\n

Press Information Bureau 
\nGovernment of India
\nMinistry of Finance<\/p>\n

12-December-2014
\n16:33 IST<\/p>\n

Relevant Portions of the Second Report of the
\nSpecial Investigation Team (SIT) on Black Money Released; On the Directions of
\nSIT, CBDT Directs Various Assessing Officers to Finalize the Assessments for
\nall Actionable Cases (427), whose names are appearing in the HSBC List Received
\nby the Department <\/p>\n

           
\nPlaced below are the relevant portions of the Second Report of the Special
\nInvestigation Team (SIT) on Black Money which was recently submitted by the SIT
\nto the Hon\u2019ble Supreme Court:<\/p>\n

 <\/p>\n

I.                   In response to the directions issued by the SIT,
\nCBDT has directed various Assessing Officers to finalize the assessments for
\nall actionable cases (427), whose names are appearing in the HSBC list received
\nby the Department.<\/p>\n

 <\/p>\n

                                
\nAs per the information received from France, there are in all 628
\npersons\/entities (except in 2 cases where the same names have appeared twice).
\nOut of these 628 persons\/entities, amounts\/balances are shown against 339
\npersons and no amounts\/ balances are shown against 289 persons\/entities. In
\nrespect of the latter category also, further investigations and assessments are
\nbeing taken to logical end.<\/p>\n

 <\/p>\n

   
\n                                             Out
\nof the said 628 persons, 201 are either non\u2013residents or non\u2013traceable, leaving
\n427 persons\u2019 cases as actionable cases.<\/p>\n

 <\/p>\n

                             
\nThe amount involved in these cases as per details available in the information received,
\nis about Rs.4,479 crores approximately ($ converted @ Rs.45).
\nOut of these,Department has finalized assessment of 79 assessees (involving
\nmore than 300 assessments). An amount of Rs.2,926 crores has
\nbeen brought to tax towards the undisclosed balances in the accounts relating
\nto these persons. For the said amount, these assessees have been levied tax and
\ninterest at the appropriate rates. Penalty proceedings under Section 271 (1)(c)
\nof the Income Tax Act, 1961 (I.T. Act) have been initiated in 46 cases. Such
\npenalties have been levied in 3 cases so far. With regard to the other
\nassessees, proceedings are pending.<\/p>\n

 <\/p>\n

                                      
\nFurther, prosecutions have been initiated in 6 cases u\/s. 276C (1) of
\nthe Income Tax (I.T.) Act for willful attempt to evade taxes and in 5
\ncases, proceedings have been initiated u\/s. 276D of the I.T. Act on
\naccount of willful failure to furnish information in response to the notices
\nissued by the Income Tax Department.<\/p>\n

    
\n                         Show
\nCause Notices for filing prosecution have been issued in 10 more cases and further action would be taken at the
\nearliest.<\/p>\n

                                              
\nIn other cases, necessary action is being expedited and substantial progress is
\nexpected in coming months. <\/p>\n

 <\/p>\n

II.                Apart from HSBC list, further actions taken by
\nvarious agencies on the basis of directions given by SIT:-<\/p>\n

 <\/p>\n

1.      Directorate of Revenue Intelligence:\u2013\u2013<\/p>\n

 <\/p>\n

a)      Details have been furnished in respect of 31
\ncases of iron ore export cases.<\/p>\n

 <\/p>\n

In 11 cases, the concerned parties have admitted
\nthe undervaluation and before issuance of show cause notices, paid Rs.116.73
\ncrores. Further action would
\nbe taken, in accordance with law.<\/p>\n

                                          
\n   In 10 cases, show cause notices have been issued. Preparation
\nof show cause notice is in progress after completion of investigation in other
\ncases.<\/p>\n

 <\/p>\n

b)      In respect of other categories of trades,
\ninvestigation is pending in 33 cases. In some cases, references have been made
\nto Financial Intelligence Unit \u2013 India (FIU\u2013IND), ED and CBDT.According to
\nthe agency, the total amount involved could be Rs. 14957.95 crores.<\/p>\n

