THE SECOND REPORT OF THE SPECIAL INVESTIGATION TEAM (SIT) ON BLACK MONEY

RELEVANT PORTIONS OF THE SECOND REPORT OF THE SPECIAL
INVESTIGATION TEAM (SIT) ON BLACK MONEY RELEASED; ON THE
DIRECTIONS OF SIT, CBDT DIRECTS VARIOUS ASSESSING OFFICERS
TO FINALIZE THE ASSESSMENTS FOR ALL ACTIONABLE CASES (427),
WHOSE NAMES ARE APPEARING IN THE HSBC LIST RECEIVED BY
THE DEPARTMENT

New Delhi, December 12, 2014
Agrahayana 21, 1936
Placed below are the relevant portions of the Second Report of the Special
Investigation Team (SIT) on Black Money which was recently submitted by the SIT to
the Hon’ble Supreme Court:
I. In response to the directions issued by the SIT, CBDT has directed various
Assessing Officers to finalize the assessments for all actionable cases (427),
whose names are appearing in the HSBC list received by the Department.
 As per the information received from France, there are in
all 628 persons/entities (except in 2 cases where the same names have
appeared twice). Out of these 628 persons/entities, amounts/balances are
shown against 339 persons and no amounts/ balances are shown against 289
persons/entities. In respect of the latter category also, further investigations
and assessments are being taken to logical end.
 Out of the said 628 persons, 201 are either
non–residents or non–traceable, leaving 427 persons’ cases as actionable
cases.
 The amount involved in these cases as per details
available in the information received, is about Rs.4,479 crores approximately
($ converted @ Rs.45). Out of these, Department has finalized assessment
of 79 assessees (involving more than 300 assessments). An amount of
Rs.2,926 crores has been brought to tax towards the undisclosed balances in
the accounts relating to these persons. For the said amount, these assessees
have been levied tax and interest at the appropriate rates. Penalty
proceedings under Section 271 (1)(c) of the Income Tax Act, 1961 (I.T. Act)
have been initiated in 46 cases. Such penalties have been levied in 3 cases
so far. With regard to the other assessees, proceedings are pending.
 Further, prosecutions have been initiated in 6
cases u/s. 276C (1) of the Income Tax (I.T.) Act for willful attempt to evade
taxes and in 5 cases, proceedings have been initiated u/s. 276D of the I.T.
Act on account of willful failure to furnish information in response to the
notices issued by the Income Tax Department.
 Show Cause Notices for filing prosecution have been
issued in 10 more cases and further action would be taken at the earliest.  In other cases, necessary action is being
expedited and substantial progress is expected in coming months.
II. Apart from HSBC list, further actions taken by various agencies on the basis
of directions given by SIT:-
1. Directorate of Revenue Intelligence:––
a) Details have been furnished in respect of 31 cases of iron ore export cases.
In 11 cases, the concerned parties have admitted the undervaluation and
before issuance of show cause notices, paid Rs.116.73 crores. Further
action would be taken, in accordance with law.
 In 10 cases, show cause notices have been
issued. Preparation of show cause notice is in progress after completion of
investigation in other cases.
b) In respect of other categories of trades, investigation is pending in 33 cases. In
some cases, references have been made to Financial Intelligence Unit – India
(FIU–IND), ED and CBDT. According to the agency, the total amount
involved could be Rs. 14957.95 crores.
2. Directorate of Enforcement:––
a) From the details furnished by Directorate of Enforcement in relation to
mining cases, on the basis of previous illegal mining of iron ore reports
relating to Orissa, Goa and Karnataka, action has been taken. In one case
of Orissa, accused persons were taken into custody by the Enforcement
Directorate and properties worth more than Rs. 400 crores have
already been identified and are under process of attachment.
Regarding other cases, the efforts are on to get the data from the Director
of Intelligence Bureau and State Government.
b) In respect of Karnataka, 3 attachment orders have been passed
attaching deposits in bank worth Rs.54.84 crores, properties (Rs.37
crores) and shares (Rs.904.13 crores) and the orders have been
confirmed by the adjudicating authority.
c) Further efforts have been made to ascertain whether any other proceeds
of crime exist so that they can be provisionally attached. In respect of Goa
and Jharkhand, the preliminary scrutiny and investigation is in progress.
d) It has been pointed out that because of stay order passed by the Hon’ble
Kolkata High Court, the Directorate is facing difficulty in taking coercive
action in Ponzi/chit fund scheme cases.
e) In respect of certain other cases, prosecution complaints have been filed.
In case of one group case in Jharkhand, provisional attachment
orders attaching properties worth Rs. 452.43 crores were passed and
adjudicating authority has confirmed attachment of properties worth
Rs. 263.73 crores.
f) 5 Letters Rogatories (LRs) have been issued by the PMLA Court. Replies
to 4 LRs are pending while 1 LR has been returned and effort is being
made to issue fresh LR.
g) In another mining case in Karnataka, provisional attachment for
Rs.884.13 crores have been issued and confirmed by the
adjudicating authority. Appeals are pending.h) In respect of another group cases of Andhra Pradesh, provisional
attachment orders for Rs.1093.10 crores have been confirmed by the
adjudicating authority. It is directed that necessary steps be taken
immediately for realization of the amounts involved.
