2025 (1) TMI 276 - AT - Income Tax

Black Money Act 2015 provisions apply from AY 2016-17 onwards, not earlier years, penalty deletion justified

JCIT, Range-2 (C), Kolkata Versus Vikash Marda

ITAT Kolkata held that Black Money Act, 2015 provisions apply from AY 2016-17 onwards, not AY 2014-15 and 2015-16. Revenue's appeals dismissed as AO ... Imposition of tax and penalty under Black Money Act - Effective date of implementation of Black Money Act, 2015 - AY 2014-15 & AY 2015-16 - HELD THAT:- The first previous year under the provisions of Black Money Act, 2015 would be FY 2015-16 and the corresponding AY will be AY 2016-17. Therefore, the AO could not have assessed the income of the assessee for AYs 2014-15 and 2015-16. Similarly, there would not have any jurisdiction to impose penalty for AYs 2014-15 and 2015-16 before coming into force the Black Money Act, 2015. Assessee was not supposed to comply the provisions of Black Money Act, 2015, before it has come into force and, therefore, the assessee cannot be held liable for non-compliance of any provisions of the Black Money Act, 2015 in relation to AY 2014-15 and 2015- 16 and penalty levied u/s. 41 & 43 of the Black Money Act, 2015 and would also be not sustainable for AY 2014-15 and AY 2015-16. Therefore, there is no force in the appeals of the revenue relating to action of the Ld. CIT(A) in deleting the tax imposed u/s. 10 of the Black Money Act, 2015 and penalty levied u/s. 41 & 43 of the Black Money Act, 2015 for AYs 2014-15 and 2015- 16. Non-Retirement Fund (NRF) held by the assessee - dividend income reinvested in the NRF - AY: 2016-17 - AO calculated the equivalent currency in Indian value of the undisclosed foreign income at Rs. 1,95,537/- and imposed tax @ 30% - HELD THAT:- Undisclosed foreign income and asset are to be assessed by the AO under the Black Money Act, 2015 in the year in which it has come to the knowledge of the AO. Admittedly, there was no undisclosed asset of the assessee in the foreign country. Regarding the dividend income earned on the NRF fund, the plea of the Ld. AR of the assessee is that the same would not fall in the definition of income as the assessee had invested in a fund, wherein, the dividend, if any, earned on such fund would automatically form part of the fund and was not separately taxable. The assessment year 2016-17 was the first year when the Black Money Act, 2015 came into force. The foreign income earned by the assessee was taxable, otherwise, in that country.. The tax on the said dividend income was withheld as per the USA Tax Law as such dividend income formed part of the investment/fund itself. The Ld. Counsel in this respect has explained that the Black Money Act, 2015 had come into force for the first time in AY 2016-17 only and that the provisions of the Black Money Act, 2015 were not so clear and it was not ascertainable as to whether the dividend earned by the assessee on the fund, which had become part of the investment fund, itself, was required to be disclosed in the return of income filed u/s. 139 of the Act. As per the provisions of section 3 of the Act, the undisclosed asset was to be taxed in the year in which the information regarding the same comes to the knowledge of the AO which of course came to his knowledge in November, 2018, relevant to AY 2019-20. No infirmity in the order of the Ld. CIT(A) in deleting the impugned addition made by the AO. This appeal of the revenue is accordingly, dismissed. Penalty imposed u/s. 41 of the Black Money Act, 2015 on the addition made u/s. 10(3) of the Black Money Act, 2015 on account of foreign income assessed deleted as we have upheld the order of the Ld. CIT(A) in quashing the assessment and, therefore, by deleting the addition made by the AO u/s. 10 of the Black Money Act, 2015. Penalty levied u/s. 43 of the Black Money Act, 2015 - the assessee’s foreign assets and foreign income during the year, which the assessee had not disclosed in the income tax return filed u/s. 139(1) of the Act, were of the value, which was more than Rs. 5,00,000/- - CIT(A) deleted penalty observing that the AO has not properly dealt with the issue and the order passed by the AO u/s. 10(3) of the Act did not indicate on which basis the decision has been reached that the assessee had undisclosed foreign income/asset - HELD THAT:- Provisions of section 43 do not suggest that the aforesaid penalty is mandatory, rather, as per the provisions, “AO may direct that such person shall pay, by way of penalty, a sum of Rs. 10 lakhs”. It has been held time and again that the word ‘may’ also include ‘may not’. Since this was the first year of the implementation of the Black Money Act, there was no undisclosed assets of the assessee, the assets in question have been earned by the assessee from known sources of income (salary) and due taxes paid thereupon as per USA Tax Laws and not taxes were payable by the assessee on such assets in India and further that the provisions of Black Money Act, 2015 were new and it was very difficult even for tax Practitioners, what to say of the ordinary assessees, who are not conversant with such complicated provisions to differentiate between the assets and undisclosed assets. Hence, the procedural lapse occurred on the part of the assessee was not intentional rather the assessee has been caught unawares of such lapse. Under the circumstances, in our view, the Ld. CIT(A), considering the overall facts and circumstances of the case was justified in deleting the impugned penalty. Appeals of the revenue are hereby dismissed. