The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has quashed Black Money Act Notice issued nearly 1 year late without adhering to CBDT’s 30 day timeline binding.

The bench of Sandeep Gosain (Judicial Member) and Girish Agrawal (Accountant Member) ruled that a notice issued under Section 10(1) of the Black Money Act after an unexplained delay, without recording reasons or obtaining the requisite approval, is legally unsustainable and renders the entire proceedings void. 

The appeal arose from an assessment for Assessment Year (AY) 2022-23, where the Revenue had invoked the provisions of the Black Money Act alleging that the taxpayer had failed to disclose a foreign immovable property situated in Dubai. The Assessing Officer had brought to tax alleged undisclosed foreign assets worth approximately ₹3.67 crore and also made an addition of around ₹54.75 lakh towards deemed rental income. The taxpayer challenged the proceedings primarily on the ground that the notice issued under Section 10(1) of the Black Money Act was barred by limitation in view of the CBDT’s own administrative guidelines. 

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According to the Revenue, the taxpayer had purchased an apartment in Dubai in August 2013 for approximately AED 1.5 million. The Department alleged that the source of investment had not been satisfactorily explained and further claimed that deemed rental income from the property had escaped taxation for Assessment Years 2014-15 to 2016-17.

The assessee informed the Department that the property had been sold in November 2020 at a loss and that the sale proceeds had been utilized to repay borrowed funds. However, the Department maintained that adequate supporting documents regarding the transactions had not been furnished and therefore proceeded under the Black Money Act. 

A crucial aspect that weighed with the Tribunal was the chronology of events.

The Bench noted that the Income Tax Department had already issued a notice under Section 133(6) of the Income Tax Act on 30 April 2019 seeking information regarding the taxpayer’s investment in Dubai. Thereafter, reassessment proceedings under Sections 147 and 148 of the Income Tax Act were initiated for Assessment Years 2014-15 to 2016-17 based on the very same foreign property.

The reasons recorded for reopening the assessments in March 2021 specifically referred to the alleged undisclosed investment in the Dubai property and the rental income arising therefrom. The Tribunal observed that these facts clearly established that the Department was fully aware of the alleged non-disclosure long before initiating proceedings under the Black Money Act. 

The Tribunal extensively examined the CBDT Guidelines issued on 23 January 2018 for handling cases under the Black Money Act.

Although the Act itself does not prescribe a statutory limitation period for issuing a notice under Section 10(1), the CBDT guidelines require Assessing Officers to issue such notices preferably within 30 days from the end of the previous year in which the relevant information comes to their knowledge.

The guidelines further stipulate that where this timeline cannot be followed, the Assessing Officer must record reasons in writing for the delay; and obtain prior approval from the competent authority before issuing the notice.

The Tribunal noted that these procedural safeguards were intended to ensure timely and disciplined exercise of powers under the Black Money Act. 

After analysing the facts, the ITAT observed that the Department had knowledge of the alleged undisclosed foreign asset at least by 30 April 2019 when the Section 133(6) notice was issued and certainly by 31 March 2021 when reassessment proceedings were initiated.

Consequently, if the CBDT guidelines were followed, the notice under Section 10(1) of the Black Money Act ought to have been issued by 30 April 2020 or, at the latest, by 30 April 2021.

Instead, the Department issued the notice only on 15 March 2022, almost a year later.

The Tribunal found no material on record demonstrating any recorded reasons explaining the delay; or any approval from the competent authority permitting such delayed issuance.

The Bench therefore held that the mandatory administrative procedure had not been followed. 

The Tribunal rejected any suggestion that the CBDT guidelines could be ignored merely because they were administrative in nature.

Relying upon the earlier Mumbai ITAT decision in Sadanand B. Sule (BMA No. 4/Mum/2023), the Bench reiterated that the CBDT guidelines governing Black Money Act proceedings are binding on the Revenue authorities.

The Tribunal also referred to the Delhi High Court’s observations in Harvansh Chawla (WP(C) 5559/2021), where the High Court had taken note of the same guidelines while granting interim relief after observing that the statutory notice had not been issued within the prescribed administrative timeline. 

In view of the unexplained delay and the Department’s failure to comply with the CBDT’s binding procedural requirements, the Tribunal concluded that the initiation of proceedings under Section 10(1) of the Black Money Act was legally unsustainable.

It held that the notice itself was barred by limitation under the applicable administrative framework and that the consequential proceedings were therefore null and void.

Since the Tribunal allowed the appeal on this preliminary legal issue, it declined to examine the remaining grounds challenging the additions relating to the alleged undisclosed foreign asset and deemed rental income, treating those issues as infructuous.

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