JOHN JAMES DSOUZA,MUMBAI vs. ACIT 26(1), MUMBAI

आदेश / O R D E R PER R.C.SHARMA (A.M):

These are the appeals filed by assessee against the order of CIT(A)-38, Mumbai dated 31/08/2016 for A.Y.2004-05 to 2007-08 in the matter of order passed u/s.143(3) r.w.s. 147 of the IT Act. 2. Rival contentions have been heard and record perused. 3. Grounds taken in all the years are common, therefore all the appeals were heard together and are now being decided by this consolidated order. 4. Facts in brief are that the Assessee is a senior citizen aged 82 years. He had been a banker by profession. He started his career in the year 1965, when he was working for Central Bank of India. In the year 1981, he moved to Riyadh, Saudi Arabia and joined The Saudi British Bank. In the year 1992 he joined The

2 ITA No.6900/Mum/2016 to 6903/Mum/2016 John James D’Souza Saudi Investment Bank from where he retired in the year 2003 and he returned back to India. Income Tax Department received a list of persons holding bank account with HSBC, Geneva, in which list, Assessee name was included. Pursuant thereto notice u/s. 148 was issued to the Assessee for Assessment Year 1996-97, 1997-98, 2001-02 to 2004-05 (nine years in all). During the course of an intense scrutiny assessment proceedings the Assessee proved that the bank account with HSBC, Geneva, was a bona fide and legal account opened by the Assessee during the course of his status as Non Resident in India and that such account was closed within reasonable time of the Assessee's return to India, as permitted by the Foreign Exchange Management Act (FEMA). There has been no addition to Assessee's assessed income on ^account of transactions with HSBC, Geneva. The Assessee explained all transactions in the said account to the satisfaction of the Learned Assessing Officer. 5. During Assessee's status as Non Resident in India the Assessee had also opened a bank account with Citi Bank, Singapore. Upon his return to India during AY 2003-04, the Assessee stopped operating the said account. Shortly after return to India during FY 2002-03 the Assessee took up ill health and in the process forgot to close the said account, nevertheless the said account was not operated by the Assessee. Some stray transactions on account of bank charges and interest income was reflected in the interim period. The Assessee came to know about the fact that the said bank was not closed when the HSBC, Geneva bank account was investigated and therefore the bank account with Citi Bank closed on 21st December 2011, by which time the account had already become Nil by March 2007.

3 ITA No.6900/Mum/2016 to 6903/Mum/2016 John James D’Souza 6. After reopening the assessment for A.Y.2004-05 AO made addition of Rs.29,861/- by declining deduction of bank charges against interest income. The Assessee had filed the original return of Income on 17.05.2004 declaring total Income of Rs. 56,235/-. Pursuant to notice u/s. 148 the Assessee submitted that the original return itself should be treated as return in response to notice u/s. 148. The Learned Assessing Officer assessed the total Income at Rs. 235,931/-by making certain addition and not allowing deduction under Chapter VI-A i.e., deduction u/s. 80G towards donation of Rs.30,000/-, u/s.80D towards mediclaim insurance premium, deduction u/s.80L on account of interest earned from bank, deduction of rebate u/s.88 towards investment in equity linked saving scheme. 7. Notice u/s.148 of the Income-tax Act, 1961(hereinafter ‘the Act’), was issued on 21.08.2014 after duly recording the reasons. As per recorded reasons., the assessee was found to have the following bank accounts:- a. HSBC Bank, Geneva, A/c No. 10978483 and connected accounts b. City Bank, Singapore, A/c No. 92344, ABA No. 02100089 8. The AO observed that the assessee had not disclosed the deposits, interest and other transactions in the aforesaid bank account for the purposes of taxation. 9. During the course of assessment proceedings, the AO observed that the assessee had a foreign bank account bearing no.10978483 in HSBC Private Bank, Geneva. The aforesaid bank account was opened in the financial year prior to F.Y.2003-04, relevant to A.Y.2004-05, which is under consideration. It was submitted that in the aforesaid bank account in HSBC, the interest income comes to negative (-) USD 29.85 because

