PACHAMUTHU KUMAR,CHENNAI V. ADIT (INVESTIGATION), SALEM

BMA 3/CHNY/2024

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The case revolves around an appeal by Shri Pachamuthu Kumar against the assessment order under the Black Money Act for the assessment year 2016-17. The assessee had not disclosed certain foreign assets and income in his tax return, which led to an investigation and subsequent assessment by the tax authorities. The primary legal contention was whether the assessment order was time-barred. The Tribunal examined the notices issued under Section 10(1) of the Black Money Act and found procedural lapses in adhering to the statutory time limits for assessment, leading to the setting aside of the assessment order.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 312890 (ITAT-CHENNAI)
• Appeal Type: Black Money Appeal
• Pronouncement Date: 30-04-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2016-2017
• Other Referred Cases: Duraiswamy Kumaraswamy vs. PCIT, ITO vs. Smt. Chengam Durga, K.M.Sharma vs. Income Tax Officer, Hope Textiles Ltd. vs. Union of India
• Laws Referred To: Black Money (Undisclosed Foreign Income & Assets) and Imposition of Tax Act 2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANITHA
• Assessee Lawyers: ANUSHA PERI; ASSISTANT
• Keywords: Set aside; Salary income; Period of limitation; Time period of passing order
• Section: 11; 90; 10; 15

Judgement Text

" आयकर अपीलीय अिधकरण, ‘सी’ \u000fा यपीठ, चे\u0014ई IN THE INCOME TAX APPELLATE TRIBUNAL , ‘C’ BENCH, CHENNAI \u0016ी मनु क ुमा र िग\u001bर ,\u000fा ियक सद एवं \u0016ी एस . आर . रघुना था , लेखा सद क े सम& BEFORE SHRI MANU KUMAR GIRI, JUDICIAL MEMBER AND SHRI S.R.RAGHUNATHA, ACCOUNTANT MEMBER अपील/ B.M.A.No.3/Chny/2024 (िनधा\u0005रण वष\u0005 / Assessment Year: 2016-17) Shri Pachamuthu Kumar, Flat F1, First floor, R.S.Villa, 7, Shasthri Street, Anna Nagar Extension, Velachery, Chennai-600 042. Vs The ADIT (Investigation), Salem. PAN : AENPK-4913-R (अपीलाथ\u000f/Appellant) (\u0010\u0011यथ\u000f/Respondent) अपीलाथ\u000fक\u0014ओरसे/ Appellant by : Ms.Anusha Peri, Advocate \u0010\u0011यथ\u000fक\u0014ओरसे/Respondent by : Ms. Anitha, Addl.CIT सुनवाईक\bतारीख/Date of hearing : 07.04.2025 घोषणाक\bतारीख /Date of Pronouncement : 30.04.2025 आदेश आदेश आदेश आदेश / O R D E R PER MANU KUMAR GIRI, JM: This appeal calls into question the validity of the order dated 27.06.2024 passed by the learned Commissioner (Appeals)-18 Chennai in the matter of assessment under section 10(3) of the Black Money (Undisclosed Foreign Income & Assets) and Imposition of Tax Act 2015 (hereinafter referred to as “the BMA‟) dated 25.03.2023 for the assessment year 2016-17. 2. Brief facts of the case are that the assessee is an individual salaried employee filed his return of income on 22.07.2016 for AY 2016-17 declaring total income of Rs.33,01,350/-. As per information with the department, assessee had made certain investments abroad and was having an account in M/s. Sanne Fiduciary Service Ltd., Jersey bearing account No.V169_V169235. The said account balance as on 31.12.2016 was Rs.45,63,281.5/- and payment of dividend 2 BMA No. 3/Chny/2024 income of Rs.2,58,836/- was reported. The assessee had not disclosed said foreign asset/ financial interest in the return of income for AY 2016-17. Therefore, the AO issued notice u/s.10(1) of Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 to the assessee on 16.02.2021. The assessee responded to the notice and filed requisite details vide letter dated 27.01.2022. The AO on perusal of details noted that assessee has received dividend income of Rs.1,44,168/- from Vedanta Resources Plc on 28.08.2015, though received in India, the income bears the character of foreign income, which was not disclosed by the assessee in the return of income for AY 2016-17. Therefore, the AO completed the assessment by making addition of Rs.1,44,618/- under the provisions of Black Money (Undisclosed Foreign Income & Assets) and Imposition of Tax Act 2015. 3. The ld. counsel for the assessee submitted as under:- On 07.01.2019, the Appellant received a notice under Section 10(1) of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (\"Black Money Act\") from Deputy Director of Income Tax (Inv.), Unit 3(2), Chennai. In the said notice, it was alleged that the Appellant had made certain investments in assets abroad, particularly having an account in Sanne Fiduciary Services Ltd., Jersey under Account No. V169 V169 235, and that the same had not been disclosed as foreign assets/ financial interests in Schedule FA of the 3 BMA No. 3/Chny/2024 return of income for AY 2016-17 and AY 2017-18. The Appellant was called upon to produce various documents. Promptly, on 16.01.2019, the Appellant replied to the DDIT(Inv.), Unit 3(2), Chennai confirming that he did not have any such bank account and enclosing a letter from Sanne Fiduciary Services Ltd. confirming the same. Thereafter, on 11.02.2019, 14.03.2019 and 28.03.2019, summons/notices were issued to the Appellant by Assistant Director of Income Tax (Investigation), Salem under Section 131(1A) of the Income Tax Act, once again alleging that the Appellant had been \"reported to have account balance of Rs. 45,63,281.5/- in Sanne Fiduciary Services Ltd.