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IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 22ND DAY OF JULY 2022
BEFORE
THE HON’BLE MR. JUSTICE B. M. SHYAM PRASAD
WRIT PETITION NO.17813/2021 [T-IT]
BETWEEN :
MR. JITENDRA VIRWANI 34/1, EMBASSY WOODS, 6/A, CUNNINGHAM ROAD, VASANTHNAGAR, BANGALORE - 560 052. ... PETITIONER
(BY SRI. SHASHI KIRAN SHETTY, SENIOR ADVOCATE FOR SRI. A. MAHESH CHOWDHARY, ADVOCATE)
AND:
JOINT COMMISSIONER OF INCOME TAX CENTRAL CIRCLE, CENTRAL RANGE-1, CENTRAL REVENUE BUILDING, QUEENS ROAD, BANGALORE 560 001.
PRINCIPAL COMMISSIONER OF INCOME TAX-1 CENTRAL REVENUE BUILDING, QUEENS ROAD, BANGALORE - 560 001. ... RESPONDENTS (BY SRI K V ARAVIND, ADVOCATE A/W. SRI. M. DILIP, ADVOCATE)
2 THIS WRIT PETITION IS FILED UNDER ARTICLE 226 OF THE CONSTITUTION OF INDIA PRAYING TO DECLARE THAT THE IMPUGNED PROCEEDINGS INITIATED BY THE R1 U/S 10 OF THE BLACK MONEY ACT IS OPPOSED TO THE PROVISIONS OF THE SAID ACT AND THEREFORE WITHOUT JURISDICTION; QUASH THE NOTICE DATED 11.08.2021 ANNEXURE-E ISSUED BY THE R1 U/S 10 OF THE BLACK MONEY ACT, FOR THE ASSESSMENT YEAR 2022-23.
THIS PETITION HAVING BEEN HEARD AND COMING ON FOR PRONOUNCEMENT OF ORDERS THIS DAY, THIS COURT MADE THE FOLLOWING:
O R D E R
The Joint Commissioner of Income Tax, Central Circle, Central Range-I, Bengaluru [the first respondent] has initiated proceedings under the provisions of Section 10[1] of the Black Money [Undisclosed Foreign Income and Assets] and Imposition of Tax Act, 2015 [for short, 'the BM Act'] against the petitioner with the issuance of Notice dated 11.08.2021 for the Assessment Year 2022-23 [Annexure-E and hereafter referred to as ‘the Impugned Notice’]. The petitioner has impugned the initiation of the proceedings and the Impugned Notice
3 dated 11.08.2021, which is detailed. The relevant part reads as follows:
"9. In the above backdrop, it is evident that you hold beneficial ownership in the above- mentioned foreign entities and have undisclosed foreign assets that are not disclosed in India. Hence, there is reason to believe that income in relation to any assets (including financial interest in any entity) located outside India, chargeable to tax, has escaped assessment in your hands.
Keeping in view the principles of natural justice, you are hereby required to show cause as to why you should not be held as the beneficial owner of the above-mentioned foreign entities and why transactions conducted by the foreign entities are not to be treated as for yours and your family's personal benefits. You are also required to show cause as to why the above- mentioned foreign assets and income should not be assessed in your hands under the BM Act. You are hereby allowed an opportunity of being heard and an opportunity to offer your explanation along with relevant books of account or any other
4 documents or evidences in support of your explanation, if any.
Please note that this Show Cause Notice issued u/s 10(1) of the BM Act, 2015 is not a final and does not contain all instances or transactions observed from the materials on record. During the course of proceedings under the BM Act, 2015, further notices as may be relevant to the proceedings, may be issued for seeking further information, documents, evidence, etc. 12. For the purpose of making an assessment under the Black Money (undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 for the previous year 2021-22 relevant to the Assessment year 2022-23, I hereby serve on you this notice requiring you to produce such accounts or documents or evidence specified as per annexure I enclosed herewith are required for the purpose of this Act either in person or through your authorized representative on 25.08.2021 at 11.30 AM at my office as mentioned above."
