ITAT Mumbai in Yashovardhan Birla

vs CIT
(SA No.61/Mum/2021)
Order dated 3.09.2021

13.09.2021
 Contents

Setting the Context

Relevant Provisions

Factual Background

Contentions Raised by the Assessee

Appeal to Bombay HC against delay by CIT(A)

CIT(A)’s Findings on Jurisdiction

ITAT’s Ruling on Jurisdiction

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 Setting the Context
“Black money is, as its name suggests, tainted money – money which is not clean, or which has stigma attached
to it. Black money symbolized money which had been earned by violating legal provisions and even social
conscience, and which is kept secret and unaccounted for” - Mr. Wanchoo (Former CJI) Direct Tax Enquiry
Committee Report, 1971

Enactment of ‘The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015’ 
(“BMA”) came into force w.e.f. 01.07.2015 applicable from AY 2016-17 and onwards

Till May 31, 2021 orders have been passed in 166 cases and demand raised till date Rs. 8,216 crores
Government focus to bring to tax illicit wealth generated through trusts, offshore entities and bank accounts set
up in tax havens

Stringent penalty of 300% of tax evaded and prosecution ranging from 6 months up to 7 years

In Yashovardhan Birla’s case huge stakes involved with 2,400 crores tax demand and 6,000 crores penalty

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 Relevant Provisions under the BMA

"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
Sec. 2(11) 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

"undisclosed foreign income and asset" means the total amount of undisclosed
income of an assessee from a source located outside India and the value of an
Sec. 2(12) undisclosed asset located outside India, referred to in Section 4, and computed
in the manner laid down in Section 5.

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 Relevant Provisions (contd.)

(1) There shall be charged on every assessee for every assessment year commencing on or
after the 1st day of April, 2016, subject to the provisions of this Act, a tax in respect of his
total undisclosed foreign income and asset of the previous year at the rate of thirty per
Sec. 3 cent of such undisclosed income and asset:
Provided that an undisclosed asset located outside India shall be charged to tax on its
(Charge of value in the previous year in which such asset comes to the notice of the Assessing Officer.
tax)
(2) For the purposes of this section, "value of an undisclosed asset" means the fair market
value of an asset (including financial interest in any entity) determined in such manner as
may be prescribed.

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 Relevant Provisions (contd.)

(1) Subject to the provisions of this Act, the total undisclosed foreign income and asset of any
previous year of an assessee shall be,—
a. the income from a source located outside India, which has not been disclosed in the
return of income furnished within the time specified in Explanation 2 to sub-section (1) or
under sub-section (4) or sub-section (5) of section 139 of the Income-tax Act;
b. the income, from a source located outside India, in respect of which a return is required to
Sec. 4 be furnished under section 139 of the Income-tax Act but no return of income has been
furnished within the time specified in Explanation 2 to sub-section (1) or under sub-section
(Scope of total (4) or sub-section (5) of section 139 of the said Act; and
undisclosed c. the value of an undisclosed asset located outside India.
foreign income) (2) Notwithstanding anything contained in sub-section (1), any variation made in the income
from a source outside India in the assessment or reassessment of the total income of any
previous year, of the assessee under the Income-tax Act in accordance with the provisions
of section 29 to section 43C or section 57 to section 59 or section 92C of the said Act, shall
not be included in the total undisclosed foreign income.
(3) The income included in the total undisclosed foreign income and asset under this Act
shall not form part of the total income under the Income-tax Act.

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 Relevant Provisions (contd.)
(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 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
Sec. 10 of obtaining full information in respect of undisclosed foreign income and asset of any
person for the relevant financial year or years.
(Assessment) (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.
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 Structure under Scrutiny

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 Factual Background

Assessee was served a notice under section 10(1) of the BMA for AY 2016-17 alleging
him to be the beneficial owner of foreign bank accounts in Switzerland and
Singapore, substantial owner of assets held by Kinetic Holding Ltd., an offshore entity
(Switzerland), and the beneficiary of a foreign discretionary trust by the name of
Malpani Trust in (Guersney)

This notice was challenged by the Assessee as legally unsound as section 5 of the
Black Money Act allows the reduction of tax liability to the extent assessed under
Income Tax Act, which was yet to be ascertained. This objection was rejected by the
Revenue vide order dated 17.01.2019 and upon appeal the order of the AO was
upheld by CIT(A). The Assessee preferred a further appeal before the ITAT, Mumbai.

