Delhi High Court modifies LOC issued under Black Money Act from debarment of travel to intimation only

New Delhi: The Delhi High Court has modified the Look Out Circular (LOC) issued under the Black Money Act from debarment of travel to intimation only for a businessman alleging his involvement in a network of companies that were transferring funds to Hong Kong.

Investigation revealed transactions amounting to approximately Rs. 300 crores in the bank account of a Hong Kong-based company and the Petitioner/businessman was alleged to be the authorized signatory for this Company’s account, which had not been disclosed in the income tax returns.

The bench of Justice Prathiba M Singh in an order passed on September 26, 2023, stated that this Court is of the opinion that stringent conditions deserve to be imposed upon the Petitioner. The LOC debarring him from travelling can be converted into an intimation about the arrival/departure of the Petitioner in terms of Clause 6(I) of the Office Memorandum of 2021.
This court is of the opinion that this is not a case that would be detrimental to the economic interest of the country as there is no allegation that the Petitioner has siphoned off any public funds, said the Court.

"While the demand against the Petitioner has already been raised and the assessment order has already been passed under the Black Money Act, 2015, the appeal before the Commissioner of Income Tax (Appeals) is still pending. Fresh penalty proceedings are still underway, and the Court is informed that prosecution is also sought to be initiated after the final oral submissions in this matter stand concluded," stated the court.

Advocate Akhil Sibal and Advocate Gaurav Gupta appeared for the businessman and submitted that LOC should only be justified in exceptional cases when a person's travel poses a significant threat to India's economic interests. However, this standard has not been met in this case. No criminal proceedings had been initiated against the Petitioner and the mere possibility of a prosecution being launched in the future does not justify issuance of LOC.

The LOC mechanism is clearly being misused by the Respondents. The Petitioner stated that the right to travel abroad being a fundamental right under Article 21, can only be impeded by procedure established by law, submitted Lawyers Akhil Sibal and Gaurav Gupta.
The case involves significant financial penalties imposed on the Petitioner under the Black Money Act, 2015, totalling approximately Rs. 169 crores, along with an additional demand of around Rs. 56 crores as per the assessment order issued under Section 10(3) of the Act. Furthermore, there's a total demand of approximately Rs. 72 crores under the Income Tax Act, 1961, against the Petitioner, stated Income Tax Department.

"The penalty under Section 41 of the Black Money Act, of 2015, is three times the tax computed. If the declaration under Section 59 had been made initially, a 30% tax would have been due along with a 100% penalty under Section 61. However, the Petitioner deliberately avoided making such a declaration," stated the IT Department.