Routing Of Funds Through Tax Havens Not Disclosed During Original Proceedings: Bombay HC Confirms Reassessment

Finding that the Petitioner had failed to disclose all material facts necessary for assessment of tax, the Bombay High Court ruled that the circuitous movement of funds through various companies located in tax havens had not been disclosed in the course of the original proceedings.The High Court therefore confirmed the reopening proceedings initiated against the petitioner.A division bench of Justice Jitendra Jain and Justice M.S Sonak observed that “if based on subsequent information, there is a prima-facie material suggesting that the transaction of loan is nothing but the undisclosed funds of the Petitioner routed through various tax havens companies in the form of loan then the disclosure made in the course of the original assessment proceedings cannot be treated as full and true material disclosure for the purpose of the assessment”. (Para 25) The Bench found from the reasons of reopening that it was initiated after conclusion of the assessment proceedings wherein the revenue has the information about unexplained money of the petitioner being routed through various companies located in tax haven countries.This information was not available at the time of the assessment proceedings and, therefore, was not examined during the original assessment proceedings, added the Bench. The Division Bench also noted that in the original assessment proceedings, what was perhaps examined was only receipt of money from Flirasca Holding Company Limited and not the routing of the said money through various layered companies which, according to the information received, is the unexplained money of the Petitioner.Facts of the case: The Petitioner/ assessee is engaged in the business of real estate development in and around the Mumbai Metropolitan Region. While filing his return, the assessee has shown unsecured loans. During assessment, the AO called for its details and the assessee submitted the copy of Foreign Inward Remittance Certificate (FIRC) issued by the HDFC Bank and confirmation letter from the RBI. The AO accepted the documents and passed the assessment. Later, after almost five years, the AO issued reopening notice u/s 148 believing that income has escaped assessment. Briefly, the reason states that the unsecured loan amounting to Rs. 4,03,45,97,439/- received by the Petitioner is unexplained money of the Petitioner which has been routed through layering via various offshore entities located in tax haven countries, and these entities have an intimate connection with the Petitioner and its directors. Although the petitioner objected to the reopening, the AO rejected the same. Hence, present petition before this court. Observations of the High Court: The High Court admitted that in the reasons recorded, there is no statement alleging failure on the part of the Petitioner to disclose fully and truly all material facts necessary for the assessment.However, merely because this statement is not there in the reasons recorded, it does not mean that this condition is not satisfied if on a perusal of the reasons recorded it can be culled out that there is a failure on the part of the Petitioner to disclose fully and truly all material facts necessary for the assessment, added the Court. The Bench on a perusal of the reasons recorded, found that the failure on the part of the Petitioner to disclose fully and truly all material facts necessary for the assessment can be culled out even in the absence of any statement to that effect in the reasons recorded.In the reasons recorded it is stated that “information is received through FT & TR that the loan received from Flirasca Holding Private Limited is located in Cyprus and Mauritius, tax havens countries and on an analysis of the bank statement of these entities it is observed that funds have been transferred through circuitous route to the Petitioner-Company by way of loan”, added the Bench. The Bench also noted that the money is received by the Petitioner through the layering of various offshore entities, and based on the intelligence available, these tax haven entities have an intimate connection with the Petitioner and its Director, and undisclosed funds have been routed by the Petitioner itself through layering via various offshore entities in tax haven countries. Finally, the High Court dismissed the petition and sustained the reopening proceedings. Case Title: Macrotech Developers Limited vs Dy Commissioner of Income TaxCase Number: Writ Petition No. 2545 of 2016Counsel for Petitioner/ Assessee: Senior Advocate Prakash ShahCounsel for Respondent/ Revenue: Suresh Kumar Click here to read/ download the Judgment

Routing Of Funds Through Tax Havens Not Disclosed During Original Proceedings: Bombay HC Confirms Reassessment

Pankaj Bajpai

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