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 Assessee’s Contentions

On the issue of jurisdiction:-

AO erred in issuing a notice u/s 10 of the BMA. Did not consider that as per Section 3 r/w
Section 4 of the BMA, the starting point under the BMA is a return of income filed for the
relevant AY under the Income Tax Act, 1961.

Assessee could have filed the return for the relevant AY until 31st March 2018, which was well
beyond the date of the notice served upon him. Notice was argued to be premature.

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 Assessee’s contentions (contd.)
Already searched u/s 132 of the IT Act, and certain notices were issued to him for AYs 1998-99, 2007-08, 2008-
09 and 2014-15 after the search. The assessment orders had been challenged before the Bombay High Court
which quashed the said orders as the Assessee had already filed a settlement application before the ITSC.

It was the Assessee’s argument that Chapter XIX-A of the IT Act which deals with settlement of cases allows the
Assessee to file an application before the ITSC containing a full and true disclosure of his income which has not
been disclosed before the AO, and to request for a settlement.

Therefore, proceedings should not be instituted under the BMA as Assessee has a right to settle the matter with
the ITSC first. If the matter is settled in his favor, there is no scope for proceedings under the BMA as there
would be no undisclosed income to be taxed as per section 3 of BMA.

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 On the issue of beneficial interest in foreign discretionary trust:

Assessee argued that the AYs 1998-99 to 2014-15 were distinct from AY 2016-17. He had
disclosed his interest in the Malpani Trust with corollary offshore companies/entities in his
return of income filed for the AY 2014-15.

His beneficial interest in the foreign discretionary trust had ceased w.e.f. 15 th July 2014
as was disclosed in the Assessee’s return of income for the AY 2015-16 and substantiated
by the Source of Wealth document executed by the remaining trustees of the Malpani
Trust.

Even though the source of the corpus of the foreign discretionary trust structure was not the
Assessee but his maternal uncle, which is analogous to ‘inheritance,’ until the trust is
distributed, Assessee’s tax liability does not arise as there would be no foreign income to be
taxed.

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 Assessee’s contentions (contd.)

Assessee relied upon the findings of the ITAT, Mumbai in the separate Wealth Tax proceedings for the AYs
2007-08 to 2013-14, where it was held that “…it is a fact on record that there are no investments made by the
Assessee nor any investments moved to India.”

Further held that Assessee only had limited interest in the offshore trusts as he only had the power to appoint
the trustees, but the properties attached to the trust remained with the trust and not with the beneficiaries.

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 Appeal to Bombay HC against delay by CIT(A)

The Assessee’s challenge to the jurisdiction was rejected by the AO.

Against that order the Assessee filed an appeal before the CIT(A). However, the CIT(A) delayed disposing off
the appeal citing lack of infrastructure owing to which the Assessee could not be afforded a personal hearing.

As the assessment proceedings were going on in the meantime, the Assessee filed a W.P before the Bombay
HC requesting a stay of the proceedings until the jurisdictional challenge was heard by the CIT(A).

The HC directed the CIT(A) to dispose off the jurisdictional appeal at the earliest. However, it did not stay the
assessment proceedings and rather directed that those be continued.

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 CIT(A)’s Findings on Jurisdiction (upholding AO order)
Rejected the Assessee’s reliance upon the findings of the ITAT, Mumbai in the Wealth Tax proceedings of the
AYs 2007-08 to 2013-14 by holding that the same were not in existence at the time the notice was issued to
the Assessee u/s 10 of the BMA.

