Black Money - First case sails through ITAT - In Favour of Government
OUR CobWeb commented on October 30 2014 - The Germans had shared information about 12 Trusts having bank accounts in LGT Bank in Liechtenstein. There were 26 names of individuals. Nothing incriminating was found against eight of them. The investigation was completed and assessment orders were passed in 18 cases and prosecution was launched against 17 as one account holder had expired. In other words, some recovery of taxes was made in these cases.
A day after we commented thus, the Mumbai Bench of the ITAT delivered a landmark judgement pertaining to three of the 18 cases mentioned above.
All the three cases are identical and the assessees are related. The typical case of one of them is like this:
The assessee filed return of income u/s 139(1) of the Act on 1st August 2002 showing total income of Rs.1,97,650/-. Subsequently, information was received that the assessee is a beneficiary of Ambrunova Trust, having an account in Liechtenstein Bank. The information contained summary of bank statement as on 31/12/2001 of the Trust in which there was a balance of USD 24,06,604.90/-. The assessee did not disclose this information in the original return and so notice u/s 148 of the Income Tax Act was issued on 26/03/2009. The assessee requested the revenue to treat the return already filed as having being filed in response to the notice issued and served u/s 148 of the Act. The assessee was also supplied with a copy of reasons recorded for reopening of assessment including English translation of the documents. The assessee denied of any knowledge of Trust by further claiming that he has not received any money.
The AO found that the address/nationality, country of domicile was the same as of the assessee as mentioned in India in the return. However, the assessee did not provide any document in support of his statement that he is not connected with this Trust. The AO added Rs.2,34,64,398 being 25% of his share out of Rs.11,73,31,988/-(i.e. USD 24,06,604.90/- converted at 48.75). The assessment was reopened by the AO on the information received from LGT Bank regarding Ambrunova Trust in which the name of the assessee was appearing as a beneficiary. Before the AO, it was contended by the assessee that the documents so received by the Department regarding the Trust (LGT Bank) are unauthenticated and unverified and thus reopening is incorrect.
The ITAT noted that the said documents were received officially by the Government pursuant to an investigation made by permanent subcommittee on investigation of United States Senate. The distribution to the beneficiaries as well as profits earned are not subject to any further tax and, further, the supreme authority is vested in the settler and is transferable. It can be concluded that the Liechtenstein jurisdiction qualifies as an off shore financial centre due to a very modest tax regime, high standard of secrecy laws and further foreign investors had the opportunity to establish companies or trust with "HOST trust reg." in the principality of Liechtenstein to enjoy the advantages of off-shore financial centre. As per the report Indian Investigating Agencies came across a number of cases where individual or entities from India were detected using banking channels of Liechtenstein to hide their illegal income or stash funds and it was only possible when India became signatory to a world-wide convention formulated by OECD an international policy advisory body which formulated global tax standards to fight tax evasion and concealment of illicit funds. It also provided option to undertake automatic exchange of information. It is a common knowledge that discretionary trusts are created for the benefit of particular persons and those persons need not necessarily control the affairs of the trust. Still the fact remains that they are the sole beneficiaries of the trust. Thus totality of facts clearly indicate that the deposit made in the bank account of the trust represents unaccounted income of the assessee, as the same was not disclosed by the these assessees in their respective returns in India.
Consequently, Tribunal held that the addition was rightly made by the Assessing Officer and confirmed by the CIT(A) - in respect of all the three assessees.
This judgement is a big boost to the Revenue and will put off at least temporarily sceptics who believe that black money stashed abroad is gone for good. This is only a small drop in the huge ocean of Black Money though.
Of course this by no means is the end of the story - the parties must be getting ready to appeal to the High Court.