\" The Appellant duly appeared before the ADIT(Inv.), Salem on 15.03.2019 and also cooperated by submitting all details and documents on the Scheduled dates. The Appellant had inter alia explained that he was an employee of Vedanta Ltd. (an Indian company) and that the company had an employee stock option scheme (by way of perquisite to employees). The Appellant had stated that Vedanta Ltd. had allotted 8319 shares to the Appellant in Vedanta Resources PLC as per the ESOP and that the same had been compulsorily sold back to his employer at a capital loss on 03.09.2018. This sale was at a capital loss since allotment price was Rs.77,86,257/- and sale price was only Rs. 65,74,789/-. Importantly, vide email dated 30.03.2019, the Appellant had submitted a table containing the details of the allotment and share value as on date of the compulsory sale back to the company. It is critical to note that as per Section 11(1) of the Black Money Act, \"no order of assessment/ reassessment shall be 4 BMA No. 3/Chny/2024 made under Section 10 after the expiry of two years from the end of the financial year in which the notice under Section 10(1) was issued by the Assessing Officer\". In terms of Section 11(1), since the notice under Section 10(1) had been issued on 07.01.2019 (i.e., during FY 2018-19), the order (if any) should have been passed on or before 31.03.2021. However, no such order was passed. It is also critical to note that as per Section 7(1) of the Black Money Act, \"the tax authority who succeeds another authority as a result of change in jurisdiction or for any other reason, shall continue the proceedings from the stage at which it was left by his predecessor\". As per the Act, the tax authority from Salem as a result of change in jurisdiction ought to have continued the proceedings u/ s 10(1) of BMA initiated by his predecessor from Chennai vide letter dated 07.01.2019 and the order (if any) should have passed on or before 31.03.2021. Instead, on 16.02.2021 (i.e., 1.5 months before the expiry of limitation period), a fresh notice under Section 10(1) was issued by the DDIT/ ADIT (Inv.), Salem. This was plainly an attempt to overcome the imminent expiry of the limitation period. It is submitted that the notice dated 16.02.2021, and all proceedings consequent thereto, including Assessment Order dated 25.03.2023 are in contravention of Section 11 of the Black Money Act, and are thus wholly without jurisdiction. This is further buttressed by the fact that the Assessment Order dated 25.03.2023 contains extracts from replies submitted by the Appellant in 2019 i.e., during the time period when the proceedings consequent to the notice dated 07.01.2019 were pending. However, for reasons best 5 BMA No. 3/Chny/2024 known to the Ld. AO, although the replies are extracted, the date of the replies submitted by the Appellant are not mentioned. It is submitted that order of the Ld. CIT(A) on this issue is also wholly erroneous, as the Ld. CIT(A) only considers the notice dated 16.02.2021 for the purposes of limitation, and has baldly stated that the proceedings pursuant to notice dated 07.01.2019 \"might be dropped\". This is contrary to the letter and spirit of Section 11 of the Black Money Act. In any event, it is submitted that even on the merits of the issue, the additions made by the Ld. AO are incorrect. The Appellant was only an employee in Vedanta Ltd. and did not make any investments abroad or create any assets abroad. The Appellant had been allotted shares ( as a perquisite / part of his salary income) by the company, and the company had thereafter sold it as part of a compulsory sale. The Appellant did not have any agency or control over the same. Further, the said shares had been duly and voluntarily disclosed in the Form 12BA issued by the Appellant's employer. The dividends accruing out of these stocks were also deposited as Indian rupees in the Appellant's bank account held in India. Therefore, the acquisition of these shares were firstly, voluntarily disclosed by the Appellant and the Assessment Order as well as the order of the Ld. CIT (A) are erroneous in as much as they come to a conclusion that the Appellant had not disclosed these shares and