Pranav B Prem

The Delhi Bench of the Income Tax Appellate Tribunal (ITAT), comprising Shrichalla Nagendra Prasad (Judicial Member) and Shrim Balaganesh (Accountant Member), has held that the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (BMA) cannot be applied to assets that had ceased to exist years before the enactment of the law. The ruling came in a high-profile case concerning businessman Deepak Jain, against whom the Income Tax Department had alleged undisclosed foreign assets worth ₹31.48 crore.

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The proceedings against Jain originated from information received by the Department through the International Consortium of Investigative Journalists (ICIJ), which indicated his alleged financial interest in two companies incorporated in the British Virgin Islands—Alabama Assets Ltd. and Meadow Offshore Ltd. The Assessing Officer concluded that Jain was the beneficial owner of bank accounts operated through these entities and assessed undisclosed foreign income of ₹31.48 crore. Penalties were also imposed under Sections 41 and 43 of the BMA. The Department argued that despite holding only one share in each company, Jain was the true owner of the entire investment, while the foreign partner, Mr. Alhammadi of the UAE, was only a front.

On appeal, the Commissioner of Income Tax (Appeals) [CIT(A)] partially accepted Jain’s case. While rejecting his jurisdictional objections, the appellate authority held that Jain could only be considered the beneficial owner to the extent of his shareholding, which was one out of 1,000 shares. Consequently, the addition was reduced from ₹31.48 crore to ₹3.14 lakh. The CIT(A) also deleted the penalty under Section 43 on the ground that the foreign companies and their bank accounts had ceased to exist by 2010, whereas disclosure requirements under the BMA were applicable only from Assessment Year 2012–13 onwards.

At the ITAT hearing, the Department reiterated that Jain had failed to produce documents such as the Memorandum of Understanding with Alhammadi or proof of termination, which would have clarified his role in the entities. It argued that the deletion of additions and penalties was unjustified. Jain, on the other hand, maintained that he was merely a nominal shareholder in the companies, that the entities had been wound up years before the BMA came into force in July 2015, and that no liability could arise under a law enacted after the assets had ceased to exist. His counsel stressed that the Revenue had already initiated proceedings under the Income Tax Act, 1961, in 2013, and it was not open to later invoke the BMA for the same assets.

The Tribunal, after considering the record, accepted Jain’s submissions. It observed that the foreign companies were separate legal entities distinct from their shareholders and that their bank balances could not automatically be attributed to a shareholder holding only one share. The bench emphasized that since the companies and their accounts had been closed by 2009–10, the BMA could not be retrospectively applied. The Tribunal further held that the Revenue had failed to establish that Jain was the beneficial owner of the funds, especially when the material on record showed that the investments had been funded by Alhammadi.

In its ruling, the ITAT categorically held that the credits in the bank accounts of the foreign entities could not be the subject matter of any addition in the hands of the assessee under Section 10(3) of the BMA. It added that the procedural bar under Section 71(d)(iii) also applied, since the Department had received information about the alleged assets through tax treaties before the BMA became operational.

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Accordingly, the Tribunal allowed Jain’s appeals, deleted the entire addition of ₹31.48 crore, and quashed the penalties. The decision not only provides relief to the assessee but also sets an important precedent that the BMA cannot be retrospectively applied to assets that ceased to exist before its enactment.

Appearance

For Assessee: Advocates Gaurav Jain, Shubham Gupta

For Department: CIT DR S.K. Jadhav

Cause Title: Addl. Commissioner Of Income Tax V. Deepak Jain

Case No: BMA Nos.01 to 03/Del/2025

Coram: Shrichalla Nagendra Prasad (Judicial Member), Shrim Balaganesh (Accountant Member)