 <\/p>\n

2.      Directorate of Enforcement:\u2013\u2013<\/p>\n

 <\/p>\n

a)      From the details furnished by Directorate of
\nEnforcement in relation to mining cases, on the basis of previous illegal
\nmining of iron ore reports relating to Orissa, Goa and Karnataka, action has
\nbeen taken. In one case of Orissa, accused persons were taken into custody by
\nthe Enforcement Directorate and properties worth more than Rs. 400
\ncrores have already been identified and are under process of attachment.
\nRegarding other cases, the efforts are on to get the data from the Director of
\nIntelligence Bureau and State Government.<\/p>\n

b)     In respect of Karnataka, 3 attachment orders
\nhave been passed attaching deposits in bank worth Rs.54.84 crores, properties
\n(Rs.37 crores) and shares (Rs.904.13 crores) and the orders have been confirmed by the
\nadjudicating authority.<\/p>\n

c)      Further efforts have been made to ascertain
\nwhether any other proceeds of crime exist so that they can be provisionally
\nattached. In respect of Goa and Jharkhand, the preliminary scrutiny and
\ninvestigation is in progress.<\/p>\n

d)     It has been pointed out that because of stay
\norder passed by the Hon\u2019ble Kolkata High Court, the Directorate is facing
\ndifficulty in taking coercive action in Ponzi\/chit fund scheme cases.<\/p>\n

e)     In respect of certain other cases, prosecution
\ncomplaints have been filed. In case of one group case in Jharkhand,
\nprovisional attachment orders attaching properties worth Rs. 452.43 crores were
\npassed and adjudicating authority has confirmed attachment of properties worth
\nRs. 263.73 crores.<\/p>\n

f)       5 Letters Rogatories (LRs) have been issued by
\nthe PMLA Court. Replies to 4 LRs are pending while 1 LR has been returned and
\neffort is being made to issue fresh LR.<\/p>\n

g)     In another mining case in Karnataka, provisional
\nattachment for Rs.884.13 crores have been issued and confirmed by the adjudicating
\nauthority. Appeals are pending.<\/p>\n

h)     In respect of another group cases of Andhra
\nPradesh, provisional attachment orders for Rs.1093.10 crores have been
\nconfirmed by the adjudicating authority. It is directed that necessary
\nsteps be taken immediately for realization of the amounts involved.<\/p>\n

 <\/p>\n

 <\/p>\n

In respect of most of the above noted
\ncases, the CBDT has reported about the actions taken by the assessing officers.<\/p>\n

 <\/p>\n

SUGGESTIONS
\nAND RECOMMENDATIONS FOR TAKING ACTION TO CONTROL BLACK MONEY<\/strong><\/p>\n

 <\/p>\n

1.      Suggestion made by Financial Action Task Force
\n(FATF) on TBML in its report, as quoted above, that Data Analysis &
\nResearch for Trade Transparency System adopted by USA requires to be adopted
\nand accepted, as it would control over\/under invoicing to some extent. There
\nshould be institutional mechanism through a dedicated set up which examines
\nmismatch between export\/import data with corresponding import\/export data of
\nother countries on at least a quarterly, if not a monthly basis.<\/p>\n

 <\/p>\n

2.        It is established since years that
\nover invoicing or under invoicing is known method for stashing black money
\noutside the country. Main question is how to control this malady. If there is
\nproper vigilance to a large extent by the Customs Department, mis\u2013invoicing can
\nbe controlled because, now\u2013a\u2013days, price of various goods\/machineries is known
\nin the international markets. For this, data is also published and is available
\non computer at any point of time. Hence, it was suggested that in a Bill of
\nExport\/shipping Bills, an entry should be included, namely, what is the
\ninternational market price of the goods\/machineries which were sought to be
\nexported. The said suggestion is under consideration and is likely to be
\nimplemented within short time.<\/p>\n

 <\/p>\n

3.       Further, it is of utmost necessity to curb
\nthe creation of fake\/bogus bills. One important step which can be taken to curb
\nthis menace is to make declaring of PAN number mandatory for all sales, where
\npayment is in cash or through bank, above a value of Rs. One lakh. The
\npurchaser would also be under obligation to ensure that the invoices he gets
\nhave the PAN number of the seller.<\/p>\n

 <\/p>\n

Further, considering the
\nfact that at present, purchase or sale of goods\/services by cash is rampant,
\nwhich undoubtedly utilizes\/generates unaccounted money in the society. For this
\npurpose, a suitable rule is required to be brought under I.T. Rule 114 B made
\nunder Section 139 A (5) of the IT Act. By such amendment, purchaser is required
\nto disclose his identity either by PAN number or UID (Aadhar card) or any other
\ncentrally recognized documents of identity.<\/p>\n

 <\/p>\n

Transactions relating to
\npurchase and sale of goods, provision of services of any nature where the
\npayment\/consideration is Rs. One lakh or above, either by cash or cheque, may
\nbe covered under this rule.<\/p>\n

