Beyond disclosing their ownership in existing foreign assets, people named in the Pandora expose are being told to spell out details of bank accounts which no longer exist and were closed long ago, firms that were dissolved, directorships in overseas firms and tax residency status over the past 16 years.
They are also being asked to identify the ‘service providers’ in the tax havens, according to the first set of summons issued a week ago by the tax department under section 131 (1a) of the I-T Act which empowers tax officials to make enquiries if it suspects non-disclosure of earnings. Service providers are entities hired to set up offshore entities and structures as well as handle communication on client’s behalf.
“We have learnt from our experience and while investigating into the Panama Papers. There may have been cases where persons have closed their accounts and quickly shut down overseas outfits after getting a wind of the leak. Some did it when discussions on the black money legislation were underway,” a senior tax official told ET.
“A person who has closed his foreign account would say ‘no’, when you simply ask him whether he has one,” said the official.
‘Notices can be Sent for 10 Years’
“Technically, he is right. So, these additional questions are aimed to make the exercise more comprehensive,” the official added.
Several Indians who have been named in the Pandora leak have said their overseas investments and interests in trusts and companies abroad are legitimate transactions carried out for business and family requirements. However, in building its case, the I-T department has to convert the leaked information into evidence.
Once the identities of service providers are known, the department can seek additional information by approaching authorities in various jurisdictions under the exchange of information pact or double-taxation avoidance agreement.
Ashish Mehta, partner at the law firm Khaitan & Co, said, “Questions about 16 years of residential status in notices issued to investigate the Panama, Paradise and other leaks were a norm. But at that time under the Income Tax Act, notices could be issued for a period of 16 years in case of offshore accounts (this look back period of 16 years was introduced in 2012 after various data leaks had surfaced).”
“After a complete revamp of the reassessment provisions by the Finance Act 2021, now a maximum of 10 years can be reopened, that too after following procedures as prescribed under the new law, which include issuance of a show-cause notice and considering responses of a taxpayer before issuing notices. Any information gathered under Income Tax Act is available for use under the Black Money Act (which was introduced in the year 2015 and is effective from 1 July 2015). There is a possibility of invocation of Black Money Act in case of proven undisclosed offshore incomes and assets, however, some important provisions of this act, which have a retrospective effect are under constitutional challenge before various courts,” he said.