ACIT, CIRCLE-16(1), HYDERABAD,HYDERABAD vs. MADHUSUDAN RAO LAGADAPATI, HYDERABAD, HYDERABAD

This is Revenue’s appeal for the A.Y 2012-13 against the order of the CIT (A)-4, Hyderabad, dated 1.12.2016.

“1. The Ld. CIT(A), erred in deleting the addition made of Rs. 62,83,02,500/- u/s 68.

2. The Ld. CIT(A), erred in holding that the creditworthiness of the lender company is proved.

3. The Ld. CIT(A), erred in accepting the genuineness of the transact-on.

4. The Ld. CIT(A), erred in holding that decision of the Hon'ble Supreme Court in the case of M/s Vodafone International Holding (341 ITRI) is wrong}. applied to me present case.

5. The Ld.CIT(A), erred in holding that loan taken by the assessee from M/s.VIL Mauritius is the "source of the source" instead of considering it as first source of investment as the amount remitted in Barclays Bank Mauritius is for the mere purpose of transfer of the amount from one account to the other account of the same person and the amount available in the said bank account is not a source of investment.

6. The Ld.C1T(A), erred in relying on the decisions of ITAT Delhi and Chennai in the cases of M/s Finally Corporation(86lTD626) Delhi and Susila Ramaswami (008 ITR18) Chennai without taking into consideration the ratio laid down by the Hon'ble Supreme Court in the case of Kale Khan Mohammand Hanif (50 ITR1) to the effect that the onus of proving the source of a sum of money found to have been received by the assessee is on the assessee only and if he disputes his liability for tax, it is for him to show either that the receipt was not income or that if it is income, the same is exempt from taxation under the provisions of the Act.

5. The appellant prays that the order of the CIT(A)-4 Hyderabad, on the above grounds be set aside and that of the Assessing Officer be restored.

6. The appellant craves leave to amend or alter any grounds or add a new ground, which may be necessary”.

“10. We have considered the rival contentions, perused the documents placed on record and the orders of the authorities. First of all we are unable to understand how Assessing Officer can consider inward remittance of moneys into NRI A/c of a non-resident Indian as income of assessee as unexplained. Assessee in the course of assessment proceedings furnished enough evidences in support of inward remittance of funds including a certificate from M/s.Vitrual International Ltd., about the source of funds being loan. If Assessing Officer has any doubt about the said company in Mauritius, he cannot reject the genuineness of the said company without making necessary enquiries either through the internal mechanism of foreign tax division of CBDT or by any other means. Just because the certificate furnished does not have any seal, the same cannot be rejected outright. However, the matter did not end there. Assessing Officer took pains to verify from the internet and also from the website of the SEBI and came to the conclusion that the said company is one of the group companies of assessee listed as persons constituting group under Monopolies and Restrictive Trade Practices Act, 1969 and further noticed from the red herring prospectus of M/s.Lanco Infratech Limited, wherein this company was shown as single shareholder company of assessee as on 29-07-2006. This means the existence of the company is accepted by the authorities, not only by SEBI and other statutory authorities but even by the Assessing Officer, as can be seen from the enquiries conducted. We are unable to understand how the Revenue could raise ground on existence of the above company in Ground No.7 about the identity of the company when Assessing Officer himself acknowledged the same in the assessment order.

"Having regard to the provisions of Part A of Chapter XX relating to the appeals before the first appellate authority, a distinction has to be made between the evidence and material voluntarily furnished by an assessee in support of his appeal and the evidence/material requisitioned from an assessee by the first appellate authority with a view to have proper disposal of proceedings before him. While the provisions of rule 46A apply to the former, the same have no application to the latter. {Para 4] Provision of rule 46A enjoins upon the first appellate authority not to admit any fresh evidence unless he records in writing his reasons for its admission. Further, rule 46A enjoins upon him to provide the Assessing Officer with a reasonable opportunity to examine the fresh evidence or to cross examine the witness produced by the assessee or to produce any evidence or document or any witness ill rebuttal of the additional evidence produced by the assessee.

