INTERPLAY of LAWS

dealing with
ECONOMIC OFFENCES
(With Emphasis on International
Transactions)
Ashwani Taneja
(FCA, ACS, AICWA, FICA, DISA, NCFM, LL.B, LL.M)
(EX- MEMBER, INCOME TAX APPELLATE TRIBUNAL-
MINISTRY OF LAW & JUSTICE-GOVERNMENT OF INDIA)
Mobile: 9810064777
EMAIL: [email protected]
IMPACT OF ECONOMIC
OFFENCES LAWS ON
BUSINESS ENTITIES
The 26,134
Imprisonment
Clauses in
India’s
Business
Laws

GAUTAM
CHIKERMAN
E RISHI
AGRAWAL
 Over 26,000 ways an
entrepreneur can land in jail
for non-compliance of
business laws

[Research report by
TeamLease RegTech and
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Recent news
CASE-STUDY
2. ALLEGED VIOLATION OF
1. FACTORY PURCHASED IN ENVIORNMENT PROTECTION ACT
THE YEAR 2005. AND WATER POLLUTION ACT IN THE
YEAR 2009.

3.POC ILLEGALLY 4. FACTORY ACQUIRED IN 2005

CALCULATED FROM THE YEAR HAVING NO NEXUS WITH POC
2007-08 TILL 2012-13. ATTACHED BY THE ED UNDER PMLA
IN 2018
Interplay of various Laws Dealing With Economic
Offences. ● Implication under Income-tax Act
on benamidar and beneficial
1
owner vis-à-vis the unexplained
● Whether Persons acting in investments and credits
concert are subject to Income-tax Act,
● Impact on holding company
Benami law? 1961
structures for denial of beneficial
ownership criteria

4 SEBI Regulations
Bena Companies Act, 2013 2
mi law

Prohibition of
Money Laundering
● Property outside India – whether Act, 2003 and ● Significant Beneficial Owners
covered under the Benami law or Black Money law Reporting
under Black Money law?
● Dematerialization of shares in
● PMLA invoked, Benami law 3 Unlisted Public Company –
applicable step to curb benami dealing ?
 INCOME BLACK
TAX MONEY
ACT,1961 ACT,2015
PBPT ACT, COMPANIES
1988 SMUGGLING ACT, 2013

(SCHEDULED
OFFENCE) SEBI
PMLA, 2002 Act,1992

FEMA, 1999 Insolvency and

Bankruptcy
Code,2015
NEW FINDINGS of INVESTIGATION AGENCIES

MOST COMMON
INGREDIENT FOUND IN
VIOLATION OF LAWS
RELATED TO ECONOMIC
OFFENCES

TRANSACTIONS
DONE ARE ‘BENAMI’
IN NATURE.
Benami Transaction – Background
A B

Sale consideration
Beneficial Seller
owner

Transfer of title

Benamid
ar

Factors leading to the origin of Benami law

Fraud on creditors | Tax evasion | Black Money
Corrupt practices
 What is a Benami Transaction?

TRANSACTION / ARRANGEMENT

A B C D
• Property transferred • Property held in • Payer of
• Owner
to or held by Fictitious Name Consideration
Benamidar; and • Not aware of
• Consideration paid by ownership • Not traceable
Beneficial owner; and • Fictitious
• Denies
• Property held for ownership
benefit of Beneficial
owner

Exception
•Person acting in fiduciary capacity - Executor, Trustee, Partner, Director
•Karta Consideration
•Spouse / child paid out of
•Brother, Sister, lineal D/A (Jt. Ownership) known sources
Authorities under Benami law

Authorities
Initiating Approving Adjudicating Appellate
Administrator
Officer (IO) Authority Authority Tribunal
Bench of three
Assistant / Deputy Additional / Joint
Members chaired Bench of three
Commissioner of Commissioner of Income Tax Officer
Income Tax by CIT / Joint Members
Income Tax
Secretary
Conducting Grants approval Pass order  Review the  To receive and
inquiries, impound to IO confirming or order passed manage the
documents revoking the by property
provisional Adjudicating
Provisional  To dispose of
attachment Authority
attachment of the property
property Pass order for
confiscation of
property

Adjudicating authority to pass order confirming / revoking the provisional

attachment within one year from the date of reference made by the IO
Assistance from other Authorities

