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The multi-agency group (MAG), set up by the government a day after the Paradise Papers leak, has asked the income-tax (I-T) department to send notices to the 714 Indians who were named in the list for investments that they made in and routed funds through tax havens.
The special task force comprising Central Board of Direct Taxes Chairman and officials from the Enforcement Directorate, the RBI and the Financial Intelligence Unit, in its first meeting held on Friday, finalised the standard operating procedures to investigate the foreign assets allegedly created by people to evade taxes in India. According to the action plan, if the information received from a foreign jurisdiction shows undisclosed foreign assets, immediate proceedings should be launched against the person under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015.
According to a senior official, action under the Black Money Act could lead to attachment of equivalent property or assets in India in lieu of foreign assets by the Enforcement Directorate invoking anti-money laundering law. Wilful attempt to evade tax is punishable with imprisonment of 3-10 years along with a fine.
According to him, the task force was given a clear direction to conclude all the foreign assets cases in a time-bound manner. The task force emphasised on early prosecution in the cases where the taxmen established tax evasion charges.
The task force decided to issue notices to persons under Section 131 of the I-T Act along with detailed questionnaire that will seek replies on the following: Confront the information available in public domain to elicit an admittance or denial of relationship or connection with the alleged foreign assets or investments; details of transactions and deposits in it and details of assets maintained by it.
The questionnaire will also ask to give details of shareholders, directors or beneficial owners of the offshore entity; the extent of deposits made in the entity under the Liberalised Remittance Scheme (LRS) and so on.
In case the person claims to be non-resident, he needs to prove the status with documentary evidence such as the original passport and other relevant documents. If required, an independent verification from immigration authority will be undertaken to confirm the contention by the person, especially for the period during which foreign investment was made.
To deal with the cases of “partial disclosure”, wherein some offshore entities have been declared with tax authorities and others omitted from a mention in the I-T returns, the immediate proceedings will be initiated against the person.
The group has observed that the information coming from foreign jurisdictions is not sufficient to probe the matter. The MAG has directed tax officials to make exhaustive reference under “exchange of information”. Citing the past formats of references, the task force said detailed queries to overseas authority would minimise the need of clarification often raised by the foreign authority. It said, “Issues such as ‘foreseeable relevance’ and the ‘exhaustion of domestic measures’ should be framed properly.”
Prior to sending the questionnaire, the I-T department was asked to make an internal assessment from the existing databases of the categories of people appearing in the Paradise list. The MAG said the I-T department should first collect information such as tax profile, residential status, bank account details, tax deducted at source and so on.
Interestingly, it also asked taxmen to rope in social media tools to gather information about the persons.