SHRI SANJAY GORDHANDAS VAJA,AHMEDABAD vs. THE ITO, INTERNATIONAL TAXATION, GANDHIDHAM-KUTCH, GANDHIDHAM-KUTCH

The assessee craves liberty to add, alter, amend or modify all or any of the grounds appeal before or at the time of hearing.”

The relevant material facts, as culled out from the material on record, are as follows. The assessee had not filed original return of income for the year under reassessment in due course. Therefore, after following due process u/s.148A of the Income Tax Act, and recording reasons, notice u/s.148 of the Act, was issued and served upon the assessee. In response thereof, the assessee filed return of income declaring total income of Rs. NIL/-. The Assessing Officer issued the draft assessment order dated 28.03.2023 u/s 144C of the Income Tax Act, 1961 by making an addition of Rs. 2,97,57,564/- and proposing assessment of total income at Rs.2,97,57,560/-.

Thereafter, the assessee filed the objection before the Hon`ble DRP, who has confirmed the findings of the draft assessment order.

Facts of the case are that during the year under consideration, the assessee had made following transactions.

It may be mentioned that the assessee has uploaded submissions as per above chart, and explained each and every item.The assessee submitted before the assessing officer that Time Deposit and interest thereon was from NRE account which was exempt from income tax. Property mentioned was also purchased from NRE account. There was no taxable income during Financial Year (FY) 2017-18. The re-submitted bank statement, passport copy etc, before the assessing officer. The assessee submitted that he is NRI for many years. The assessee did not have any income accrued or received in India in FY 2017-18, which are liable to tax (A.Y. 18-19) Sanjay G Vaja in India. So, there is no question of escaping any income. The assessee have only fixed deposit (FD-NRE) and property purchased in India was paid from those FDs only. During Financial Year (FY) 2016-17, the assessee came in India on August 3rd and left on August 29, 2016. This demonstrates NRI status of the assessee for FY 2017-18. The assessee submitted full passport scan copy, before the assessing officer. The assessee also submitted bank statements of FY 2017- 18 containing FD, and FD interest and property transactions. The assessee submitted the following documents and evidences before the assessing officer:  9 pdf files of passport  pdf file of income tax computation  3 pdf file of ITR files  pdf of working of stay in India  pdf of HDFC Bank statement however in the comments side the assessee has provided password and the statement was assessed.  pdf of acknowledgement of having index of documents submitted  pdf of acknowledgement

The assessee submitted that all credits in his NRE bank account is from FD maturing and interest on it from previous years fixed deposit (FD). The assessee has been in Zimbabwe since 1995 and doing small food and retail work there. Such accumulation money from there in number of years was gradually deposited in assessee`s HDFC NRE bank account and FD was created. To prove this assessee submitted bank statement. The assessee further submitted that he is not taxable in India, therefore, he did not file return of Income as he is not liable to offer Indian NRE account to tax.

However, the Assessing Officer rejected the above contention of the assessee and held that it is the duty of the assessee to explain the source of investment and all credit transaction in bank statement.The assessing officer observed that the source is not proved therefore, a detailed show cause dated 17.03.2023 was issued and the assessee was given opportunity to show cause as to why adverse view (A.Y. 18-19) Sanjay G Vaja should not be taken in his case. In response to the said show cause, assessee submitted reply, which was not convincing, as per the assessing officer, therefore, assessing officer made addition in the hands of the assessee, in respect of Time & Term Deposit 2,61,03,650/-, and further addition on account of Purchase of Immovable Property, Rs.32,50,000/-. The assessing officer also made addition of Rs.4,03,914/- on account of unexplained money under section 69A of the Act, which was rectified by the honourable DRP to Rs.95,222/-instead of Rs.4,03,914/-. 10.Aggrieved by the order passed by the Assessing Officer, the assessee carried the matter in appeal before Hon’ble DRP who has after admitting the additional evidence and after taking remand report from the Assessing Officer as well as rejoinder of the assessee in regard to remand report observed that the arguments presented by the assessee were found to be very general in nature and the assessee has not been able to fully explain the nature and source of the above deposits. Therefore, ld.DRP held that the amount of Rs. 2,61,03,650/- deposited by the assessee remained unexplained and should be added back to the total income of the assessee. About addition of Rs.32,50,000/- on account of unexplained investment in immovable property u/s 69 of the Act, the ld DRP noted that the assessee has not been able to explain and substantiate the nature & source of his deposits. Therefore, investments made out of unexplained funds also remain unexplained. The ld.DRP noted that the assessee has failed to discharge the onus cast upon him by law. Therefore, the amount of Rs.32,50,000/-invested in immovable property remained unexplained and should be added to the total income of the assessee. About an addition of Rs.4,03,914/- on account of unexplained money at the end of financial year u/s 69A of the Act, the ld DRP noticed that the correct difference between the closing balance and the opening balance for the financial year under consideration is Rs. 95,222/- instead of Rs.4,03,914/-. Therefore, in the view of the panel, the addition herein u/s 69A Page | 5 (A.Y. 18-19) Sanjay G Vaja would be Rs.95,222/-because this amount has not been explained satisfactorily. Therefore, ld.DRP allowed the claim of the assessee partly.

