Tax evasion could soon become a prosecutable offence inviting jail term for offenders as the Supreme Court appointed special investigation team (SIT) on black money has suggested this to the government and sought a decision by March 31. 

"The Central Board of Direct Taxes (CBDT) is examining which particular provisions of the Income Tax Act should be brought within the ambit of predicate offences and the said examination should be complete by March 31, 2015," the SIT told the SC on Tuesday. 

It was followed by an important clarification. "To prevent any hardship to salaried and small tax payers, the government can prescribe a high threshold of say, more than Rs 50 lakh of tax evasion which could be considered as being a predicate office under Prevention of Money Laundering Act," it said. 

Till date, tax evaders can admit their wrongdoing to the authorities when caught and escape jail term by agreeing to pay the evaded tax along with hefty penalty under the Income Tax Act. If the person fails to pay the tax and penalty for evading tax, then the authorities can seize his/her assets for realization of the dues. 

The SIT, headed by Justices M B Shah and Arijit Pasayat, has suggested making tax evasion a crime under PMLA, 2002. Former attorney general Soli J Sorabjee, who appeared on behalf of the SIT, told the court that 'tax evasion' was not a predicate offence under the list of prosecutable offences in the PMLA list. 

In a written submission, Sorabjee said, "It is recommended that 'tax evasion' be made a predicate offence in India following the example of the US, Canada and Australia." 

The SIT also informed a three-judge bench comprising Chief Justice H L Dattu and Justices Madan B Lokur and A K Sikri that it was difficult for the government to take effective measures under Foreign Exchange Management Act, which provided for confiscation of property held by an Indian abroad for evasion of tax in relation to the money stashed abroad. 

"For various reasons, it is difficult to proceed against property held abroad. To strengthen the provisions, FEMA needs to be amended to provide for seizure and confiscation of property of equivalent value within the country, if it is held that the property held abroad is in violation of Section 4 of FEMA. The SIT recommends that the government should act expeditiously to effect the aforementioned amendment proposed by the SIT," Sorabjee said. 

In its 40-odd page report submitted to the Supreme Court, the SIT also proposed a limit for holding cash by an individual. "Cash holding is one of the primary modes in which black money is held in this country. Legitimate transactions can be made through the use of cheques/bank transfers, all of which can be traced. The use of cash for executing transactions makes the source of money difficult to trace," it said. 

"The SIT recommends that a ceiling be imposed on the maximum cash/currency that an individual/entity is allowed to possess at a particular point of time. SIT has recommended Rs 15 lakh as the permissible limit, however, even a higher threshold may be fixed. The government should examine this issue and come up with suitable legal framework to implement this recommendation," it added. 

To curb creation of bogus bills, a major tool for evasion of tax, the SIT said, "One important step which can be taken to curb this menace is to make declaring PAN number mandatory for all sales where payment is in cash or through bank, above the value of Rs 1 lakh. The purchaser would also be under obligation to ensure that the invoices he gets have the PAN number of the seller." 

Sale and purchase of goods by cash was rampant at present, which undoubtedly utilized/generated unaccounted money in society, the SIT said and recommended appropriate amendment in income tax rules. 

"By such amendment, purchaser is required to disclose his identity by PAN number or UID (Aadhaar card) or any other centrally recognized document of identity. It is the firm belief of the SIT that furnishing of PAN in the aforementioned fashion will facilitate the traceability of such individuals/entities which raise such bogus/fake bills," the SIT said. 

The SIT also recommended that the government set up a dedicated unit along the lines of Trade Transparency Unit set up by the US to examine mismatch between India's export/import data with import/export data of other countries. Implementation of such a measure would ensure that the government has a fair idea of the quantum of black money that is being siphoned off outside the physical boundaries of the country through mis-invoicing of imports and exports through trade based money laundering, it said. (Times of India)