2023 (7) TMI 1476 - AT - Money Laundering

Money Laundering - provisional attachment order - Cross border implications - - offence under Section 51 of the Black Money Act 2015 - challenge to action taken by the Appellant Department in pursuance to the Act of 2015 and the Prevention of Money-Laundering Act 2002 - Provisional Attachment Order could be issued without a prior complaint or report to a Magistrate or not - retrospective application of Black money Act of 2015 - requirement of assessment of the tax before the issuance of the Provisional Attachment Order. Offence under section 51of Black money Act 2015 - HELD THAT - In this case the Income-tax Authority could seize the material to show undisclosed foreign movable and immovable assets in the hands of the Respondent as it was not disclosed in the I.T. Return. It was thus not subjected to Tax by the Respondent under section 3 of the Black Money Act of 2015 and thereby became a case of evasion of tax - The perusal of the order of the Adjudicating Authority shows much emphasis on certain provisions of the Income-tax Act ignoring Section 3 and 4 of the Act of 2015. The entire order of the Adjudicating Authority does not make a proper consideration of the aforesaid provisions to find out whether it is a case of evasion of Tax. Cross border implications - When the Scheduled Offence under section 51 of the Act of 2015 would be made out under Part C of Schedule appended to the PMLA Act 2002? - HELD THAT - The provision of Section 2(1) thus makes it clear that definition is to be applied in the context it is to be used. In the case in hand the definition of offence of cross border implication under section 2(1)(ra) is to be read in the context. The item no. 4 of Part C Schedule makes a reference to the offence under section 51 of the Black Money Act 2015. It is an offence of evasion of tax penalty or interest imposable or chargeable under the Black Money Act 2015. The definition of offence of cross border implication cannot be applied in the context to item No. 4 of part (c) of Schedule. It is for the reason evasion of tax cannot have an element of transfer of money out of India as it is considered to be an unpaid liability of Tax. However ignoring the aforesaid the Adjudicating Authority recorded its finding holding that an offence of cross border implication is not made out and therefore the Provisional Attachment Order cannot be confirmed. The finding of the Adjudicating Authority is ignoring the provision of the Act of 2002 and Black Money Act of 2015. To fall in item No. 4 of Part C of Schedule it is not necessary or even possible to meet with the requirement of the definition of offence of cross border implication - The Schedule offence under item 4 to part C of Schedule would apply when there is an evasion of Tax chargeable or imposable under the Act of 2015. It can be even penalty or the interest. Whether Provisional Attachment Order can be issued only when a report has been forwarded to a Magistrate under section 173 of Cr. P.C. or a complaint by a person authorized to investigate the offences or a report etc.? - HELD THAT - The fact available on record show that the Respondent was in possession of foreign assets and income and he was in the process of transfer of those properties. It would be relevant to clarify that proceeds of crime does not mean the physical possession of the property rather in a case of evasion of tax the component of tax so evaded would be the proceeds of crime in the hands of the assesse. The Respondent was in the process of transfer of the foreign assets to over came from the offence of evasion of tax under the Act of 2015 - The transfer of property would have effect on the proceedings under the Act therefore invoking the second proviso of section 5(1) the Provisional Attachment Order was passed. It does not require a complaint or a report to the Magistrate before the order of provisional attachment. The intention to transfer the foreign property by the Respondent came to the knowledge during the course of search and seizure by the Income-tax Authority. In the instant case the Respondent indulged in evasion of tax under section 3 and 4 of the Act of 2015. The Appellant was required to pay tax @ 30% on the foreign assets and income and in absence the amount of Tax became proceeds of crime. It is when they fail to disclose foreign property and income in the Return and even made an attempt to evade the tax chargeable or imposable under section 3 of the Black Money Act of 2015. Section 50 would be made out on failure of the assessee to furnish information about any foreign assets and income including financial interest in any entity located outside India. The Income-tax Authority admittedly initiated action under section 50 of the Black money Act of 2015 which means that the Respondent willfully failed to furnish Return and information relating to assets and income outside India during the relevant years. The initiation of action under section 50 had direct bearing on an offence under section 51 of the Black Money Act of 2015. Non-disclosure of the foreign assets and financial interest in those assets while submitting return resulted in evasion of tax when it was necessary to disclose it from 1st April 2016 onwards as is coming out from section 3 of the Black Money Act of 2015 - The Learned Adjudicating Authority even ignored the material sufficient to pass Provisional Attachment Order when the Appellant Department could know that non attachment of the property would frustrate the proceedings under the Act of 2002. The Respondent was in the process to transfer the foreign assets and therefore second proviso to section 5(1) of the Act of 2002 was invoked. Whether the Black money Act of 2015 has retrospective application? - HELD THAT - The Black Money Act of 2015 was made applicable even for the undisclosed foreign income and assets prior to the coming into effect of the Black Money Act of 2015. The Adjudicating Authority has thus committed grave error in questioning the applicability of the Black money Act of 2015 in reference to the foreign income and assets prior to coming into force the Black Money Act of 2015. Reference made to ECIR and the Provisional Attachment Order which has also been quoted by the Respondent and even by the Adjudicating Authority - a reference of the para of 2.4 of the Provisional Attachment Order dated 1-6-2016 has been referring to the order dated 14-9-2016 only ignoring other notice alongwith material. Thus the arguments of the Respondent in reference to it and findings of the Adjudicating Authority cannot be accepted. Whether assessment of the tax was required before the issuance of the Provisional Attachment Order? - HELD THAT - The case in hand is unique where there was total non-disclosure of foreign assets and income even though it was liable to be charged as per section 3 of the Act of 2015. In this case Respondent admitted that he did not disclose foreign income and assets in the Income-tax Return. It is despite the fact that as per under sections 3 4 of the Black Money Act Appellant was required to pay 30% tax on such property. Non-disclosure of foreign income and assets after coming into effect the Black money Act of 2015 was sufficient to make out of case under section 51 of Black Money Act of 2015 however Adjudicating Authority has made an erroneous interpretation of the provision of the Act of 2015 and the Act of 2002 in passing the impugned order. The Adjudicating Authority has failed to appreciate the facts available on record and even to make a proper interpretation of law for passing impugned order. It thus deserves to be set aside - Appeal allowed.

