Non Disclosure of Funds Routed through Tax Havens: Bombay HC upholds Income Tax Reassessment Proceedings [Read Order]

The Bombay High Court ruled that the petitioner had not given all relevant information required for the tax assessment and that the roundabout transfer of money through different businesses situated in tax havens had not been revealed during the initial proceedings. The court confirmed the reopening proceedings initiated against the petitioner.

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The petitioner/assessee, Macrotech Developers Limited, is a real estate developer operating in and around the Mumbai Metropolitan Area. The assessee disclosed unsecured loans on his return. The AO requested information during the assessment, and the assessee provided a copy of the HDFC Bank's Foreign Inward Remittance Certificate (FIRC) and an RBI confirmation letter.

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The AO passed the evaluation and approved the documents. Nearly five years later, the AO, believing that income had eluded assessment, issued a reopening notice under section 148. In short, the reason explains that the unsecured loan of Rs. 4,03,45,97,439/-that the petitioner received is unexplained funds that were transferred through a number of offshore entities situated in tax haven nations, all of which have close ties to the petitioner and its directors. Despite the petitioner's objections, the AO denied reopening the case.

The High Court on appeal acknowledged that there was no claim in the recorded reasons that the petitioner had not fully and truthfully disclosed all relevant facts required for the evaluation. According to the court, just because this statement is absent from the reasons recorded does not imply that this requirement is not met if it can be determined from a review of the reasons that the petitioner failed to fully and honestly disclose all relevant facts required for the assessment.

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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”.

The Bench concluded from the reasons for reopening that it was started following the conclusion of the assessment proceedings, in which the revenue had knowledge concerning the petitioner's unexplained funds being transferred through a number of businesses situated in tax haven nations.

The Bench found 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.

The court dismissed the petition and upheld the reassessment.

To Read the full text of the Order CLICK HERE

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