 <\/p>\n

4.      It is suggested that for regulating the possession
\nand transportation of cash, particularly putting a limitation on cash holdings
\nfor private use and including provisions for confiscation of cash held beyond
\nprescribed limits, provision in the Act should be made. It is to be stated that
\na number of European countries bar any cash transaction above a particular
\nlimit. This can be done in India too. Again, while implementing the
\nsuggestions, to ensure that small transactions, which make a bulk of common
\nman\u2019s daily transactions, are not affected and for that, a threshold limit
\ncould be kept.<\/p>\n

 <\/p>\n

Further,
\nfor holding of cash\/currency notes also, there should be a limit, by
\nprescribing a reasonable threshold, may be Rs.10 lacs or Rs.15 lacs. This would
\ncontrol holding of unaccounted money to a large extent. This would also control
\ntransfer of unaccounted cash from one destination to other, which at present is
\nrampant, may be by Angadias or by other means.<\/p>\n

 <\/p>\n

5.      The aforesaid suggestion is also in conformity
\nwith the observations in the case of Rajendran Chingaravelu vs. UoI, in CA
\nNo.7914 of 2009; ORDER DATED November 24, 2009 (320 ITR 1)) by the Hon\u2019ble
\nSupreme Court. Therein, it had been observed that \u201cThe nation is
\nfacing terrorist threats. Transportation of large sums of money is associated
\nwith distribution of funds for terrorist activities, illegal pay offs, etc.
\nThere is also rampant circulation of unaccounted black money destroying the
\neconomy of the country.<\/em>\u201d<\/p>\n

 <\/p>\n

This
\nis known to all concerned and, therefore, suggestion made above, be implemented.<\/p>\n

 <\/p>\n

6.      Financial Action Task Force (FATF) on Money
\nlaundering recommends \u201ctax crimes\u201d to be made a predicate offence so that
\naction can be taken under Prevention of Money Laundering Act, 2002. There are
\nmore than 25 countries in the world which have made \u201ctax crimes\u201d as a predicate
\noffence. The Government needs to seriously examine the issue and take steps to
\nmake \u201ctax crimes\u201d as a predicate offence. To prevent any hardship to salaried
\nor small tax payer, a high threshold of say, more than Rs.50 lakh of tax
\nevasion could be considered as being a predicate offence.<\/p>\n

 <\/p>\n

7.      Foreign Exchange Management Act, 1999 (FEMA)
\nprovides for confiscation of any property held abroad, if found to be held in
\nviolation of Section 4 of the Act. For various reasons, it is difficult to
\nproceed against property held abroad. To strengthen the provisions, S. 13 and
\nS. 37 need to be amended to provide for seizure and confiscation of property of
\nequivalent value within the country, if it is held that property held abroad is
\nin violation of Section 4 of FEMA.<\/p>\n

 <\/p>\n

8.      FIU is uniquely positioned as the national
\ncenter for receiving, analyzing and disseminating information related to
\nsuspected cases of money laundering. Its unique architecture connects it to the
\nentire financial sector on one hand to law enforcement authorities and on the
\nother through an electronic network that makes it possible for information to
\nflow freely in a secure environment. Further, FIU is also connected to the
\nother FIUs of the world through the Egmont Secure Web which makes it possible
\nto access information in foreign jurisdictions. This unique architecture can be
\nharnessed to exchange actionable intelligence on proceeds of crime. Some
\nrecommended measures are as follows:-<\/p>\n

 <\/p>\n

a.      FIU should be given access to law enforcement
\ninformation (i.e. information about perpetrators of crime) that can be shared
\nwith the reporting entities to locate proceeds of crime laundered in the
\nfinancial system. This will be in line with the FATF standards which require
\nthat \u201cFIU should have access to widest possible range of
\nfinancial, administrative and law enforcement information.<\/em>\u201d<\/p>\n

 <\/p>\n

b.      The latest amendments to the PML Rules (2013)
\nhave introduced a new report to be furnished to FIU every month i.e. Cross
\nBorder Wire Transfer Report in respect of all transactions of more than Rs.
\nFive lakh whose origin or destination is in India. As FIU builds this database
\nover a period of time, the information could be used, in conjunction with
\ninformation available with other relevant agencies, to analyze suspected cases
\nof cross border illicit financial flows, which have been identified by the OECD
\nand other global bodies as a major area of concern, especially as they relate
\nto significant transfer of funds from developing countries.<\/p>\n

 <\/p>\n

 <\/p>\n

c.       FIU\u2019s international network (Egmont Group)
\nshould be fully harnessed to exchange information\/intelligence on proceeds of
\ncrime transferred abroad. However, for this to be successful, utmost importance
\nshould be given to following protocol for international exchange of information
\nso that it is done in a sustainable and credible manner.<\/p>\n

