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Income Tax Appellate Tribunal, DELHI BENCHES : E : NEW DELHI
Before: SHRI J. SUDHAKAR REDDY, AM & SHRI SUDHANSHU SRIVASTAVA, JM
ORDER PER BENCH: All these appeals filed by the Revenue are directed against the common order passed by the CIT(A)-23, New Delhi, dated 1.5.2015 for the assessment years 2006-07, 2007-08, 2008-09 & 2009-10 and order dated 25.05.2015 for the assessment year 2012-13. The Cross Objections are filed by the assessee.
As the issue arising in all these appeals are common, for the sake of convenience they were heard together and disposed of by way of this common order.
The facts of the case as brought out at para 3.1 & 3.2 of the order of the CIT(A) is extracted for ready reference:-
“3.1 Background of the matter is that in April 1 May, 2011 India received information from a foreign government under the relevant Double Taxation Avoidance Agreement (DTAA) that certain Indian passport holders had opened and maintained bank accounts with Hongkong & Shanghai Banking Corporation (HSBC) in Switzerland, etc. The information received was covered under the confidentiality clause of the DTAA, and its contents could not be disclosed or shared by the Income Tax Department (ITD) other than for tax purposes or without the consent of the country which had shared information. The source of the information was not disclosed by the sharing foreign government. Based on the information received, investigations were initiated by the ITD in July, 2011. When the investigations were on, many persons appeared suo motu 2 to 4806/Del/2015 CO Nos.266 to 269/Del/2015 before the ITD and admitted having opened the bank accounts and paid tax on the maximum amounts deposited/ outstanding. In several cases,' searches conducted led to admission by the persons searched that they had opened accounts overseas and not disclosed it for tax purposes in India. Some persons, when summoned by the ITD, admitted having opened the accounts and transacted therein while some persons denied having any transaction in the said accounts. Some persons outrightly denied having opened any such bank accounts overseas. Based on the investigations, further information has been sought from the respective countries and in several cases reference has been made to HSBC with a consent form / affidavit duly signed by the alleged account holders to enable HSBC to furnish the requisite details such as account opening form, other documents, names of beneficiaries, details of transactions, etc., to the account holders. The government also amended the Income Tax Act, 1961 to provide for reopening of tax assessments for a period of 16 years in cases where the assessee is found to have maintained undisclosed bank accounts / incomes / transactions / assets overseas. 3.2 The appellant's name figured as one of the beneficiaries of an account with HSBC, Geneva. Name of Late Dr. M V Rao also figured in the list. Consequently, on 24.02.2012, search and seizure action was carried out on the appellant and his relatives, concerns and associates, including at the premises of Late Dr. M V Rao. While the appellant denied having any foreign account in HSBC, Geneva, he nonetheless paid tax on the maximum outstanding balance in the said account 'to buy peace'. Appellant's son Sh. Sanjeev Nanda and brother Sh. Paul Nanda have filed applications before the Income Tax Settlement Commission (ITSC) in the matter, which have been admitted. In the case of Late Dr. M V Rao, cash amounting in all to Rs.7.69 crore was found in different bank lockers in Delhi held by his wife Smt. M Swarnalata and niece Ms. K Padmarani, out of which Rs.7.60 crore was seized. One of the 3 to 4806/Del/2015 CO Nos.266 to 269/Del/2015 entities linked to the bank account with HSBC, Geneva, is M/s Clair Consultants Ltd., a company incorporated in the British Virgin Islands, a tax haven. There was a remittance of US $30,000 at the instance of this company from Deutsche Bank, Singapore to the NRO / NRE account of Sh. M Venu, son of Late Dr. Rao, maintained with Deutsche Bank, New Delhi. Thus, maintenance of foreign bank account and seizure of large amounts of cash (i.e. Rs.2 crore in 2007 and Rs.7.6 crore in 2012, totaling Rs.9.6 crore), led to an inescapable conclusion that Dr. Rao was beneficiary of some business activities / transactions which he was not disclosing in the tax returns filed with the Department and was also avoiding paying due taxes thereon. Two writ petitions filed by Sh. M Venu, NRI son of Dr. Rao, against the action u/s 132 and consequent proceedings under the Act, were also dismissed by the Hon'ble Delhi High Court.”
The AO made additions of income being peak deposits held by the assessee in his different foreign bank accounts. Additions were also made on certain other issues which we would be specifically referring to later.
We have heard Ms Nirupama Kotru, the ld. CIT, DR on behalf of the Revenue and Shri Ajay Wadhwa, the ld. counsel for the assessee. Detailed submissions were made by both the parties. Paper books were filed along with written submissions.
On a careful consideration of the facts and circumstances of the case and on a perusal of the facts on record and the orders of the authorities below, we adjudicate the issues as follows. 4 to 4806/Del/2015 CO Nos.266 to 269/Del/2015
The first common ground raised by the Revenue for AYs 2006-07 and 2007- 08 relates to the deletion of addition made by the AO on account of peak deposits in HSBC, Geneva account.
