Risk review of an assessee who deposits Rs. 500 and 1000 currency without proper source of income

Section under I. T. Act, 1961

Brief Description of Section

Section Description

Tenure of Prosecution & Fine

Our View in Case of Currency Deposited in Bank is shown as Income

276 C

Wilful attempt to evade Tax, Penalty, Interest etc.

(1) If a person wilfully attempts in any manner whatsoever to evade any tax, penalty or interest chargeable or [imposable] under this Act, he shall, without prejudice to any penalty that may be imposable on him under any other provision of this Act, be punishable,—

(i)   in a case where the amount sought to be evaded [or tax on under-reported income] exceeds twenty-five hundred thousand rupees, with rigorous imprisonment for a term which shall not be less than six months but which may extend to seven years and with fine;

(ii)  in any other case, with rigorous imprisonment for a term which shall not be less than three months but which may extend to two years and with fine.

(2) If a person wilfully attempts in any manner whatsoever to evade the payment of any tax, penalty or interest under this Act, he shall, without prejudice to any penalty that may be imposable on him under any other provision of this Act, be punishable with rigorous imprisonment for a term which shall not be less than three months but which may extend to two years and shall, in the discretion of the court, also be liable to fine.

Explanation.—For the purposes of this section, a wilful attempt to evade any tax, penalty or interest chargeable or imposable under this Act or the payment thereof shall include a case where any person—

(i)  has in his possession or control any books of account or other documents (being books of account or other documents relevant to any proceeding under this Act) containing a false entry or statement; or

(ii)  makes or causes to be made any false entry or statement in such books of account or other documents; or

(iii) wilfully omits or causes to be omitted any relevant entry or statement in such books of account or other documents; or

(iv) causes any other circumstance to exist which will have the effect of enabling such person to evade any tax, penalty or interest chargeable or imposable under this Act or the payment thereof.

6 months to 7 years

3 months to 2 years

+

Fine : No Limit

The department will question the source of Income and when a valid trail of the source of income could not be established in the year of disclosure i.e. F. Y. 2016-17, the department will treat this as a wilful attempt to evade Tax, Penalty and Interest of undisclosed income of Preceding Years by disclosing the same in the current year.

276 CC

Failure to furnish returns of income

 If a person wilfully fails to furnish in due time the return of fringe benefits which he is required to furnish under sub-section (1) of section 115WD or by notice given under sub-section (2) of the said section or section 115WH or the return of income which he is required to furnish under sub-section (1) of section 139 or by notice given under clause (i) of sub-section (1) of section 142 or section 148 or section 153A, he shall be punishable,—

(i)  in a case where the amount of tax, which would have been evaded if the failure had not been discovered, exceeds twenty-five hundred thousand rupees, with rigorous imprisonment for a term which shall not be less than six months but which may extend to seven years and with fine;

(ii)  in any other case, with imprisonment for a term which shall not be less than three months but which may extend to two years and with fine:

Provided that a person shall not be proceeded against under this section for failure to furnish in due time the return of fringe benefits under sub-section (1) of section 115WD or return of income under sub-section (1) of section 139—

 (i)  for any assessment year commencing prior to the 1st day of April, 1975; or

(ii)  for any assessment year commencing on or after the 1st day of April, 1975, if—

(a)  the return is furnished by him before the expiry of the assessment year; or

(b)  the tax payable by him on the total income determined on regular assessment, as reduced by the advance tax, if any, paid, and any tax deducted at source, does not exceed three thousand rupees.

6 months to 7 years

3 months to 2 years

+

Fine : No Limit

This section can be applied only when the Return of the Preceding Year of Years in respect of which the Income is related to has not been filled.

277

False statement in verification, etc.

If a person makes a statement in any verification under this Act or under any rule made thereunder, or delivers an account or statement which is false, and which he either knows or believes to be false, or does not believe to be true, he shall be punishable,—

(i)  in a case where the amount of tax, which would have been evaded if the statement or account had been accepted as true, exceeds twenty-five hundred thousand rupees, with rigorous imprisonment for a term which shall not be less than six months but which may extend to seven years and with fine;

(ii)  in any other case, with rigorous imprisonment for a term which shall not be less than three months but which may extend to two years and with fine.

6 Months to 7 Years

3 Month to 2 Years

+ Fine : No Limit

During the Assessment Proceedings after deposit of High Denomination Currency in Bank, the assessing officer will question the Source of Income and its Trail. In absence of a suitable explanation or an explanation which fails the test of prudence, this section may be invoked by the AO.

