Taxpayer failed to disclose UAE bank account and foreign shares in ITR: ITAT Delhi upholds ₹1.86 lakh penalty

The Delhi bench of the Income Tax Appellate Tribunal (ITAT) has upheld a ₹1.86 lakh penalty under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, against taxpayer Ashok Shankar for failing to disclose a foreign bank account and interest in a UAE company in his income tax returns.

The case originated from a search conducted by the Income Tax Department on 27 April 2016 in connection with the Sanjay Bhandari group.

The department subsequently received information from UAE authorities under the exchange-of-information provisions of the India-UAE tax treaty. The information, received by the Assessing Officer on 25 April 2019, showed that Shankar had a bank account with Emirates NBD in Dubai.

What the tax department found in the Dubai account

According to the information supplied by the UAE authorities, the account was opened on 18 January 2010, with Shankar listed as the authorised signatory. The account had cash deposits of AED 5,025.

The UAE information also showed that Shankar was a director and shareholder of Santech International FZE, a UAE-based company incorporated in February 2006. His paid-up share capital in the company was shown at AED 3,000.

The tax department found that Shankar had not disclosed the foreign bank account or his interest in the UAE company in the foreign-asset details of his Indian income tax returns.

The department consequently issued a notice under the Black Money Act on 30 July 2019 for AY 2020-21.

Why Shankar's explanation failed

Shankar told the tax authorities that he had forgotten about the Dubai bank account. He also said the account had been closed on 6 April 2017.

On the AED 5,000 deposit, he claimed the money had been deposited by a friend for starting a business in Dubai. The business, however, never materialised and the money remained with the bank.

The tribunal was not convinced.

It noted that Shankar did not provide sufficient documentary evidence to establish the identity of the friend, the circumstances in which the money was transferred or the purpose and terms of the alleged transaction.

The taxpayer also disputed having invested in Santech International FZE. However, the foreign information and corporate documents showed his association with the company, including his position as a director and his shareholding.

Why AY 2020-21 was considered relevant

One of Shankar's arguments was that the department's search had taken place in 2016 and that the foreign assets should therefore have been considered in an earlier assessment year.

The tribunal rejected this argument.

Under the Black Money Act, an undisclosed foreign asset is chargeable to tax in the year in which it comes to the notice of the Assessing Officer. In this case, the relevant information from the UAE authorities reached the AO on 25 April 2019, and the notice under Section 10 was issued on 30 July 2019.

The tribunal therefore held that FY 2019-20, corresponding to AY 2020-21, was the relevant year for the proceedings.

The fact that the Emirates NBD account had subsequently been closed in April 2017 did not, by itself, prevent the foreign asset from being brought within the Black Money Act proceedings.

The tribunal also dismissed Shankar's separate appeal against the ₹1,86,810 penalty under Section 41 of the Black Money Act.

The taxpayer had challenged the penalty and raised a legal question over whether the word "may" in Section 41 made the levy discretionary.

The ITAT, however, upheld the penalty in the facts of the case.