The documents relied upon by the ITAT in those proceedings, such as the Trust Deed of the Malpani Trust,
summary of share capital of Kinetic Holdings, and the letter of the PCIT (Central), were not in existence at
the time of the notice. Therefore, they could not be taken into evidence while deciding the jurisdictional
objection.

Decision under the Wealth Tax Act where the concept of ‘beneficial ownership’ or ‘beneficiary’ is not dealt
with, cannot be relied upon for a decision under the BMA.

Assessee’s plea that the assets were already a part of the income tax proceedings up to the preceding AY,
and for the present AY he still had time to file his IT Return was rejected by holding that there is no such bar
in the BMA.

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 CIT(A) Findings on Jurisdiction (contd.)

The appeal papers did not contain the documents which had been before the AO at the time of
issue of notice. Therefore, it was necessary to call for such documents from the AO.

However, the AO submitted that he had already intimated the details of the documents to the
Assessee and the same were elaborated in detail in the final assessment order. Therefore, the
CIT(A) did not examine the original documents and relied on the final assessment order for
confirming the same.

Therefore, the CIT(A) did not actually peruse the original documents and rather made use of
the final decision of the AO for corroborating their veracity.

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 ITAT Ruling on Jurisdiction

Since the issue before the CIT(A) was a jurisdictional defect in the notice which gave rise to the
assessment proceedings, the heavy reliance placed by the CIT(A) on the final assessment order to
reject such jurisdictional objection was not sustainable in law. The CIT(A) could not rely upon the
findings in a final assessment order to dispose a jurisdictional challenge. It must be decided solely
by reference to materials relied upon by the AO at the time of issuance of notice.

The Assessee had already been a subject of wealth tax proceedings before the ITAT. The assets in
question were already subject to wealth tax assessment for AY 2007-08 to 2013-14, and it was
held that he was not a contributor to the Trust and cannot be construed as its sole beneficiary.
Moreover, he was not a substantial owner of the assets held by the Trust. Such findings had not
been overturned by the High Court. The CIT(A) could not reject these findings on the ground that
they were not in existence at the time of issue of notice to the Assessee.

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 The Principle of Approbate and Reprobate

Reliance was placed on the SC judgment in the case of Suzuki Parasrampuria Suitings Ltd.
v The Official Liquidator of Mahendra Petrochemicals Ltd. to hold that parties cannot take
shifting stands under different proceedings. Therefore, the Revenue as well the ITAT could
not take shifting stands under different proceedings on evaluation of the same facts.

When the ITAT had already ruled that the assets do not belong to the Assessee, it cannot
shift this stand, by saying that its own findings have no precedential value. Further, when
the Revenue had already accepted the validity of the trust deed issued by the Assessee’s
maternal uncle in the proceedings before the Income Tax Authorities, it could not take a
contrary stand and before the ITAT and say that the veracity of the deed is in doubt.

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 The Principle of No Double Prejudice

Section 4(2) of the BMA provides for exclusion of assets which have been created out of the income assessed in
India. The Assessee had already submitted that he has been assessed for income tax up to the preceding AY.
Proceedings in this regard were already going on. Even though the Bombay HC had quashed the assessment
orders on account of pending settlement proceedings before the ITSC, it could not be concluded that the incomes
had not been subject to assessment at all. The Revenue had not taken the plea that the Assessee owed no
income tax liability. Once liability is assessed, these assets cannot again be the subject matter of black money
proceedings as that would amount to double prejudice to the Assessee.

The definition of ‘undisclosed asset’ under the BMA clearly provides that assets created out of income already
assessed in income tax shall be excluded. Hence, when the Revenue had already assessed these assets under the
income tax proceedings up to the previous AY, and for the current AY the time for filing had not yet elapsed, the
notice was issued prematurely. There could not be simultaneous proceedings under the ITA and the BMA on the
same asset/income as that would amount to double prejudice. Accordingly, the AO order was quashed.

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 Key takeaways

Beneficial ownership test crucial under BMA

BMA proceedings cannot be undertaken in tandem with Income Tax

proceedings

Revenue Loss is a reminder of the importance of meeting the test of

jurisdictional validity

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 Question Answers

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