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this judgment include:Whether the notices issued and subsequent assessments made under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (BMA Act, 2015) for the assessment years (AY) 2014-15, 2015-16, and 2016-17 were valid.Whether the penalties imposed under Sections 41 and 43 of the BMA Act, 2015 for these assessment years were justified.Whether the Non-Retirement Fund (NRF) held by the assessee qualifies as an undisclosed foreign asset under the BMA Act, 2015.Whether the dividend income reinvested in the NRF should be taxed under the BMA Act, 2015.The applicability of Section 81 of the BMA Act, 2015 as a protective measure for procedural errors.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Validity of Notices and Assessments under BMA Act, 2015Relevant Legal Framework and Precedents: The BMA Act, 2015 came into effect on April 1, 2016, with provisions for voluntary disclosures starting July 1, 2015. The Act applies to undisclosed foreign income and assets discovered after its commencement.Court's Interpretation and Reasoning: The court noted that the BMA Act was not operational for AY 2014-15 and 2015-16, and hence, assessments for these years were invalid. For AY 2016-17, the information was received in AY 2019-20, making the assessment for AY 2016-17 inappropriate.Key Evidence and Findings: The court found that the information regarding the NRF was received in November 2018, relevant to AY 2019-20.Application of Law to Facts: The court applied the BMA Act's commencement provisions, which did not allow retroactive application to years before its enforcement.Treatment of Competing Arguments: The court dismissed the revenue's arguments, emphasizing the Act's non-retroactive nature.Conclusions: The notices and assessments for AYs 2014-15, 2015-16, and 2016-17 were quashed.Issue 2: Penalties under Sections 41 and 43 of the BMA Act, 2015Relevant Legal Framework and Precedents: Sections 41 and 43 of the BMA Act, 2015 provide for penalties on undisclosed foreign income and assets.Court's Interpretation and Reasoning: The court held that penalties could not be imposed for AYs before the Act's enforcement. For AY 2016-17, the penalty was deemed inappropriate as the assessment itself was quashed.Key Evidence and Findings: The court found no undisclosed foreign assets or income for the relevant years.Application of Law to Facts: The penalties were invalidated due to the lack of a valid assessment under the BMA Act.Treatment of Competing Arguments: The revenue's reliance on Section 81 for procedural protection was rejected.Conclusions: Penalties for AYs 2014-15, 2015-16, and 2016-17 were quashed.Issue 3: Classification of NRF as Undisclosed Foreign AssetRelevant Legal Framework and Precedents: Section 2(11) of the BMA Act defines undisclosed assets.Court's Interpretation and Reasoning: The NRF was funded by income earned and taxed in the USA, thus not qualifying as an undisclosed asset.Key Evidence and Findings: The NRF was established with disclosed and taxed funds.Application of Law to Facts: The NRF did not meet the criteria for undisclosed assets under the BMA Act.Treatment of Competing Arguments: The court favored the assessee's argument that the NRF was not undisclosed.Conclusions: The NRF was not an undisclosed foreign asset.Issue 4: Taxability of Reinvested Dividend IncomeRelevant Legal Framework and Precedents: Sections 3 and 4 of the BMA Act deal with taxability of undisclosed foreign income.Court's Interpretation and Reasoning: The reinvested dividends were not taxable under the BMA Act as they did not constitute undisclosed income.Key Evidence and Findings: The dividends were part of the NRF, which was not undisclosed.Application of Law to Facts: The dividends were not separately taxable under the BMA Act.Treatment of Competing Arguments: The court dismissed the revenue's claim for taxability of reinvested dividends.Conclusions: Reinvested dividends were not subject to tax under the BMA Act.Issue 5: Applicability of Section 81 for Procedural ErrorsRelevant Legal Framework and Precedents: Section 81 of the BMA Act is analogous to Section 292B of the Income Tax Act, protecting against clerical errors.Court's Interpretation and Reasoning: The court held that Section 81 does not protect substantive errors or jurisdictional issues.Key Evidence and Findings: The notices and assessments were fundamentally flawed, not merely clerical errors.Application of Law to Facts: Section 81 was not applicable to the substantive issues in this case.Treatment of Competing Arguments: The court rejected the revenue's reliance on Section 81 for protection.Conclusions: Section 81 did not apply to the procedural flaws in this case.3. SIGNIFICANT HOLDINGSThe BMA Act, 2015 cannot be applied retroactively to assessment years before its commencement.'The AO could not have assessed the income of the assessee for AYs 2014-15 and 2015-16.' The penalties imposed under Sections 41 and 43 of the BMA Act, 2015 were invalid due to the lack of a valid assessment.The NRF held by the assessee does not qualify as an undisclosed foreign asset under the BMA Act, 2015.'The collective reading of all the provisions would give an inference that the undisclosed foreign income and asset are to be assessed by the AO under the Black Money Act, 2015 in the year in which it has come to the knowledge of the AO.'Reinvested dividends in the NRF are not taxable under the BMA Act, 2015.Section 81 of the BMA Act, 2015 does not protect substantive errors or jurisdictional issues.In conclusion, the appeals of the revenue were dismissed, and the assessments and penalties under the BMA Act, 2015 for the assessment years 2014-15, 2015-16, and 2016-17 were quashed.