Sri. Shashi Kiran Shetty, the learned Senior Counsel for the petitioner, is categorical that the
5 petitioner does not impugn the vires of the BM Act, and the petitioner's grievance is with the initiation of the proceedings and Impugned Notice. Initially, Sri. Shashi Kiran Shetty and Sri. K.V. Aravind, the learned counsel for the respondents, were heard on the question:
[a] Should the first respondent have held an enquiry and decided whether the petitioner is a beneficial owner of the ‘Undisclosed Assets’ mentioned in the impugned Show Cause Notice before issuing the same1.
However, Sri. Shashi Kiran Shetty who is assisted by Ms. Krishika Vaishnav, and Sri. K. V. Aravind are also heard on the following additional questions:
[b] Whether the Impugned Notice is issued beyond thirty days from the date of receipt
1 The question framed on 29.03.2022 reads as under: Should the Assessing Officer, before issuing a notice under Section 10(1) of the Black Money (Undisclosed Foreign Income and Assets) And Imposition of Tax Act, 2015, have held an enquiry and decided whether the petitioner is a “beneficial owner” of “an undisclosed asset” mentioned in the Show Cause Notice.
6 of information of the alleged Undisclosed Foreign Assets held by the petitioner. If the Impugned Notice is issued beyond the said thirty days, should it be quashed because the first respondent has not obtained necessary permission from the Principal Commissioner of Income Tax/Chief Commissioner of Income Tax?
[c] Whether the Impugned Notice dated 11.08.2021 is impermissible in law because it has not considered the decision by the Income Tax Appellate Tribunal [ITAT] on 30.07.2021 in ITA Nos.1211- 1217/BANG/2019.
The Income Tax Authorities have conducted a search on the petitioner's premises on 07.01.2015 and have initiated proceedings under Section 153A of the Income Tax Act, 1961 [for short, 'IT Act'] for the Assessment Years 2009-10 to 2015-16. The petitioner's statement is recorded under Section 132[4] of the IT Act as regards certain transactions amongst different
7 entities2. The Assessing Officer’s order is dated 30.12.2016, and this order is after necessary approval from the concerned Joint Commissioner under Section 153-D of the IT Act.
The Assessing Officer has concluded that the petitioner had availed loan from M/s. Romulus Assets Limited [M/s. RAL], one of the entities mentioned in the Impugned Notice, and the petitioner's wife has also transacted with M/s. RAL, which has paid for petitioner's insurance. Insofar as the other entities, the Assessing Officer has opined that M/s. RAL has had multiple transactions with such entities. The Assessing Officer, in the light of these conclusions, has found that the petitioner is a Beneficial Owner and that M/s. RAL’s
2 1. M/s Karadt Trust 2. M/s Lubimaya Holding Limited [LHL] 3. M/s Romulus Assets Limited [RAL] 4. M/s Fragrant Harbour Limited [FHL] 5. M/s Aceworth Finance Limited [AFL] 6. M/s Insight Capital Limited [ICL] 7. M/s Kaileigh Limited 8. M/s Weisser Limited
8 income and expenditure must be treated as the petitioner's business income and expenditure.
The petitioner's group appeals before the Commissioner of Income Tax [A] as against the Assessing Officer’s aforesaid similar but different orders of assessment are dismissed on 25.03.2019. However, the petitioner is successful in his appeal against the aforesaid orders before the ITAT in ITA Nos.1211- 1217/BANG/2019. The ITAT has allowed the appeals inter alia opining as follows: "125. In our opinion, the additions made by the AO on the basis of Board resolutions of RAL is not justified for the following reasons: -
a. The assessing officer has not discharged the burden cast on him to prove that the appellant is the shareholder/beneficial owner of RAL. b. The assessing officer has merely acted on a suspicion and has not brought on record any legal evidence to prove that
9 the appellant is the beneficial owner/shareholder of RAL.
c. RAL is duly incorporated in respective legal jurisdiction and assessee has discharged his burden by furnishing proper explanation with documents. d. The assessing officer has failed to carry out the necessary enquiries and investigation to prove the allegation made by him in the assessment order. e. The quantification of the addition based solely on the amounts mentioned in the Board resolution defies logic and is totally perverse. It is also not known whether the amount mentioned in the Board Resolution has been spent for the purpose mentioned therein."