secondly, these ESOPs had been unilaterally issued by the Appellant's employer (being an Indian domestic company) to the Appellant (an employee working in India) and the dividends were credited 6 BMA No. 3/Chny/2024 to the account of the Appellant to his bank account held in India in Indian rupees. Therefore, it is evident from the nature and form of the transaction in question that it is completely outside the purview of Section 2 (12) of the Black Money Act. It is submitted that the intention of the Black Money Act was also not to penalise persons like the Appellant for such transactions. Finally, it is submitted that the dividend income earned by the Appellant of Rs.1,44,168/- was already subject to income tax. The Ld. CIT(A) has held that the Appellant was entitled to claim foreign tax credit at 10% for the same. The Appellant had also filed Form 67 claiming foreign tax credit of 10%. Despite the same, tax credit was not granted. It is submitted that even if the Form 67 was filed belatedly, the same ought to have allowed in terms of the judgement of Hon'ble Madras High Court in Duraiswamy Kumaraswamy vs. PCIT, WP No.5834 of 2022 and the Hon'ble ITAT, Chennai Bench in ITO vs. Smt. Chengam Durga in ITA No.1491/Chny /2023.” 4. The ld. DR for the revenue submitted that the AO in assessment order u/s 10(3) has not discussed about the notice u/s 10(1) dated 07.01.2019. The AO has only mentioned the notice u/s 10(1) dated 16.02.2021. She further argued that if notice u/s 10(1) dated 16.02.2021 is taken for considering the limitation, then the assessment order is not time barred as per section 11(1) of the Act. 5. We have heard the rival submissions, perused the record of appeal papers, written submissions filed by the appellant 7 BMA No. 3/Chny/2024 and also paper book filed by the appellant containing pages 1-64. Section 11 of the BMA is as under: 11. Time limit for completion of assessment and reassessment: (1)No order of assessment or reassessment shall be made under section 10 after the expiry of two years from the end of the financial year in which the notice under sub-section (1) of section 10 was issued by the Assessing Officer. (2) Notwithstanding anything contained in sub-section (1), an order of fresh assessment in pursuance of an order passed under section 18 setting aside or cancelling an assessment, may be made at any time before the expiry of the period of two years from the end of the financial year in which the order under section 18 is received by the Principal Commissioner or the Commissioner. (3)The provisions of sub-section (1) shall not apply to the assessment or reassessment made in consequence of, or to give effect to, any finding or direction contained in an order under section 15 or section 18 or section 19 or section 22 of this Act or in an order of any court in a proceeding otherwise than by way of appeal under this Act and such assessment or reassessment may, subject to the provisions of sub- section (2), be completed at any time, before the expiry of the period of two years from the end of the financial year in which such order is received by the Principal Commissioner or the Commissioner. Explanation 1.—In computing the period of limitation for the purpose of this section— (i)the time taken in reopening the whole or any part of the proceeding; or (ii)the period during which the assessment proceeding is stayed by an order or injunction of any court; or (iii)the period commencing from the date on which a reference or first of the references for exchange of information is made by an authority competent under an agreement referred to in section 90 or section 90A of the Income-tax Act or under section 73 of this Act and ending with the date on which the Principal Commissioner or the Commissioner last receives, the information so requested or a period of one year, whichever is less, shall be excluded: 8 BMA No. 3/Chny/2024 Provided that where immediately after the exclusion of the aforesaid time or period, the period of limitation referred to in sub-sections (1), (2) and (3) available to the Assessing Officer for making an order of assessment or reassessment, as the case may be, is less than sixty days, such remaining period shall be extended to sixty days and the aforesaid period of limitation shall be deemed to be extended accordingly. Explanation 2.—Where, by an order referred to in sub-section (3), any undisclosed foreign income and asset is excluded from the total undisclosed foreign income and asset for an assessment year in respect of an assessee, then, an assessment of such undisclosed foreign income and asset for another assessment year shall, for the purposes of section 10 and this section, be deemed to be one made in consequence of, or to give effect to, any finding or direction contained in the said order. 