2025 (5) TMI 868 - AT - Income Tax

Assessment u/s 10(3) of the Black Money - period of limitation - as argued 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 - HELD THAT - As first notice issued u/s 10(1) of BMA is similar to the second notice issued u/s 10(1) dated 16.02.2021. 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 2022 (1) TMI 385 - SC ORDER extending limitation due to Covid-19 pandemic then also the limitation to pass assessment order was till 28.05.2022 (i.e; 01.03.2022 90 days). However in this case the assessment order was passed on 25.03.2023. 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.

Summary

The core legal questions considered in this appeal pertain to the validity and jurisdiction of the assessment order passed under section 10(3) of the Black Money (Undisclosed Foreign Income & Assets) and Imposition of Tax Act, 2015 (hereinafter "the BMA") for the assessment year 2016-17. Specifically, the issues are:

1. Whether the assessment order dated 25.03.2023 passed under section 10(3) of the BMA is barred by limitation as per section 11(1) of the BMA, considering the first notice under section 10(1) was issued on 07.01.2019 and the second notice on 16.02.2021.

2. Whether the subsequent proceedings initiated by the tax authority after a change in jurisdiction complied with section 7(1) of the BMA, which mandates continuation of proceedings from the stage left by the predecessor authority.

3. Whether the appellant's alleged foreign income and assets, specifically shares allotted under the employee stock option scheme (ESOP) of Vedanta Ltd. and dividends received, fall within the ambit of undisclosed foreign income and assets under the BMA.

4. Whether the appellant was entitled to foreign tax credit for the dividend income declared and taxed in India.

Issue 1: Limitation under Section 11(1) of the BMA

The relevant legal framework is section 11 of the BMA, which prescribes a two-year limitation period from the end of the financial year in which the notice under section 10(1) is issued for passing assessment or reassessment orders. Explanation clauses provide for exclusion of certain periods and extension of limitation in specific circumstances.

The appellant received the first notice under section 10(1) on 07.01.2019 (financial year 2018-19). Therefore, the limitation period for passing the assessment order expired on 31.03.2021. The appellant contended that no order was passed within this period. Subsequently, a fresh notice under section 10(1) was issued on 16.02.2021 by the successor authority, shortly before the expiry of the limitation period, and the assessment order was passed on 25.03.2023, well beyond the limitation period.

The Court noted that the two notices dated 07.01.2019 and 16.02.2021 are similar in substance. The Court also considered the extension of limitation due to the Covid-19 pandemic as per the Supreme Court's suo motu writ petition, which extended the limitation to 28.05.2022. Despite this, the assessment order was passed on 25.03.2023, beyond even the extended limitation.

Precedents cited include the Supreme Court's decision in K.M. Sharma v. Income Tax Officer, which emphasized strict construction of fiscal statutes regulating limitation and held that limitation provisions must be complied with strictly to ensure finality and certainty. Similarly, in Hope Textiles Ltd. v. Union of India, the Supreme Court held that statutory authorities cannot be compelled to pass orders beyond the prescribed limitation period, and any such order would be without jurisdiction.

Applying these principles, the Court held that the assessment order dated 25.03.2023 was hopelessly time barred and therefore without jurisdiction.

Issue 2: Continuation of Proceedings after Change in Jurisdiction under Section 7(1) of the BMA

Section 7(1) of the BMA mandates that when a tax authority succeeds another due to change in jurisdiction or other reasons, it must continue the proceedings from the stage left by the predecessor authority.

The appellant argued that since the first notice was issued by the authority in Chennai on 07.01.2019, the successor authority in Salem was obliged to continue the proceedings and complete the assessment within the limitation period expiring on 31.03.2021. Instead, a fresh notice was issued on 16.02.2021, which was an attempt to circumvent the limitation.

The Court concurred with this view, observing that the successor authority ought to have continued the proceedings from the stage left by the predecessor. The issuance of a fresh notice was thus not in compliance with section 7(1) and did not extend the limitation period.

Issue 3: Nature of the Foreign Income and Assets and Applicability of the BMA

The appellant was an employee of Vedanta Ltd., an Indian company, and received shares under an ESOP in Vedanta Resources PLC, a foreign company. These shares were compulsorily sold back to the employer at a capital loss. Dividend income was received in India in Indian Rupees and was disclosed in Form 12BA issued by the employer.

The appellant contended that he did not have any foreign bank account or hold assets abroad independently, and that the shares were allotted as a perquisite to salary income and were disclosed. The dividends credited to his Indian bank account were already subject to income tax in India.

The Court noted that the appellant had submitted documentary evidence, including a letter from Sanne Fiduciary Services Ltd. denying the existence of a bank account in the appellant's name, and details of the ESOP transactions. The appellant's explanation that the shares and dividends were part of employment remuneration and voluntarily disclosed was accepted as credible.

Given the nature of the transactions, the Court found that the shares and dividends did not fall within the definition of undisclosed foreign income and assets under section 2(12) of the BMA. The Court acknowledged the appellant's submission that the Black Money Act was not intended to penalize employees receiving ESOPs from Indian companies with foreign subsidiaries.

Issue 4: Foreign Tax Credit for Dividend Income

The appellant claimed foreign tax credit at 10% for the dividend income received. Although Form 67 was filed belatedly, the appellant relied on judicial precedents from the Madras High Court and the ITAT Chennai Bench, which allowed such credit despite delay.

The Tribunal noted that the appellant was entitled to foreign tax credit, and the failure to grant the same was erroneous. However, since the assessment order was set aside on limitation grounds, the issue of credit was not adjudicated in detail but was recognized as valid.

Conclusions and Significant Holdings

The Tribunal held that the assessment order dated 25.03.2023 was barred by limitation under section 11(1) of the BMA, as the notice under section 10(1) was originally issued on 07.01.2019 and the order was not passed within the prescribed two-year period, nor within the extended period due to the Covid-19 pandemic. The issuance of a fresh notice on 16.02.2021 by the successor authority was held to be an impermissible attempt to circumvent limitation, violating section 7(1) of the BMA.

The Tribunal emphasized the principle from K.M. Sharma that fiscal statutes regulating limitation must receive strict construction to ensure finality and certainty, and that orders passed beyond limitation are without jurisdiction.

Regarding the merits, the Tribunal accepted that the appellant's ESOP shares and dividends were disclosed and did not constitute undisclosed foreign income or assets within the meaning of the BMA. The dividends were credited in Indian Rupees to an Indian bank account and were subject to Indian income tax.

The Tribunal also acknowledged the appellant's entitlement to foreign tax credit for the dividend income, consistent with judicial precedents allowing credit despite delayed filing of Form 67.

Accordingly, the Tribunal set aside the assessment order dated 25.03.2023 as barred by limitation and allowed the appeal.