277 A

Falsification of books of account or document, etc.

If any person (hereafter in this section referred to as the first person) wilfully and with intent to enable any other person (hereafter in this section referred to as the second person) to evade any tax or interest or penalty chargeable and imposable under this Act, makes or causes to be made any entry or statement which is false and which the first person either knows to be false or does not believe to be true, in any books of account or other document relevant to or useful in any proceedings against the first person or the second person, under this Act, the first person shall be punishable with rigorous imprisonment for a term which shall not be less than three months but which may extend to two years and with fine.

Explanation.—For the purposes of establishing the charge under this section, it shall not be necessary to prove that the second person has actually evaded any tax, penalty or interest chargeable or imposable under this Act.

3 Months to 2 Years

+

Fine : No Limit

This section is of special caution for persons who are found guilty of Assisting another person in Falsification of Books of Accounts or Documents etc.

278

Abetment of false return, etc.

If a person abets or induces in any manner another person to make and deliver an account or a statement or declaration relating to any income or any fringe benefits chargeable to tax which is false and which he either knows to be false or does not believe to be true or to commit an offence under sub-section (1) of section 276C, he shall be punishable,—

(i)  in a case where the amount of tax, penalty or interest which would have been evaded, if the declaration, account or statement had been accepted as true, or which is wilfully attempted to be evaded, exceeds twenty-five hundred thousand rupees, with rigorous imprisonment for a term which shall not be less than six months but which may extend to seven years and with fine;

(ii)  in any other case, with rigorous imprisonment for a term which shall not be less than three months but which may extend to two years and with fine.

6 Months to 7 Years

3 Months to 2 Years

+

Fine : No Limit

This section is of special caution for persons who are found guilty of Assisting another person in Abatement of False Return etc.

Query 1:

What is Money Laundering?

As per Section 3 of the PMLA, money laundering has been defined as below:-

“Whosoever directly or indirectly attempts to indulge or knowingly assists or knowingly is a party or is actually involved in any process or activity connected with the proceeds of crime including its concealment, possession, acquisition or use and projecting or claiming it as untainted property shall be guilty of offence of money-laundering.”

Query 2:

What is the Punishment for Money-Laundering?

As per Section 4 of PMLA, prescribes the punishment as below:-

Prosecution : 3 to 7 years [In case of offence under the Narcotic Drug and Psychotropic Substance Act, 1985 : The prosecution may extend upto 10 years]

Fine : No Limit

Query 3:

Who owns the Burden of Proof under PMLA?

As per Section 24 of the PMLA:-

“In any proceeding relating to proceeds of crime under the Act,-

1. In the case of a person charged with the offense of money-laundering under section 3, the Authorities or Court shall, unless the contrary is proved, presume that such proceeds of crime are involved in Money-Laundering; and
2. In the case of any other person the Authority or Court, may presume that such proceeds of crime are involved in money-laundering.”

Query 4:

Whether the offence under PMLA are Cognizable or Non-Cognizable?

As per Section 45 (1) (a), every offence punishable under this Act shall be Cognizable i.e. a police officer has the authority to make an arrest without a warrant and to start an investigation with or without the permission of a court.

Query 5:

What is considered as a ‘Proceeds of Crime’ under PMLA?

Section 2 (u) of PMLA has defined ‘Proceeds of Crime’ noted as below:-

“(u) Proceeds of Crime means any property derived or obtained, directly or indirectly, by any person as a result of criminal activity relating to a Scheduled Offence or the value of each such property.”

Scheduled Offences have been defined under Part A and Part B of the Schedule. The list can be checked at http://indiacode.nic.in/acts-in-pdf/022013.pdf

Query 6:

Can the PMLA be invoked in case of Deposit of Demonetised High Denomination Currency Notes beyond explainable limit?

In our View, deposition of Cash in Bank Account primarily does not fall within the purview of PMLA as the same is invoked only in case of ‘Proceeds of Crime’ and unless the Cash Deposited is Linked to some Scheduled Offence within the meaning of Section 2 (y) the provisions of PMLA are not applicable.

