By CA Surekha
The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (“BMA”) was enacted with the objective of unearthing undisclosed foreign assets and incomes. However, in practice, assessees have increasingly faced hasty notices and orders passed by the Income Tax Department without proper evaluation of replies or documents. Such actions not only contradict the statutory framework of the BMA but also offend the principles of natural justice, making them vulnerable to legal challenge.
This guidance note provides a comprehensive defence strategy for taxpayers, with insights into statutory interpretation, decided case law, and procedural shelters available under different provisions of the BMA.
Natural Justice and Procedural Fairness: The First Line of Defence
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Section 10(3) of the BMA: Mandates that no order determining undisclosed foreign income or asset shall be passed without giving the assessee an opportunity of being heard.
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Violation: Non-consideration of replies, cryptic orders, or failure to grant adjournments amounts to denial of natural justice.
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Judicial Shelter: Courts have repeatedly quashed orders where reasoned order was absent (see Kranti Associates Pvt. Ltd. v. Masood Ahmed Khan [SC], though under general law, applied by analogy to BMA).
Defence Strategy:
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Highlight lack of application of mind, boilerplate reasoning, or absence of reference to filed submissions.
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Argue for quashing of order and remand for fresh adjudication.
Burden of Proof and Section 4–5 Contradictions
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Section 4 taxes undisclosed foreign income and assets of a resident.
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Section 5(1)(ii) excludes income that has already been taxed under the Income-tax Act, 1961.
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Many BMA orders ignore this exclusion, leading to double taxation.
Shelter:
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Use precedents like Kaushal Kishore v. ACIT (ITAT Delhi, 2023) (though ITA context, applied to BMA) where courts stressed against double jeopardy.
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Invoke Article 20(2) of the Constitution (Double Jeopardy Protection) and BMA’s own carve-outs.
Valuation Disputes under Section 3(2)
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Tax is charged @30% of the value of undisclosed asset.
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Rule 3 of Black Money Rules prescribes FMV methodology.
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Department often adopts arbitrary valuation without independent appraisal.
Shelter:
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Argue based on Sunil V. Vasantrao Phulbande v. ITO (Bombay HC) where valuation without evidence was struck down.
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Demand adherence to CBDT Circulars and Rule 3 computation.
Limitation and Jurisdictional Errors (Sections 10 & 11)
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Section 11 prescribes time limits for completion of assessment. Orders passed beyond limitation are void.
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Lack of valid approval under Section 15 (Sanction for Prosecution) can vitiate entire proceedings.
Defence Strategy:
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Scrutinize the Notice DIN, approval dates, and limitation computation.
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Raise jurisdictional challenge as a primary ground in appeals.
Contradictions with Income-tax Act and DTAA
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Section 71 of the BMA gives overriding effect, but courts favour harmonious construction to avoid conflict with DTAA and ITA, 1961.
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If income is exempt or taxed under DTAA, the BMA cannot override without express legislative intent.
Shelter:
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Cite Azadi Bachao Andolan v. UOI (SC) principle on DTAA primacy.
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Argue that DTAA protection is a treaty obligation binding under Article 253 of the Constitution.
Penalty and Prosecution (Sections 41–50): Proportionality as Defence
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Penalties are draconian—up to 300% of tax, with parallel prosecution.
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Defence under mens rea requirement: Courts in J.K. Synthetics Ltd. v. CTO (SC) held penalty cannot be imposed for mere technical breach.
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Absence of deliberate concealment or evidence of intent must be emphasised.
Strategy:
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Highlight bona fide disclosures, voluntary compliance, or reliance on professional advice.
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Invoke proportionality doctrine (Om Kumar v. UOI, SC).
Remedies and Appeal Mechanisms
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Section 15 & 18: Appeal to CIT(A) within 30 days, with power to condone delay.
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Section 20: Further appeal to ITAT.
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Writ Jurisdiction: Maintainable where order is patently without jurisdiction or violative of natural justice.
Strategic Approach:
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First, file detailed speaking appeal memo before CIT(A).
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Simultaneously, preserve right to file Writ Petition for egregious violations.
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Maintain all contemporaneous records to demonstrate compliance.
Practical Checklist for Taxpayers
- Always file detailed written responses to notices, annexing evidence.
- Seek acknowledgment of submissions on ITBA portal.
- Raise natural justice violation as a preliminary ground in every appeal.
- Document valuation flaws and demand third-party appraisal.
- Use DTAA and Income-tax Act carve-outs to avoid double taxation.
- Keep ready a matrix of timelines and approvals to test validity.
The Black Money Act is a stringent legislation, but its very stringency demands strict adherence to procedure, fairness, and statutory carve-outs. Hasty or mechanical orders passed without considering taxpayer responses are inherently vulnerable to challenge. By invoking principles of natural justice, statutory contradictions, valuation safeguards, constitutional protections, and judicial precedents, taxpayers can mount a robust defence and seek relief at appellate or writ forums.
The law may be harsh, but procedural justice is non-negotiable—and therein lies the taxpayer’s strongest shield.