After these proceedings, the Joint Commissioner of Income Tax [OSD], Central Circle-1[3], Bengaluru vide the letter dated 06.08.2021 addressed to the first respondent has referred to petitioner’s certain transactions involving Undisclosed foreign income and assets. The Impugned Notice mentions this letter dated
10 06.08.2021 as the cause for the Impugned Notice and the relevant portion reads as under: "AND WHEREAS I have a reason to believe that the information in my possession is sufficient to exercise the power conferred under the BM Act, 2015. A reference regarding Black Money transactions involving undisclosed foreign income and assets was received from the Joint Commissioner of Income Tax (OSD), Central Circle 1(3), Bangalore vide letter dated 06.08.2021 in you case. The relevant facts have been verified from the reference and the material available on record and are reproduced as under:
Rival submission on Question No.1:
Sri. Shashi Kiran Shetty submits that it is settled that for assumption of jurisdiction by a Court or a Tribunal, or even by an Authority, the existence of "jurisdictional fact" is a condition precedent and only if the "jurisdictional fact" is found to exist, the Court or the Tribunal or the Authority can assume jurisdiction to decide adjudicatory facts or facts in Issue. He relies
11 upon the decision of the Hon'ble Supreme Court in 'Arun Kumar and Others v. Union of India'3 in support of his submissions in this regard, and he draws the attention of this Court to Paragraph 84 which reads as under:
"84. From the above decisions, it is clear that existence of "jurisdictional fact" is sine qua non for the exercise of power. If the jurisdictional fact exists, the authority can proceed with the case and take an appropriate decision in accordance with law. Once the authority has jurisdiction in the matter on existence of "jurisdictional fact", it can decide the "fact in issue" or "adjudicatory fact". A wrong decision on "fact in issue" or on "adjudicatory fact" would not make the decision of the authority without jurisdiction or vulnerable provided essential or fundamental fact as to existence of jurisdiction is present."
Sri. Shashi Kiran Shetty submits that neither a Court nor a Tribunal nor an Authority can confer in itself the jurisdiction by deciding a
3 [2007] 1 SCC 732
12 "jurisdictional fact" wrongly, and in this regard, he relies upon the decision of the Hon'ble Supreme Court in 'Raza Textiles Ltd., v. Income Tax Officer, Rampur'4, Sri. Shashi Kiran Shetty relying upon these propositions canvasses the following to persuade this Court to opine that the Impugned Notice, which is issued without adjudication on the "jurisdictional fact", is without jurisdiction.
8.1 The salient feature of BM Act is to penalize an owner or a Beneficial Owner who does not disclose foreign assets acquired utilizing income that should be charged under the IT Act but is not charged because of the failure to furnish returns or failure to disclose the income. The BM Act refers to a ‘Beneficial Owner’ but does not define this expression.
8.2 The provisions of Section 59 of the BM Act enable a person to file [within the permissible time limit]
4 [1973] 1 SCC 633
13 a declaration of any Undisclosed Asset located outside India and acquired from income chargeable to tax under the IT Act but is not charged [for reasons mentioned in Section 59 of the BM Act which are in pari materia with the Explanation 4 of Section 139 of the IT Act], and such declaration would be chargeable to tax as provided under Section 60 of the BM Act. A Beneficial Owner for the purposes of BM Act must be an individual as contemplated in Explanation-4 of Section 139 of the IT Act5.
8.3 Thus, a Beneficial Owner for the purposes of BM Act would be a person who has, directly or indirectly, invested in the acquisition of an asset and such asset is acquired for his or her direct or indirect benefit. The proceedings under BM Act can be initiated only if an enquiry regarding investment in an
5 For the purposes of this section "beneficial owner" in respect of an asset means an individual who has provided, directly or indirectly, consideration for the asset for the immediate or future benefit, direct or indirect, of himself or any other person.
