ITAT quashes Black Money Act assessment orders due to jurisdictional defect under section 72(c)

The ITAT Mumbai quashed assessment orders for AY 2018-19 under the Black Money Act, 2015, ruling that the AO lacked proper jurisdiction. The tribunal held that under section 72(c), undisclosed foreign assets are deemed acquired in the year when notice under section 10(1) is issued. Since the valid notice was issued on 27-04-2018, the assets should have been assessed for AY 2019-20, not 2018-19. The AO's attempt to modify the assessment year in subsequent notices was invalid, making the entire assessment order jurisdictionally defective.

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ISSUES PRESENTED and CONSIDERED

The core legal issue considered in this judgment is whether the assessment order for the Assessment Year (AY) 2018-19 is valid, given that it was based on a notice issued under section 10(1) of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (BMIT Act) for a different assessment year (AY 2017-18). The question is whether a valid notice was issued for AY 2018-19, which is necessary to confer jurisdiction on the Assessing Officer (AO) to make the assessment.

ISSUE-WISE DETAILED ANALYSIS

Relevant Legal Framework and Precedents

The BMIT Act provides the legal framework for assessing undisclosed foreign income and assets. Section 10(1) allows the AO to issue a notice to an assessee to produce documents or evidence for assessment purposes. Section 72(c) deems assets acquired before the Act's commencement as acquired in the year a notice under section 10 is issued. The validity of a notice is crucial as it confers jurisdiction on the AO to assess the undisclosed assets.

Court's Interpretation and Reasoning

The Tribunal examined the sequence of notices issued by the AO. The first notice dated 07-08-2017 was for AY 2017-18 and was later deemed withdrawn by the AO, as confirmed by the CIT(A). The subsequent notice dated 27-04-2018 for AY 2018-19 was considered by the CIT(A) as the valid notice. However, the Tribunal found this notice invalid for AY 2018-19 because, under section 72(c), the assessment should be for AY 2019-20, as the notice was issued in the previous year 2018-19.

Key Evidence and Findings

The AO issued multiple notices under section 10(1), with the first notice for AY 2017-18 being effectively withdrawn. The notice dated 27-04-2018 was for AY 2018-19, but the Tribunal found it invalid due to the deeming provision of section 72(c), which requires the assessment to be for the year following the notice issuance.

Application of Law to Facts

The Tribunal applied section 72(c) to determine that the undisclosed assets should be assessed in AY 2019-20, as the notice dated 27-04-2018 was issued in the previous year 2018-19. Therefore, the assessment order for AY 2018-19 lacked jurisdiction.

Treatment of Competing Arguments

The Tribunal rejected the Revenue's argument that section 81 of the BMIT Act (akin to section 292B of the Income Tax Act) could cure defects in the notice. Citing precedents, the Tribunal held that section 81 cannot cure substantive jurisdictional defects, such as issuing a notice for the wrong assessment year.

Conclusions

The Tribunal concluded that the AO did not have jurisdiction to assess the undisclosed assets for AY 2018-19 due to the lack of a valid notice. Consequently, the assessment orders for AY 2018-19 were quashed.

SIGNIFICANT HOLDINGS

The Tribunal established that:

• A valid notice under section 10(1) is mandatory for the AO to acquire jurisdiction to assess undisclosed foreign assets.
• The deeming provision in section 72(c) dictates that assets are assessed in the year following the notice issuance.
• Section 81 of the BMIT Act does not cure jurisdictional defects related to issuing notices for the wrong assessment year.
• The assessment orders for AY 2018-19 were quashed due to the lack of a valid notice.

The appeals were allowed, and the orders of the tax authorities were quashed.

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