The Central Board of Direct Taxes (CBDT) has set March 31 as the deadline for the completion of the Panama and Paradise Papers' probes. It has apprised the tax department's investigation wing of the deadline.
The department may file prosecution against the entities after completing the investigation, to assist other agencies to initiate action.
In 2016, around 426 Indian entities with offshore accounts were under the scrutiny of the income tax department. The department had uncovered over Rs 1,000 crores of undisclosed income in Panama Papers alone, in which several prominent personalities including Amitabh Bachhan, Aishwarya Rai, Sameer Gehlaut and KP Singh from DLF were named.
Around 714 entities and individuals had been named in Paradise Papers case that came to light in 2017. Former minister of state Jayant Sinha who is a member of parliament from Hazaribagh in Jharkhand state was named in the case.
Much of the data on Paradise Papers was disclosed by Appleby, a Bermuda-based legal services provider and Singapore-based Asiaciti, that facilitated setting up of offshore firms with low or zero tax rates.
A source in the Enforcement Directorate told Moneycontrol, “Currently, we are investigating these cases under the Foreign Exchange Management Act. Once the tax department starts filing prosecution cases, we have the base to convert our case under Prevention of Money Laundering Act."
The income tax department is currently investigating these cases under the Black Money Act, 2015. Under the Act, any person unable to justify the source of funds in question will have to pay a penalty of nearly 300 percent of the applicable tax liability on it.
However, there are many complexities as most of the cases are from before the financial year 2011-12, when it was not mandatory to disclose foreign assets. Some entities that disclosed details after the requirement became mandatory are also part of these investigations.
Another source in the department told Moneycontrol, “these cases are not dependent on the domestic investigation; the department is fully dependent on foreign agencies for information. So, setting up a deadline for completing investigation is not favourable for the investigation as well as for the department."
Arti Sathe, a lawyer who deals in tax issues told Moneycontrol, “Considering the voluminous documentation and the involvement of various offshore entities used to stash away the alleged black money by Indian entities and individuals, this deadline may be difficult to achieve."
"However, once the Dept gets some conclusive evidence, it may seek to invoke the provisions of the PMLA and Black Money Act and crystallise the demands...probably in view of bringing back the alleged black money. The downside of carrying out the voluminous investigation in a short time-bound manner may also lead to anomalies, unnecessary tax demands without proper investigation, and ripening of proceedings that are already completed under scrutiny assessment,” she said.
An official from the investigation wing said, “Panama and Paradise Papers only mentioned company names. Seeking data from foreign agencies requires proper information which the department does not have, thus delaying the investigation. Some times, the department's own machinery strikes down the request due to unfulfilled SOP set by the department."