{Para 5} The provisions of section 250(4), on the other hand, empower the first appellate authority to make such further enquiry as he thinks fit or to direct the Assessing Officer to make further enquiry and report the result of the same. There are many judgments to the effect that in view of the provisions of section 250(4), the first appellate authority is duty bound to make an enquiry even if such an enquiry was not made by the Assessing Officer if the facts and circumstances of the case warrant such an enquiry to be made. It, therefore, follows that the matters to be considered by the first appellate authority need not be confined to what was considered by the Assessing Officer while making the order appealed against. {Para 6] There are of course several judgments where it has clearly been laid down that the assessee on his own cannot produce any additional evidence not furnished before the Assessing Officer without meeting the various conditions provided under rule 46A for which satisfaction is to be recorded by the appellate authority in writing and with which the appellate authority is further required to confront the Assessing Officer and allow him a reasonable opportunity to have his say in the matter. [Para 9] From the various authorities of courts, the legal position is that the first appellate authority has wide powers over the order of assessment appealed against before him. In the course of exercise of such power the first appellate authority can direct the assessee to produce any evidence, information or material that was not produced before or was not considered by the Assessing Officer.

The purpose of rule 46A is to place fetters on the rights of an appellant to produce additional evidence before the first appellate authority and not on the rights of the first appellate authority to call for production of any fresh evidence or information. This aspect of the provisions of rule 46A is clear from the provisions of sub-rule (4) of rule 46A itself that nothing contained in rule 46A shall affect the power of the first appellate authority to direct the production of any document or to examine any witness to enable him to dispose of the appeal or for any other substantial cause including the enhancement of the assessment or penalty (whether on his own motion or on the request of the Assessing Officer).[(Para 13] In the instant case, the entire additional evidence had come on the record of the Commissioner (Appeals) because he had decided to examine the facts of the case in depth and then adjudicate upon the matter on the basis of evidence and material, thus, gathered. The Commissioner (Appeals) was empowered to do so under the provisions of section 250(4). The result of enquiry conducted by him could either go to further cement the case made out by the Assessing Officer or to help out the assessee against the findings of the Assessing Officer. The mere fact that the results of the enquiries thus conducted supported the case of the assessee and not that of the revenue, it has no bearing on the jurisdiction and powers of the Commissioner (Appeals). The Commissioner (Appeals) could have confronted the Assessing Officer with the evidence thus received and the material thus gathered and allowed the Assessing Officer to have his say in the matter and perhaps had he done so the dispute in question would not have arisen. But there is no requirement, in law, that the Commissioner (Appeals) should invariably consult or confront the Assessing Officer every time an additional evidence that was not before the Assessing Officer comes on the record of the Commissioner (Appeals). Where the additional evidence is obtained by the first appellate authority on its own motion, there is no requirement, in law, to consult/confront the Assessing Officer with such additional evidence. There may be cases where additional evidence is admitted by the first appellate authority on a request or application made by the assessee. In such cases sub-rule (2) of rule 46A requires the first appellate authority to allow the Assessing Officer a further opportunity to rebut the fresh evidence filed by the assessee. Even that requirement cannot be said to be a rule of universal application. If the additional evidence furnished by the assessee before the first appellate authority is in the nature of a clinching evidence leaving no further room for any doubt or controversy, in such a case no useful purpose would be served by performing the ritual of forwarding the evidence/material to the Assessing Officer to obtain his report. In such exceptional circumstances the requirement of sub-rule (3) may be dispensed with. [Para 14] Therefore, there was no infirmity in the impugned order of the Commissioner (Appeals) who had taken pains to comprehensively examine the issue before him and arrive at a correct finding of fact and he should be congratulated for having done so. Therefore, his order was to be upheld and the appeals were to be dismissed. [Para 15].

14. In this case CIT(A) requisitioned the evidence to examine the contentions. Therefore, the grounds raised from Ground No.3 to 6 on the issue of additional evidence are infructuous and does not require any consideration.

Section Explanation for non applicability of Section 68: Unexplained The assessee has merely transferred his own Cash Credit money from his account in Barclays Bank, Mauritius to NRI A/c held in Axis Bank and Indusind bank. As he transferred the amount from his own bank a/c. Therefore, the question of unexplained credit will not come.