RBI

Income Tax Authorities Foreign Exchange

Management Act
Customs and Central
Excise Department SEBI
Authorities Narcotics Drugs and Any ‘body corporate’
Psychotropic Substances Act constituted or established under
State of Central Act.
Recognized Stock
Exchange Central Government, State
Government, local authorities or
banking companies, notified by
Central Government

‘ShellCompanies’ - PMO set up a task force in February 2017 under the

joint chairmanship of the Revenue Secretary and Secretary, MCA
 FUNDAMENTAL QUESTIONS
1. Whether transactions done in the past and properties held presently
(purchased decades back) can also be attached under new benami law?
2. Whether there is any future time limit for making attachment of the
property purchased today under this law?
3.Whether properties acquired in the names of close
relatives can also be attached as ‘benami’ e.g. in the
name of Brother, Sister, Mother, Father, Grand
Parents, Grand Children, Wife’s Brother/Sister, Sister’s
Husband etc.
4.What about property acquired in the name of wife or
 .
5. ) What kinds of properties are covered under new
PBPT Act, 1988;
whether immovable properties only are covered or
movable also covered?
6. Whether it affects any particular class of people
or any individual (of any class) can be roped in?
7. Whether the bonafide intention/motive of the
person can be an escape route and such
transaction can be excluded from the proceedings
under PBPT Act, 1988?
8. Is there any protection to the purchaser who
had no knowledge of benami transaction? Any
(…….Cont.)

9. Whether the provisions of the PBPT Act, 1988 debar

the provisions of benami law and vice-versa?
10. Is there any scope of U-Turn if benami transaction is
done inadvertently?
11. Is there any provision of compounding or settlement
under the law?
12. Whether the application of other laws is debarred if
the provisions of PBPT Act, 1988 are applicable?
13.Is there any provision of compensation from the
government to the affected party for the wrong
attachment done by Department?
 Few Startling Facts about New Benami Law:

• Retrospective Operation: It attempts to cover old

transactions done even prior to 1.11.2016 (date of
notification of new law).

•Word – ‘held’ used in current definition of benami

property. It covers ‘held’ as on date.
 No Future Time Limit
There is no future time limit for taking action
under the new law for transaction being done
now. Thus, it is essential to ensure for the buyers
that property being purchased is NOT a benami
property.
• Any Property Covered: It covers not
only immovable properties like land &
building but also movable and other
assets e.g. shares, FDRs, bank accounts,
Gold etc.
• Any Class: It may hit not only rich but poor also, as
it has no threshold limit.
• It may affect not only urban people but rural also, as it extends
to whole of India.
• Any Profile: It is troubling not only errant
politicians, but also officers in the public service or
otherwise, businessmen, employees of PSUs as
well as private sectors and every else who may
possess wealth in the form of properties not found
registered in their names.
• Any Structure: It is roping in corporate as
well as non-corporate entities and
individuals as well.
• Any Intention: Whether there was malafide intention of
the offender or not, if Benami transaction has been
done, then property transferred/held as Benami may be
acquired/confiscated under this law.

• Any Motive: Intention or motive may be relevant for

prosecution u/s 53, but not for acquisition/confiscation
of the property.
Inadequate Protection
for Bonafide Purchasers:

Though protection has been provided to the

purchasers of bonafide properties, but it is neither
absolute nor free from ifs and buts.
 Makes no distinction between
‘Black Money’ and ‘Tax-Paid Money’:
Any property held Benami shall be treated as
Benami Property under the law and all
consequences of its confiscation and prosecution
of offenders shall follow irrespective of the fact
whether BLACK MONEY was used or TAX-PAID
MONEY was used.
 No U-Turn allowed:
Once benami transactions is done and benami property is
acquired, its re-transfer is not allowed under the law.
Thus, its correction or reversal is NOT envisaged under the
old or new law. There is no scope of confession or
surrender or settlement or compounding etc. Thus, legal
consequences of entering into the benami transaction are
imminent viz. confiscation of benami property and
prosecution of the offender.
 Multiplier Effect:
Provisions of the Benami Law are in addition to provisions
contained in any other law. These are not designed to be
mutually exclusive. Thus, in any given situation all three
laws i.e. Income Tax Law, PMLA as well as Benami Law can
be invoked simultaneously if violation has taken place or
offence has been committed in respective laws.
 No compensation for any
damage:

There is no provision for payment of any

compensation to the person whose property
is confiscated under PBPT Act, 1988. Similarly
no damage can be claimed for vacation of
any wrongful attachment done under this
law.
Variety of other issues arising under
new Benami Law

 Is Benami Law applicable to

properties situated outside India?
 What if the jewellery purchased 10 to
20 years back and the person in
possession is not having the receipt of
the jewellery. Can that be roped into
benami transaction?
If anyone purchase land through NRI salary
and paid money through NRI account
cheque and registered the land on wife's
name. Will this land considered as benami
property?

