THE DY CIT (IT)-CIRCLE-3(3)(2), MUMBAI vs. URVI MANISH MEHTA, MUMBAI

These are the bunch of four appeals filed by the Dy. Commissioner of Income Tax, Circle 3(3)(2), Mumbai (the learned Assessing Officer) in case of two assessee, husband and wife, namely Mr. Manish Vijay Mehta and Mrs. Urvi Manish Mehta for A.Y. 2006-07 and 2007-08. Both the assessee have also filed Cross Objections in these appeals.

Whether on the facts and circumstances of the case and in Law, the Ld. CIT(A) has: erred in relying on the decision of DCIT(IT), Mumbai vs Hemant Mansukhial Pandya (100 taxmann.com 280) without appreciating that the decision of Hemant Pandya (supra) was distinguished from the decision of Mumbai ITAT in the case of DCIT(IT) vs Rahul Rajnikant Parikh (ITA NO. 5889/Mum/2016) on certain grounds which are absent in this case and hence, the observations of Hon'ble ITAT Mumbai in the case of Rahul Rajnikant Parikh (supra) would apply squarely in this case?

The Appellant prays that the order of the Ld. CIT(A) on the above ground(s) be set aside and that of the Assessing Officer be restored."

The assessee submitted that

Assessee also challenged the reopening of the assessment.

The learned Assessing Officer found that assessee has not produced any evidence or proof of the source of the money deposited in the bank account. The learned Assessing Officer held that as per ‘base note’ assessee is having an address in 501, Vijay Apartment, Bhulabhai Desai Road, Mumbai-400 026, which is his address and assessee is a director in a company engaged in diamond business. Further, assessee and his family members are still based in India and are in the diamond business. Therefore, assessee has business interest in India. The learned Assessing Officer further held that assessee has become a non-resident since 1979, which is a year after he retired from a partnership firm in India. After that assessee continues to be in the diamond business, therefore, it is reasonable and prudent to assume that the deposits in HSBC bank account are form his operation of diamond business in India. Accordingly, the deposit represents income from source from India. As assessee has settled in Singapore, where there is no income tax and as per the base note the HSBC account in Geneva was opened on 19th April, 2002. Further, the assessee did not produce bank account statement and the source of deposit therein despite several opportunities, therefore, Income is

Assessee aggrieved with the order of the learned Assessing Officer, preferred the appeal before the learned CIT (A).

Assessee reiterated the submission made before the learned Assessing Officer and further challenged that Assessing Officer has not disclosed the base information containing in ‘base note’ stating that same is confidential information and further that the learned Assessing Officer has fallen into grave error in reopening the assessment on the basis of the ‘base note’. It was further argued that the ‘base note’ does not mention any amount deposited during the relevant assessment year and thus, no addition can be made. It was further challenged that the addition has been made on the basis of base note only without any corroborative evidence that assessee has any connection with India. It was further stated that the false allegation

The learned CIT (A) asked the learned Assessing Officer to submit the remand report which was submitted on 4th November, 2016, reiterating the assessment order paragraph no.6.2. It was further stated that as per ‘base note’ names of other persons are mentioned in the bank of namely Shah Kerul Shashikant and Shah Anjali (anjalio) Kerul. Both these parties are directors of a company namely ‘Genevieve Orsine Jewels Pvt. Ltd’ which is in the business of gold and diamond. Both these persons are closely connected and related to the assessee and further they are in diamond jewellery business. It establishes the link between the business in India and impugned bank account. The Assessing Officer justified the addition made in absence of any information provided by the assessee.

The learned CIT (A) asked the assessee to furnish reply to the remand report which was submitted on 30th January, 2017. Later on, assessee submitted the written arguments before the learned CIT (A). The learned CIT (A) held that similar issue has been decided by his predecessor in case of Venu Raman Kumar in A.Y. 2007-08 and the facts are similar. In that case the issue was decided in favour of the assessee by deleting the addition of ₹4,78,39,775/-. He further held that assessee is a non-resident since A.Y.

The learned Departmental Representative vehemently supported the order of the learned Assessing Officer. At the time of hearing on 18th August, 2022, the learned Departmental Representative was asked to show the ‘base note’. On 13th September, 2022, the ‘base note’ was produced by the learned Authorized Representative which was verified and returned back.

The base note also contained the noting that same was shown to the authorized representative of the assessee. This was pointed out to ld. AR. This was fairly agreed that assessee is aware of the contents of the based note.

The learned Authorized Representative reiterated the written submission made as under:-

Assessee being nonresident not liable to be taxed in India.