 <\/p>\n

d.      The law enforcement authorities, through the
\nFIU, invest in improving reporting entities capacity to identify and report
\nsuspicious transactions. Substantial proceeds of crime may be laundered in the
\ndomestic financial system but the reporting entities may be constrained by lack
\nof access to information on perpetrators of crime. Facilitating access to such
\ninformation, through FIU, and sharing red flag indicators for suspected
\nproceeds of crime would lead to better quality, actionable
\nintelligence\/information from the reporting entities.<\/p>\n

 <\/p>\n

 <\/p>\n

e.      Post investigation, feedback should be shared
\njointly with FIU and reporting entities in order to develop better
\nunderstanding of money laundering trends and typologies, which in turn will
\nimprove capacity to identify and report suspicious transactions. There should
\nbe a more dynamic interaction among between the stakeholders, i.e., reporting
\nentities, FIU and the law enforcement authorities, which are part of the same
\nvalue chain.<\/p>\n

 <\/p>\n

 <\/p>\n

9.    Malady of present enforcement system may be
\norganic problem which leads to increase in corruption and that corruption money
\nis always unaccounted. On occasions, officers fear to take appropriate action
\nfor various reasons. These can be controlled only by appropriate directions by
\nthe concerned Ministry that in a case where a person is involved in offence
\nrelating to taxation or money laundering, evasion of duty and levies, then in
\nsuch cases, higher officers should not intervene in midst of investigations.<\/p>\n

 <\/p>\n

10. It appears that for one or other reasons, Enforcement
\nDirectorate attaches the property of a defaulting assessee, then income tax
\ndepartment is not in position to recover the income tax dues, as it is
\ncontended that the property is attached by ED. This appears to be unreasonable.
\nIncome tax dues are also amount payable to the Central Government and this
\nproblem can be sorted out easily by mentioning in the attachment order passed
\nby the E.D. that it would be open for the Income Tax Department to recover its
\ndues in respect of the attached property. There can not be any conflict of
\ninterest between two Departments of Central Government. For this, even
\nstatutory rule can be made, if required.<\/p>\n

 <\/p>\n

11.  It appears that, in number of cases,
\nincome tax dues or other duty recoveries are stayed without referring to the
\nlaw laid down by the Hon\u2019ble Court; namely Siliguri Municipality Vs. Amulandu Das, AIR 1984 SC 653,
\nSomariyas Trading Co. Pvt. Ltd. Vs. S. Samuel AIR 1985 SC 61, Asstt. Collector
\nVs. Dunlop India Ltd., (1985) 19 ELT 22 and Benara Valves Ltd. Vs. Commissioner
\nCentral Excise, (2006) (204 ELT) 513. It is also noticed that in many
\ncases, even at the show cause notice stage, stay orders are passed staying
\nfurther proceedings which delay the entire process. Hence, it is submitted
\nthat the aforesaid ratio of the judgments may be reiterated.<\/p>\n

 <\/p>\n

12. At present, for entering into financial\/business
\ntransactions, persons have option to quote their PAN or UID or Passport number
\nor driving license or any other proof of identity. However, there is no mechanism\/system
\nat present to connect the data available with each of these independent proofs
\nof ID. It is suggested that these data bases be interconnected. This would
\nassist in identifying multiple transactions by one person with different IDs. A
\ncentral KYC Registry should be established with all law enforcement agencies,
\nRegistrar of Companies and financial institutions having access to its
\ndatabase.<\/p>\n

 <\/p>\n

13. As suggested in first report, at least 5
\nAdditional Chief Judicial Magistrates Courts in Mumbai are required to be
\nestablished for deciding approx. 5000 pending IT prosecution cases. It appears that without direction by the
\nHon\u2019ble Court, it would be difficult to establish 5 Courts as suggested. For
\nthe establishment of 5 courts, Central Government shall bear the entire cost.<\/p>\n

 <\/p>\n

Finally,
\nwe submit that appropriate directions may be issued to the Central Government
\nfor implementation of suggestions\/recommendations made above so that
\nsubstantive result could be achieved in curbing the menace of black money and
\nstashing thereof in foreign tax havens.<\/p>\n

MR. JUSTICE M. B. SHAH (RETD.)<\/p>\n

                                             
\nCHAIRMAN<\/p>\n

 <\/p>\n

DR. JUSTICE ARIJIT PASAYAT (RETD.)<\/p>\n

VICE\u2013CHAIRMAN<\/p>\n

***********<\/p>\n

 <\/p>\n<\/p><\/div>\n