Madras HC reserves orders in Chidambaram family plea against prosecution under Black Money Act

The Madras High Court has reserved orders in a batch of petitions filed by the Chidambaram family protesting the prosecution launched against them by the Income Tax (IT) Department under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (Black Money Act)..The First Bench of Chief Justice Indira Banerjee and Justice PT Asha reserved orders after hearing detailed arguments put forth by Senior Advocate Gopal Subramanium for the Chidambaram family, and Additional Solicitor General G Rajagopalan for the IT Department..Case Background.In 2017, the IT Department issued notices for reassessment under Section 10 of the Black Money Act to Nalini Chidambaram, Karti Chidambaram and Srindhi Chidambaram, in relation to transactions made in the financial year 2016-2017..The transactions in relation to which the IT Department has launched prosecution include the purchase of certain property in Cambridge, UK and investments made by Chess Global Advisory Services Private Limited, in which company Karti Chidambaram is a director..In April this year, the IT Department issued a show cause notice, asking why prosecution must not be launched against the petitioners for offences under Section 50 of the Black Money Act..An objection raised against this show cause notice was disposed of in May, with a direction to the IT Department to ensure that due and proper opportunity be given to the petitioners to present their case..On June 12, the petitioners brought another plea before the First Bench of the High Court, praying that they be furnished a copy of the prosecution complaint and the order sanctioning the prosecution against them under the Black Money Act. In response, the Court had directed the IT Department to furnish a copy of both documents to the petitioners by June 14..However, the IT Department thereafter filed a review petition against this order. Inter alia, the review petition contends that it would set an impractical precedent if the Department is made to furnish a copy of the sanction order in every case it takes up..The petitioners till date have only been given a copy of the prosecution complaint. When this grievance was mentioned before the Court today, Chief Justice Banerjee orally observed that the IT officer may have acted in contempt of the Court’s order by not furnishing the documents as directed..Arguments made today.Following the arguments made today, the crucial question appears to be whether or not a revised Income Tax Return filed under Section 139 (5) of the Income Tax Act would substitute an ITR originally filed under Section 139 (1) of the IT Act, for the purpose of prosecution under the Black Money Act..Gopal Subramanium informed the Court today that the petitioners had originally filed their ITR in relation to the FY 2016-2017 in October 2016. In relation to the same, the IT Department issued notices under the Black Money Act in August 2017. However, the petitioners thereafter filed a revised ITR under Section 139 (5) of the Income Tax Act in September 2017..In this background, Subramanium argued that the revised ITR filed in 2017 obliterated the original ITR filed in 2016, in relation to which the prosecution has been launched..Inter alia, Subramanium also argued that the Black Money Act cannot be invoked in the present case, given that it deals with undisclosed income raised from foreign assets. In this case, it was contended that all relevant information had been disclosed by the petitioners in their ITRs under the IT Act..Subramanium also made reference to Section 48 of the Black Money Act to argue that the Black Money Act does not have an overriding effect over other legislations, including the IT Act. This was in response to the arguments made for the IT Department that the scheme of the IT Act and the Black Money Act is different when it comes to prosecution..ASG Rajagopalan argued that as far as prosecution under the Black Money Act is concerned, the offences under Sections 139(1), (4) and (5) are separate offences. It was contended that a revised ITR under Section 139(5) would not have the effect of obliterating earlier the ITR in the case of a false return. .Rajagopalan also submitted that the Court should not go into the merits of the complaint, noting that the bulk of the petitioners’ arguments involved mixed questions of fact and law. He preferred to confine his arguments to the question of jurisdiction, contending that a Section 10 inquiry under the Black Money Act would be rendered useless otherwise..On this aspect, it was submitted that it was sufficient that the IT authorities detect omissions in an ITR filed either under subclauses (1) or (4) or (5) of Section 139 of the IT Act to attract jurisdiction. Thereafter, it is incumbent upon the assessee to show in Court that the omission was not wilful to attract penalty.