However, provisions like Section 424 (which is a ‘Scheduled Offence’) of the Indian Penal Code (45 of 1860) – ‘Dishonest or fraudulent removal or concealment of property’ needs a deeper review:-

“Whoever dishonestly or fraudulently conceals or removes any property of himself or any other person, or dishonestly or fraudulently assists in the concealment or removal thereof, or dishonestly releases any demand or claim to which he is entitled, shall be punished with imprisonment of either description for a term which may extend to two years, or with fine, or with both.”

Query 1:

What is a Benami Transaction?

As per Section 4 (9) of the BTPA, has defined a Benami Transaction as below:-

“(9) "benami transaction" means,—

(A) a transaction or an arrangement—

(a) where a property is transferred to, or is held by, a person, and the consideration for such property has been provided, or paid by, another person; and

(b) the property is held for the immediate or future benefit, direct or indirect, of the person who has provided the consideration,

except when the property is held by—

i. a Karta, or a member of a Hindu undivided family, as the case may be, and the property is held for his benefit or benefit of other members in the family and the consideration for such property has been provided or paid out of the known sources of the Hindu undivided family;

ii. a person standing in a fiduciary capacity for the benefit of another person towards whom he stands in such capacity and includes a trustee, executor, partner, director of a company, a depository or a participant as an agent of a depository under the Depositories Act, 1996 and any other person as may be notified by the Central Government for this purpose;

iii. any person being an individual in the name of his spouse or in the name of any child of such individual and the consideration for such property has been provided or paid out of the known sources of the individual;

iv. any person in the name of his brother or sister or lineal ascendant or descendant, where the names of brother or sister or lineal ascendant or descendant and the individual appear as joint-owners in any document, and the consideration for such property has been provided or paid out of the known sources of the individual; or

(B) a transaction or an arrangement in respect of a property carried out or made in a fictitious name; or

(C) a transaction or an arrangement in respect of a property where the owner of the property is not aware of, or, denies knowledge of, such ownership;

(D) a transaction or an arrangement in respect of a property where the person providing the consideration is not traceable or is fictitious;

Explanation.—For the removal of doubts, it is hereby declared that benami transaction shall not include any transaction involving the allowing of possession of any property to be taken or retained in part performance of a contract referred to in section 53A of the Transfer of Property Act, 1882, if, under any law for the time being in force,—

i. consideration for such property has been provided by the person to whom possession of property has been allowed but the person who has granted possession thereof continues to hold ownership of such property;

ii. stamp duty on such transaction or arrangement has been paid; and

iii. the contract has been registered.”

Query 2:

Is Cash Deposited in Bank covered under the Definition of Property?

Yes, cash is covered in the Definition of Property as the immovable properties u/s 4 (26).

Query 3:

What is an Offence and Prosecution under BTPA?

Section No.

Nature of Transaction

Prosecution

Fine

3 (2)

Any person who enter into a Benami Transaction

Upto 3 Years

No Limit

53 (2)

Where any person enters into a benami transaction in order to defeat the provisions of any law or to avoid payment of statutory dues or to avoid payment to creditors, the beneficial owner, benamidar and any other person who abets or induces any person to enter into the benami transaction, shall be guilty of the offence of Benami transaction.

1 Year to 7 Years

Upto 25% of FMV of the Property

54

Any person who is required to furnish information under this Act knowingly gives false information to any authority or furnishes any false document in any proceeding under this Act

6 Months to 5 Years

Upto 10% of FMV of the Property

55

No prosecution shall be instituted against any person in respect of any offence under sections 3, 53 or section 54 without the previous sanction of the Board.

Query 4:

Whether the offences under PMLA are Cognizable or Non-Cognizable?

As per Section 61, Notwithstanding anything contained in the Code of Criminal Procedure, 1973, an offence under this Act shall be non-cognizable i.e. a police officer does not have the authority to make an arrest without a warrant and an investigation cannot be initiated without a court order. The police can file a First Information Report (FIR) only for cognisable offences.

Query 5:

Who all can be prosecuted under BTPA?

Any person who enters into a Benami Transaction or any person who knowingly induces or facilitates a Benami Transaction.

Query 6:

Can the Provisions of BTPA be invoked in case of unexplained Cash deposited by a person in his Bank Account on which he has paid the Tax and shown in his return of Income?

In our view, if the Money that has been deposited in the Bank belongs to the person who has deposited the money, the provisions of the  BTPA should not be applicable as the same cannot be a Benami Transaction;

However, if this is proven by the facts of the case and the trail of Income that the Money belonged to some other person and the same has been deposited to facilitate / benefit such other person on a future date, the provisions can be invoked.