VAZHOOR SUDARSANAN THAMPI,THRISSUR vs. INCOME TAX OFFICER, (INTERNATIONAL TAXATION), WARD-2(1), BENGALURU

Brief facts of the case shows that assessee is a resident of UAE, did not file his return of income for assessment year 2015 – 16. The ld AO had a credible information that during the year under consideration the assessee has made investment in time deposit amounting to ₹ 220 lakhs. Therefore, show cause notice under section 148A (b) of the act was issued on 26/3/2022 providing an opportunity that why it should not be held that there is an income chargeable to tax has escaped assessment and why notice under section 148 of The Income Tax Act, 1961 should not be issued. The assessee did not respond to the same. As assessee failed to respond, order under section 148A (d) of the act was passed on 19/4/2022 and accordingly notice under section 148 of the act was issued on 19/4/2022. Assessee failed to respond. Further ld AO issued notice under section 142 (1) through the ITBA portal on various dates but same was not responded to. Accordingly, the learned assessing officer proceeded to pass a draft assessment order under section 144C (1) of the act on 13/2/2024 determining the total income of assessee at Rs 2,20,00,000/- by making addition u/s 69 of The Act.

Assessee aggrieved with the draft assessment order, filed an objection before the learned DRP on 11/3/2024 which came to be disposed of on 27/11/2024. The assessee raised objection that the learned assessing officer has incorrectly made an Page 3 of 14 addition of ₹ 220 lakhs under section 69 of the income tax act. The learned DRP asked for the remand report from the assessing officer and to conduct inquiries under section 144C (7) of the act. The learned assessing officer submitting the remand report on 25/10/2024. In the remand proceedings, assessee submitted the computation of income for the assessment year 2015 – 16, passport, financial statements such as balance sheet, profit, and loss account. The assessee claimed that he is holding since long shares in three private limited companies and has provided loan to these companies long back. Shares of these companies were sold to One Dr v S Gopalan by entering a memorandum of Understanding. Assessee received consideration on sale of shares of Rs 1,81,03,143/- and loan repayments of Rs 77,11,696/-. This sum was credited through cheque in the bank account of the assessee and from that assessee has obtained time deposit receipts of Rs 2,20,00,000/-.

To substantiate the same Assessee produced details of holding of share capital and reconciliation of shareholding of Ahalia money exchange and financial services private limited for the financial year 2013 – 14, Ahalia exchange and travel private limited and Ahalia builders and developers private limited. The assessee also submitted his bank account with federal bank and Axis bank, Sources of the time deposit with Federal bank along. Assessee evidences the same with the transfer certificates of shares dated 26/9/2014, letter of confirmation of said transfer issued by the three companies on 27/9/2014. The assessee also submitted email communication of the respective company along with board resolution evidencing above transaction. Regarding unsecured loan of the assessee in those companies, which were repaid by those companies through cheques, he produced the details of unsecured loan from the companies from 2010 onwards. Page 4 of 14

The learned assessing Officer examined the details and noted that the assessee is a resident of Dubai, a non-resident Indian for taxation purpose for the impugned assessment year. Thus, the status of assessee as non-resident Indian was accepted. The explanation of the assessee was considered that for the making of the time deposit of Rs. 220 lakhs assessee has deposited ₹ 160 lakhs out of the funds acquired from the sale of equity shares held in three different companies as stated above. The AO noted that assessee has earned Rs. 1,81,03,143 on sale of the shares received from one buyer Dr V S Gopalan, deposited in the bank account of the assessee maintained with the federal bank. Out of That Rs. 160 lakhs were withdrawn from that account and transferred to the non-resident external deposit account of the assessee. But ld AO did not believe the claim of the assessee stating that assessee did not submit the fair valuation report of the equity shares at the time of the sale of those shares, hence, it difficult to ascertain the genuineness of the working of the capital gain generated out of the sale of equity shares. Further cost of acquisition of shares remains Rs 10/- only, assessee did not submit any explanation of how the loss was incurred on sale of shares. Therefore, he held that the payment trail for the relevant investment made in time deposit was explained duly supported with the documents and bank statements but the genuineness of the sources of funds invested in time deposits are not explained by the assessee. On repayment of loan by the companies, the ld agreed that sources of funds are repayment of loan, but it was not shown when the loan was given. The ld AO further held that at the time of filing of the return of income, assessee has claimed refund of ₹ 108,880 in the reassessment proceedings, as reassessment proceedings are for the benefit of the revenue and not for the benefit of the assessee and as there

