Till now, enquiries carried out by the FAIU pertained to hidden assets of residents – their overseas bank accounts, shareholdings in closely held foreign firms and links with discretionary trusts floated in tax havens.
Information about undisclosed assets of promoters and their relatives and aides, obtained from data leaks or details shared by other jurisdictions, have been the basis for invocation of the I-T Act and the Black Money Act.
“But now, the FAIU is enquiring into payments by Indian companies to overseas persons and entities. Probably, they may have found cases where there were reasons to believe that the foreign recipients of the money were just intermediaries,” a senior tax practitioner told ET, requesting anonymity.
At least eight companies in Mumbai have received notices from FAIU Delhi.
Under the law, FAIUs can look into companies, trusts as well as individuals. “While possible to hold undisclosed assets through companies, it is not perceived to be the preferred route. FAIU may be looking at commissions paid by companies abroad, over-invoicing and under-invoicing of exports and imports, or a surge in activities of a subsidiary set up in a tax haven by an Indian company. Typically, such transactions are tracked by the Enforcement Directorate… So, as of now, it’s unclear what’s the line of FAIU’s probe,” said another person.
Overseas financial interests
In a few cases, FAIU Delhi has subsequently asked some of the companies to share details like their “association with any foreign entity”, details of all bank accounts, and information on directors. “In some cases they have responded saying there are no overseas financial interests and unrecovered export proceeds,” said another tax professional.
A company, like an individual taxpayer, is also required to disclose its overseas financial interests, subsidiaries, and bank accounts in the annual I-T returns. “Since FAIU Delhi is dealing with all the cases, it’s possible that there are some common links. Else, the matters could have been referred to FAIU Mumbai for Mumbai companies,” said the person cited above.
FAIUs were created two years ago in all the 14 investigation directorates of the tax department after 69 existing posts in the tax department were “diverted” by the Central Board of Direct Taxes (CBDT) at the end of 2020 for the creation of this wing. The new units, it was reported, would also probe cases of Indians named in international tax document leaks like the Panama Papers.
Such dedicated cells, pacts with several countries for information sharing, and harsh statutes such as the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act have made carrying out irregular transactions a lot tougher, but success in recovering funds stashed abroad has been limited with tax tribunals sometimes ruling in favour of tax assessees.
The Black Money Act, which came into force in 2015, gave an edge to the taxman: while the I-T Act can be used to claim tax on 11-year-old undisclosed income, the black money law empowers the tax department to question assets acquired decades ago but discovered now. Under this law, the year in which the tax department gets hold of the information is the year for which income is deemed to have been earned by a person in question.