Undisclosed Dubai bank account, UAE shares: ITAT upholds tax demand under Black Money Act
The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has upheld an income tax demand and penalty under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, after an Indian taxpayer failed to disclose a foreign bank account and shares held in a UAE-based company.
About the Case
Ashok Shankar, the assessee in the case, is a resident of India. During a search conducted in the Sanjay Bhandari Group, the Income Tax Department came across information indicating that Shankar had foreign assets.
The department also received information from the UAE authorities under the relevant tax treaty. The information revealed that Shankar maintained a bank account with Emirates BND Bank in Dubai. The account had been opened in 2010, with AED 5,000 credited to it.
The UAE authorities provided the department with the bank statement, KYC documents, customer information forms and the account-opening form bearing the assessee’s signature. The tax department also obtained information showing that Shankar was a director and shareholder of Santech International FZE, a UAE company.
Shankar held AED 3,000 in share capital and owned a 10% stake in the company. However, these foreign assets were not reported in Schedule FA of his income tax return or disclosed under the Black Money Act.
The Assessing Officer subsequently issued a notice under Section 10(1) of the Black Money Act, 2015. The officer brought Rs. 94,525 to tax in respect of the AED 5,000 Dubai bank balance and Rs. 56,175 relating to the AED 3,000 investment in Santech International FZE. The Commissioner of Income Tax (Appeals) upheld the additions, following which the assessee approached the ITAT.
Shankar argued that the AED 5,000 deposited in the Dubai bank account belonged to a friend. According to him, the money had been provided to start a business in Dubai, but the proposed business never commenced. He claimed that the account was eventually closed in April 2017 with a nil balance.
Regarding Santech International FZE, Shankar submitted that he had not made any payment towards the company’s share capital. He admitted that he had been appointed a director and that 10% of the shares had been allotted to him. He stated that the company had been established by Sanjay Bhandari to explore business opportunities in the oil and gas sector.
The assessee also contended that the Income Tax Department had obtained information about his foreign assets during a search in 2016. Therefore, he argued that the assets should not have been brought to tax for the Assessment Year 2020-21.
The revenue, however, relied on the findings and orders passed by the Assessing Officer and the CIT(A).
Tribunal’s Observation
The two-member bench comprising C.N. Prasad, Judicial Member, and G. Manjunatha, Accountant Member, rejected the assessee’s arguments.
The tribunal observed that Section 3 of the Black Money Act provides for taxation of an undisclosed foreign asset in the year in which the asset comes to the notice of the Assessing Officer.
In this case, information concerning the Dubai bank account and Shankar’s investment in Santech International FZE was forwarded to the Assessing Officer on April 25, 2019. Consequently, the ITAT concluded that Assessment Year 2020-21 was the appropriate year for bringing the undisclosed foreign assets to tax.
The tribunal also noted that the Dubai bank account had been opened in 2010, several years before the Black Money Act came into force.
The ITAT referred to Section 72(c) of the Black Money Act, which provides that where a foreign asset was acquired before the legislation came into effect and no declaration was made under the prescribed disclosure scheme, the asset is deemed to have been acquired in the year in which notice under Section 10 is issued.
