COMMISSIONER OF INCOME TAX (IT)-4 vs. DIPENDU BAPALAL SHAH

This appeal is filed by the Commissioner of Income Tax (CIT), 4, Mumbai challenging the order dated 19/06/2018 passed by the Income Tax Appellate Tribunal (‘ITAT’, for short) under the 1

The facts of the case in brief are that, the assessee is an individual and a non-resident Indian, for the year under consideration. The case of the assessee was reopened based on information received from the French Government regarding deposits made by the assessee in its account with HSBC Bank, Geneva. As the assessee had not filed return of income for the relevant year and apparently the Assessing Officer (‘AO’, for short) had reasons to believe that income had escaped assessment for the relevant year, the assessment proceedings were initiated.

In the absence of satisfactory/substantiated explanation regarding the source of deposits in account with HSBC Bank, Geneva, a sum of Rs.6,13,09,845/- being rupee equivalent of peak credit of USD 13,62,441/- in the account during Assessment Year 2006-07, the aforesaid amount was added to the total income of the assessee and assessment order under Section 143(3) read with Section 147 was passed on 03/03/2015, wherein the income was asssessed at Rs.6,13,09,845/-. Aggrieved by the order of the AO, the assessee filed an appeal before the CIT(A), Mumbai. Thus, CIT(A) for the reasons recorded vide its order dated 28/03/2016 deleted the addition made by AO. The Revenue filed an appeal against the order of CIT(A) before ITAT, Mumbai. The ITAT vide the impugned order dated 19/06/2018 dismissed the appeal of the Revenue. The ITAT passed a combined order for the Assessment Years 2006-07 and 2007-08 in favour of the assessee. 4. to hide, the person would have co-operated in obtaining the bank statements. As per the submission of Ms.Shilpa Goel the observations in Soignee R. Kothari (supra) are squarely applicable in the present case. It is submitted that while on one hand the assessee has denied giving the bank account statement by saying that it is beyond the purview of Indian law, on the other hand, he has stated that the income is being taxed in the hands of the beneficiaries of the Trust who are residents in India. This aspect itself establishes the economic nexus for inquiring into any aspect of income accruing or arising or deemed to accrue or arise in India in case of extra-territorial assets.

Our attention is invited to Section 5(2) of the Act to contend that it is not necessary that whole of the amount should have a nexus with India for taxing the same in India. Section 5(2), according to him, applies in the case of a non-resident with regard to ‘all income from whatever source derived’. The taxation of the beneficiaries is a separate aspect than the deposit of money in a foreign bank account in relation to a Trust the beneficiaries of which are Indian residents establishes the economic nexus of the account with India. Ms.Shilpa Goel relied upon the decision of the Hon’ble Supreme Court in the case of GVK Industries Ltd and anr. Vs. The Income Tax Officer and anr. in Civil Appeal No. 7796 of 1997 decided on 01/03/2011. 7. In the above said facts, Ms.Shilpa Goel submitted the following substantial questions of law arise in the present case. a) "Whether on the facts and in the circumstances and in law, the Hon'ble ITAT erred in deleting addition of Rs 6,13,09,845/- without appreciating that section 5(2) of the Act provides for taxation of "all income from whatever source derived" in case of a non-resident"? b) "Whether on the facts and in the circumstances and in law, the Hon'ble ITAT erred in deleting addition of Rs 6,13,09,845/- without appreciating that the assessee failed to provide a copy of the bank account statement in case of account maintained in HSBC Bank, Geneva, Switzerland and hence failed to provide the explanation of the source of deposits in the same?" c) "Whether on the facts and in the circumstances of the case and in law, the Hon'ble ITAT erred in deleting addition of Rs 6,13,09,845/- without appreciating that the fact of the beneficiaries of the account maintained in HSBC Bank, Geneva, Switzerland established the nexus of foreign assets with India and brought it into purview of Indian laws?" d) "Whether on the facts and in the circumstances of the case and in law, the Hon'ble ITAT erred in deleting addition of Rs 6,13,09,845/- without taking into account the decision of a Constitution Bench of Hon'ble Supreme Court in case of GVK Industries Ltd & Anr v The Income Tax Officer &Anr in Civil Appeal No. 7796 of 1997 where extra-territorial nexus of Indian laws has been held to be valid?" e) "Whether on the facts and in the circumstances of the case and in law, the Hon'ble ITAT erred in holding that AO had not proved that money deposited in HSBC a/c was sourced from India, without taking into account the decision of Hon'ble Bombay High Court in the the minds of the authority?" f) "Whether on the facts and in the circumstances of the case and in law, the Hon'ble ITAT erred in not taking into account the provisions of Section 114(g) of the Indian Evidence Act, 1872, while dealing with the issue of non-submission of bank account statement by the assessee?" g) "Whether on the facts and in the circumstances of the case and in law, the Hon'ble ITAT erred in taking into account the taxation of income in the hands of beneficiaries of the Foreign Trust in India without considering that deposit in the foreign bank account is a separate transaction entailing separate treatment u/s 5(2) of the Act read with section 9 of the Act?"

We have heard Shri Rohan Shah, learned senior counsel for the respondent- assessee. Mr. Shah invited our attention to the impugned order and also to the relevant provisions to contend that the present appeal does not raise any substantial question of law.

Heard learned counsel. Perused the memo of appeal and materials on record. There is no dispute that the assessee is a non-resident under Section 6 of the said Act. The source of information is a ‘Base Note’ which had various details of account holders along with the balance in certain years. The AO has made addition on the basis of Base Note of the foreign bank account of HSBC Bank, Geneva as income which has escaped assessment. The CIT(A) recorded a finding that Base Note indicates that the Bank account of HSBC Bank, Geneva was opened in the year 1997. The appellant was in fact a non-resident since 1979. Thus, during the year 1997, the year in which the account was opened and even before this year, and even thereafter the appellant continues to be a non-resident under the Act. The CIT(A) referred to the provisions of Section 5(2) read with Section 9 of the Act. It is a well settled position in law that a non-resident, having money in a foreign country cannot be taxed in India if such money has neither been received or deemed to be received, nor has it accrued or arisen to him or deemed to accrue or arise to him in India. The CIT(A) in paragraph 23 of the impugned order has observed thus :

The assessee being a non-resident, CIT(A) held that being a ‘non-resident’, having money in a foreign country, cannot be called upon to pay income tax on that money in India unless it satisfies the test of taxability under the provisions of the Act, which in the instant case is not getting satisfied in the case of assessee. It is for these reasons, it was held that the bank account of HSBC Bank, Geneva is outside the purview of the Act.

A finding of fact recorded by CIT(A) that source of deposits are no where proved by the four instances which are relied upon by the AO as circumstantial evidence. In paragraph 30, it is observed thus :

In furtherance of the aforesaid and in consonance with the fundamental latin maxim – ei qui affirmat incumbit probatio- which emphasizes that the burden of proof rests upon the party that asserts and not on the party that denies- it is incumbent upon the Revenue to establish any tax liability strictly within the In paragraph 34, CIT(A) observed thus :

In such view of the matter, we do not find any fault with the order of CIT(A) which was upheld by the ITAT. CIT(A) as well as ITAT were justified in recording the findings based on facts that addition in the case of the appellant should not sustain and that the addition in the hands of the appellant be deleted for the assessment year 2006-07. We do not find any substantial question of law that arises for our consideration in the present appeal. The appeal is dismissed. (GAUTAyM A. ANKHAD, J.) (M.S.KARNIK, J.)