14 Undisclosed Asset outside India and beneficial ownership of such asset is held to adjudicate on the "jurisdictional fact" that an assessee is a Beneficial Owner.
8.4 The enquiry and adjudication of such "jurisdictional fact" is imperative for commencement of the proceedings under Section 10 of the BM Act and hence, Section 2[11] of the BM Act defines "Undisclosed Asset located outside India [including financial interest in any entity]" as an asset held by an assessee as the owner or the Beneficial Owner thereof if the assessee either fails to explain the source of investment or offers an explanation which is unsatisfactory in the Assessing Officer's opinion.
8.5 Unless the Assessing Officer calls for explanation on the investment in such assets, and the explanation offered is found to be unsatisfactory, or if no explanation is offered, an individual cannot be called
15 a "Beneficial Owner". The Assessing Officer’s opinion, after an opportunity to offer explanation, is a sine qua non for the determination of the "jurisdictional fact".
Sri. Shashi Kiran Shetty canvasses that an Assessing Officer must hold an enquiry to adjudicate on whether an assessee has invested or utilized any undeclared income chargeable under the IT Act to own an Undisclosed Asset located outside India before issuing notice under Section 10[1] of the BM Act, and he draws parallels with the requirement of an enquiry with an opportunity of hearing before reopening a concluded assessment under the provisions of Section 148A of the IT Act and certain provisions in the Benami Transactions [Prohibition] Act, 1988.
Sri. Shashi Kiran Shetty submits that in the present case, with the decision in the proceedings before the ITAT, it is conclusively held that the concerned under the IT Act have failed to establish that the
16 petitioner is a "Beneficial Owner" of M/s. RAL because there is no legal evidence to establish that the petitioner is the "Beneficial Owner" of either M/s. RAL or the other entities. The petitioner, if there was an enquiry as mandatorily required in law to decide whether the petitioner is a Beneficial Owner of an undisclosed Asset outside India ["the jurisdictional fact"], could have demonstrated that there is no reason to even prima facie hold that the petitioner had invested any undisclosed income in acquiring any asset or income located outside India.
Sri. K.V. Aravind, the learned counsel for the respondents, submits that the argument on behalf of the petitioner that there must be an enquiry to decide on whether an assessee is a Beneficial Owner of an Undisclosed Asset located outside India even before notice under Section 10[1] of the BM Act is an erroneous reading of the BM Act which incorporates the salient features of a Tax Statute that there must be a charge of
17 tax [which would be under Section 3], composition [which would be under Section 4] and the determination of such composition (which would be under Section 10[3]). While the provisions of Chapter-II of BM Act [which include Sections 3 and 4] provide for charge and composition, the provisions of Chapter-III of the BM Act prescribe the competent authority/ies for the purposes of the Act, the procedure to be followed, the nature of the proceedings under the Act, the powers available to the competent authorities for the purposes of enquiry contemplated, the assessment and the time limit for completion and assessment.
Sri. K.V. Aravind submits that the provisions of Section 10 of the BM Act confer jurisdiction in an Assessing Officer, on receipt of information from the Income tax Authority under the IT Act6, to serve a notice on any person requiring him to produce or to cause
6 Or, from any other authority under any law for the time being in force, or on coming to know of information
18 production of documents or accounts or evidence as may be required for the purposes of the BM Act with jurisdiction to issue further notices. The provisions of Section 10[2] of the BM Act confers jurisdiction in the Assessing Officer to make such enquiry, as he considers necessary, for the purposes of obtaining full information in respect of Undisclosed foreign income and asset of the concerned for the relevant financial year. The Assessing Officer, on receipt of the material and upon conclusion of enquiry, if circumstances warrant, will decide on the "Undisclosed Foreign Income and Asset" and determine the liability payable of such person under Section 10[3] of the BM Act.