If A is from Punjab, but wants to do

business in Himachal, where he can not buy
property, so he buys a property in the
name of his cousin who is a ‘himachali’, and
sets up a hotel, and starts reaping benefits,
Interplay with Income Tax Act
Whether provisions of Implication under section
Benami law can apply to 0 0 56(2)(x) ?
the transaction covered 1 2
under section 68 and
69A ?

Whether application of Whether a transaction

0 0
both the law is mutually 4 subjected to GAAR be
3
also exposed to the
exclusive or it can be
Benami
cumulative also ?
Law ?
Interplay with Income Tax Act - Holding
Structures
Ultimate Typical
Typical issues
issues in
in holding
holding company
company
structures
structures
Parent • Benefits under tax treaties available to beneficial
owners
100% • Beneficial Ownership of Assets and Income of SPV
under challenge under the Income Tax Proceedings
• Can denial of tax treaties on beneficial ownership
Hold Co criterion be the basis for invoking Benami law?
SPV Beneficial
Owner?
Singapore/ Implications
Implications under
under Benami
Benami law
law
Mauritius • Is the Ultimate Parent a Beneficial Owner?
100% • Is SPV a Benamidar? Holding Property for the
Subscription of
Ultimate Parent- Consideration provided by Ultimate
shares of I Co / Parent
ECB to I Co • Can shares held in Indian company be held as
Benami Property? Subject to provisional attachment?
• Holding company structures – recognized under
Indian various commercial laws – Can it be subject to
challenge under Benami law?
company

Burden of showing that transaction is benami lies on the IO

Significant Beneficial Owner
disclosure under Companies Act 2013
– uncover Benami holding?
Significant Beneficial Owner (SBO) Key
Key considerations
considerations

• SBO required to make disclosures of his

Individual – acting alone or together, or through beneficial interest to the Reporting
one or more persons or trust, possess one or more Company, which in turn to be reported to
of the following rights or entitlements in reporting Registrar of Companies
company
• SBO disclosures would enable the
authorities to “follow the money” in
1. 2. 3. 4. monetary examinations including suspect
Holds Has right to Has right to accounts/assets held by Benamidars
Holds
indirectly, or receive or exercise or
indirectly, or participate in actually
• Holding of persons “acting together” is
together with
together with not less than exercises, clubbed in respect of their shareholding /
any direct
holdings, not 10% of the total significant influence / control. However, this term has
any direct distributable influence or not been defined
less than 10%
holdings, not of the voting
dividend, control, in any
through manner other
less than rights in the indirect than through
⎼ For determining situations of “acting
10% of the shares holdings alone, direct together”, can one take reference
shares or together holdings from definition of “Persons acting in
with any direct alone concert (PAC)” from SEBI Takeover
holdings
Regulations, 2011?

Objective threshold Subjective threshold

Burden of proof and Intention of the
person

Followed in Smt. Pamela Bhardwaj case by Tribunal under the amended Benami law
Determination of beneficial owner of alleged
property prerequisite for treating transaction
as Benami
1
Manpreet 5 Individuals
Estate LLP Develop & 5 directors
Seller of
(Benamidar er
) Companies IO Allegation
3
•Manpreet Estate LLP (MEL) has taken
Employee loan from DHFL which was related
2
s party of RKW Developers P L (RKW)
4
•Consideration received by sellers
transferred to RKW or to its related
concerns
Related party – RKW Developers •RKW was beneficiary of development
DHFL common (Beneficial
activity undertaken by MEL on said
promoters, owner)
property
directors and office
Lender

• Prerequisite for determining transaction as benami – identification of beneficial owner of alleged property
• Evidences establishing the genuineness of transaction which are at arm’s length relevant to determine nature of
transaction as benami
• Admissibility of written evidences vs. oral evidence
• Attachment of properties as per rules prescribed

IO v. M/s. Manpreet Estates LLP (FPA-PBPT-206/MUM/2018)(2019)

 Remits funds to his buys land in his
friend who is name
resident in India

Land acquisition in India by an

NRI (based in USA) (cannot buy
agricultural land in India being a
non-resident)
Search
by ITD
BENAMI LAW He (Indian Friend)
takes
PROCEEDINGS makes a statement that
place
he is mere facilitator for
transactions done by
NRI friend
INCOME TAX FEMA
PROCEEDINGS PROCEEDINGS
 ANTI-MONEY LAUNDERING:

The Prevention of Money Laundering

Act,2002 defines the offence of Money
Laundering u/s 3 as
 FEW FUNDAMENTAL QUESTIONS

What is ‘Money Laundering’?

