The Black Money Act assessment values my client's Geneva account at the total of every deposit since 2003 rather than the balance - how is the year of charge fixed, what does the valuation rule actually say, and what follows the order?
The client is an individual resident in India, aged 71, in Mumbai, retired since 2016. He worked in Dubai from 1997 to 2009, non-resident throughout. An account with a bank in Geneva was opened on 9 June 2003 in the name of a Panama company whose single share he holds and whose recorded beneficial owner he is. Deposits into it between 2003 and 2009 total USD 8,42,000, all from his Dubai salary and the sale of a flat there. Nothing was deposited after 2009; the balance on 31 March 2022 was USD 1,18,000. He made no declaration under s.59 of the Black Money Act; the department's information came from a foreign tax authority under an exchange-of-information request, which on its own case shut him out of that window. Schedule FA was blank for AY 2016-17 to AY 2021-22. A notice under s.10(1) was served on 18 August 2021. A reference to the foreign tax authority was made on 26 November 2021 and the reply came on 7 September 2022, but the order excludes 581 days from an earlier reference of 3 February 2021, before the notice. The order under s.10(3) is dated 26 November 2024. It values the account under Rule 3(1)(e) at all deposits since it was opened - Rs 6,27,29,000 at Rs 74.50 to the dollar - and charges tax at 30 per cent, Rs 1,88,18,700. A s.41 penalty of three times that tax, Rs 5,64,56,100, has been initiated, with six penalties of Rs 10,00,000 under s.43.
Fix the year before anything else, and fix it from the s.10(1) notice. This is a separate Act and its charge is not the Income-tax Act's: the charge under s.3 falls in the previous year in which the asset comes to the notice of the Assessing Officer, and s.72(c) deems an asset acquired before the Act commenced, where no declaration was made under s.59, to have been acquired in the year in which the s.10 notice is issued. The notice of 18 August 2021 therefore fixes FY 2021-22 and AY 2022-23. Limitation, valuation and which Schedule FA years matter all follow from that single date.
Section 3 charges the undisclosed foreign income and asset of the previous year, and its proviso charges an undisclosed asset located outside India on its value in the previous year in which the asset comes to the notice of the Assessing Officer. Where the asset was acquired before the Act commenced and no declaration was made under s.59, s.72(c) deems it acquired in the year in which the s.10 notice is issued. One Bench has held this decisive: the assessment can only be for the assessment year following the year of the notice, so several notices spread across two years do not give the officer a choice of year. Another Bench held that the first previous year under the Act is FY 2015-16 and the earliest assessment year it can reach is AY 2016-17, and quashed assessments framed for AY 2014-15 and AY 2015-16 as without jurisdiction. A third held that once a substantive addition is made in the year the asset came to notice, protective additions of the same asset in earlier years are entirely contrary to s.3.
The assessment under s.10(3) is the second step, not the first. It can only follow a notice under s.10(1) by which the officer, on reason to believe, calls on the person to produce accounts, documents or evidence on a date specified. One Bench has held that a notice omitting the relevant financial year, coupled with delay in initiating the proceedings, goes to the root of jurisdiction, and that s.81 of this Act, being in pari materia with s.292B of the Income-tax Act, protects only clerical or technical mistakes. Another held that where the Revenue could not produce any notice under s.10(1) for the year assessed, the absence of a valid notice for that year is not a curable defect under s.81, and struck down both the assessment and the penalty order that followed it. Ask in writing for the notice, the acknowledgement of service and the recorded reason to believe before a ground is drafted.
Section 11(1) gives two years from the end of the financial year in which the s.10(1) notice was issued, so the notice of 18 August 2021 puts the outer date at 31 March 2024. Explanation 1 excludes the period from the making of a reference to a foreign tax authority to the receipt of the information, or one year, whichever is less. That cap alone disposes of the officer's 581 days: the exclusion is 365 days and the outer date 31 March 2025. The longer route reaches the same place - one Bench has held the excluded period cannot begin before the s.10(1) notice was served, because exclusion presupposes the period was inside the limitation to begin with, which leaves 26 November 2021 to 7 September 2022 - 285 days, outer date 10 January 2025. The order of 26 November 2024 is inside either. Another Bench has held that the covid relaxation law and the notification of 17 September 2021 under it did not extend this Act's limitation at all, and quashed an assessment passed outside the two years.
