ITAT Chennai Orders Fresh Examination of Foreign Bank Credits Under Black Money Act

1. Case Overview

In Subramanian Kasinathan Vs DCIT (ITAT Chennai), the Income Tax Appellate Tribunal, Chennai Bench, dealt with additions made under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 in respect of balances and credits in a foreign bank account held with HSBC, Hong Kong.

The dispute related to Assessment Year 2019-20, where the assessee had:

  • Worked in Hong Kong between 1995 and 2005
  • Maintained a bank account in HSBC, Hong Kong, during that period
  • Explained that his overseas salary had been credited into this account
  • Returned to India in 2005 and repatriated USD 2,95,000 out of savings of about USD 3,50,000
  • Left the balance funds in Hong Kong, stated to be earmarked for his daughter’s higher education

For AY 2019-20, the assessee filed a return declaring income of ₹4,22,210. However, in Schedule FA (Foreign Assets) of the return, the assessee did not disclose the foreign bank account.

On the basis of information received about the foreign account and interest income, the Assessing Officer (AO) initiated proceedings under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (referred to as “the Act”).

The litigation before the Tribunal essentially revolved around:

  • Whether the foreign bank balance and credits constituted “undisclosed assets” under the Act
  • Whether the AO and CIT(A) had properly considered the documentary evidence explaining the source of the foreign funds
  • Whether the limitation period for completing assessment under Section 11 of the Act was correctly computed

The Tribunal did not finally adjudicate on whether the foreign account or the credits were taxable under the Act. Instead, it directed the AO to re-examine the matter after properly considering the material and additional evidence produced by the assessee.

2. Facts Considered by the Authorities

2.1 Employment Abroad and Foreign Bank Account

The assessee submitted that:

  • He was employed with M/s. PAN Africa Shippers Ltd. in Hong Kong from 1995 to 2005
  • During this period, his Hong Kong salary was credited directly into his HSBC, Hong Kong account
  • Over the years, he accumulated savings of about USD 3,50,000 in this account
  • Upon his return to India in 2005, he remitted USD 2,95,000 to India
  • The remaining balance was retained overseas to meet the educational expenses of his daughter

According to the assessee, the residual balance in the HSBC account represented:

  • Accumulated salary savings earned when he was a non-resident
  • Amounts set aside specifically for his daughter’s foreign education
  • Certain interest credits and a refund of university fees relating to his daughter’s admission

He therefore argued that the foreign bank balance did not represent any undisclosed foreign asset or income assessable under the Act.

2.2 Omission in Schedule FA

Despite this explanation, the assessee did not report the HSBC account in Schedule FA for AY 2019-20.

  • This non-disclosure triggered the initial doubt about the nature and source of the foreign bank assets
  • The DDIT (Inv.) received information that the assessee was the beneficial owner of this HSBC account and had earned interest that was not offered to tax in India
  • Based on this information, the AO initiated proceedings under the Black Money Act

3. Assessment Proceedings Under the Black Money Act

3.1 AO’s Requisition for Bank Statements

During the assessment, the AO:

  • Called upon the assessee to furnish historical bank statements of the HSBC account
  • Specifically sought to verify that the funds and credits in the account were traceable to overseas salary receipts during the Hong Kong employment period

The assessee explained that:

  • The employment period in Hong Kong was long back (1995–2005)
  • Due to the passage of about 14 years, he was unable to obtain or produce the old bank statements for that earlier period

Given this non-availability, the AO invoked the information exchange mechanism under Section 90 of the Income Tax Act 1961 and sought details from the foreign tax authorities.

3.2 Information Obtained Through Exchange of Information

Based on the response from the competent foreign authority:

  • The AO received account statements only from 2017 onwards
  • There was no historical data for the earlier years when the salary was alleged to have been credited

From the available bank statements, the AO noticed:

  • Certain credits in the HSBC account during AY 2019-20
  • Interest income credited in the account that had not been declared in India

The assessee clarified:

  • The major credit corresponded to a refund of university fees paid for his daughter’s course, which did not materialise due to the Covid pandemic
  • Other smaller credits were stated to be interest earnings

3.3 AO’s Additions

The AO rejected the assessee’s explanation as not satisfactorily supported by contemporaneous bank statements or adequate corroboration. He therefore: