The Delhi bench of the Income Tax Appellate Tribunal (ITAT) has upheld a ₹1.86 lakh penalty under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, against taxpayer Ashok Shankar for failing to disclose a foreign bank account and interest in a UAE company in his income tax returns. According to reports from Mint, the tribunal rejected Shankar's explanations and held that the undisclosed foreign assets could be assessed under the Black Money Act for AY 2020-21. The two-member bench comprising C.N. Prasad, Judicial Member, and G. Manjunatha, Accountant Member rejected the assessee's arguments and upheld the penalty in the facts of the case.
The case originated from a search conducted by the Income Tax Department on 27 April 2016 in connection with the Sanjay Bhandari group. As reported by Mint, the department subsequently received information from UAE authorities under the exchange-of-information provisions of the India-UAE tax treaty. The information, received by the Assessing Officer on 25 April 2019, showed that Shankar had a bank account with Emirates NBD in Dubai. The account was opened on 18 January 2010, with Shankar listed as the authorised signatory, and had cash deposits of AED 5,025. 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-based company incorporated in February 2006.
According to Mint reports, the UAE information also showed that Shankar was a director and shareholder of Santech International FZE, a UAE-based company incorporated in February 2006. His paid-up share capital in the company was shown at AED 3,000 and he owned a 10% stake in the company. Shankar told tax authorities that he had forgotten about the Dubai bank account and claimed the account had been closed on 6 April 2017. On the AED 5,000 deposit, he claimed the money had been deposited by a friend for starting a business in Dubai, but the tribunal noted that he did not provide sufficient documentary evidence to establish the identity of the friend or the circumstances of the alleged transaction. Regarding Santech International FZE, he submitted that he had not made any payment towards the company's share capital and stated that the company had been established by Sanjay Bhandari to explore business opportunities in the oil and gas sector.
As reported by Mint, under the Black Money Act, an undisclosed foreign asset is chargeable to tax in the year in which it comes to the notice of the Assessing Officer. The relevant information from UAE authorities reached the AO on 25 April 2019, and the notice under Section 10 was issued on 30 July 2019. 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. The Dubai bank account had been opened in 2010, several years before the Black Money Act came into force, but the tribunal 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. The ITAT concluded that FY 2019-20, corresponding to AY 2020-21, was the appropriate year for bringing the undisclosed foreign assets to tax.
According to Mint reports, the taxpayer had challenged the penalty and raised a legal question over whether the word "may" in Section 41 made the levy discretionary. The ITAT, however, upheld the penalty in the facts of the case. The tribunal dismissed Shankar's separate appeal against the ₹1,86,810 penalty under Section 41 of the Black Money Act, noting that the taxpayer had disputed having invested in Santech International FZE, but foreign information and corporate documents showed his association with the company, including his position as a director and his shareholding. The Assessing Officer had subsequently issued a notice under Section 10(1) of the Black Money Act, 2015, bringing ₹94,525 to tax in respect of the AED 5,000 Dubai bank balance and ₹56,175 relating to the AED 3,000 investment in Santech International FZE. The Commissioner of Income Tax (Appeals) had upheld these additions, following which the assessee approached the ITAT.