Sri. K.V. Aravind is unequivocal that, as part of enquiry under Section 10[2] of the BM Act, the Assessing Officer will examine the "jurisdictional fact" of whether the person to whom notice is issued (and if necessary, after further notices are issued as provided
19 for under Section 10[1]) would be the Beneficial Owner of an Undisclosed Asset for the purposes of the BM Act because the provisions of Section 10 the BM Act contemplate enquiry even for the purposes of deciding whether a person would be a Beneficial Owner and not just for the purposes of assessment and re-assessment.
Sri. K.V. Aravind relies upon the decision of the Hon’ble Supreme Court in Commissioner of Central Excise, Haldia v. M/s Krishna Wax [P] ltd7, a decision rendered in the context of Section 11A of the Central Excise Act, 1944, to bolster his submission that the provisions of Section 10 of the BM Act cannot be construed as contemplating a segregated preliminary determination on "the jurisdictional fact" and a separate enquiry for the purposes of assessment. He relies upon the following enunciation in this decision. "9. However, the scheme of Section 11-A does not contemplate that before issuance of
7 [2020] 12 SCC 572
20 any show-cause notice, there must, prima facie, be: (a) a preliminary determination that the process or activity undertaken in the matter amounts to manufacture; and (b) before arriving at such preliminary determination, any hearing to the person concerned is contemplated. In other words, there is no segregation of the matter at different stages and all the possible contours of the matter including whether the process in question amounts to manufacture or not are to be gone into while considering the response to the show-cause notice itself. It is only after considering all the relevant aspects of the matter that the final determination under sub-section (10) of Section 11-A is to be arrived at.
The issuance of show-cause notice under Section 11-A also has some significance in the eye of the law. The day the show-cause notice is issued, becomes the reckoning date for various issues including the issue of limitation. If we accept the submission of the respondent that a prima facie view entertained by the department whether the matter requires to be proceeded with or not is to be taken as a decision or
21 determination, it will create an imbalance in the working of various provisions of Section 11-A of the Act including periods of limitation. It will be difficult to reckon as to from which date the limitation has to be counted."
Sri. K.V. Aravind concludes that, in the present case, the petitioner has prematurely approached this Court without responding to the Impugned Notice, and the petitioner will have a cause only if the Assessing Officer commits any error in deciding on whether the petitioner is a Beneficial Owner while concluding the assessment.
It is obvious from the rival submissions that the respondents do not contest the fulcrum of the petitioner’s case that an authority, as in the case of a Court or a Tribunal, can assume jurisdiction to decide an adjudicatory fact or facts in Issue only if it is conferred with the jurisdiction to adjudicate on such questions and therefore, the existence of a "jurisdictional
22 fact" is a condition precedent for assumption of jurisdiction. The respondents also do not contest that there can be an assessment under the BM Act only if it is found, as a jurisdictional fact, that a person [an assessee] owns or holds Undisclosed Asset located outside India and is acquired utilizing income which is not offered to tax, or which has escaped tax, under the provisions of the IT Act.
The respondents also do not dispute that a person must be extended an opportunity to offer explanation before there is adjudication of the aforesaid "jurisdictional fact". However, they contend that the "jurisdictional fact" must be examined as part of enquiry under Section 10[2] of the BM Act leading to an assessment under Section 10[3] thereof if the circumstances so warrant. They assert that hence the petitioner is extended such opportunity in issuing
23 Notice. This Court must at this stage record that the Impugned Notice in this regard reads as under:
"Keeping in view the principles of natural justice, you are hereby required to show cause as to why you should not be held as the beneficial owner of the above-mentioned foreign entities and why transactions conducted by the foreign entities are not to be treated as for yours and your family's personal benefits."
The petitioner contends that the "jurisdictional fact" must necessarily be decided even before the notice under Section 10[1] of the BM Act is issued. The petitioner relies upon the propositions viz., that the jurisdictional fact must be adjudicated first, and the reading of the provisions of Section 2[11] of the BM Act. This Court, for the following reasons, must opine that the petitioner cannot draw support from either.