Section 2(11) defines an undisclosed asset located outside India as an asset held by the assessee in his own name or in respect of which he is a beneficial owner, and for which he has no explanation of the source of investment or an unsatisfactory one. The Delhi Bench has held that beneficial ownership requires that the person provided the consideration and is the ultimate beneficiary, and upheld deletion of an addition of Rs 5,66,47,000 where the account stood in the name of a British Virgin Islands company whose sole director and shareholder was the assessee's son and the money had come from a trust. The Kolkata Bench has held that copies of bank records which no bank has certified, with portions blacked out beyond legibility, do not by themselves prove anything, and deleted additions of about Rs 2.52 crore built on four Geneva accounts. Ask for the certified records, the exchange-of-information request and the foreign authority's reply, and put any refusal on the appeal record.
The value here is not the balance. Rule 3(1)(e) of the Black Money Rules values an account with a bank at the sum of all the deposits made in the account since the date of opening, which is how USD 8,42,000 of deposits produces a charge of Rs 6,27,29,000 on an account holding USD 1,18,000, and why the tax of Rs 1,88,18,700 is more than four times the money in the account. The rules are clause-specific and the wrong clause is a ground of appeal: one Bench held that Rule 3(1)(e) determines the value of a bank account and cannot be applied to shares, which fall under Rule 3(1)(c); another upheld deletion of an addition of Rs 65,240 on 1,000 shares of a British Virgin Islands company because the assessee had paid nothing and the company's assets and liabilities produced no value under Rule 3(1)(c). Check what asset the order says it is valuing - the account, or the shares of the Panama company - because on the order as framed it cannot be both.
Every deposit was made between 2003 and 2009 out of salary earned in Dubai and the sale of a flat there, in years in which the client was non-resident and the income was not chargeable in India. One Bench has held, on a foreign life policy, that where the premiums were paid out of income not chargeable to tax in India and out of income that had already suffered tax, the maturity proceeds could not be charged under this Act, reading a Board circular of 2015 with the exemption provision of the Income-tax Act and holding that provision draws no distinction between an Indian and a foreign insurer. Against that, the Delhi Bench has held that the argument that acquisition while non-resident puts an asset outside the Act did not succeed: the assessee being resident from AY 2016-17 was required to declare the foreign asset and explain its source. Lead with the documents - the employment contract, the salary credits, the sale deed and the remittance advices - because on either view the argument without them fails.
They do not travel together. The s.41 penalty is three times the tax computed under s.10 and is arithmetic tied to the assessment: where the addition is deleted on a legal ground the penalty becomes infructuous and is directed to be deleted, and where the addition is only reduced the Tribunal sends the penalty back to be recomputed. The s.43 penalty of Rs 10,00,000 a year is a separate levy needing its own foundation and does not fall with the quantum; one Bench quashed it outright where the officer had not laid that foundation, and another deleted it where the same foreign assets had been shown in Schedule FA for the years before and after and the source had been accepted, reasoning from s.46 that if the penalty were bound to follow the default the show-cause would have no purpose. Prosecution is a third track: one High Court quashed complaints where the foreign company had been struck off and the account closed in 2010, holding the s.72(c) fiction cannot be stretched to found criminal liability for conduct before the Act.
Interest is where this Act's machinery is visibly incomplete. One Bench has held that interest under s.40(2) is unworkable, because the advance-tax machinery on which ss.234B and 234C of the Income-tax Act operate is absent from this Act, so there is no liability to pay advance tax on which the interest can bite, and that interest under s.40(1) did not arise on those facts. Take that in the appeal, on quantum. Then price the appeal: a High Court has recorded that Rule 6(4) requires the tax, with penalty and interest, on so much of the liability as is not objected to, to be paid before an appeal under s.15(1) is admitted. The same Court converted a look-out circular into an intimation of arrival and departure on conditions including security over property. A High Court has also issued Rule on 2 July 2026 on a petition challenging provisions of the Act, stayed an assessment under s.10(3) and the demand, and restrained coercive steps; an earlier High Court refused a stay of s.10(1) notices but directed that no coercive measures be taken.
The jurisdictional grounds are where these are actually won, and they are won more often than the merits: a notice that does not name the year, an assessment passed beyond the two years, no notice traceable for the year assessed. Where the notice is clean and the account is plainly the client's, the assessment usually stands, because the source of deposits made fifteen or twenty years ago is rarely provable to a Bench's satisfaction. Partial relief on valuation is the commonest real outcome - credits that were not deposits, transfers between the client's own accounts counted twice, the wrong conversion rate. The s.41 penalty follows the quantum. The s.43 penalties survive most of the time. Prosecution is launched in a minority of these files and moves slowly.