In response to Notice u/s 148 dt 12/3/2014 for AY: 2006-07 & AY: 2007-08 the appellant filed copy of the return of income and sought the reasons for reopening of the assessment. Pgs 57-58 & 59-61

Copies of the returns of income filed by the appellant in India for assessment years 2003-04 to 2013-14 were filed with AO wherein the residential

The assessee also submitted Proof of nonresident status along with copy of Belgium Citizenship passport. pgs 8-30

Since the appellant is a non resident, he was under no obligation to file any details about his accounts or assets situated abroad.

AO himself has acknowledged the status of the appellant as that of a Non resident and there is no dispute on the said facts. (Asst order pg 1).

Reasons recorded for reopening of assessment pg 123-124.

The AO had mentioned in the first paragraph of the assessment order itself that "Information was received by Government of India from the French Government under DTAA in exercise of its sovereign powers that SOME INDIAN NATIONALS AND RESIDENTS (emphasis supplied) have Foreign Bank Accounts in HSBC Private Bank (Suisse) SA, Geneva which were undisclosed to the Indian Taxation Department. This information was received in the form of a document (hereinafter referred to as "Base Note") wherein various details...........

The authenticity of the Base Note is being challenged because copy of the reasons which were handed over on 15.07.2015 lacked the authenticity

Written application for supply of " recorded reasons" and/or "substantial documentary evidence" was made on 18.05.2016, pg 179 for which the reply from the AO was received on 27/5/2016 pg 180 stating that the same appears in the order rejecting the objections to reopen the assessment in his order dated 17.03.2015. pg 146. This does not have either recorded reasons" and/or "substantial documentary evidence "and hence another written application was made on 08.06.2016 pg 181-182 which has not been responded by the AO.

The case papers were transferred to AO vide CIT 19, Mumbai vide his order dated 11.03.2015.(Refer page 145 of the paper book). The AO completed the assessment on 31.03.2015, It means, the AO must have either received the files from the earlier jurisdiction with the Report of Inquiries made at their end or the AO must have made his independent inquiry within just a period of 19 days.

Further the assessee's raised its objection against reopening vide letter dt 4/8/2014 pg 125-134 which was disposed off on 17/3/2015 pg 146.

Submission of assessee before AO vide letter dt 24/3/2015 pg 166-171.

Submission of assessee before AO vide letter dt 27/3/2015 pg 172-178

Thereafter the AO passed the assessment order on 31/3/2015 making an addition of Rs. 30,33,945 (US$ 67421 x Rs. 45).

Written submission before CIT(A) dt 17/6/2016. pg 184-210

The Id CIT(A) had called for remand report from the assessing officer (AO) mainly on the observations and conclusions arrived at by him in paragraph 6.2 of the assessment order.

Remand report dt 4/11/2016 was forwarded vide letter dt 13/1/2017. pg 211 22

Brief note and summary of submissions filed before CIT(A). pg 237-261

Notice under Section 148 cannot be issued on mere suspicion. Reopening is bad in Law as there exist no reason to believe that income has escaped Assessment and there is no independent application of mind on the part of the Assessing Officer. Reopening is not permitted to make roving enquiries merely on basis of unauthenticated documents.

The information obtained was about a Bank Account in HSBC, Geneva. Having a Bank Account in Geneva by a non-resident cannot be a reason to reopen. AO could have reopened only if he had any evidence to link the amounts in said account with source in India. Thus, there are a factual error.

Reliance is placed on the decision of the jurisdictional High Court in the case of PCIT v. Rajesh D. Nandu (HUF) (2019) 261 Taxman 110 (Bom.) (HC)wherein it was held that since reasons as recorded in support of impugned notice to doubt genuineness of gift was not based on any material so as to form belief that assessee's income had escaped assessment on account of gift not being genuine and it was only a suspicion subject to enquiry, impugned reopening notice issued by Ld. Assessing Officer was unjustified.

Recording the reasons for re-opening the assessment merely on the basis of the Base Note without application of independent mind by the AO is void. Base Note did not show that any amount was deposited during the relevant year.

The AO didn't had any cogent and credible information or evidence in possession of the either at the time of recording of reasons or at the time of completion of assessment or even if he had, the same was never shared with assessee even at appellate stage.

A bare reading of the recorded reasons shows that there is not even a whisper or suggestion therein that information gathered or received by the AO in any manner would enable him to form satisfaction that appellant's income (nonresident) had escaped assessment. Thus there is no proper reasons recorded for reopening the assessment. PCIT v/s. Shodiman Investment Pvt Ltd. (2020) 422 ITR 337 (Bom) Ankita A Choksey v/s. ITO (2019) 411 ITR 207 (Bom) (HC)

The AO himself never conducted any direct enquiries of investigation from any person or any source to establish that the appellant had maintained any accounts.