The provisions of Section 2[11] read as under:
"Undisclosed Asset located outside India" means an asset (including financial interest in any entity) located outside India, held by the assessee in his name or in respect of which he is a beneficial owner, and he has no explanation about the source of investment in such asset or the explanation given by him is in the opinion of the Assessing Officer unsatisfactory:"
The reliance on the definition clause to contend that there must be segregated enquiry for decision on the ‘jurisdictional fact’ and the assessment must be examined with all circumspection in view of the salient proposition that interpretative clause i.e., a definition clause in an Act cannot be construed as a positive enactment. This Court must in this regard refer to the decision of the Delhi High Court in Nalini Mahajan (Dr.) v. Director of Income Tax (Inv.)8:
"84. Interpretation clause is not a positive enactment. It is also well settled that an interpretation clause,
8 2002 SCC OnLine Del 533.
25 having regard to its limited operation, must be given a limited effect. While giving effect thereto, the Court must not forget that the scope and object of such a provision is subject to its applicability and it is used having relation to the context only."
This proposition is also emphasized by the Patna High Court in Shankar Prasad Sahi v. State of Bihar9. This Court must also record its opinion that this proposition must apply with greater vigour when there is a positive enactment in the other Chapter or Parts of the Act.
The provisions of Section 10 of the BM Act read as under:
"10. Assessment - (1) For the purposes of making an assessment or reassessment under this Act, the Assessing Officer may, on receipt of an information from an income-tax authority under the Income-tax Act or any other authority under any law for the time being in force or on coming of any
9 1993 SCC OnLine Pat 161
26 information to his notice, serve on any person, a notice requiring him on a date to be specified to produce or cause to be produced such accounts or documents or evidence as the Assessing Officer may require for the purposes of this Act and may, from time to time, serve further notices requiring the production of such other accounts or documents or evidence as he may require.
(2) The Assessing Officer may make such inquiry, as he considers necessary, for the purpose of obtaining full information in respect of undisclosed foreign income and asset of any person for the relevant financial year or years.
(3) The Assessing Officer, after considering such accounts, documents or evidence, as he has obtained under sub-section (1), and after taking into account any relevant material which he has gathered under sub-section (2) and any other evidence produced by the assessee, shall by an order in writing, assess or reassess the undisclosed foreign income and asset and determine the sum payable by the assessee.
(4) If any person fails to comply with all the terms of the notice under sub-section (1), the Assessing Officer shall, after taking into account all the relevant material which he has gathered and after giving the assessee an opportunity of being heard, make the assessment or reassessment of undisclosed foreign income and asset to the best of his judgment and determine the sum payable by the assessee."
It is obvious from a plain reading of Section 10[1] of the BM Act that an Assessing Officer may, on receipt of an Information as mentioned therein, serve a notice on any person to produce accounts or documents or evidence, as may be required for the purposes of this Act; after the Assessing Officer serves such notice, or further notices, may hold enquiry for the purposes of obtaining full information in respect of an undisclosed foreign income and asset of a person.
28 22. The Assessing Officer can proceed to assess the undisclosed foreign income and asset to determine the liability only on considering the accounts/documents, and evidence, and every further relevant material gathered. Further, the Assessing Officer, for the purposes of such enquiry under Section 10[2] of the BM Act, is vested with the necessary powers to direct discovery and production of evidence. The provisions of Section 8[2] of the BM Act10 specify that the authority, for the purposes of making an enquiry or investigation, shall be vested with specific powers as regards discovery and inspection, enforcing attendance and compelling production of documents and issuing commissions. These purposes are mentioned in Section 8[1] of the BM Act.
10 8. Powers regarding discovery and production of evidence:
xxxx xxxx
(2) For the purposes of making any inquiry or investigation, the prescribed tax authority shall be vested with the powers referred to in sub-section (1), whether or not any proceedings are pending before it.
The scheme of notice, further notices, enquiry and assessment under Section 10 of the BM Act is comprehensive and the Assessing Officer must examine the entire gamut of circumstances and decide on the "jurisdictional fact" as a condition precedent for assessment. In this Court’s considered opinion this scheme does not admit of any ambiguity to employ an interpretative tool, especially the reading of a definition clause which would not be a positive enactment, to construe a segregated enquiry. It is also argued that the provisions of Section 8 of the BM Act would indicate a distinct and separate enquiry on the "jurisdictional fact" from an enquiry that is contemplated under Section 10 of the BM Act. But in the light of the scheme under Section 10 and the express provisions of Section 8[2], such reading would be a contrived reading.