Thereafter the Assessing Officer has given effect to the aforesaid findings and directions of ld.DRP in terms of the provisions of Sub-section 144C (13) of the Income-tax Act, 1961. Further aggrieved by the order of Hon’ble DRP/Assessing Officer, assessee is in appeal before us.

We have heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld DRP/AO and other materials brought on record.

The Ld. Counsel for the assessee submitted that assessee had not filed the original return of income u/s 139 for the year under appeal. After recording reasons, notice u/s 148 of the Act, the assassee`s case was reopened. The assessee filed the return of income declaring the total income of Rs. Nil. The AO issued draft assessment order dated 28.03.2023 u/s 144C of the Act by making of addition of Rs.2,97,57,564/- and proposing assessment of total income of the aforesaid amount. As per the AO, the assessee had made considerable financial transactions which were having tax and revenue implications. The assessee had however not disclosed the transactions by filing the return of income within the time provided u/s 139(1) of the Act. During the reassessment proceedings, the assessee had furnished detailed explanation in response to the notice issued u/s 142(1) of the Act. The AO has reproduced the submission dated 01.10.2022 and 21.03.2023 in the assessment order. The assessee had explained that he was an NRI and in support of same PDF copy of the passport had been furnished. There is no dispute or challenge to the fact that the assessee is not an NRI. The assessee had also explained that with regards the source of fund the same was on account (A.Y. 18-19) Sanjay G Vaja of maturity of FDR's and the interest accrued thereon. Copies of the bank statement had also been furnished in support of the above contentions so made. It was also explained that no income had arisen or accrued in India for which he was independently taxable. Therefore, the source of the credits in the bank account was duly explained during the assessment proceedings. From the above discussion it would be noted that the AO has admitted to the fact that the assessee is an NRI for taxation purpose. The copies of the bank statement of HDFC-NRE account had been made available. The password to access the bank account had been furnished. Based on these facts, no any income has accrued or arisen in India, therefore addition made by the ld/DRP/AO may be deleted.

On the other hand, Ld. CIT-DR for the Revenue submitted that no doubt to open Non-resident India (NRI) account, is allowed but the deposit made in NRI account should be come from the NRI, Foreign Bank, outside India, and if the proceeds of deposits came from other persons in NRI account, in the grab NRI, the assessee is taking benefit by injecting the other persons unaccounted money and this is possible, and this aspect was not examined by the assessing officer. Therefore, the Ld.CIT-DR submitted that transfer of money from NRI person from his bank account in abroad, should be examined by the assessing officer to know that other NRI person, has been depositing the money in the assessee account. The Ld.CIT-DR further submitted that no proper explanation was given by the assessee neither before the Assessing Officer nor before Hon’ble DRP. The Ld. CIT-DR also submitted that assessee has purchased immovable property in India an no documents relating to purchase of said property has been produced before Assessing Officer and the payment was also made to the developer from whom he purchased property but no single document has been produced by the assessee neither before Assessing Officer nor before Hon’ble DRP. There is (A.Y. 18-19) Sanjay G Vaja quantum different of opening and closing balances of the amount, therefore, addition made by the assessing officer should be sustained.

In rejoinder, Ld. Counsel for the assessee submitted that there is no doubt that assessee is NRI and he remitted amount in 2006 from his bank account in abroad to the bank account in India in NRI account. Therefore, amount which was received in 2006 cannot be taxable income in AY 2018-19, the amount so transferred by the NRI, in NRI account in India, in 2006 was parked in a fixed deposit (FD) and that FD has been renewed. Therefore, such FD is not taxable in India. Further, section 69 of the Act is not applicable to the assessee under consideration, as the funds has been transferred from abroad to NRI account and that is not pertaining to AY 2018-19 under consideration. Therefore, Ld. Counsel submitted that the property has been purchased out of the FD amount. The income has not accrued or arisen in India hence it is not taxable income in India.

