Summary of this article
ITAT upholds Rs 1.86 lakh penalty.
UAE bank account was not disclosed.
Foreign company interest also remained undisclosed.
The Delhi bench of the Income Tax Appellate Tribunal (ITAT) has upheld the penalty of Rs 1.86 lakh against taxpayer Ashok Shankar for failing to disclose a bank account based in the UAE and his interest in a foreign company in his Indian income tax returns. The tribunal stated and highlighted the strict disclosure requirements which apply to taxpayers holding foreign assets under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015.
What was the ruling?
The case traces back to an Income Tax Department search which was conducted on April 27, 2016, in connection with the Sanjay Bhandari group. Subsequently, Indian tax authorities received information from UAE authorities under the exchange-of-information provisions of the India-UAE tax treaty. The information, which was received by the assessing office on April 25, 2019, revealed that Shankar maintained a bank account with Emirates NBD in Dubai.
As per a report by Livemint, the information shared by the UAE authorities, the bank account had been opened on January 18, 2010, with Shankar listed as an authorised signatory. The account had cash deposits of AED 5,025. The investigation also revealed that Shanker was a director and shareholder of Santexh International FZE, which is a UAE-based company incorporated in February 2006.
Why Was This Problematic?
Neither the foreign bank account nor the interest in the UAE company was revealed to the tax tribunal. These are expected to be disclosed under the foreign assets details of the Indian income tax returns. The tax department subsequently issued a notice under the Black Money Act on July 30, 2019, for the assessment year (AY) 2020-21. Shankar held his argued that he had forgotten about the Dubai account and stated that the account had been closed on April 06, 2017. He highlighted that the AED 5,000 deposited in the account was given by a friend to him to start a business in Dubai. Since that business never materialised, he said the money remained in that account.
The tribunal did not consider this explanation. It noted that Shankar had failed to provide adequate documentary evidence to establish the identity of the friend and the circumstances surrounding this transfer, and the purpose was vague. His denial of having invested in Santech International FZE was also rejected in light of foreign records and documents showing his directorship and shareholding.
The ITAT rejected this argument on the basis that the foreign assets should have been assessed in an earlier year because the original search took place in 2016. It held that under Black Money Act, an undisclosed foreign asset becomes relevant in the year in which it comes to the notice of the Assessing Officer. Subsequently, the UAE bank account did not prevent the authorities from initiating proceedings; the tribunal also dismissed the appeal made by Shankar, which was imposed under Section 41 of the Black Money Act and upheld the levy.