69: Unexplained The amount of Rs.78,04,58,374/- does not Investment represent any investment, it is the assessee own money transferred from outside India a/c to Indian NRI A/c. Therefore, Unexplained Investment not attracts.

69A: Unexplained The amount of Rs.78,04,58,374/- is the credit Money appearing in the capital account of the assessee.

The money transferred from his own foreign bank a/c to his own NRI A/c in India. This will not attract unexplained money.

69C: Unexplained This section will not attract as no expenditure is Expenditure involved.

The issue whether the income of non-resident is taxable or not is still to be decided with reference to the provisions of section 5(2) and, the provisions of Section 68 or 69 cannot enlarge the scope of section 5(2). What is not taxable under section 5(2) cannot be taxed under the provisions of section 68 or section 69. Under section 5(2) the income accruing or arising outside India is not taxable unless it is received in India. Similarly, if any income is already received outside India, the same cannot be taxed in India merely on the ground that it is brought in India by way of remittances. Reference can be made to the judgment of Supreme Court in the case of Keshav Mills Ltd. V. CIT (1953) 23 ITR 230 (Supreme Court of India) if such income is shown in the books of account then it cannot be taxed in India merely because the assessee is unable to prove the source of such entry. For example, there may be appearing an entry of cash credit in the name of a person of USA by way of loan through cheque and deposited in the bank account maintained at any city in USA. Such money being received outside India cannot be taxed under section 5(2) unless it is proved that such money is relatable to the income accrued or arising in India. Therefore, the same cannot be taxed under section 68 merely on the ground that the assessee fails to prove the genuineness and source of such cash credit. Therefore, we are of the considered view that the provisions of Section 68 or 69 would be applicable in the case of non-resident only with reference to those amounts whose origin of source can be located in India. Therefore, the provisions of section 68 or 69, in our opinion, have limited application in the case of non- resident.

"A non-resident person having money in foreign country could not be called upon to pay income tax on that money in India.

The reason is obvious because in respect of that money it will not be possible for the AO to say it was either received by him in India, or it was deemed to be received by him in India, or it accrued to him in India, or it arose to him in India, or it is deemed to accrue to him in India, or it is deemed to arise to him in India. [para 14.1]. if a non resident person, having money in a foreign country, brings that money to India, through a banking channel, he cannot be called upon to pay income tax on that money in India, firstly, for the reasons stated above and secondly, because the remittance of money into India through banking channel will make, the onus on the assessee under section 69, discharged. [Para 14.2]. Once an amount is received as income, any remittance or transmission of that amount to another place does not result in receipt once again at other place, within the meaning of section 5. Therefore, if certain income, profits or gains was received by the assessee outside India it does not become chargeable to income tax in India by reason of that money having been brought into India. This is because what is chargeable is the first receipt of the money and not a subsequent dealing by the assessee with the said money. In that event the money is brought by the assessee as his own money which he had already received and had control over it and it does not take the character of income, profits and gains after being brought into India. [Para 14.3]. There could, of course be a situation where a non- resident has money in India, transmits it to a foreign country then brings it back to India through a banking channel. If this circular motion of the money is conclusively proved with evidence then the non resident will surely do the, explaining under section 69, despite the money having been brought into India through banking channel. But merely on suspicions or doubts, conjectures or surmises, no inference can be drawn against the assessee. It is trite law that there can be no presumption in favor of any illegality of a transaction. In fact the presumption is the other way about. [Para 14.4]. In the cases of remittances through banking channel the nature and source of the funds get explained and the onus on the assessee under section 69 gets discharged, and consequently such remittances cannot be taxed under section 5(2) (b). Therefore, the argument of the revenue that, in the present case, the impugned money was taxable under section 5(2)(b) read with section 69, on the facts, as no merit and cannot be accepted. [para 14.6]. But, the position will be entirely different if the money has been brought into India otherwise than through banking channel, because in that case the onus on the assessee under section 69 will not stand discharged. In such a case the provisions of section 5(2)(b) read with section 69 will surely be attracted. [Para