4 ITA No.6900/Mum/2016 to 6903/Mum/2016 John James D’Souza bank charges were more than interest credited in this account. Since the assessee has not claimed this loss in his return of income originally filed, the AO at the time of assessment, ignored this loss. 10. In respect of the another foreign bank account namely City Bank, Singapore with A/c No,092344, which was also one of the basis of re- opening of the assessment, the AO observed that the aforesaid bank account is also in US Dollar Currency. On perusal of the transaction in the aforesaid account, the AO observed that the total earnings from the aforesaid bank account is USD 1478.68. However the assessee offered the USD 1448.83 (1478.68 - 29.85) i.e. after claiming the loss of USD 29.85 from HSBC. Since the loss from HSBC was ignored by the AO, the correct amount, of interest only was observed by the AO to be USD 1478.68 which was converted into Indian rupees at Rs.67,220/-and taxed in the hands of the assessee. I found that the assessee has himself offered the interest for taxation in this revised return filed on 18.09.2014. 10. Further the AO observed that the assessee had not declared the Short Term Capital Gains of Rs.92,041/-in the original return of income filed on 17.05.2004, which was subsequently declared by the assessee in the revised return of income filed on 18.09.2014. Since the revised return was filed on 18.09.2014, it was held to be a belated revised return, the AO did not give cognizance to it and made the addition in the present assessment proceedings.

5 ITA No.6900/Mum/2016 to 6903/Mum/2016 John James D’Souza 11. In view of the above discussion, AO made addition on account of interest from foreign banks amounting to Rs.67,220/- during the A.Y.2004- 05. 12. By the impugned order, CIT(A) confirmed the addition on account of interest. 13. I have considered rival contentions and found from record that interest was accrued on NRE/FCNR deposits, which are exempt u/s.10(4)(ii). Section 10(4){ii) was inserted by Finance Act (Number 2) of 1991, with effect from 01.04.1991 which read as under: "in the case of an individual, any income by way of interest on moneys standing to his credit in a Non-Resident (External) Account in any bank in India in accordance with the Foreign Exchange Management Act, 1999 (42 of 1999)], and the rules made there under: Provided that such individual is a person resident outside India as defined in ["clause (w) "] of section 2 of the said Act or is a person who has been permitted bv the Reserve Bank of India to maintain the aforesaid Account. 14. The said section had been specifically substituted to alleviate the difficulties which arose till then in claiming exemption in respect of interest earned on NRE / FCNR deposits / accounts, which continued even after the return of an assessee to India. By substituting this specific provision, a need to issue a specific circular, on the lines similar to Circular No. 590 dated 30.01.1991 has been eliminated and that the exemption would apply to all cases without any exception. Please find enclosed the copies of (1) Notes on Clauses and (2) Explanatory Memorandum for Finance Act (No. 2) of 1991, relevant to section 10(4)(ii).

6 ITA No.6900/Mum/2016 to 6903/Mum/2016 John James D’Souza 15. The Notes to Clauses and Explanatory Memorandum specifically states that exemption under section 10(4)(ii) will be available to persons holding NRE accounts, as permitted by the Reserve Bank of India and that this is in addition to exemption available to individuals who are resident outside India.

7 ITA No.6900/Mum/2016 to 6903/Mum/2016 John James D’Souza When an account holder becomes a person resident in India, deposits may be allowed to continue till maturity at the contracted rate of interest, if so desired by him

8 ITA No.6900/Mum/2016 to 6903/Mum/2016 John James D’Souza assessee continued to receive interest on them, thus taxed notional / presumptive interest on this investment since its acquisition. The learned Assessing Officer has charged USD 5870.90 per annum on investment of USD 50,000/- equivalent to 11.74% per annum which itself is very high rate of interest on US government securities. As per our considered view, the learned Assessing Officer is entitled to tax only genuine income received or accrued to an assessee and not the notional or presumptive income unless specifically provided under law. 21. In view of the above, I restore the matter back to the file of the AO to bring to tax only genuine income received and accrued to assessee after giving due opportunity to the assessee. I direct accordingly. 22. AO has also brought to tax deposit of Rs.1,57,883/- in resident bank account HDFC bank because the Assessee was not able to explain and support the credit entry. In this regard, I found that the assessee's bank account with HDFC Bank, Mumbai, on 22.02.2005 a sum of Rs. 157,883/- was credited with the narration "TF-FCY USD 3639 @ Rs. 43.51, Comm 450 Ref No. 6050393712". The Learned Assessing Officer called upon the Assessee to explain the nature of credit entry. The assessee was not able to explain as over nine years had lapsed. The assessee even tried with his bankers to provide any supporting document or give name of the payee but the bank was also not able to do so as the matter is very old. The assessee was provided only ten days to respond when over three months were available to complete the assessment. The assessee requested for more time which was denied. The assessee requested the

