4 days ago
Notice Error Helps Gurugram Man Defeat Black Money Penalty
A man from Gurugram invested money earned from his Singapore job in a fund connected to Bermuda.
He later received about $314,000 when he sold the investment.
Indian tax officials treated the investment as unexplained black money.
They imposed tax and a penalty totaling a large amount.
The man argued that the money came from his salary and also referred to the India-Singapore tax treaty.
However, the tribunal’s decision focused on a different issue.
The tax department’s notice named two assessment years but did not name the year for which the assessment was eventually made.
The tribunal decided that this was not just a small paperwork mistake.
It cancelled both the tax assessment and the penalty because the proper notice was missing.
A Gurugram resident working in Singapore invested about $300,000 in a Bermuda-focused fund in May 2015.
He redeemed the investment in March 2016 for $314,608.15 and said the money came entirely from his Singapore salary.
The Income Tax Department treated the investment’s fair market value of over ₹2 crore as unexplained income.
Officials imposed tax at 30% and a penalty of ₹1.84 crore under the Black Money Act for AY 2019-20.
ITAT Delhi quashed the assessment and penalty because the required notice did not mention AY 2019-20.
- Who
- A Gurugram resident identified as Bhowmick, who works in Singapore, and the Income Tax Department.
- What
- The Income Tax Appellate Tribunal, Delhi, cancelled a Black Money Act assessment and a ₹1.84 crore penalty.
- Where
- The investment involved a Bermuda-focused fund; the taxpayer lived in Gurugram and the appeal was heard by ITAT Delhi.
- When
- The investment was made on May 19, 2015, redeemed on March 16, 2016, and the ITAT judgment was delivered on August 11, 2026.
- Why
- The tribunal found that no valid Section 10(1) notice had been produced for AY 2019-20, the year actually assessed.
Taxpayer’s position
Income Tax Department’s position
Validity of the notice
Taxpayer’s position
The taxpayer argued that the November 1, 2018, Section 10(1) notice mentioned only AY 2016-17 and AY 2017-18, not AY 2019-20. Therefore, the assessing officer lacked jurisdiction for AY 2019-20.
Income Tax Department’s position
The department argued that the incorrect assessment-year reference was a procedural error protected by Section 81 of the Black Money Act.
Effect of later participation
Taxpayer’s position
The taxpayer’s representatives argued that later participation in proceedings could not replace the required jurisdictional notice for the relevant assessment year.
Income Tax Department’s position
The department said the notice was issued to the correct taxpayer and concerned the same foreign asset, and that he knew which investment was being examined.
Tax treaty and source of funds
Taxpayer’s position
Bhowmick maintained that the investment was funded by Singapore salary and relied on the revised India-Singapore Double Tax Avoidance Treaty.
Income Tax Department’s position
The tax officer rejected the treaty argument, stating that the fund company was registered as an Indian public limited company and that Bhowmick was not a Singapore resident for FY 2015-16.
Key facts
- Initial investment
- About $300,000, invested on May 19, 2015
- Redemption proceeds
- $314,608.15 received on March 16, 2016
- Source of funds claimed
- The taxpayer said the investment came entirely from his Singapore salary.
- Tax assessment
- The fair market value was stated to be over ₹2 crore and was taxed at 30%.
- Penalty
- ₹1.84 crore was imposed under the Black Money Act.
- Relevant assessment year
- AY 2019-20
- Tribunal outcome
- ITAT Delhi quashed the proceedings, assessment order, and consequential penalty order.
Quotes
An unnamed expert quoted by Economic Times Wealth
Tax expert explaining the tribunal’s ruling to Economic Times Wealth
“The case accordingly reinforces the distinction between a curable defect in a valid notice and the absence of a valid jurisdictional notice itself. In the latter situation, the foundation of the assessment fails and the consequential assessment and penalty proceedings cannot be sustained.”
livemint.com
“Section 81 can protect proceedings from certain mistakes, defects or omissions where the notice or proceeding is otherwise in substance and effect consistent with the law.”
livemint.com
Sources
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