In response to the above remand report the assessee was directed to furnish the rejoinder. In rejoinder assessee submitted that a. sources of funds for acquisition of Time deposit receipt are the proceeds from sale of shares and receipt of repayment of loan from those companies, which is not at all doubted. b. Shares were acquired long back and therefore as there is no increase in cost, shares were acquired at the cost of Rs 10/- each per shares, there is no reason to doubt it. This is also confirmed by the companies. c. Regarding genuineness, MOU with the buyer was produced it was accepted as it is and therefore the transaction of sale of shares is not at all doubted. For computation of capital gain, neither sale consideration and nor acquisition cost is doubted, the capital loss cannot deny. d. Confirmation of the Indian companies is submitted to shows repayment of loan, loans are depicted in the annual accounts of those companies, which is repaid, therefore noting more could have been produced.

Learned DRP held that that the transaction of sale of shares is itself not genuine which is clear from the observation of the ld AO because of uniform cost of acquisition of shares over the years and the lack of evidence to show that the sale value of the shares was determined based on market condition and independent valuation. With respect to the repayment of loan from the above three companies to the assessee which is also the source of deposit made with the federal bank, the Finding of the ld AO that assessee was unable to demonstrate with any proof that loan amount to the said company is repaid to Page 6 of 14 assessee. It agreed with the observation of the learned assessing officer and held that there is no reason to interfere with the order of the assessing officer.

On the direction of the learned dispute resolution panel, the learned assessing officer passed an assessment order under section 147 read with section 144 of the act on 12/12/2024 determining the total income of the assessee at Rs 2,20,00,000/.

Aggrieved with the assessment order, assessee is in appeal raising grounds stated here in above.

The first ground of appeal

The learned CIT DR vehemently supported the order of the learned assessing officer and the direction of the learned dispute resolution panel. She extensively read remand report and findings of the ld AO which were upheld by the ld DRP.

We have carefully considered the rival contentions and perused the orders of the ld AO and directions of the ld DRP. Facts put in narrow compass shows that Assessee is an individual, non- resident assessee Residing in UAE was a director in three group Page 9 of 14 companies holding its shares and the unsecured loan in those companies. It entered a MOU for sale of shares of Those companies with one MR Dr V S Gopalan. In terms of MOU, Assessee sold shares of those companies as under: - Name of Number Cost of Date of Sales Capital the of Acquisition sale consideration loss Company shares of shares Ahalia 4500 2,25,00,000 26/09/2024 1,66,83,112 58,16,888 Money Exchange Financial Services Private Limited Ahalia 100000 10,00,000 26/09/2014 9,86,831 13169 Exchange and Travels private Limited Ahalia 1000 10,00,000 26/09/2014 4,33,200 5,66,800 Builders & developers private Limited Total 245,00,000 1,81,03,143/- 63,96,857

To substantiate receipt of the consideration on sale of shares, assessee submitted MOU, bank statements, Confirmation of companies about transfer of shares and the bank statements. This sales consideration was deposited in Federal bank account and out of total sales consideration of Rs 1,83,03,143/- assessee transferred in NRE External account Deposit of Rs 1,60,00,000/-.

Assessee has also given loan to the above companies which was also repaid by those companies in terms of MOU with DR. V S Gopala as under: - Name of the Amount of Amount repaid Evidence shown companies deposit O/s Ahalia Money 75,38,735 7538735 Balance sheet of Exchange & the companies Financial Services where the Pvt Ltd amount is shown Ahalia Exchange 172961 172961 as loan liability in Page 10 of 14 and Travels the name of the Private Limited assessee Total 7751696 7751696 Out of the above sum credited in the bank account of the assessee on 27-09-2014, assessee transferred on 1-10-2014 Rs 60,00,000/- in NRO Deposit Account. This was substantiated by producing the annual accounts of the companies where loan was shown as unsecured loan liability in the name of assessee, confirmation of the companies and bank statement of assessee with Federal bank.