30 24. Further, as observed by the Hon'ble Supreme Court in Commissioner of Central Excise, Haldia v. M/s Krishna Wax [P] Ltd., supra, the significance of the date of issuance of notices will also have to be borne in mind when admittedly, the date of issuance of show-cause notice becomes vital for the purpose of limitation under the BM Act. If as contended on behalf of the petitioner, enquiry on the "jurisdictional fact" and assessment are segregated, despite the scheme under section 10, there would be serious ramifications but without the necessary redressal.
Furthermore, the settled proposition is that in construing fiscal statutes and in determining the tax liability, the strict rules of interpretation will have to be followed without adding or importing significance beyond the language used in such statutes. In the light of the above, and the respondents' admitted position that the Assessing Officer must necessarily decide on
31 the "jurisdictional fact" viz., whether the petitioner could be called a Beneficial Owner of the specified Undisclosed Asset considering the material that the petitioner produces, and there will be sufficient opportunity to the petitioner to produce further documents, this Court must answer the first question in the negative and in favour of the respondents. It is answered accordingly. Regarding Question Nos.2 and 3:
Sri. Shashi Kiran Shetty submits that because of the earlier proceedings commenced in the year 2015 under the provisions of the IT Act, the respondent, cannot deny prior knowledge of the petitioner's alleged transactions with M/s. RAL and other entities. However, the Impugned Notice is issued on 11.08.2021 in the premise that the Joint Commissioner of Income Tax [OSD], Central Circle-1[3], Bengaluru, has referred to information about an alleged Undisclosed Asset outside India allegedly because
32 reference is on 06.08.2021. The Central Board of Direct Taxes has issued detailed Guidelines [CBDT Guidelines], including the Guideline on the timeline for issuance of notice under Section 10 of BM Act.
In terms of para No.8 thereof, the Assessing Officer must issue notice under Section 10 of the BM Act within thirty [30] days from the end of the financial year in which he became aware of the foreign assets, and if notice is to be issued beyond the said period of thirty days, it must be with the prior approval by the Principal Director of Income Tax/Principal Commissioner of Income Tax. In the present case, when it cannot be disputed that the Income Tax Authorities had earlier issued notice of alleged undisclosed asset, the Impugned Notice is issued beyond the period of 30 days and without prior approval from the concerned.
33 28. The CBDT Guideline No.811 does mention that though no statutory time limit is prescribed for issuance of notice under Section 10[1] of the BM Act, such notice must be preferably issued within thirty [30] days from the end of the previous year in which the Assessing Officer receives such information but where conditions of Guideline No.6[a] to [c] are satisfied. Therefore, the provisions of Guideline No.6[a] to [c] will be important and these read as under:
11 8. Time limit for issuance of notice under section10(1) of the BM Act: Though no statutory time limit for issuance of notice under section 10(1) is specified under the BM Act, wherever the conditions of para 6(a) to 6(c) above in respect of issuance of notice under section 10(1) are satisfied, AO is required to issue the notice preferably within 30 days from the end of the previous year in which such information was received by him/came to his notice. However, if the notice is not issued within the period of 30 days, reason thereof is to be recorded in writing by AO concerned, to be duly approved by Pr.DIT/Pr.CIT concerned. It is important to note that as per section 11(1) of the BM Act, the assessment under the BM Act is to be passed within 2 years from the end of the financial year in which notice under section 10(1) was issued by the AO.
