DEPUTY COMMISSIONER OF INCOME TAX (IT)-4(1)(2), MUMBAI vs. SHRI ARUN MAHVACHARI RANGACHARI, MUMBAI

Grounds of appeal read as under :- 1. "On the facts and in the circumstances of the case and in law, whether the Ld. CIT(A) erred in holding that the source of the bank deposits of the assessee is explained without appreciating the fact that the assessee received his earnings from various consultancy work carried out in India, through his fully owned foreign companies, located outside India and brought the same earnings back in India? 2. "On the facts and in the circumstances of the case and in law, whether the Ld. CIT(A) erred in allowing relief to the assessee holding that the money invested by the assessee in the shares of Indian Companies from foreign remittance is exempt in light of the Board Circular No. 5 dated 20-02-1969 without appreciating the fact that the assessee does not fulfill the conditions laid down in this Circular?

Brief facts of the case are as under :-

Thus Assessing Officer observed that on the basis of large amount of payment made to the entities, which is owned by assessee on account of services rendered in India and the proceed from the same have been used to make the investments, which suggested that the assessee is the beneficiary owner of money. The assessee has not filed the return of income for A. Y. 2008-09 in India showing the proceeds from these operations nor the source of his investment. Hence in view of the same there was reason to believe that income to the tune of Rs.2,57, 970/- has escaped assessment for A. Y. 2008- 09.

During the course of assessment proceedings the Assessing Officer asked the details of source of investment and party-wise and year wise details of consultancy charges received in Dar Capital Ltd. and Thurles International Ltd. from GFH and KBHC alongwith invoices raised for the services rendered by the assessee to both GFH and KHBC.

The Assessing Officer further verified the bank statement of the assessee. The Assessing Officer observed that there were foreign remittances in the assessee NRE account Chennai branch from HSBC Bank Middle East Ltd., Dubai totalling an amount of Rs. 1,56,84,464/-. The Assessing Officer noted that the authorised representative sought one week time for furnishing confirmation from M/s. Gulf Finance House (GFH) to the effect that M/s. Dar Capital Ltd. had not given the said sums during the year under consideration. However, the assessee has not furnished any confirmation from M/s. Gulf Finance House. The Assessing Officer show-cause the assessee that if the source of above credit is not disclosed it will be treated as unexplained credit in the hands of the assessee. The assessee in response submitted that they have submitted the FIRC certificate and it shows that funds have been 4 Shri Arun Madhvachari Rangachari transferred on capital account from his own bank account maintained overseas. Holding that learned AR has not furnished any confirmation from GFH and the assessee has failed to disclose source of credit. The Assessing Officer added the amount of Rs. 1,56,84,464/- as unexplained cash credit u/s. 68 of the Act. The conclusion remark of the Assessing Officer reads as under :-

Upon assessee’s appeal learned CIT(A) as regards reopening confirmed the same by holding as under :-

As regards issue of merit learned CIT(A) accepted the assessee’s contention that FIRC certificate is sufficient and section 68 in such circumstances will not be applicable. He referred to section 68 and concluded as under :-

As regards addition u/s. 69 of Rs. 2,57,970/- learned CIT(A) deleted the same on the basis of his adjudication under the above ground.

Against this order the assessee has filed appeal before the Tribunal.

We have heard both the counsel and perused the records. Learned Counsel of the assessee relied upon the order of learned CIT(A). The submitted that from the FIRC, it is evident that the amount have been credited in assessee’s NRE account was transferred to overseas account in Dubai. He submitted that the assessee being a NRI cannot be asked to prove source of credit in its overseas account. In this regard learned counsel placed reliance upon the following case laws :-

Per contra, learned Departmental Representative submitted that the additions are based upon findings in search action carried out in the case of Valuable Group on 10.4.2013. That in a related action M/s. DAR Media Pvt. Ltd. was also covered u/s. 132 of the Act on 10.4.2013 and the statement of Shri Arun Rangachari was recorded. That during the search proceedings, Shri Arun Rangachari has claimed to have rendered consultancy services to Gulf Finance House (GFH) & Khaleej Bank of Commerce (KBHC) which were executing certain projects in association with the Valuable Group. Further, Shri Arun Rangachari in his statement recorded during the course of search proceedings also confirmed that M/s. DAR Capital Limited and M/s. Thurles International Limited are owned 100 percent by him. That the email from Gulf Finance House addressed to Shri Arun Rangachari was found which stated that “please note that GFH over the years, has for certain of its projects made

That during the year Rs. 1.568 crores credited in assessee’s NRE account Chennai Branch from HSBC Bank Middle East Ltd. Dubai. Narration in the said bank account read as under :-

