2020 (3) TMI 610 - HC - Income Tax

Reopening of assessment u/s 147 - Unable to make declaration u/s 59 of the Black Money Act - undisclosed foreign accounts - window of opportunity given to an assessee under Sections 59 to 63 of the Black Money Act to make a declaration of undisclosed foreign income and assets which is not available to an assessee who is already facing a proceeding under the Act - HELD THAT - Prior to issuance of the impugned notices dated December 20, 2017, petitioners were subjected to proceedings under the Act though the income tax proceedings were concluded on December 30, 2017 to the effect that issue relating to escaped income was left to be decided by the authorities under the Black Money Act. It is also evident that income tax proceedings pertaining to the petitioners were reopened following receipt of information in respect of undisclosed asset by the competent authority in terms of agreements entered into by the Central Government under Section 90 or Section 90A of the Act. On the basis of such information, search and seizure operations were carried out in the premises of the petitioners under Section 132 of the Act leading to issuance of notice under Section 148 of the Act. Therefore, in terms of Clause (d) of Section 71, provisions of Chapter-VI would not be applicable in the case of the petitioners. This position has also been clarified by the departmental circulars . Therefore, unlike other persons in respect of whom the Black Money Act is sought to be made applicable, petitioners and similar category of assessees under the Act would be statutorily barred from making a declaration in terms of Section 59 of the Black Money Act. This has been contended by the petitioners to be highly arbitrary and discriminatory. This Court on 08.10.2018 had admitted the writ petition for hearing by issuing rule observing that arguable questions have been raised. Admittedly, when rule is issued, it presupposes existence of a prima facie case; in the absence of which rule is not ordinarily issued by the Court. Evidently, provisions of the Black Money Act are extremely severe having stringent penalty provisions and also leading to offences and prosecutions. Therefore, to enable a person to come clean and to shield himself from the rigours of the said Black Money Act, a small window is provided in Section 59 to make a declaration of such undisclosed foreign income and asset. The window was for the period upto 30th day of September, 2015. According to the petitioners, they were statutorily debarred from making a declaration under Section 59 in view of Section 71 (d). Respondents have taken the stand that such contention of the petitioners is hypothetical inasmuch as petitioners never admitted having any undisclosed foreign asset and continue to deny the same till date. According to the respondents, this contention is of academic interest only as even in the income tax proceedings, petitioners never admitted that they had undisclosed foreign asset. That apart, a reading of Section 72 (c) may indicate that provisions of the Black Money Act have been given retrospective operation. This is also a highly debatable issue since the Black Money Act contains provisions for imposition of penalty and for initiation of prosecution. There is always a presumption as to constitutionality of a statute and the burden lies heavily on him who challenges the constitutionality - we feel that while respondents may proceed pursuant to the impugned notices dated December 20, 2017, no coercive measures may be taken against the petitioners if the occasion so arises.

Issues Involved:
1. Applicability of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (Black Money Act) to the petitioners.
2. Retrospective application of the Black Money Act.
3. Constitutionality of the Black Money Act.
4. Validity of the notices issued under the Black Money Act.
5. Petitioners' entitlement to make a declaration under Sections 59 to 63 of the Black Money Act.
6. Petitioners' claim of arbitrariness and discrimination under Articles 14 and 20 of the Constitution of India.

Issue-wise Detailed Analysis:

1. Applicability of the Black Money Act to the Petitioners:
The petitioners argued that the Black Money Act should not apply to them as the alleged violations pertained to assessment years 2008-09 and 2009-10, before the Act came into force. They contended that the Act was being applied retrospectively, which was unconstitutional. The respondents, however, maintained that the Act applies to undisclosed foreign assets discovered by the assessing officer, regardless of when the assets were acquired, as long as they were discovered after the Act came into force.

2. Retrospective Application of the Black Money Act:
The petitioners claimed that the Black Money Act was given retrospective operation, which was arbitrary and discriminatory. They cited Section 72(c) of the Act, which they argued retrospectively taxed undisclosed foreign assets. The respondents countered that the Act only applied to assets discovered after its commencement and that the petitioners were not prevented from making disclosures during the compliance window.

3. Constitutionality of the Black Money Act:
The petitioners challenged the constitutionality of the Black Money Act, arguing that it violated Articles 14 and 20 of the Constitution of India. They claimed the Act was arbitrary and discriminatory as it barred certain assessees from making declarations under Sections 59 to 63. The respondents upheld the constitutionality of the Act, arguing that it was a special legislation aimed at curbing the menace of black money and that the petitioners' contentions were hypothetical since they never admitted to having undisclosed foreign assets.

4. Validity of the Notices Issued under the Black Money Act:
The petitioners sought to quash the notices issued on December 20, 2017, under Section 10(1) of the Black Money Act, arguing that these notices were illegal and unconstitutional. The respondents argued that the notices were valid as they were based on information received from foreign authorities under agreements entered into by the Central Government. They also contended that the petitioners were provided an opportunity to respond to the notices and that the writ court should not interfere at this stage.

5. Petitioners' Entitlement to Make a Declaration under Sections 59 to 63 of the Black Money Act:
The petitioners asserted that they were statutorily barred from making declarations under Sections 59 to 63 due to the information received by the authorities under Sections 90 or 90A of the Income Tax Act. They argued that this exclusion was arbitrary and discriminatory. The respondents maintained that the petitioners never admitted to having undisclosed foreign assets and thus their contention was only hypothetical.

6. Petitioners' Claim of Arbitrariness and Discrimination under Articles 14 and 20 of the Constitution of India:
The petitioners argued that the exclusion from making declarations under Sections 59 to 63 was arbitrary and discriminatory, violating Articles 14 and 20 of the Constitution. The respondents contended that the Act was constitutional and aimed at addressing the issue of black money, and that the petitioners' claims were not substantiated as they never admitted to having undisclosed foreign assets.

Judgment:
The court acknowledged that arguable questions were raised by the petitioners, warranting a detailed examination. It was noted that the Black Money Act is a severe legislation with stringent penalties, and a small window was provided under Section 59 for assessees to come clean. The court observed that the petitioners were statutorily barred from making declarations under Section 59 due to the information received by the authorities. However, the respondents argued that the petitioners' contentions were hypothetical as they never admitted to having undisclosed foreign assets.

The court decided that while the respondents could proceed with the notices, no coercive measures should be taken against the petitioners if the occasion arose. The court also directed an early hearing of the related writ petition and discharged the notice of motion.

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