Is it different from tax evasion?
Whether tax evasion is also Money
Laundering?
What are the authorities governing Money
Laundering Laws in India?
What is the punishment or offence of money
laundering defined under PMLA,2002 ?
What are consequences if provisions of
PMLA are invoked by Enforcement
Directorate?

What are the broad powers vested with

Enforcement Directorate?

What kind of properties are attached as

prescribed in PMLA,2002? Whether a
property purchased out of any business
activity which is not legitimate in the eyes
of law can be covered under PMLA ? What
What are the legal remedies
available ?

What are the precautions to be

taken to avoid entering into
money laundering laws?

What is the effect and impact

What is a status of Bonafide purchaser ?

What is the status of a ‘Donee’ of a property

which was involved in money laundering?

What is status of Property purchased with

clear transaction but previously subject to
Money Laundering or Benami effect?

Whether Unexplained Cash Credit (Loan)

added by Income Tax into Taxable income, be
covered under Money Laundering ?
Which Hawala transactions (Entries) can
be covered under PMLA ?

How overlapping of multiple offences &

laws are dealt with (like IPC and these
laws) ? Which Act will prevail ? Whether
punishment under one Law will rest the
matter ?
Whether Statements made by third
party about accommodation
entry/transaction lead to attachment and
confiscation of property under any law?

 Can property gifted out of Benami,

Money Laundering & Black Money
transaction be confiscated and recovered
?
Can defaults in bank loans
obtains through fraud can be
covered under Money Laundering
or any other Law?
 MONEY LAUNDERING:

The PMLA defines the offence of Money

Laundering u/s 3 as “Whosoever directly or
indirectly attempts to indulge or knowingly
assists or knowingly is a party or is actually
involved in any process or activity connected
with the proceeds of crime including its
concealment, possession, acquisition or use
and projecting or claiming as untainted
property shall be guilty of offence of Money
Laundering”.
PROCESS OF MONEY LAUNDERING

STAGE –I
COMMISSION OF STAGE-III
THE SCHEDULED COMMISSION OF
OFFENCE MONEY
LAUNDERING BY:
STAGE-II PLACEMENT
GENERATION OF LAYERING
PROCEEDS OF INTEGRATION
CRIME
MONEY LAUNDERING INVOLVES 3 STAGES
 PROCEEDS OF CRIME 2 (1)(u):
It is defined as:
“proceeds of crime” means any property
derived or obtained, directly or
indirectly, by any person as a result of
criminal activity relating to a scheduled
offence or the value of any such
property or where such property is
taken or held outside the country, then
the property equivalent in the value
held within the country or abroad;
 SCHEDULED OFFENCE

The Scheduled Offences are the

offences as prescribed in the schedule to
the PMLA, which is divided in 3 parts i.e.
Part ‘A’ ‘B’ ‘C’.
The Schedule Offence is the genesis of
the offence of Money laundering, as there
cannot be any offence of Money
Laundering unless and until an Offence
provided in the Schedule of the PMLA has
been first committed.
 REVERSE BURDEN OF PROOF
 Section24:- “In any proceedings relating to proceeds of
crime under this act-
a) in case of person charged with offence of Money
Laundering, the authority or the court shall unless the
contrary is proved, presume that such proceeds of
crime are involved in Money Laundering.
b) in case of any other person the authority or court
may presume that such proceeds of crime are involved
in Money Laundering.”
 Investigation/
WEB OF
ACTIONS
Search by Income Investigation by
Tax/Police/CBI/NC Enforcement
B/ Directorate
Pr
Forest Deptt. At ov is
Pr tach iona
op m l
er en
Complaint for ty t
t to ( P of
Scheduled Offence ai n AO
(Charge sheet) m pl Adjudicating
)
Co urt
filed in the Co Authority
Jurisdictional Court
Confirmation of
Special Court
Provisional
Attachment

