If an income is declared under The Income-Tax Act, 1961 and the Income-Tax department has accepted the same as genuine sales and they cannot prove that the income so declared is derived from scheduled offences under PMLA, then the prosecution under The Prevention of Money Laundering Act, 2002 (PMLA) is not sustainable.
Hon'ble SC in J.Sekar Reddy Vs. Directorate of Enforcement. CRIMINAL APPEAL NO. 738 OF 2022 (Arising out of Special Leave Petition (Crl.) No. 8305 of 2021) order dtd. 05th May 2022:
In this case the Hon’ble Supreme Court of India quashed the order of the Hon’ble Madras High Court observing that the income tax department could not prove beyond doubt that the money seized is proceeds of crime and derived from schedule offences as per the list of scheduled offences provided section 2(1)(x) and 2(1)(y) Part A and Part B of PMLA.
In this case, the income tax department took the stand that the cash and gold found at the place of accused were generated through illegal means and were converted to new currency in collusion with the bank officers during the demonetization scheme in the year 2016. But they could not prove the identity of the bank officers involved and justify that money found during search is in exchange of old currency notes.
Since the Income Tax Department has already accepted the cash as sales and the matter was closed under The Income-Tax Act, 1961 by accepting the taxes on it, the Hon’ble SC held that the matter does not fall under the PMLA since there is no proceeds of crime involved in it.
Just for the reader’s information, The proceeds of crime is defined u/s 2(1)(u) of The PMLA Act, 2002 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 value held within the country or abroad"
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Author : Manish J. Sheth
Published : 31-10-2022
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This blog is meant purely for educational/research and discussion only to give a general understanding. Any subsequent amendments or changes to the law may change the tax implications. It is not legal advice and should not be treated as such. You may not rely on the information on this blog as an alternative to legal advice from your attorney or other professional service provider. Any use, reference to, distribution or reliance on the content of this blog may be done by reader at their own risk and the author is not responsible for any loss or damage incurred to the reader.