In respect of most of the above noted cases, the CBDT has reported about the
actions taken by the assessing officers.
SUGGESTIONS AND RECOMMENDATIONS FOR TAKING ACTION TO
CONTROL BLACK MONEY
1. Suggestion made by Financial Action Task Force (FATF) on TBML in its
report, as quoted above, that Data Analysis & Research for Trade
Transparency System adopted by USA requires to be adopted and accepted,
as it would control over/under invoicing to some extent. There should be
institutional mechanism through a dedicated set up which examines mismatch
between export/import data with corresponding import/export data of other
countries on at least a quarterly, if not a monthly basis.
2. It is established since years that over invoicing or under invoicing is known
method for stashing black money outside the country. Main question is how to
control this malady. If there is proper vigilance to a large extent by the
Customs Department, mis–invoicing can be controlled because, now–a–days,
price of various goods/machineries is known in the international markets. For
this, data is also published and is available on computer at any point of time.
Hence, it was suggested that in a Bill of Export/shipping Bills, an entry should
be included, namely, what is the international market price of the
goods/machineries which were sought to be exported. The said suggestion is
under consideration and is likely to be implemented within short time.
3. Further, it is of utmost necessity to curb the creation of fake/bogus bills. One
important step which can be taken to curb this menace is to make declaring of
PAN number mandatory for all sales, where payment is in cash or through
bank, above a value of Rs. One lakh. The purchaser would also be under
obligation to ensure that the invoices he gets have the PAN number of the
seller.
Further, considering the fact that at present, purchase or sale of
goods/services by cash is rampant, which undoubtedly utilizes/generates
unaccounted money in the society. For this purpose, a suitable rule is
required to be brought under I.T. Rule 114 B made under Section 139 A (5) of
the IT Act. By such amendment, purchaser is required to disclose his identity
either by PAN number or UID (Aadhar card) or any other centrally recognized
documents of identity.
Transactions relating to purchase and sale of goods, provision of
services of any nature where the payment/consideration is Rs. One lakh or
above, either by cash or cheque, may be covered under this rule.
4. It is suggested that for regulating the possession and transportation of cash,
particularly putting a limitation on cash holdings for private use and including provisions for confiscation of cash held beyond prescribed limits, provision in
the Act should be made. It is to be stated that a number of European
countries bar any cash transaction above a particular limit. This can be done
in India too. Again, while implementing the suggestions, to ensure that small
transactions, which make a bulk of common man’s daily transactions, are not
affected and for that, a threshold limit could be kept.
Further, for holding of cash/currency notes also, there should be a limit,
by prescribing a reasonable threshold, may be Rs.10 lacs or Rs.15 lacs. This
would control holding of unaccounted money to a large extent. This would
also control transfer of unaccounted cash from one destination to other, which
at present is rampant, may be by Angadias or by other means.
5. The aforesaid suggestion is also in conformity with the observations in the
case of Rajendran Chingaravelu vs. UoI, in CA No.7914 of 2009; ORDER
DATED November 24, 2009 (320 ITR 1)) by the Hon’ble Supreme Court.
Therein, it had been observed that “The nation is facing terrorist threats.
Transportation of large sums of money is associated with distribution of funds
for terrorist activities, illegal pay offs, etc. There is also rampant circulation of
unaccounted black money destroying the economy of the country.”
This is known to all concerned and, therefore, suggestion made above,
be implemented.
6. Financial Action Task Force (FATF) on Money laundering recommends “tax
crimes” to be made a predicate offence so that action can be taken under
Prevention of Money Laundering Act, 2002. There are more than 25 countries
in the world which have made “tax crimes” as a predicate offence. The
Government needs to seriously examine the issue and take steps to make
“tax crimes” as a predicate offence. To prevent any hardship to salaried or
small tax payer, a high threshold of say, more than Rs.50 lakh of tax evasion
could be considered as being a predicate offence.
7. Foreign Exchange Management Act, 1999 (FEMA) provides for confiscation
of any property held abroad, if found to be held in violation of Section 4 of the
Act. For various reasons, it is difficult to proceed against property held abroad.
To strengthen the provisions, S. 13 and S. 37 need to be amended to provide
for seizure and confiscation of property of equivalent value within the country,
if it is held that property held abroad is in violation of Section 4 of FEMA.
8. FIU is uniquely positioned as the national center for receiving, analyzing and
disseminating information related to suspected cases of money laundering. Its
unique architecture connects it to the entire financial sector on one hand to
law enforcement authorities and on the other through an electronic network
that makes it possible for information to flow freely in a secure environment.