Conviction for Conviction for Offence of

Scheduled Offence Money Laundering

Confiscation of Property
involved in Money Laundering
BANK
COMPANY

LOAN OBTAINED
BY FRAUD

PROPERTY
ACQUIRED
QUA BANK
LOAN
ACQUIRED
THROUGH
FRAUD

PROPERTY IS PROPERT
THUS Y
PROCEEDS OF
CRIME
 FDR created in the bank
Bitcoin scheme floated in the year 2018 out of
in the year 2015 which funds having no nexus
ended in the year 2017 with the scheme

FDR attached by ED
without identifying any
transaction linking POC
with the attached property
 STEPS INVOLVED
in
CORRECT APPROACH
 ROLE OF CHARTERED
ACCOUNTANTS, TAX LAWYERS and
COMPANY EXECUTIVES IN
HANDLING NOTICES AND
ATTACHMENT ORDERS ISSUED BY
THE ED
 Finding out the source(s) and quantifying amount of Proceeds of
Crime (POC) from commission of an offence
 Identifying the Properties to be attached (acquired with POC)
 Identifying the source of such properties and connecting it with the
POC.
 Identifying Loan utilization in the attached property.
 Calculation of the correct value of the POC.
 Valuation of the property attached and comparison with the alleged
POC.
 Proper Financial Accounting and Analysis.
 Preparation of Money Trail for the attached properties to
demonstrate the source(s) of funds.
 The Black Money (Undisclosed
Foreign Income and
Assets) and Imposition of Tax Act,
2015

61
LIABILITY UNDER THE ACT: CHARGE
OF TAX
As per Section 3(1) of BMA :-
There shall be charged on every assessee
for every assessment year commencing on or after
the 1st day of April, 2016
subject to the provisions of this Act
a tax in respect of his total undisclosed foreign
income and asset of the previous year at the
rate of thirty per cent of such undisclosed income
and asset:
62
Particular Undisclosed Foreign Income Undisclosed Foreign Asset
s
A) Amount ( 1) Which has not been Value of undisclosed foreign asset (as per
of income disclosed in the return of income furnished section 3(2), of the BMA
/value of by the assessee under sections 139(1) or
asset 139(4) or 139(5) of
the IT Act;
(2) In respect of which a return is required to
be furnished but no return of income has
been furnished
within time specified under the IT Act.
B) Deduc No deduction in respect of any expenditure Following two specified items (section 5(1)
tion/reduc or allowance or set off of any loss {refer (ii)) of the BMA:
tion section 5(1)(i) a.The income which has been assessed to
tax for any AY under the IT Act prior to A Y to
which the BMA applies {i.e. for and up to AY
2015-16) or
b.Any income which is assessable or has
been assessed to tax for any A Y under the
BMA (i.e. from and63after AY 2016 17
C) Assess Sum of A(1) and A(2) above A (1) less B (a) or B (b) above
 COMPUTATION OF TOTAL UNDISCLOSED FOREIGN INCOME AND ASSET
Income from source located outside India (foreign income or ‘FI’) XX
which has not been disclosed in IT Return
FI in respect of which no IT return has been filed XX
FMV of Undisclosed Foreign Asset (no explanation or unsatisfactory XX
explanation about the source of investment has been provided) –
valuation u/r 3 of BMR
Less :
Income which has been assessed to tax for any assessment year (XX)
under the IT Act prior to relevant assessment year in which the BMA
applies.
Income which is assessable or has been assessed to tax for any (XX)
assessment year in which the BMA applies
In case of immovable properties, the deduction will be :
Value of undisclosed foreign asset as on the first day of the financial (XX)
year in the same proportion as assessed/assessable foreign income
64
bears total costs
 ASHWANI TANEJA
(FCA, ACS, AICWA, FICA, DISA, NCFM, LL.B,
LL.M)
(Ex- Member, Income Tax Appellate
Tribunal-
Ashwani Taneja
Ministry of Law & Justice-Government of
(FCA, ACS, AICWA, FICA, DISA, NCFM, LL.B, LL.M) India)
(EX- MEMBER, INCOME TAX APPELLATE TRIBUNAL-
Email: [email protected]
MINISTRY OF LAW & JUSTICE-GOVERNMENT OF INDIA)
Mobile: 9810064777
EMAIL: [email protected]