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Taxmen Will Now Have An Edge In Old Foreign Asset Cases
The Income Tax (IT) department now has an upper hand in pursuing cases of undeclared foreign assets that were reopened before 2021. A tax tribunal has, last week, questioned the oft-cited decisions by the High Court and the Supreme Court on the ground that the higher courts had overlooked an important clarification in the earlier law.
The flow of information on unaccounted offshore bank accounts, trusts and companies is never real-time - involving a cumbersome process under the Exchange of Information provisions of tax treaties with various jurisdictions. When data on unaccounted foreign bank accounts started trickling in some years ago, the law was amended in July 2012 to empower tax authorities to go back and reopen completed tax assessments (where concealed assets abroad were detected), up to 16 years as against six years for other taxpayers.
However, this new arsenal for I-T officers was judicially interpreted as 'probable' after the amendment - the changed law could only be used in cases that were not 'time-barred'. Thus, prior to 2006—six years before the year of amendment—no case could be reopened, even if unaccounted foreign assets were discovered.The Delhi High Court accepted the contention of taxpayers that since the amendment was not specifically said to be 'retrospective', it was applicable only to cases that did not get finalized in 2012. (Hence, if the data on a foreign bank deposit was dug up in 2000) In 2015, the reopening was rejected on the grounds that the 2000-01 assessment had already been finalized in 2007.) The High Court The decision was later upheld by the Supreme Court.
But this accepted view has now been overturned by the Mumbai Bench of the Income Tax Appellate Tribunal (ITAT), comprising Vice-Chairman Pramod Kumar and Judicial Member Suchitra Kamble. The case pertains to a Mumbai resident whose 1999-2000 assessment was reopened in 2015, when the Income Tax Office came to know about the HSBC Geneva account of a trust set up by the person's father-in-law. There were more than three million dollars in the account of this trust and the State Bank of India's revenue in the trust's fund.
“This decision will not result in new cases being opened as the revaluation law was replaced in 2021 and the sixteen-year reopening period is no longer relevant. However, taxpayers whose case revaluation was previously reopened beyond that period was time-locked(ie, the Delhi High Court case) will have to weigh its legal arguments and rework its strategies," said Ashish Mehta, partner at law firm Khaitan & Co.
The new revaluation provision (introduced from April 2021) also provides that no notice can be issued under the new law if such notice cannot be issued within the applicable old revaluation provision timelines. "It is widely believed that this ban was put in the wake of the Brahma Dutt regime.In light of the reasoning given in this ITAT decision, it will be interesting to see if that position is tinkered with or retained," said Mehta.
The ITAT, a quasi-judicial authority and final fact-finding body, has referred the matter back to the Commissioner (Appeals), which constitutes the first level of appeal, to decide the matter on appeal. According to the tribunal, the high courts did not take into account an important clarification under section 149 of the Income Tax Act, which gives retrospective effect to the law.
It also held that the legislature has full powers to enact retrospective amendment if that is considered appropriate
Team Edu-Visor