PMLA

Appeals, Revision and Prosecution Under the Black Money Act

Black money has been a topic of controversy and debate in the Indian economy and legal system ever since independence. The progress of the mainstream economy and the rise in corruption in society have both been hampered by the parallel economy, which is fueled by unreported black money. In order to stop the parallel economy and get rid of black money, the Indian government demonetized its currency in 2016. However, the majority of black money Act comes from taxpayers who refuse to report their income. The government is rapidly striving to strengthen responsibility for black money by adopting various measures and legislative and policy changes and establishing a network of local legislation and international treaties against tax evasion and money laundering.

The Government of India adopted the Black Money Act in 2015^[1] to combat the production and circulation of black money both within and outside the nation. It tries to identify and sanction people who have unreported foreign income and assets, as well as to discover such unreported money and assets. The Act gives the government the authority to impose harsh fines and commence criminal prosecution against violators while also establishing a framework for the disclosure of concealed income and assets and their subsequent taxes.

Structure

The Black Money Act, initially applicable only to residents of India, was amended in July 2019 to include non-residents and non-ordinary residents who were ordinary residents in the last year to which the foreign income relates or in the year in which the foreign asset was acquired. The Act covers two issues: undisclosed foreign income and undisclosed foreign assets. It imposes a base tax of 30% on any undisclosed foreign income/foreign asset detected by the Assessing Officer (AO), as well as a penalty of 90% (three times the amount of tax computed). There are also other penalties for non-disclosure of the required information and provisions for prosecution within the Act.

Appeals, Provisions Under The Act

• First Appeal

The provisions of this Act are identical to those of the Income-tax Act. The first appeal must be filed with the Commissioner (Appeals) within 30 days after the date of the serving of the demand notice – The assessee may submit an appeal if

1. he disagrees with the tax charged,
2. disagrees with his liability to be assessed under this act,
3. objections to any penalty,
4. objects to any rejection order or
5. objects to any order refusing to allow the assessee’s claim.

The CIT(A) has the authority to allow the delay in submitting an appeal if the basis for the delay is shown and satisfactory, but only for a period of one year.

CIT(A) has the authority to;

1. confirm, reduce, annul or enhance the assessment;
2. confirm, enhance, reduce or cancel the penalty;
3. Consider any other matter which is not considered by the AO
4. Consider and decide upon any matter arising out of the proceedings in which the order appealed against was passed, even if such matter is not raised before him.  

• Second appeal

Second appeals provisions are similar to provisions in the I. T. Act. Within 60 days of receiving the order, an appeal may be filed with the Income Tax Appellate Tribunal against the order of CIT(A) or CIT. If the assessee or Assessing Officer believes it is necessary, they may raise cross objections within 30 days of receiving the notification. If the ITAT ruling is upheld, additional appeals may be filed to the Hon’ble High Court and then to the Hon’ble Supreme Court if a question of law arises.

• Section 23 – Revision by the Commissioner or the Principal Commissioner

According to Section 23 of the Act, the CIT has the authority to revise an order issued by the AO if the order is inaccurate or prejudicial to the revenue’s interests. The CIT may amend any order if it is passed without making any necessary enquiries or verification. The review period is two years from the end of the year in which the order is passed.

• Section 24: Application for Assessee Revision

Within a year after the end of the fiscal year in which the application is lodged, the CIT may reconsider any order made on an application filed by the assessee.

• Section 32

Under this Act, the following tax recovery methods are permitted:

1. An AO or Tax Recovery Officer may request that an assessee’s employer withhold a specific amount from the assessee’s salary in order to pay taxes.
2. May request that an assessee’s debtor pay his debt in order to recover taxes rather than to the assessee.
3. May attach the assessee’s bank account.
4. From the assessee’s property in India. Unless his innocence is established, companies may demand reimbursements from the managing director or manager.

Unless stayed, all requests must be paid within 30 days. Otherwise, the assessee will be in default.

Penalties Under The Act

• Section 41

In the case of an assessment made under section 10, the AO may prescribe that the assessee pays a penalty of three times the tax, or 90%. Unlike the I. T. Act, which has minimum and maximum penalty limitations, this Act has a flat penalty rate. There is no concept of penalty waiver based on the reasonable cause as provided under the I. T. Act.

• Section 42

If a PERSON who owns a foreign asset or has foreign income fails to file an income tax return (under the IT Act 1961) before the end of the Assessment Year, the AO may assess a penalty of Rs. 10 lakhs. However, no such penalty is imposed if the foreign asset, which is one or more foreign bank accounts, has an aggregate balance of less than Rs 5 lakhs at any time during the previous year.