Summary

Issues Involved:

1. Whether the offence under Section 51 of the Black Money Act, 2015 was made out.
2. Whether the offence had "cross border implications" under Part C of the Schedule to the Prevention of Money Laundering Act, 2002.
3. Whether the Provisional Attachment Order could be issued without a prior complaint or report to a Magistrate.
4. Whether the Black Money Act, 2015 has retrospective application.
5. Whether assessment of tax was required before issuing the Provisional Attachment Order.

Detailed Analysis:

1. Offence under Section 51 of the Black Money Act, 2015:

The tribunal examined whether a scheduled offence under Section 51 of the Black Money Act, 2015 was made out. Section 51 pertains to the punishment for willful attempts to evade tax, penalty, or interest chargeable under the Act. The tribunal noted that the Income-tax Authority had seized material indicating undisclosed foreign assets and income, which were not disclosed in the respondent's Income-tax Return, thus constituting evasion of tax. The tribunal criticized the Adjudicating Authority for not properly considering Sections 3 and 4 of the Black Money Act, which mandate the disclosure of foreign assets and income for taxation purposes. The tribunal found that the Adjudicating Authority's focus on provisions of the Income-tax Act was misplaced, leading to an erroneous conclusion.

2. Offence of "Cross Border Implications":

The tribunal addressed whether the offence had "cross border implications" as required under Part C of the Schedule to the Prevention of Money Laundering Act, 2002. The tribunal clarified that the offence under Section 51 of the Black Money Act does not require cross border implications. The tribunal emphasized that the amendment to Part C in 2015 introduced a separate provision for the offence under Section 51, which should be read independently of other provisions. The tribunal rejected the Adjudicating Authority's interpretation that linked the offence to cross border implications, which would render the provision redundant.

3. Issuance of Provisional Attachment Order:

The tribunal analyzed whether the Provisional Attachment Order could be issued without a prior complaint or report to a Magistrate. It referred to Section 5 of the Prevention of Money Laundering Act, 2002, which allows for provisional attachment based on a reasonable belief that proceeds of crime are likely to be concealed or transferred. The tribunal noted that the second proviso to Section 5(1) permits attachment without the prerequisites of the first proviso, such as a complaint or report to a Magistrate. The tribunal found that the Adjudicating Authority erred in requiring these prerequisites, especially when the respondent was in the process of transferring foreign assets to evade proceedings.

4. Retrospective Application of the Black Money Act, 2015:

The tribunal considered whether the Black Money Act, 2015 applies retrospectively. It highlighted Sections 3 and 4 of the Act, which require disclosure of foreign assets and income from the assessment year commencing on or after April 1, 2016. The tribunal concluded that the Act applies to undisclosed foreign income and assets existing before its enactment, countering the Adjudicating Authority's questioning of its applicability to pre-2015 assets.

5. Requirement of Tax Assessment Before Provisional Attachment:

The tribunal addressed whether tax assessment was necessary before issuing the Provisional Attachment Order. It stated that non-disclosure of foreign assets and income, as required by Sections 3 and 4 of the Black Money Act, was sufficient to make out a case under Section 51, without waiting for tax assessment. The tribunal criticized the Adjudicating Authority for misinterpreting the law and facts, leading to an erroneous decision.

In conclusion, the tribunal set aside the Adjudicating Authority's order and confirmed the Provisional Attachment Order, allowing the appeal.