Referring to the above, learned Departmental Representative pleaded that the amount has been received from GFH and Dar Investment Ltd., which is a hundred percent owned entity of Shri Arun Rangachari. In these circumstances, referring to the investment made by the assessee learned AR pleaded section 68 has rightly invoked regarding deposits in assessee’s own NRE account. She pleaded that receipt in absence of any further detail submitted by the assessee can be reasonably attributed to the services rendered by the assessee in India. She submitted that learned CIT(A) has totally ignored the findings of services and the statement of the assessee and he has relied upon the case laws from the ITAT which were not rendered in the 8 Shri Arun Madhvachari Rangachari background as operating in the present case. She submitted that it is clearly established the source of assessee’s income is originated in India as the substantial amount is received by the assessee from Gulf Finance House and Khaleej Bank of Commerce for the services rendered by the assessee in India. That there is no curtain left to state that the Revenue has no incriminating documents to ask the assessee for the source of money. Further she submitted that learned CIT(A)’s reliance on Board circular No. 5 dated 20.2.1969 is not correct in as much as in the said circular it was mentioned that it was applicable when there is no evidence for transfer of money. It is submitted that by no stretch of imagination it can be submitted that section 68 is not applicable in the case where the persons of India origin residing abroad but intending to return to India and settle here permanently, the money brought in or remitted from abroad by such persons through banking channels, no question at all to be asked by the Department as to the origin of the money. Furthermore, she submitted that in the instant case, the assessee is not a person who intending to return to India and settle here permanently. Hence, she submitted that Circular relied upon by learned CIT(A) is not correct.

Upon Careful consideration we find in a search and seizure action assessee has accepted he has rendered services in India to Gulf finance house (GFH) Bahrain which was executing certain projects in association with the Valuable group. During the search itself email from Gulf Finance House addressed to the assessee was found wherein it was mentioned that GFH over the years has made payments to US 51.5 million to DAR Capital ltd and US dollar 41.5 million to Thurles International Ltd Mauritios. These two companies were hundred percent owned by the assessee. In these circumstances the money found credited in assessee’s NRE account was enquired by the assessing officer. The narration in the NRE account in particulars referred to GFH and DAR Investment Ltd. In these circumstances upon enquiry the assessee informed the assessing officer that his concern Thurles was not incorporated in that assessment year and assessee was required to submit the necessary certificate from GFH that the amount did

Upon assessee’s appeal learned CIT(appeals) totally ignored the facts of search and the incriminating material found. He only referred to the FIRC and concluded that assessee need not show the source of its income in its NRE account if it has been received from abroad if he is a NRI. The learned CIT appeals also referred to certain case laws in this regard. In our considered opinion learned CIT(appeals) has totally erred in ignoring the background as referred by the assessing officer. The facts of the case and the search predominantly pointed that assessee has received sums through its entities abroad as consultation fee received from GFH Bahrain for rendering services in India. The entries in the bank account did mention the name of GFH and Dar Capital. In these circumstances it was incumbent upon the assessee to give a confirmation from GFH that no fee was paid to the assessee through its entities during the concerned assessment year for services rendered to GFH in connection with projects in India. Since the assessee has failed to do so in our considered opinion the learned CIT appeals has totally erred in ignoring the detailed finding of the assessing officer .It is settled law from Hon’ble Apex Court in the case of Sumati Dayal Vs. CIT (1995 AIR 2109) and CIT Vs. Durga Prasad More (82 ITR 540) that revenue authority are not to put on blinkers and ignore the overwhelming surrounding circumstances. The learned CIT(A)’s reliance upon the case laws and the circular is totally not applicable on the facts of the present case. The facts of the case prima facie indicate that assessee has received sums abroad from foreign concern on account of services rendered in India. In these circumstances it was incumbent upon the assessee to cogently rebut that assessee has not received any sums abroad for 10 Shri Arun Madhvachari Rangachari services rendered in India which could have been transferred from abroad in his Indian account through these concerns. The sole reliance upon the FIRC which is only a certificate of remittance from abroad in absence of the overwhelming surrounding circumstances by the learned CIT appeals not at all sustainable.

Accordingly in the background of aforesaid discussion in our considered opinion the order of learned CIT(A) is to set aside the order of the assessing officer is to be restored. Accordingly we set aside order of learned CIT(appeals) and restore that on the assessing officer on the issue of credits in the bank account.

As regards the investment in shares out of the said bank account the same cannot be added again as unexplained investment .It is settled law that assessee cannot be subject to double jeopardy. Hence qua the unexplained investment in shares the order of CIT(A) is upheld.

In the result revenues appeal stands partly allowed.