Shocking tax evasion in the name of a trust!
Mumbai: While the Central Government has expressed its commitment to bring back black money stashed abroad, the Mumbai bench of the Income Tax Appellate Tribunal (ITAT) took a first concrete step towards this direction. It recently passed a crucial order in a case where unaccounted money was stashed in LGT Bank in Liechtenstein in the name of a trust associated with a Kolkata family, which is into investment consultancy and has business interests in Mumbai.
The trust was found to have US $ 24,06,604 (Rs11,73,31,988) worth unaccounted money in the LGT bank account. The ITAT, a quasi-judicial body, dismissed an appeal filed by the family and upheld the income tax (IT) department’s stand that the family was beneficiary of the trust money.
The ITAT also dismissed the appeal filed by one of the family members who had challenged the order of the assessing officer of the income tax department adding to his name Rs 2,34,64,398 on account of alleged undisclosed income. This family member was found to have directly benefited from the trust money and had not reflected the same in the return filed by him.
The case pertains to assessment year 2002-2003. It was reopened by the IT department in 2009 after the Central Board of Direct Taxes (CBDT) sent a tax evasion petition to the department in Mumbai after names of the three members of the family figured in the list of black money holders in LGT bank, which was provided by Germany. The CBDT petition to the department said the family is a beneficiary of a trust that had an account in the LGT bank. The summary of the trust’s bank statement showed credit balance of US $ 24,06,604 (Rs11,73,31,988) in the account.
The assessing officer also placed on record the details including information of trust, details of settler of the trust, purpose of creating trust, copy of trust deed, asset and bank accounts held by the trust in India and abroad and benefit received by the said family member during assessment years 2002-03 to 2007-08.
The family member had filed income tax return on August 1, 2002 showing total income of merely Rs1,97,650. After receiving the information about the trust and the family member being the beneficiary, the assessing officer added Rs 2,34,64,398 being 25% of his share out of Rs11,73,31,988.
The family member denied any knowledge of the trust by claiming that he did not receive any money. However, he did not provide any document in support of his statement that he is not connected with this trust.
The family also called the reopening of the assessment as bad in law claiming that the Commissioner of Income Tax (Appeals) erred in confirming the reopening of the assessment which was completed by the assessing officer. They alleged that the commissioner confirmed reopening of the case without following the due process of the law.
They also stated that the commissioner erred in confirming the order of the assessing officer making an addition of Rs.2,34,64,398 on account of alleged undisclosed income, without appreciating the fact that the alleged trust was discretionary trust as neither the amount was accrued nor credited to their name, hence addition cannot be
made in the hands of the appellant.
The ITAT found no substance in the assertion of the family that the reopening of assessment was bad. The order said that the assessment was reopened by the assessing
officer on the information received from LGT Bank regarding the trust in which the name of the assessee (family) was appearing as a beneficiary.
“We have considered the rival submissions and perused the material available on record. Since identical facts/issues are involved and all the assessees are relatives, therefore, these appeals are being disposed of by this common and consolidated order,” the ITAT order said.
HOW IT WORKS
The order also quoted the Tax Haven Bank Secrecy Tricks prepared by US Senate Permanent Subcommittee on Investigations. It named the following tricks
Code Names for Clients
Pay Phones, not Business Phones
Foreign Area Codes
Undeclared Accounts
Encrypted Computers
Transfer Companies to Cover Tracks
Foreign Shell Companies
Fake Charitable Trusts
Straw Man Settlors
Captive Trustees
Anonymous Wire Transfers
Disguised Business Trips
l Counter-Surveillance Training
l Foreign Credit Cards
l Hold Mail
l Shred Files