• Section 43

If a PERSON with a foreign asset or foreign income submits his returns but fails to provide any information on his foreign assets or provides false information in his filings, the AO may assess a penalty of Rs 10 lakhs. However, no such penalty is imposed if the foreign asset, which is one or more foreign bank accounts, has an aggregate balance of less than Rs.1.5 lakhs at any time during the previous year.     

• Section 44

Every assessee who is in default or is deemed to be in default in making tax payment within 30 days AND who continues to be in default shall be subject to a penalty equal to the amount of tax arrears. Even though the Assessee paid the tax before the penalty was imposed, he is still subject to the penalty under Section 44(1).

Prosecution Under The ACT

• Section 48

According to Section 48, prosecution provisions are separate from penalty provisions. This indicates that a prosecution under the Act is not impacted by whether an order is issued or not under the Act or under another legislation. The Act’s provisions for prosecution will remain in effect even if there is a delay in passing an order.

• Sections 49 and 50

According to Sections 49 and 50, a resident who knowingly fails to provide a Return of Income or knowingly fails to provide information in such returns and held any foreign assets or foreign income at any time during the previous year shall be punished by rigorous imprisonment for a term that shall not be less than 6 months but may be extended to 7 years, along with a fine.

• Section 51

According to Section 51, anybody who willfully seeks to avoid paying any taxes, penalties, or interest that are owed or imposed by this Act would be subject to severe imprisonment for a time that must not be less than 3 years and may not exceed 10 years, as well as a fine. The Prevention of Money Laundering Act (“PMLA”) measures may also be activated if Section 51 becomes applicable.

• Section 51(2)

According to Section 51(2), if a person willfully seeks to avoid paying tax, interest, or a penalty, they will be subject to a fine and a period of imprisonment with a minimum of three months and a maximum of three years in jail.

• Section 51(3)

According to Section 51(3), a willful effort includes any situation in which a person: possesses in his custody or control books of account or any document containing a false entry or statement relevant to any proceedings. Makes a false entry or statement in these books of accounts or other papers or causes one to be created. Willfully leaves out, or causes to be left out, any pertinent item or declaration in the books or document. Make any other conditions exist that would allow that person to avoid paying any taxes, penalties, or interest that are due or imposed under this Act.

• Section 52

According to Section 52, anyone who delivers an account or statement that is false and knows it is false or does not believe it to be true will be punished with rigorous imprisonment for a term that must not be less than 6 months but can exceed 7 years, as well as a fine.

• Section 53

According to Section 53, anyone who aids or abets another person in making or delivering a false account or statement that person knows is false or does not believe to be true will be punished with fine and rigorous imprisonment for a term that cannot be less than 6 months but may reach 7 years.

• Section 56

According to Section 56, if a company commits an offense, everyone who was in charge of and accountable to the company for the conduct of business at the time the offense was committed is deemed guilty of the offense and is subject to punishment in accordance with the law. The term “company” includes both HUF and unincorporated entities. All adult members of HUF are regarded as directors and are accountable as such. All partners in a company are regarded as directors and are thus liable.

• Section 58

According to Section 58, a second offence attracts a minimum prison sentence of 3 years, a maximum of 10 years, and a fine ranging from Rs 5 lakh to Rs 1 crore. Additionally, it states that the PMLA, 2002 will now consider deliberate attempts to evade tax, interest, or penalty to be a crime.

• Section 72

According to Section 72, any asset that was acquired or made before the start of this Act and for which no declaration has been made shall be deemed to have been acquired or made in the year in which the Assessing Officer issues a notice under Section 10 and shall be subject to the provisions of this Act. However, the deeming provisions of section 72(c) would not apply when determining the person’s residency status; instead, the actual year in which the undisclosed asset was acquired would be taken into account. For the purposes of this Act, the JCIT/Addl CIT are the approved AOs.

Conclusion

The Government of India has made a crucial step to stop the flow of black money both inside and outside the nation by passing the Black Money Act. The Act establishes a mechanism for reporting undisclosed income and assets and their subsequent taxes, as well as a framework to identify and prosecuting those with undisclosed foreign income and assets. Further supporting the government’s initiatives to encourage accountability and transparency in the Indian economy are the Act’s provisions for appeals, revisions, and penalties, which include harsh penalties for willful attempts to evade paying taxes, penalties, or interest. Overall, the Black Money Act is a crucial weapon in the government’s fight against black money and its adverse impact on the growth and development of the country’s economic system.

Read our Article: Overview of the Black Money Act, 2015