VALJI HARJI HIRANI,BHUJ vs. ITO.(INT.TXN), GANDHIDHAM

The learned panel incorrectly labeled the figure of Rs. 1,05,06,635 as an investment, whereas it is clearly stated in the submission that this amount represents interest income from NRE FDR. This mischaracterization of income has led to a misunderstanding of the nature of the financial transaction. 4. The DRP wrongly placed the entire onus on the appellant to prove the nature and source of the time deposit without adequately considering the appellant's submissions. 5. There is a violation of the principle of natural justice, as the panel did not provide a fair and unbiased hearing. The rejection of the explanation without proper consideration of the evidence and circumstances surrounding the case is a departure from the principles of fairness and due process.

Brief facts of the case that the assessee is an individual non-resident for the assessment year 2018-19, and his case was opened by the income tax department due to a 'reason to believe' that he had not disclosed their income related to certain transactions made during the relevant financial year. One such transaction was a time deposit of Rs. 1,05,06,365 made with Bank of India, which the assessee had not disclosed in their tax return. After receiving notice under Section 148 of the Act, the assessee filed a return of income and disclosed all relevant information and documents. As an NRI, the interest income earned in their NRE account was exempt under the Income Tax Act, which was reported in the ITR filed in response to the notice. The assessing officer has considered the interest on the principal of the FD as a new FD, based on the bank's report of a transaction filed under Form 61A. The assessee provided Fixed Deposit Interest Certificates and working certified by the bank to prove that the deposits were not made during the financial year 2017-18 and that the amount of Rs. 1.05 crore was the interest earned and reinvested in the existing fixed deposit. However, the assessing officer raised doubts Page 2 of 10 about the authenticity of the FD interest and the source of funds used for the investment in the draft assessment order. The officer proposed treating the investment as unexplained under Section 69 of the Income Tax Act and taxing it at the applicable rates under Section 115BBE, despite the evidence provided by the assessee.

In view of above finding, the transactions of purchase of time deposit of Rs.1,05,06,635/- is treated as unexplained as the assessee has not submitted the complete document proving the source and the same is treated as unexplained Investment under section 69 of the Income tax Act. Tax as per rates applicable u/s 115BBE of IT Act, 1961 and added to the total income. The Assessing Officer issued the draft assessment order dated 30.03.2023 u/s. 144C of the Act by making an addition of Rs.1,05,06,635/- on account of unexplained investment under section 69 of the Act and proposing assessment of total income at Rs. 1,05,06,635/-. Aggrieved with the proposed addition, the applicant assessee has filed objections against the proposed assessment on 28.04.2023 before the Dispute Resolution Panel-2 (the DRP, the "Panel"), Mumbai. Hon'ble DRP, Mumbai vide DIN & Order No: ITBA/DRP/F/144C(5)/2023- 24/1059208322(1) dated 29/12/2023 has rejected the objections filed by the assessee. Accordingly, the addition proposed by the assessing officer in draft assessment order has been confirmed by DRP. Hence, amount of Rs.1,05,06,635/- being unexplained investment u/s. 69 of the Act is added to the total income of the assessee. Penalty proceedings u/s. 271AAC(1) of the Income Tax Act, 1961, are initiated for above addition.

That the assessee has challenge the legality and validity of impugned order dated 30.03.2023 by filing the appeal before us. Page 3 of 10

During the course of hearing, Ld. AR for the assessee submitted that the appellant has NRI stating detail of FDR of the time deposited are tabularized submitted for 7 years in FDR in Bank of India. There is no new investment in the scheme.

On the contrary, the Ld. DR for the revenue relied on the order of the Lower Authority as well as relied on the information received from Bank of India in Form 61A.

We have heard both the parties and perused the material available on record, and also perused the paper-book filed by the assessee and the order of the Ld. CIT(A). The appellant was a non-resident and citizen of United Kingdom. The appellant did not file his return of income for the year under consideration as his total income did not exceed the maximum amount which is not chargeable to tax. The assessment of the appellant was re-opened by issuing notice u/s. 148 of the Income Tax Act, 1961 (hereinafter referred as "the act" for the sake of brevity) on 26.03.2022 in pursuant to the ex-parte order u/s. 148A(d) of the act dated 26.03.2022. The main contention of the order u/s. 148A(d) of the act was that the appellant had made investment of Rs. 1,05,06,365/- in Time Deposit with Bank of India and did not file his return of income for the year under consideration. The appellant filed return of income in response to the notice u/s. 148 of the act declaring total income of Rs. 50,942/- being interest from NRO Saving account. Copy of the computation of total income and ITR. During the assessment proceedings Ld. AO asked for the details of the source of investment made in the Time Deposit made with the Bank of India of Rs. 1,05,06,365/-. In this connection the appellant, vide letter dated 18.03.2023, submitted as under: During the F.Y. 2017-18, No any Fresh/New Term Deposit has been purchased by me. The figure shown in notice of Rs. 1,05,06,365 as New Term Deposit with Bank Page 4 of 10

Then again vide letter dated 27.03.2023 the appellant reiterated the same submission and also submitted following documents to substantiate his claim: a. FDR ledgers issued by the bank, Page No.: 19 to 27. b. Summary of the Fixed Deposits, Page No.: 28. c. Interest certificate issued by the bank, Page No.: 29 to 33.

However, Id. AO did not appreciate the submission of the appellant and made the addition of Rs. 1,05,06,365/- on account of alleged unexplained Time Deposit with Bank of India in the Draft Assessment Order by contending that the bank has reported in Form No. 61A under the category of statement of reportable transactions under section 285BA(1) of the act and hence the appellant must have invested in New Time Deposit during the year under consideration and the appellant has failed to establish the source of the same and hence the addition was made u/s. 69 of the act.