Further, FIU is also connected to the other FIUs of the world through the
Egmont Secure Web which makes it possible to access information in foreign
jurisdictions. This unique architecture can be harnessed to exchange
actionable intelligence on proceeds of crime. Some recommended measures
are as follows:-
a. FIU should be given access to law enforcement information (i.e.
information about perpetrators of crime) that can be shared with the
reporting entities to locate proceeds of crime laundered in the financial system. This will be in line with the FATF standards which require that
“FIU should have access to widest possible range of financial,
administrative and law enforcement information.”
b. The latest amendments to the PML Rules (2013) have introduced a
new report to be furnished to FIU every month i.e. Cross Border Wire
Transfer Report in respect of all transactions of more than Rs. Five
lakh whose origin or destination is in India. As FIU builds this database
over a period of time, the information could be used, in conjunction with
information available with other relevant agencies, to analyze
suspected cases of cross border illicit financial flows, which have been
identified by the OECD and other global bodies as a major area of
concern, especially as they relate to significant transfer of funds from
developing countries.
c. FIU’s international network (Egmont Group) should be fully harnessed
to exchange information/intelligence on proceeds of crime transferred
abroad. However, for this to be successful, utmost importance should
be given to following protocol for international exchange of information
so that it is done in a sustainable and credible manner.
d. The law enforcement authorities, through the FIU, invest in improving
reporting entities capacity to identify and report suspicious
transactions. Substantial proceeds of crime may be laundered in the
domestic financial system but the reporting entities may be constrained
by lack of access to information on perpetrators of crime. Facilitating
access to such information, through FIU, and sharing red flag
indicators for suspected proceeds of crime would lead to better quality,
actionable intelligence/information from the reporting entities.
e. Post investigation, feedback should be shared jointly with FIU and
reporting entities in order to develop better understanding of money
laundering trends and typologies, which in turn will improve capacity to
identify and report suspicious transactions. There should be a more
dynamic interaction among between the stakeholders, i.e., reporting
entities, FIU and the law enforcement authorities, which are part of the
same value chain.
9. Malady of present enforcement system may be organic problem which
leads to increase in corruption and that corruption money is always
unaccounted. On occasions, officers fear to take appropriate action for
various reasons. These can be controlled only by appropriate directions by
the concerned Ministry that in a case where a person is involved in offence
relating to taxation or money laundering, evasion of duty and levies, then
in such cases, higher officers should not intervene in midst of
investigations.
10. It appears that for one or other reasons, Enforcement Directorate
attaches the property of a defaulting assessee, then income tax
department is not in position to recover the income tax dues, as it is contended that the property is attached by ED. This appears to be
unreasonable. Income tax dues are also amount payable to the Central
Government and this problem can be sorted out easily by mentioning in
the attachment order passed by the E.D. that it would be open for the
Income Tax Department to recover its dues in respect of the attached
property. There can not be any conflict of interest between two
Departments of Central Government. For this, even statutory rule can
be made, if required.
11. It appears that, in number of cases, income tax dues or other
duty recoveries are stayed without referring to the law laid down by
the Hon’ble Court; namely Siliguri Municipality Vs. Amulandu Das, AIR
1984 SC 653, Somariyas Trading Co. Pvt. Ltd. Vs. S. Samuel AIR 1985
SC 61, Asstt. Collector Vs. Dunlop India Ltd., (1985) 19 ELT 22 and
Benara Valves Ltd. Vs. Commissioner Central Excise, (2006) (204 ELT)
513. It is also noticed that in many cases, even at the show cause
notice stage, stay orders are passed staying further proceedings
which delay the entire process. Hence, it is submitted that the aforesaid
ratio of the judgments may be reiterated.
12. At present, for entering into financial/business transactions, persons
have option to quote their PAN or UID or Passport number or driving
license or any other proof of identity. However, there is no
mechanism/system at present to connect the data available with each of
these independent proofs of ID. It is suggested that these data bases be
interconnected. This would assist in identifying multiple transactions by
one person with different IDs. A central KYC Registry should be
established with all law enforcement agencies, Registrar of Companies
and financial institutions having access to its database.
13. As suggested in first report, at least 5 Additional Chief Judicial
Magistrates Courts in Mumbai are required to be established for
deciding approx. 5000 pending IT prosecution cases. It appears that
without direction by the Hon’ble Court, it would be difficult to establish 5
Courts as suggested. For the establishment of 5 courts, Central
Government shall bear the entire cost.
Finally, we submit that appropriate directions may be issued to the Central
Government for implementation of suggestions/recommendations made above so
that substantive result could be achieved in curbing the menace of black money and
stashing thereof in foreign tax havens.
MR. JUSTICE M. B. SHAH (RETD.)
 CHAIRMAN
DR. JUSTICE ARIJIT PASAYAT (RETD.)
VICE–CHAIRMAN
***********