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It is being realised, world over, that money-laundering poses a serious threat not only to the financial systems of countries, but also to their integrity and sovereignty. The Prevention of Money Laundering Act, 2002 was brought in to force in 2005 to prevent money laundering and to provide for confiscation of propertyderived from, or involved in, money-laundering and for matters connected therewith orincidental thereto. The Act also addressed the international obligations under the Political Declaration and Global Programme of Action adopted by the General Assembly of the United Nations to prevent money laundering. The act extends to the whole of India and came in to force w.e.f. 01.07.2005.
What is Money-Laundering?
Proceeds of crime and scheduled offences
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;
To summarize, the person is liable to be booked under the PMLA if he is directly or indirectly connected with the proceeds of crime i.e. property derived as a result of criminal activity relating to scheduled offences only. In other words, if any property is derived through criminal or unethical activity relating to an offence not listed in Part A, B or C of the schedule of offences, the provisions of PMLA shall not be applicable.
What are the scheduled offences?
Section 2(y) defines "scheduled offence" means—
The offences specified under Part A of the Schedule:
The offences specified under Part B of the Schedule:-
Offence under Section 132 of The Customs Act, 1962 relating to false declaration, false documents etc. [if the total value involved in such offences is thirty lakh rupees or more]
The offences specified under Part C of the Schedule:-
An offence which is the offence of cross border implications and is specified in,—
(1) Part A; or
(3) the offences against property under Chapter XVII of the Indian Penal Code.
(4) The offence of willful attempt to evade any tax, penalty or interest referred to in section 51 of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015.
[Note: "offence of cross border implications", means—
Burden of Proof
Section 24: In any proceeding relating to proceeds of crime under this Act,—
Therefore, burden shall be on the accused to prove that, no proceeds of crime are involved in the alleged money laundering.
Reporting mechanism under the PMLA
[For details please refer The Prevention of Money-Laundering (Maintenance of Records, Etc.) Rules 2005]
Punishment for money-laundering
Whoever commits the offence of money-laundering shall be punishable with rigorous imprisonment for a term which shall not be less than three years but which may extend to seven years and shall also be liable to fine. [Sec. 4]
Provided that where the proceeds of crime involved in money-laundering relates to any offence specified under paragraph 2 of Part A of the Schedule (i.e. offences under The Narcotics Drugs & Psychotropic Substances Act, 1985), the term of imprisonment may extend to ten years.
Money laundering vis-a-vis Income Tax Act, 1961
A wilful attempt to evade tax or any other offence under the Income Tax Act is not a scheduled offense under the PMLA, 2002. On the contrary, wilful attempt to evade tax, penalty or interest under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (Sec. 51) is a scheduled offense. [Part C of the Schedule to PMLA] and can give rise to proceedings under the PMLA.
Though the wilful attempt to evade tax or any other offence under the Income Tax Act is not a scheduled offense under the PMLA, in the context of Income Declaration of Scheme, 2016 or otherwise, any disclosure of income or property could attract the provisions of PMLA, if the property is as defined u/s. 2(v) of the PMLA and the same is sourced out of proceeds of crime as defined u/s. 2(u) of the PMLA.
[However, CBDT Circular No. 17/2016 dated 20.05.16 clarified that, the IDS 2016 incorporates the provisions of section 138 of the Income-tax Act relating to disclosure of information in respect of assessees. Therefore, the information in respect of declaration made shall be kept confidential as in the case of return of income filed by assessees.]
Recently, Hon'ble Calcutta High Court in Rajmandir Estates (P.) Ltd. v. Pr. CIT  386 ITR 162/240 Taxman 306/70 taxmann.com 124, had an occasion to deal with the issue of validity of reopening of assessment by CIT u/s. 263, in the backdrop of possible money-laundering.
The CIT in his order dated 22.03.13 passed under Section 263 opined that this was or could be a case of money laundering which went undetected due to lack of requisite enquiry and non-application of mind. He entertained the belief "that unaccounted money is laundered as clean share capital by creating a façade of paper work, routing the money through several bank accounts and getting it the seal of statutory approval by getting the case reopened u/s.147 suo motu. Accordingly he concluded that assessment order passed u/s. 143(3)/147 was erroneous and prejudicial to the interest of the revenue. He, therefore, set aside the same and issued directions for a thorough enquiry.
Hon'ble High Court in its elaborate order after referring to the PMLA and observing various facets and evidences of possible money laundering under the peculiar facts of the case upheld the order of CIT u/s. 263 in following words:
"We have indicated above the pieces of evidence which go to show that the Commissioner had reasons to entertain the belief that this was or could be a case of money laundering which went unnoticed because the assessing officer did not hold requisite investigation except for calling for the records. ……. The fact that the assessing officer did not apply his mind to those pieces of evidence would be evident from the assessment order itself.
The question for consideration is whether in the presence of materials discussed above the Commissioner was justified in treating the assessment order erroneous and prejudicial to the interest of the revenue. That question in the facts and circumstances has to be answered in the affirmative."
It is important to note that, Hon'ble High Court distinguished some of the Supreme Court precedents cited by the appellant to support his case inter alia on the ground that The Prevention of Money Laundering Act, 2002 was not there on the statute at that point of time. Therefore, though offences under the Income Tax act, 1961 per se are not scheduled offences for the purpose of PMLA, nevertheless assessing officer can proceed in assessment or CIT can direct further investigation in order to verify possibility of income/assets added or declared u/s. 68, 69, 69A etc. of the IT act being sourced out of proceeds of crime as defined u/s. 2(u) of the PMLA, so that further action under PMLA, if necessary, can be taken.
It has to be kept in view that India has a problem of black economy, which is unacounted and many a time the holders of black money also launder the black money in order to acquire legitimate assets. Legal or illegal income which evades tax and illegal income that comes within the exempted taxation slab constitute the unreported Gross Domestic Product or black economy. Laundering the black money and laundering proceeds of crime are two different issues, although there is frequent overlap between the two. While laundering black money is to be handled through taxation laws or similar laws, the laundering of proceeds of crime is to be handled through special anti-money-laundering laws. [Dr. M. C. Mehanathan in his commentary on the Law of Prevention of Money Laundering in India published by Lexis Nexis (2014 edition)]