Karnataka High Court Quashes Black Money Act Assessment Against Moroccan Woman For Wrong Assessment Year

The Karnataka High Court has quashed an assessment order against a Moroccan woman under the Black Money Act after holding that the Income Tax Department had assessed her foreign assets in the wrong assessment year.

The Court held that since she had acquired the assets before the Black Money Act came into force and had not made a declaration under Section 59, Section 72(c) deemed the assets to have been acquired in the year in which the first notice under Section 10 was issued.

As that notice was issued on December 4, 2018, the relevant assessment year was AY 2019-20, and not AY 2018-19

Justice S.R. Krishna Kumar was hearing a petition filed by the woman challenging an assessment order dated March 31, 2021, passed under the Black Money Act for Assessment Year 2018-19.

The petitioner had acquired two immovable properties in Morocco through registered sale deeds dated August 26, 2015 and February 28, 2016, before the Black Money Act came into force on April 1, 2016.

Following a search conducted at her matrimonial residence in January 2017, the Income Tax Department issued her a notice under Section 8 of the Black Money Act in April 2017.

She subsequently received several notices under Section 10, the first of which was issued on December 4, 2018. The Department thereafter passed the assessment order dated March 31, 2021, for AY 2018-19 and also initiated penalty proceedings.

The petitioner contended that since the foreign assets had been acquired before the Black Money Act came into force and no declaration had been made under Section 59, Section 72(c) of the Act applied. She argued that the provision deems such an asset to have been acquired in the year in which the Section 10 notice is issued.

Since the first Section 10 notice was issued on December 4, 2018, she argued that the assets were deemed to have been acquired during FY 2018-19 and could consequently be assessed only in AY 2019-20, and not AY 2018-19.

The Revenue fairly conceded that the assets had been acquired before April 1, 2016 and that no declaration had been made under Section 59.

The Court noted that Section 72(c) creates a statutory deeming fiction in respect of assets acquired before commencement of the Black Money Act where no declaration has been made. It held that the assets would be deemed to have been acquired in the year in which the notice under Section 10 was issued.

"...Consequently, the year in which the notice under Section 10 is issued, being the year in which the asset is deemed to have been acquired by virtue of Section 72(c), necessarily assumes the character of the previous year, and the corresponding assessment can only be undertaken in the assessment year immediately succeeding such previous year", the Court said.

Accordingly, as the first Section 10 notice was issued on December 4, 2018, the assets were deemed to have been acquired during FY 2018-19, corresponding to AY 2019-20.

The Court observed that an assessment year follows the previous year in which the income or asset is required to be assessed. Therefore, the Department could not have initiated proceedings against the petitioner in respect of the assets for AY 2018-19.

"...the first notice issued by the Assessing Officer to the petitioner under Section 10 of the said Act of 2015 was on 04.12.2018. Consequently, by operation of the statutory fiction engrafted in Section 72(c), the subject assets are deemed to have been acquired during the Financial Year/Previous Year (FY/PY) 2018-19, corresponding to Assessment Year (AY) 2019 20.", the Court said.

Holding the proceedings to be contrary to the statutory scheme and without jurisdiction, the Court quashed the assessment order dated March 31, 2021 along with all further proceedings arising from it.

For Petitioner: Senior Counsel, Prabhuling K. Navadgi appeared A. Mahesh Choudhary and Krishika G. Vaishnav, Advocates 

For Revenue: Ravi Raj Y.V., Advocate