6. We note that first notice issued u/s 10(1) of BMA dated 07.01.2019 is similar to the second notice issued u/s 10(1) dated 16.02.2021 (Pg 1 & 35 of the Paper book). We further observe that both the aforesaid notices in substance are similar. Further even if we consider section 7(1) of BMA which speaks of “the tax authority who succeeds another authority as a result of change in jurisdiction or for any other reason, shall continue the proceedings from the stage at which it was left any other reason. Therefore, as per mandate of the Act, the tax authority DDIT/ADIT, Salem as a result of change in jurisdiction, if any, ought to have continued the proceedings u/s 10(1) of the BMA initiated by his predecessor from Chennai vide notice dated 07.01.2019 and the assessment order should have been passed on or before 31.03.2021. Furthermore, if we consider the Order passed the Hon’ble Supreme Court in Suo Motu Writ Petition (C) No.3 of 2020 extending limitation due to Covid-19 pandemic, then also the limitation to pass assessment order was till 28.05.2022 (i.e; 9 BMA No. 3/Chny/2024 01.03.2022 + 90 days). However, in this case, the assessment order was passed on 25.03.2023. 7. In the case of K.M.Sharma vs. Income Tax Officer [(2002) 254 ITR 772 (SC)], the Hon'ble Supreme Court held as follows: “ 13. Fiscal statute more particularly on a provision such as the present one regulating period of limitation must receive strict construction. Law of limitation is intended to give certainty and finality to legal proceedings and to avoid exposure to risk of litigation to litigant for indefinite period on future unforeseen events. Proceedings, which have attained finality under existing law due to bar of limitation cannot be held to be open for revival unless the amended provision is clearly given retrospective operation so as to allow upsetting of proceedings, which had already been concluded and attained finality. The amendment to sub-section (1) of Section 150 is not expressed to be retrospective and, therefore, has to be held as only prospective. The amendment made to sub-section (1) of Section 150 which intends to lift embargo of period of limitation under Section 149 to enable Authorities to reopen assessments not only on the basis of Orders passed in proceedings under the IT Act but also on Order of a Court in any proceedings under any law has to be applied prospectively on or after 1.4.1989 when the said amendment was introduced to sub- section (1). The provision in sub-section (1) therefore can have only prospective operation to assessments, which have not become final due to expiry of period of limitation prescribed for assessment under section 149 of the Act.” 10 BMA No. 3/Chny/2024 8. In the case of Hope Textiles Ltd. vs. Union of India [(1994) 205 ITR 508(SC)], the following observations are made by the Apex Court: “......The writ petition was dismissed observing that no mandamus can be issued compelling the Income-tax Officer to make an order of assessment beyond the period of limitation prescribed by Section 153(2). In this appeal, it is urged by Sri Sen, learned Counsel for the appellant, that by virtue of Clause (ii) of Sub-section (3) of Section 153, the High Court could have directed the Income-tax Officer to pass an order of reassessment pursuant to the aforesaid notice, notwithstanding the expiry of the period prescribed in Sub-section (2) of Section 153. We are not prepared to agree. A writ of mandamus can be issued to a statutory authority to compel it to perform its statutory obligation. It cannot issue to compel him to pass an order in violation of a statutory provision. The Income-tax Officer had no power to make a reassessment beyond the period prescribed by Sub-section (2), unless the case fell under any of the other sub-sections under Section 153 or other provision extending the said period of limitation.” 9. Hence, in the light of above factual matrix, we are of the considered view that the assessment order dated 25.03.2023 is hopelessly time barred hence, we set aside the assessment order passed u/s 11(1) dated 25.03.2023. 10. In result, the appeal filed by the assessee is allowed. Order pronounced in the open court on 30th April, 2025 Sd/- Sd/- (एस . आर . रघुनाथा) ( मनु क ुमार िग\u001bर ) ( S.R.Raghunatha ) ( Manu Kumar Giri) लेखा लेखा लेखा लेखा सद\u0003य सद\u0003य सद\u0003य सद\u0003य / Accountant Member \u000fाियक सद / Judicial Member चे\u0019ई/Chennai, \u001bदनांक/Date:30.04.2025 DS 11 BMA No. 3/Chny/2024 आदेश क\u0007 \bितिलिप अ\u000eेिषत/Copy to: 1.Appellant 2.Respondent 3. आयकर आयु\u0013/CIT Chennai/Madurai/Coimbatore/Salem 4. िवभागीय \bितिनिध/DR 5. गाड फाईल/GF. "