The AO did not analyze the facts and circumstances before issuing notice u/s 148 but simply acted on the advice/report of DDIT (Inv) and the approval was also given by JCIT, Range- 16 in the same mechanical manner.

The AO has merely acted upon the directions of Investigation Wing of Mumbai and not based upon an enquiry/examination/verification of his own findings. Phool Chand Bajrang Lal (1993) 203 ITR 456 (SC)

The AO has violated the mandate of jurisdictional High Court in case of Asian Paints Ltd v/s. DCIT (2008) 296 ITR 96 (Bom) as assessment was completed within 4 weeks after disposal of the objections. Similar view has been taken by Hon. Bombay High Court in Bharat Jayantilal Patel v. UOI (2015) 378 ITR 596 (Bom.)(HC). 13. The Hon'ble Delhi High Court (Full Bench) in the case of Kelvinator of India Ltd, upheld by Hon'ble Supreme Court of India, 320 ITR 561 (SC) wherein Supreme Court interalia held the AO has power to re-open the assessment provided there is tangible material" to come to conclusion that there was escapement of income from assessment. Reason to believe' has to be construed in logical term'.

The assessment made on the basis of materials not brought to the notice of the taxpayer are violating the principles of natural justice (East Coast Commercial Co. Ltd, 63 ITR 449 (SC)). Even if he collects information from private sources, he is duty- bound to disclose the substance of the enquiry to the assessee before making the assessment.

It is submitted that this is against the rule of natural justice and therefore the entire reassessment proceedings require to be held as null and void. Page 179 182 of paper book.

It was also incumbent upon AO to independently apply his mind before reopening the Assessment in the facts of the present case for following reasons:

Therefore, the AO could not have reopened the assessment merely because he had information that the Assessee had a foreign bank account. Thus, there is nonexus between the AO's belief and the material on record. The reply of the Minister of State in the Ministry of Finance is also material on record, after considering which it cannot be said that mere possessing a foreign bank account could have led the AO to reopen the Assessee's assessment. No rational person could have entertained a belief that merely by holding a foreign bank account, non-resident Assessee's taxable income has escaped escapement within the meaning of section 147 of the Act. Thus, assessment has been reopened without application of mind.

The recorded reasons clearly shows that the reopening of assessment has been done in the instant case to undertake a fishing enquiry so as to cast an onerous burden on the Assessee of proving a negative i.e. foreign assets have not been sourced from income arising/ accruing in India. The

Reopening is bad in law if there exist no "Reason to Believe" even if there was no original scrutiny assessment.

The reasons to believe must have rational connection with or relevant bearing on the formation of belief i.e. there must be a live link between material coming the notice of the Assessing Officer and the formation of belief regarding escapement of income.

Where reopening is done only on the basis of information received from the investigation wing without application of independent mind by Ld AO, reopening is bad in law and same tantamount to roving/fishing enquiry. PCIT v Shodiman Investments Pvt Ltd. (2020) 422 ITR 337 (Bom)(HC) [Original Assessment u/s 143(1)]

Base Note relied upon by Ld AO is not admissible in evidence.

Explanation 2 to Section 147 has created deeming fiction for income chargeable to tax that has escaped assessment and the fiction doesn't extend to "Reason to believe" and "chargeability to tax". Hence, just because person is found to have any asset outside India would not justify reopening of Assessment.

Reopening is bad in law as there is no sanction u/s 151 and assuming there is sanction then same is mechanical in nature without looking at basic facts.

Appellant being a non resident which is undisputed fact and accepted by AO, he was not obliged to disclose assets situated abroad in the returns of income filed in India.

The burden of proof always lies with the person who lays charges The one who alleges has to establish the charge. The burden of proof does not lie with the person who denies the allegation.

Also Refer: But if a foreign document is otherwise relevant and proved according to law, its photocopy can be admitted in evidence provided such copy is duly authenticated in the manner prescribed by the Diplomatic an Consular Officers (Oaths and Fees) Act, 1948 [Vimal Chandra Gulecha 134 ITR 119 (Raj) at 130].

Factual inaccuracy in asst order: PERVERSE ORDER

The AO held that "in view of the factual position regarding his earnings in India at mentioned at Para (1) and (ii) above, it is presumed that the deposits are from his Indian income".

The conclusions arrived at by the AO are WHOLLY AND TOTALLY factually and legally incorrect which goes to prove that his finding is vitiated by the reason of his indulging in conjectures, suspicions, surmises, assumptions and presumptions and without any authenticate material to support the same and that, in any case, it was perverse, and therefore it is submitted that the entire reassessment proceedings require to be held as null and void.

