The Karnataka High Court has quashed an assessment concerning two properties in Morocco after finding that the Income Tax Department had proceeded against the taxpayer for AY 2018–19, although the first notice under the Black Money Act was issued in December 2018. Under Section 72(c), the court held, the relevant assessment year was AY 2019–20.

The bench of Justice S.R. Krishna Kumar explained that the statute keeps the previous year and assessment year distinct: an asset deemed acquired in one financial year is assessed in the succeeding assessment year. Assessing these properties for AY 2018–19 would disregard that sequence.

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The petitioner, a Moroccan citizen, acquired two immovable properties in Morocco through registered sale deeds dated August 26, 2015, and February 28, 2016. Both acquisitions preceded the Act’s commencement on April 1, 2016.

On January 25, 2017, the Income Tax Department conducted a search concerning the petitioner’s husband. The search also extended to their matrimonial residence in Bengaluru. The department subsequently issued the petitioner a notice under Section 8 of the Black Money Act, following which she filed an income tax return for AY 2017–18.

Between December 4, 2018, and March 25, 2021, the department issued seven notices under Section 10 of the Black Money Act concerning AY 2018–19. After receiving her replies, it passed the assessment order on March 31, 2021, and directed the initiation of penalty proceedings. A further show cause notice followed on May 5, 2021.

The petitioner challenged the assessment and the resulting proceedings before the High Court.

Section 72(c) applies where an asset was acquired before the Black Money Act commenced and no declaration was made in respect of it under Chapter VI. In that situation, the provision deems the asset to have been acquired in the year in which the Assessing Officer issues a notice under Section 10.

The court found that both conditions were met. The properties had been acquired before April 1, 2016, and the petitioner had made no declaration under Section 59. The Revenue also accepted that Section 72(c) applied to the facts of the case.

The first Section 10 notice was issued on December 4, 2018. Applying Section 72(c), the court held that the properties were deemed to have been acquired in FY 2018–19. That financial year corresponded to AY 2019–20, not AY 2018–19, for which the department had undertaken the challenged assessment.

The High Court held that proceedings for AY 2018–19 were contrary to the statutory scheme and lacked legal authority. It quashed the March 31, 2021 assessment order and all further proceedings pursuant to it.

The court did not decide the parties’ separate arguments concerning Section 3 and the proviso to Section 3(1) of the Act. It expressly left those contentions open for appropriate proceedings. Its ruling therefore addresses the assessment year used in this case; it does not determine the merits of any tax liability concerning the properties.

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