9 ITA No.6900/Mum/2016 to 6903/Mum/2016 John James D’Souza AO to seek information u/s. 1.53(6) from the Bank but he regarded the entire deposit as assessee's income. 23. It was argued by learned AR that the assessee had been working in Saudi Arabia at a very senior post for 22 years. The Deposit in question is about two months remuneration of assessee. The assessee had substantial investments in NRE/FCNR deposits with banks in India and overseas. Surely the deposit in HDFC Bank could be the maturity value of such investments. The assessee has three sons staying in USA for long period of time, they could have also sent money from USA. All the investments and assets acquired by the assessee are out of accretion of income earned during his status as a Non Resident Indian. 24. The assessee has satisfactory explained almost all transactions in his foreign bank accounts and almost 99% of transactions in the Indian Bank Account. This one of the stray transaction which the Assessee is unable to explain because of such a lapse of time? 25. In view of the above factual position, I restore this issue also back to the file of the AO for making enquiry by issue of notice u/s.133(6) to the Bank. Only after proper verification, AO is to decide the issue afresh after giving due opportunity to the assessee. I direct accordingly. 26. The Assessing Officer has also disallowed deductions claimed under Chapter VI-A, of the act. (Rs. 2,500/- u/s. 80G, Rs. 13,491 u/s. 80D, Rs. 12000 u/s. 80L) and rebate of Rs. 20000 each u/s. 88 (for investment in ELSS) and u/s. 88B as a senior citizen. From the record I found that in the return of income filed by the assessee in response to notice u/s.148

10 ITA No.6900/Mum/2016 to 6903/Mum/2016 John James D’Souza he claimed the above mentioned deductions under chapter VI-A. The learned Assessing Officer disallowed the same for want of evidence. The original return of income was filed manually in non e-filing era, where all evidences were required to be submitted in originals along with return of income. The assessee had submitted original evidences twelve years back to the income tax department and now again asking the after such lapse of time is unfair. 27. Keeping in view the nature of deduction claimed vis-à-vis supporting documents have already been filed long back with the return of income which might have been allowed while processing for return itself, I direct the AO to allow the deduction so claimed in chapter VI-A, keeping in view the peculiar facts and circumstances of the case as discussed above. 28. It is pertinent to mention here that the deduction u/s.80L and rebate u/s.88B are consequential by nature and does not require any evidence, therefore, should be allowed. 29. In the A.Y.2006-07, addition on account of interest on investment of USD 50,000/- on 28/10/2003 was made. Following the reasoning given for A.Y.2005-06, I restore the matter back to the file of the AO. 30. AO has also added a sum of Rs.6,72,810/- as unexplained deposit in foreign currency in HDFC Bank. In this regard, I found that in the assessee's bank account with HDFC Bank, Mumbai, on 28.10.2005 a sum' of Rs. 672,810/-was credited with the narration "TF-INW 720568 USD 14994.67 @ Rs. 44.87". The Learned Assessing Officer called upon the assessee to explain the nature of credit entry. The assessee was not

11 ITA No.6900/Mum/2016 to 6903/Mum/2016 John James D’Souza able to explain as over nine years had lapsed. The assessee even tried with his bankers to provide any supporting document or give name of the payee but the bank was also not able to do so as the matter is very old. The assessee was provided only ten days to respond when over three months were available to complete the assessment. The assessee requested for more time which was denied. The assessee requested the AO to seek information u/s.133(6) from the Bank but he did not do so. 31. Following the reasoning given in the A.Y.2005-06, I restore the matter back to the file of the AO with the similar direction. 32. Issue with regard to disallowance of deduction claimed under Chapter VI-A, I direct the AO to allow the same in terms of reasoning given in the A.Y.2005-06. 2007-08 33. In this year AO has made addition on account of interest of Rs.1,13,949/- earned on NRE / FCNR deposits. In terms of our discussion in the A.Y.2005-06, this issue is also restored back to the file of the AO with the similar direction. 34. With regard to ground taken for reopening of assessment for all the years under consideration, I found that after recording sufficient reason, AO has reopened the assessment which was confirmed by CIT(A) after giving due reasoning. I do not find any infirmity in the reopening of assessment.

12 ITA No.6900/Mum/2016 to 6903/Mum/2016 John James D’Souza 35. In the result, appeals are allowed in part in terms indicated hereinabove. Order pronounced in the open court on this 09/11/2017 Sd/- (R.C.SHARMA) ACCOUNTANT MEMBER Mumbai; Dated 09/11/2017 Karuna Sr.PS Copy of the Order forwarded to : The Appellant 1. The Respondent. 2. The CIT(A), Mumbai. 3. CIT 4. DR, ITAT, Mumbai 5. BY ORDER, 6. Guard file. सत्यापित प्रतत //True Copy// (Asstt. Registrar) ITAT, Mumbai