Even assuming without admitting, the scope of total income in case of a Non resident is enumerated in Section 5 (2).

The burden is on the revenue to prove that the income of the non-resident falls within the ambit of such section

It is submitted that the AO intended to reassess the appellant only on account of an asset located outside India but there is no information about the

Even assuming without admitting, the extended period of sixteen years for issue of Notice u/s. 148 is available u/s. 149(1)(c) only in case where any income in relation to any asset (including financial interest in any entity) located outside India, chargeable to tax, has escaped assessment for any assessment year. Thus, essential requirements are that –

The appellant who is a Non resident since last about 15 years to have a bank account outside India is not vital or important information.

Under Section 149(1)(c), and for the purpose of reassessment asset located outside is relevant if and only if there is income in relation to such asset located outside India and that such income must have been chargeable to tax in India.

If there is no income chargeable to tax in India in relation to asset located outside India there can be no reassessment since reassessment proceedings

Provisions of Section 149(1)(c) and proviso 2 to Sec 147 make it clear that what is intended to be reassessed is only income in relation to any asset (including financial interest in any entity) located outside India, chargeable to tax that has escaped assessment for any assessment year.

The AO has not disclosed nor referred to any credible information in support of his finding that the said account had peak balances on any particular day during the Financial Year 2005-06. The AO, based only on hearsay and unverifiable information and adopted imaginary amounts as peak balance and proceeded to make additions.

The AO has wrongly taxed the alleged income by taking count of all the possible assumptions and probabilities only on suspicion It is submitted that judicially it has been held that suspicion however strong cannot take place of the evidence.

The revenue is not justified in placing the onus of proving a negative on the Assessee.

Even the Hon'ble Finance Minister, has clarified that all accounts in foreign banks may not be illegal as they may belong to NRIs. Thus, even the Government has acknowledged the fact that an NRI's foreign bank account is not illegal. In the instant case, since the Assessee is an NRI, the Government does not seek to tax him in India in respect of his foreign bank account. Also, as per the official statement released to the media on 9/2/2015, the

The AO has taxed the SAME INCOME in the hands of his wife Smt. Urvi Manish Mehta (PAN: AAIPS0073M) independently and making a substantive assessment which amounts to double assessments and double addition resulting into double taxation of the alleged income.

In Subsequent year A.Y.: 2007-08 same balance amount carried forward is added back in hands of both assessees.”

Cross Objections filed by the assessee are on the issue of reopening and on merits. They are merely supportive in the nature.

We have carefully considered the rival contentions and perused the orders of the lower authorities. Undisputedly,

A Nonresident is chargeable to tax in India only income falls under Section 5(2) of the Act. Accordingly, he is chargeable to tax only if the income is received or accrues or arises in India or deemed to be received or deemed to accrue or arise to him in India. Therefore, the assessee can be asked to file the details only with respect to the income falling under Section 5(2) of the Act. Therefore, it is an undisputed fact that assessee is a non resident is not obliged to disclose his assets situated outside India in the return of income filed in India.

The facts also shows that the appellant was born in India in 1975 and became non-resident in A.Y. 2002-03 when he was 25 years old and not four years as held by the learned Assessing Officer. It is also stated by the assessee that he was never a partner in any firm in India. This data and statement of facts was not rebutted by the learned Assessing Officer. Further, these facts are also not doubted that assessee is employed in Belgium after he became a non-resident. Assessee also denied that he was ever a beneficiary of any discretionary trust. Therefore, it

In the result, ITA No. 494/Mum/2021 filed by the learned Assessing Officer for A.Y. 2006-07 is dismissed.

ITA No. 493/Mum/2021 is also filed by the learned Assessing Officer for A.Y. 2007-08, wherein the same addition of ₹30,84,468/- is made in the hands of the assessee on account of balance in HSBC bank account as per ‘base note’ having balance of USD 69,737/-. The learned CIT (A) deleted the addition considering the facts in Assessee’s own case for A.Y. 2006-07. We do not find any reason to sustain the order of the learned CIT (A) for A.Y. 2007-08. For the reason that, we have already upheld the order of the learned CIT (A) for A.Y. 2006-07, deleted the above addition.

Accordingly, the appeal of the learned Assessing Officer for A.Y. 2007-08 in ITA No.493/Mum/2021 is dismissed.

Assessee has filed cross objections in CO Nos. 155/Mum/2021 and 156/Mum/2021, both are supported in nature. As we have already upheld the order of the learned CIT (A) for both the years, deleted the impugned addition, these cross objections are infractuous and hence dismissed.

In the result, all the appeals of the learned AO and CO of both the assessee are dismissed.