Being aggrieved of the Draft Assessment Order the appellant filed objections before Dispute Resolution Panel (DRP) u/s. 144C(5) of the Act.

The DRP disposed the objections raised by the appellant by issuing direction u/s. 144C(5) of the act dated 29.12.2023 by contending that 5.3.3. The panel notes that the assessee has purchased time deposit amounting to Rs. 1,05,06,635/-. During the proceeding before this panel, the assessee has failed to discharge the onus of explaining the fact that the renewed time deposits have been purchased from explained sources. The assessee has not been able to substantiate as to whether the money which has been remitted to NRE account in India has been done out of income which has been earned and disclosed/ taxed in the country where the assessee was residing. Further, as discussed above in the legal aspects of section 69, the onus is squarely on the assessee to explain the nature and source of the above time deposit of Rs.1,05,06,635/-. Therefore, the panel is of the opinion that the amount of Rs.1,05,06,635/- remain unexplained. Page 5 of 10

Ld. AO passed final assessment order making addition of sum of Rs. 1,05,06,635/- under section 69 of the act on account of alleged unexplained investment in Time Deposit with Bank of India. Being aggrieved by the order the appellant is in appeal before Honorable Tribunal. The appellant was already having multiple Non-Resident External (NRE) Time Deposits with Bank of India since 2012 under Cumulative Scheme, wherein the periodic interest is not credited to the Saving account but added in the balance of the principal amount of the Time Deposit and then both principal and interest amount earn further interest. That all the periodic interest accrued on year-to- year basis is re-invested in the same Time Deposit. This is neither New Deposit nor Renewal of Deposit. Since, all the Time Deposits were placed under NRE Deposit Scheme, the interest accrued/ earned thereon is exempt u/s. 10(4) of the act no tax is payable on the amount of interest. That the sum of Rs. 1,05,06,365/- represents the interest accrued on the Time Deposits existed since 2012. It is neither New Deposits nor Renewal Deposit. It is an addition of the interest amount to the pre- existing deposits on account of being Cumulative Scheme. The appellant submitted letter issued by the Bank of India certifying the above-stated facts on Page No.: 45, which clearly mentions that no Fresh Deposit was made during the year under consideration. We note that there is no case of establishing any source of remittance of this amount from abroad, the appellant has not deployed any fund during the, hence no question of proving source thereof. This is automatic banking system where the interest accrued is automatically added in the principal amount of the original Time Deposit. It is not the New Deposit. It does not create any New Deposit Number even.

We note that the dispute is about the term NEW and RENEW of deposit. The core issue for adjudication is whether any Deposit (be it NEW or RENEWED) at all made during the year under consideration? The fact is that there is no NEW or even RENEWAL of deposit. No new deposit number has been generated by the banker even. It may kindly be appreciated that once a New or Renewed Deposit is made by the banker a fresh deposit number is generated. In the present case the interest accrued on the pre-existed deposit has been added to the same deposit and this fact is substantiated from the Fixed Deposit Ledgers issued by the banker itself relying upon form no. 61A filed by the Banker without verifying the correctness of the same and without conducting any inquiry with the bank particularly when the credible and undisputed documentary evidence in form of ledgers issued by the banker are brought on records by the appellant to rebut the impugned information. It is respectfully submitted that Form no. 61A is merely a source of the information and not conclusive legal evidence as contended by Id. AO, The AO and DRP must conduct independent inquiry to bring corroborative evidence on record to establish the correctness of the information contained in Form No. 61A However, in this case neither AO nor DRP conducted any inquiry or brought on records any corroborative evidence to establish the correctness of the information contained in Form No. 61A and at the same time both the authorities failed to confront the documentary evidences submitted by the appellant in form of certificate/ ledgers and statements issued by the banker itself and hence the information contained in Form no. 61A stands rebut and hence the addition made on the sole basis of the Form no. 61A is not tenable and liable to be deleted. In this connection reliance is placed on the following decisions:

In the same way DRP also fall in error of assumption of facts of the case while contending that the appellant has purchased the Time Deposit during the year under consideration and he was required to explain the source of the remittance made by him from out of India, if the same have been made from the remitted fund. This contention is contrary to the fact of the case that no NEW/RENWED Time Deposit was purchased during the year under consideration, and no remittance was made from outside of India for any Time Deposit during the year under consideration and hence there is no case of explaining any source thereof.

In view of the above facts of the case it is most respectfully submitted that no fresh/ renewed Time Deposits have been purchased by the appellant during the year under consideration and similarly no fund has been deployed by the appellant in respect of any time Deposit during the year under consideration the provision of section 69 of the act is completely unwarranted. It is respectfully submitted that section 69 of the attracts only when assessee makes any investment during the year under consideration. This is the case where the assessee had made the actual investment in the A.Y. 2013-14 and in the year under consideration only interest thereon was accrued and added back to the principal amount of the Time Deposit purchased in the A.Y. 2013-14. Under such circumstances the provision of section 69 of the Act is not applicable.

The Assessee also submitted that no new/renewed time deposit was purchased during the year under consideration and hence the provision of section 69 of the act is not applicable, however, even if it is presumed that the reinvestment of interest on the same FDR is to be treated as fresh/ renewed FDR then in that case also provision of section 69 of the act is unwarranted as Page 9 of 10 the same is sourced from the interest accrued on the FDR and not made out of any fresh fund deployed/ remitted by the appellant.

Considering the facts and circumstances of the case, we are of the view that the appeal preferred by the assessee is to be allowed and addition of Rs.1,05,06,365/- is to be deleted.

In the result, the appeal of the assessee is allowed.