that was disclosed in the books of account of the assessee (and tax paid) and which was remitted through banking channels under schemes approved by the RBI. There is no allegation of Black Money or unaccounted money or money that has escaped tax or money that was remitted through illegal channels. It is not disputed by the Income-Tax department - that the source of investment was tax paid money remitted through banking channels in accordance with schemes approved by the RBI. In the case of the petitioners, the asset was ultimately disclosed in Schedule FA and in the case of Karti P Chidambaram, in the Original return of income and, in the other three cases, in the Revised return of income filed within the due date. Though reliance was placed to paragraph Nos.5 and 7 of the Order dated 03.05.2018, that this Court directed the Authority to bear in mind all the relevant provisions of the Income Tax Act and Black Money Act and the implications that they may throw. But the Authorities were also directed to grant the Petitioners due and proper opportunity to present their side of the case and disregarding the directions of this High Court, the Authority, without applying his mind to the two questions set out in the Order and without giving an opportunity to the noticees/assessees, proceeded to sanction prosecution and filed the complaints against the Petitioners on 11.05.2018, in view of the foregoing discussions, it is not necessary to delve into the said aspect. In the light of the decisions, on the power coupled with duty and on consideration of the materials, we are of the view that the Sanctioning Authority has failed to consider the above, and has come to an erroneous conclusion that the case deserve prosecution for non-disclosure of the details of the asset in the return filed under Section 139(1) of the Act. Sanction order deserves to be set aside and accordingly, set aside. Going by the definition of Section 50 of the Black Money Act, read with Section 2(11) of the Act, and in the light of the above discussion and decisions, we are of the view that the offence under Section 50 is not made out. Consequently, complaints filed in C.C.Nos.4482 to 4485 of 2018 dated 11.05.2018 are quashed. Principal Director of Income Tax (Investigation), Chennai jurisdiction/competence under section 55 Block Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, to sanction prosecution or file a prosecution compliant for offences under Section 50 of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 against the petitioners - Held that:- Respondents in their counter affidavit have contended that as per section 2(16) of the Income-tax Act, 1961, the word 'Commissioner' has been defined, inter-alia, to include a person appointed as Principal Director of Income-tax and since the Commissioner is also one of the competent authority for according sanction under section 55 of the Black Money Act, the same covers the Principal Director of Income-tax also. Except Mr.ARL.Sundaresan, learned Senior Counsel for the petitioners, no serious contentions, on the above aspect, were made. Respondents have explained the competence of the Principal Director of Income Tax, and other authorities under the Income Tax Act, 1961, to accord sanction for prosecution and going through the provisions of the Income Tax Act, 1961, we do not accept the contention of the petitioners that the Principal Director of Income Tax is not an authority, jurisdiction/competence under Section 55 of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, to sanction prosecution or file a prosecution complaint for offences, under Section 50 of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015. Issues Involved:1. Competence of the Principal Chief Commissioner of Income Tax to sanction prosecution.2. Constitutionality of Sections 48 and 50 of the Black Money Act.3. Designation of the Chief Metropolitan Magistrate as the Special Court.4. Validity of show cause notices and orders passed.5. Review of previous orders.Detailed Analysis:1. Competence of the Principal Chief Commissioner of Income Tax to Sanction Prosecution:The petitioners challenged the competence of the Principal Chief Commissioner of Income Tax (Tamil Nadu and Puducherry) to sanction prosecution under Section 55 of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015. The court examined whether the Principal Director of Income Tax (Investigation) is an authority having jurisdiction under the said Act to sanction prosecution. The court held that the Principal Director of Income Tax is competent to accord sanction for prosecution, as per Section 2(16) of the Income-tax Act, 1961, which defines 'Commissioner' to include a person appointed as Principal Director of Income-tax.2. Constitutionality of Sections 48 and 50 of the Black Money Act:The petitioners contended that Sections 48 and 50 of the Black Money Act are arbitrary and violative of Articles 14 and 21 of the Constitution of India. The court analyzed the provisions and held that the offence under Section 50 is made out only if there is a willful failure to disclose any information relating to a foreign asset in the return of income filed under Section 139(1), (4), or (5) of the Income-tax Act. The court emphasized that the revised return of income obliterates or effaces any earlier return of income. Therefore, the court concluded that the provisions are not unconstitutional as long as they are interpreted to mean that prosecution can be sanctioned only if the Assessing Officer has passed an order under Section 10(3) of the Act.3. Designation of the Chief Metropolitan Magistrate as the Special Court:The petitioners argued that the Chief Metropolitan Magistrate, Egmore, Chennai is not the designated Special Court within the meaning of Section 84 of the Black Money Act, read with Section 280A of the Income Tax Act. The court examined the provisions and held that the Chief Metropolitan Magistrate, Egmore, Chennai has not been designated as the Special Court for the purposes of the Black Money Act by the Central Government. Therefore, the court concluded that the Chief Metropolitan Magistrate does not have jurisdiction to take cognizance of the prosecution complaint filed by the respondents against the petitioners.4. Validity of Show Cause Notices and Orders Passed:The petitioners challenged the show cause notices and orders passed by the respondents. The court analyzed the facts and held that the show cause notices were issued without proper jurisdiction and without considering the revised returns filed by the petitioners under Section 139(5) of the Income-tax Act. The court emphasized that the revised return of income is the only relevant return that can be relied upon or referred to. Consequently, the court quashed the show cause notices and the prosecution complaints filed against the petitioners.5. Review of Previous Orders:The court reviewed the previous orders passed in W.P.Nos.8832 to 8835, 8840, and 8841 of 2018, which were dismissed. The court held that in light of the quashing of the sanction orders and prosecution proceedings, no further orders are required in the appeals filed against the previous orders. Therefore, the court dismissed the review petitions.Conclusion:The court quashed the sanction orders and prosecution complaints filed against the petitioners under Section 50 of the Black Money Act. The court held that the Principal Director of Income Tax is competent to sanction prosecution, but emphasized that prosecution can be sanctioned only if the Assessing Officer has passed an order under Section 10(3) of the Act. The court also concluded that the Chief Metropolitan Magistrate, Egmore, Chennai is not the designated Special Court for the purposes of the Black Money Act.