Thus, assessee explained source of the deposit of Rs 2,20,00,000/- being Rs 1,60,00,000/- from sales of shares of Rs 1,81,03,143/- and Rs 60,00,000/- from repayments of loan advances to the companies of Rs 77,51,696/-. These facts are also accepted by the ld AO and Ld DRP both. Thus, sources of Deposit were accepted. But they doubted the genuineness of the transaction and made addition u/s 69 of the Act.

According to section 69 of the Act, Where in the financial year immediately preceding the assessment year the assessee has made investments which are not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of the investments or the explanation offered by him is not, in the opinion of the 49[Assessing] Officer, satisfactory, the value of the investments may be deemed to be the income of the assessee of such financial year.

In this case the investments are recorded in the books of accounts of the assessee as investments in Time deposit in Non- Resident External account with federal bank of Rs. 2,20,00,000/- which was explained by the assessee that sources of such deposit are sale of shares of three private limited companies and repayment of loan by those companies through account payee cheques supported by annual accounts of the companies and Page 11 of 14 memorandum of understanding with Buyers of the shares and bank accounts of assessee and confirmation of those companies. For verification of sources of deposit even other wise fair market value of shares is immaterial in absence of any other evidence with the ld AO. The Ld AO has not made any addition u/s 56 of the Act. It is also not the case of section 50 D of the act but addition u/s 69 of the Act. Further the cost of acquisition of the shares are also shown in the annual of those Indian private limited companies. The cost of acquisition of the shares is allotted price by those companies. Naturally in absence of any increase in the price of the shares or any cost of improvements claimed by the assessee, cost is bound to remain same till those shares are sold. Thus, addition u/s 69 of the act of FDR in Non- Resident External account of the assessee of Rs 2,20,00,000/- deserves to be deleted. Accordingly Ground no 4 of the appeal is allowed.

Similarly, as the ld AO has neither invoked provision of section 56, 50 D or section 55A, in absence of any further inquiry, as the annual accounts of those companies were available before him, without inquiring with the buyer when MOU was produced before him. The determination of capital loss could not have been denied to the assessee. Accordingly Ground no 5 of the appeal is also allowed.

Now the issue is that Assessee is entitled to the amount of TDS on interest income which assessee has claimed as refund, but the AO denied the same stating that as assessee has not filed the return of income u/s 139, assessee is not entitled to refund in revisionary proceedings u/s 148 of the act. The Reasoning given is that reopening is for the benefit of revenue.so relying on decision of honourable supreme court in case of CIT v. Sun Engineering Works (P) Ltd. (1992) 198 ITR 297 (SC) , such refund was denied. Page 12 of 14

On careful perusal of the arguments of revenue as well as the decision of honourable supreme court, hon. Supreme court held that. “38. Although, section 147 is part of a taxing statute, it imposes no charge on the subject but deals merely with the machinery of assessment and in interpreting a provision of that kind, the rule is that construction should be preferred which makes the machinery workable. Since the proceedings under section 147 are for the benefit of the revenue and not an assessee and are aimed at garnering the 'escaped income' of an assessee, the same cannot be allowed to be converted as 'revisional' or 'review' proceedings at the instance of the assessee, thereby making the machinery unworkable.”

Thus, it is apparent that the decision of Honourable supreme court was with respect to escapement of income and not about issuing refund which is legally due to the assessee.

Provision of section 237 of the Act provides that If any person satisfies the Assessing Officer that the amount of tax paid by him or on his behalf or treated as paid by him or on his behalf for any assessment year exceeds the amount with which he is properly chargeable under this Act for that year, he shall be entitled to a refund of the excess. Thus, the ld AO has not denied that assessee has more TDS than his liability to pay the tax and there is an excess tax. 28. Even otherwise in this case the income of TDS is on interest income received from the companies. This interest income is chargeable to tax in the hands of the company for the yeartides is thus linked to the income assessable u/s 148 of the Act. Therefore, the refund of TDS over tax due cannot be denied to the assessee. The issue is squarely covered in favour of the assessee in The Yanam Co-operative Stores Limited, Yanam. dated 15/4/2025 where in Page 13 of 14 it was on identical facts allowed the claim of the assessee of refund in reassessment proceedings even when the assessee di not file original return u/s 139 of the act. Thus, respectfully following the decision of the coordinate bench, we direct the ld AO to issue the refund of TDS collected over the tax due. 29. In view of the decision on the merits of the case, all other grounds of appeal are not adjudicated and left open.