Computer cell calls holders of foreign bank accounts; notices, summons issued in the last 10 days to persons marked
Several people – including those subject to investigation, reassessment and taxation – have been asked by the Foreign Assets Investigation Unit (FAIU) to share bank account details offshore since 2001, residency status over the past two decades, passport copies and names of overseas service providers. Foreign service providers are professional groups that set up tax havens and trusts to hold the funds.
FAIU is a newly formed wing within the Income Tax (IT) Department. The notices and summonses were issued over the past 10 days by FAIU cells at the Air India and Scindia House offices of the IT department in Mumbai, three people told ET.
The addressee of notices, issued under section 131(1A) of the Income Tax Act 1961, must spell the name of the ‘introducer’ or ‘guarantor’, as appropriate, of the Bank accounts.
They must also indicate whether these accounts have been disclosed in tax declarations, whether taxes have been paid on the funds credited to the accounts, provide bank statements since the date of opening and closing of accounts and transactions carried out, as well as as supporting and supporting documents.
“Regarding the long period for which the data is sought, if the facts allow it, it is possible that it can be argued that these old records are not kept. Even under the computer law, notices of reopenings can now only be issued for 10 years back,” said Ashish Mehta, a partner at law firm Khaitan & Co.
Before April 2021, the reopening period for offshore assets was 16 years; it was reduced to 10 years as part of the 2021 finance law.
“Data collected under the law can be used to invoke the black money law,” Mehta said. “While much depends on the particular facts in each case, some would argue that those under investigation have already been imposed in proceedings under the Computers Act , in which case the same assets or income cannot be reassessed under the black money law.”
“Various retrospective aspects of the black money law are being challenged in various courts, and until these cases are decided, taxpayers should exercise caution in such proceedings,” Mehta said.
Black Money Law
The Black Money (Undisclosed Foreign Income and Assets) and Taxation Act, or BMA, which was introduced to tax undisclosed foreign income and assets, came into force on April 1, 2016 .
“Many cases may have been assessed, reassessed, investigated and even settled by tax tribunals, courts or the Settlement Commission,” said Mitil Chokshi, Senior Partner, Chokshi & Chokshi. “The question is whether the assessee can question whether these result in a retrospective assessment today. Secondly, assessments initiated under the BMA now fall under the purview of the investigations wing of the department. So , it appears that the department, through the new Investigations Division, is trying to collect information prior to 2011, in order to assess such undisclosed income or accounts under the 2015 BMA.”
Under the BMA, the year in which the information is received (by the tax department) is the year for which the income is deemed to have been earned (by the assessee), thus allowing tax officials collect and use information that may be decades old.
Significantly, while the data sought dates from 2001, the top jurisdictions favored by the wealthy do not go back beyond a point in the sharing of information – April 2011 for Switzerland and 2008 for Singapore. Moreover, since the treaties require that the data be used only for tax purposes, the initial collection of the data is done under the Income Tax Act, even if the LMB can be invoked later.
Individuals who received the notices will be required to disclose whether the individual is a “beneficial owner or beneficiary or settlor or other” for the bank accounts or trusts in question. In addition, they should disclose details of offshore real estate holdings and “financial interests”, which include participation, beneficial ownership of management or other forms of pecuniary interest, directly or indirectly or through an agent in an offshore entity, as well as the address and bank details of the offshore entities.
Most FAIU letters begin with the same ominous line: “Information from credible sources indicates that you have a foreign bank account/asset located outside India.” The recipient must determine if they have to go through the charivari again, or if the tax office is on a fishing expedition, or if they have discovered new information about undisclosed riches that have been safely hidden until now.