We have considered the submission of both the parties. We note that on legal grounds, it was submitted by ld.Counsel for assessee that no additions could be made u/s 69 of the Act where the investments have been made out of repatriated funds. The non-resident cannot be taxed u/s 69/68, unless it is established beyond doubt that investments in question have been made out of income generated in India. Reliance is placed on the following decisions: (a). ACIT (Int. Tax) Baroda v Vijaykumar Vasantbhai Patel in dated 16.12.2022, (b). ITO v Rajeev Suresh Ghai (2022) 192 348 (Mum.) 17. On merits, we note that the assessee had placed on record the details of the funds remitted over the period of time. A perusal of the same revealed that remittances had been made by assessee beginning from 18.07.2006, therefore, it Page | 8 (A.Y. 18-19) Sanjay G Vaja should not be taxable in the assessment year under consideration, that is, A.Y. 2018-19. The last remittance made was on 07.12.2012, being the previous year relevant to A.Y.2013-14. The total foreign remittance made were amounting to Rs.1,18,82,025/-, These funds had come to be deposited in the NRE account and the copies of the aforesaid bank account had also been furnished along with the password to the AO to access the account on an independent basis if so desired and which has been acknowledged by the AO also. The assessee had filed details of the FDR's made and amounts received on subsequent maturity. The Perusal of the same would reveal that the assessee had made an initial FDR in the previous year relevant to 2013-14 of Rs.1,30,00,000/-. As and when the FDR matured, the proceeds were credited in the bank account forming the source of further FDRs. The year- wise details of the FDRs created, FDR matured, recreation of the new FDR from maturity amount had been provided to the Bench. The assessee had also furnished details of the interest income earned on the NRE External Account beginning from the previous year relevant to A.Y.2010-11. The total interest income earned in the NRE External Account is amounting to Rs.73,25,391/-.The assessee had also furnished the year- wise funds flow statement with reference to the creation of time deposits (FDR's), details of maturity and the redeposit. The same had been furnished beginning from the previous year relevant to A.Y.2013- 14 when the first FDR was made.The assessee had furnished a detailed fund flow statement with regards the purchase of immovable property. The perusal of the same would reveal that the initial investment was Rs.17,50,000/- had come to be made in the previous year relevant to A.Y.2015-16. The balance deposits had come to be made in the previous year relevant to A.Y.2018-19. Similarly, details of the opening and closing bank balance had also been furnished. Therefore, complete details which included remittances made over period of time which were deposited in the NRE account, making of FDRs from such remittances in (A.Y. 18-19) Sanjay G Vaja the NRE, insurance premium paid and amount received on maturity of the LIC policy, interest earned over a period of time etc. had been furnished.

Therefore, we note that the complete trail from the remittances to the creation of the FDR accounts, immovable properties, etc, had been furnished. The password of the bank account was shared with the AO so that he could access bank account independently. Therefore, keeping in view the above factual matrix one can reach the conclusion that the assessee is undisputedly an NRI who has made remittances in his NRE External Account. These remittances and credits are governed by RBI and only if there are permissible credits, would the amount be deposited and not otherwise. Nature of account which came be operated had also been identified and clarity has been given that there would be no income tax chargeable to this account. The AO has also not taxed the assessee with respect to any interest income which has accrued to the assessee on the NRE Account. If that be so the position where remittances have been received and duly credited in (A.Y. 18-19) Sanjay G Vaja the NRE External Account and the trail of funds having been placed on record supported by the bank statements and fund flow statements the question of treating the same as unexplained investment u/s 69 does not survive .Identical issue is covered by the following decisions which are mentioned below for reference: i. Vinodkumar Hiralal Raja v. ITO in dated 20.12.2023 (PB Pg. 15 to 28). ii. Iqbal Ismile Virani v. ITO (2021) 128 taxmann.com 181 (Panaji). (PB Pg.29 to 40). iii. DCIT v. Hemant Mansukhlal Pandya (2018) 100 taxmann.com 280 (Mumbai). (PB Pg 41 to 57). iv. DCIT v. Madhusudan Rao (2015) 57 taxmann.com 262 (Hyd.) (PB Pg.58 to 71). v. Smt. Susila Ramasamy v. ACIT (2010) 130 TTJ 363 (Chennai) (PB Pg.72 to 83) 20. In view of the above facts and circumstances and the judicial pronouncements, we note that assessee has proved beyond doubt that he is a Non- Resident Indian.Thus it is clear the source of the fund is from outside India and not taxable in India, hence we delete the additions made by the assessing officer.

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