34 "6. When a proceeding under section 10 of the BM Act could be initiated: Combined reading of the provisions of section 3 (Charge of tax) and section 10(Assessment) of the BM Act suggest that AO could initiate the proceedings under section 10 of the BM Act on receipt of information of prima facie undisclosed foreign income/asset. In this connection, the following points are clarified:
a. AO is to issue notice under section 10(1) of the BM Act on receipt of 'information' and not on receipt of 'intelligence'. b. Taking into consideration the scheme of the BM Act, the term 'information' used in section 10 of the BM Act should be construed to imply the following. {1} The information is of prima facie undisclosed foreign asset/income [such as information of foreign bank account, property, investment, financial interest in an offshore entity, beneficial ownership of foreign asset/income etc]. Few
35 Illustrations of such information are: • Information of undisclosed foreign asset/income of an Indian person unearthed during search/survey/other investigation conducted in the case of that person or in the case of any person having any relation (business, non business or other) with such Indian person, OR • Information of undisclosed foreign asset/income of an Indian person received under a legal instrument such as tax treaty (DTAA/ TIEA /FATCA/ CRS/ OECD Convention on Mutual Assistance in Tax Matters, MLAT, etc) OR • Information of undisclosed foreign asset/income of an Indian person received from other law enforcement agency(LEA) which was unearthed during search/survey/other
36 investigation conducted in the case of that person or in the case of a person having any relation (business, non-business or other) with such Indian person,
AND
(ii) the information has prima facie linkage with the Indian person under investigation who is taxable under the BM Act. The prima facie linkage with the undisclosed foreign asset/income could be of the following nature: holder, owner, beneficial owner, ultimate beneficial owner, trustee, settlor, beneficiary, authorized signatory, director, shareholder, etc.
c. Intelligence on prima facie undisclosed foreign asset/income which is received/from/through FIU, informant, TEPs, VIP reference, public domain [such as media, websites(including
37 ICIJ website), etc] and information unearthed during search./survey/other investigation of any person who is not related to the Indian person in any manner is in the nature of intelligence only and this should not form the sole basis for issuance of notice under section 10(1) of the BM Act...................."
These Guidelines make a distinction between information and intelligence. The intelligence, unlike information, will be received/from/through FIU, Informant, TEPs, VIP reference, public domain and information unearthed during search/survey/other investigation of any person who is not related to the Indian person in any manner. The Intelligence cannot form the sole basis for issuance of Notice under Section 10[1] of the BM Act. However, Information could be received from any other law enforcement agency which was unearthed during search/survey/other investigation.
The question of issuance of Impugned Notice being beyond thirty days, and therefore the need for approval from the concerned as mentioned the CBDT Guidelines, will have to be necessarily decided on the basis of Para No.6 of the Guidelines which makes a distinction between information and intelligence. Insofar as Information, the Guideline is categorical that it could be information received from other law enforcing agency [which would include the Income Tax Authorities] unearthed during search/survey/other investigation. The Impugned Notice is categorical that information in the petitioner's case is received on a reference by the Joint Commissioner of Income Tax [OSD], Central Circle-1[3], Bengaluru on 06.08.2021.
The contention that the Assessing Officer should be presumed to have had Information of the alleged transaction is very presumptuous, and no such presumption can be drawn at this stage to truncate the
39 enquiry. Therefore, this Court cannot opine that the Impugned Notice is issued beyond thirty days from the date of Information and therefore prior approval had to be obtained.
As stated at the very outset, the Impugned Notice is very detailed and there are multiple references to different transactions between and amongst M/s. RAL and other entities. The Impugned Notice also refers to certain Minutes of Meetings and instances of payments with necessary documents illustrated. The transactions are multi-fold and make a complex web, and this Court, when the petitioner is yet to file response and produce documents/accounts/evidence, and the Assessing Officer is yet to consider those materials, cannot opine that the Impugned Notice lacks in material details or has not considered material circumstances, including the orders of ITAT in ITA Nos.1211-1217/BANG/2019. The question Nos.2 and 3
40 must therefore be answered in the negative and in favour of the respondents. In which event, the petitioner's challenge must fail.
For the foregoing, the petition stands dismissed with all liberty to the petitioner, but subject to just exceptions, to take appropriate defences before the Assessing Officer and in the further proceedings.
Sd/-
JUDGE
AN/-