The ld. CIT(A) deleted the said addition as follows:-
“Thus, on the issue whether amounts kept by the non-resident appellant in foreign bank account is exigible to tax in India, I have held that evidence is yet to be collected to establish that the amounts kept by the appellant in his foreign bank accounts, including in HSBC account, are proceeds of commission received in defence contracts awarded by the Government of India. If the revenue has suspicion that the amounts represent income accrued / arisen in India, evidence has to be collected for the same and confronted to the appellant. There was some indication to this effect in the earlier searches conducted in 2007, for which references had been made to various foreign tax authorities under the respective treaty provisions. Some information received under the DTAAs confirmed the foreign source of the capital brought in by the appellant into various concerns in India. The main reference to the Government of Israel for confirming whether any commission of US $27.603 million or Rs.123.27 crore was paid by M/s Tadiran Communication Ltd. to Sh. Suresh Nanda and his associates / concerns, including Late Dr. M V Rao is still pending. Other references are also still to be responded to, and need to be pursued by the revenue. Thus, there is no evidence yet to link the money brought into India, or kept in foreign accounts, with any Indian defence contract payments. In the absence of any positive evidence indicating receipt of money in defence contracts awarded in India, any conclusion that amounts kept by the appellant in his foreign accounts or capital brought by him into India are proceeds of such commission would be premature and presumptious. Thus, even if it is concluded to 4806/Del/2015 CO Nos.266 to 269/Del/2015 that the amounts kept in the HSBC account belongs the appellant, it cannot be subjected to tax as income accrued or arisen in India unless requisite evidence is collected. I hold accordingly.” 9. Relying on the judgement of the Hon’ble jurisdictional High Court in the case of Kabul Chawla in it was submitted by the ld. AR that no incriminating material was unearthed during the search relating to the alleged HSBC account and, therefore, no addition could have been made to the income already assessed.
It was also submitted that the issue involved for these years is even otherwise covered by the judgement of the Hon’ble Delhi High Court dated 25.02.2013, in 100/2013 and 87/2013 in the assessee’s own case for AYs 2001-02, 2002-03 & 2003-04, wherein the assessee was held to be an NRI and deleted the addition in respect of the assessee’s bank in Singapore holding that in absence of any evidence of accrual or receipt of income in India, foreign bank accounts of NRI cannot be subjected to tax in India. The relevant portions of the judgement of the Hon’ble High Court read as under:-
“6. We are left to consider the addition of Rs.10,51,20,000/- made u/s 68 of the Act. In so far as the addition is concerned, the decision with regard to it would depend on whether the assessee is regarded as a resident or non-resident. In case he is regarded as resident, then, obviously, this addition would have to be made. But if he is regarded as a non-resident, then, this addition will have to be deleted. This is exactly what the Tribunal has done. The 6 to 4806/Del/2015 CO Nos.266 to 269/Del/2015
Tribunal considered the case of the Revenue as well as that of the assessee and determined that the assessee was a non-resident and, therefore, the said addition was deleted.”
“13. In view of the fact that the Tribunal has correctly decided that the respondent/assessee was not a resident in India in the years in question, it is axiomatic that the addition of Rs.10,51,20,000/- u/s 68 would have to be deleted because it was a transfer from the respondent/assessee’s foreign account to the domestic account.”
The ld. counsel for the assessee has also relied upon various judgemenst/orders of the Hon’ble High Court/Tribunal, in the assessee’s own cases, in support of the assessee’s case. They are: (i) Order of the Tribunal dated 24.07.2012 for AYs 2001-02, 2002-03 & 2004-05 in 1429 & 1430/Del/2012 (ii) Order of the Tribunal dated 21.2.2014 for AYs 2004-05, 2005- 06 and 2006-07 in ITA Nos.2236, 2601, 2605/Del/2013, CO No.165/Del/2013, ITA Nos.2606/Del/2013 & CO No.166/Del/2013 (iii) Judgement of the Hon’ble Delhi High Court dated 27.5.2015 for AYs 2007-08 and 2008-09, in ITA No.715/2014, CM No.19243/2014, ITA Nos.722/2014 & 723/2014 (iv) Order of the ITAT for AYs 2007-08 and 2008-09 dated 11.4.2014 in ITA Nos.2237,3718, 3431 & 4641/Del/2013 (v) Judgement of the Hon’ble Delhi High Court dated 23.9.2015 for AY 2009-10 in ITA No.741/2015. to 4806/Del/2015 CO Nos.266 to 269/Del/2015
The ld. DR though not leaving her ground fairly submitted that this issue is squarely covered in favour of the assessee by the judgements/orders cited by the ld. AR. Nevertheless, she submitted that the revenue has challenged the judgment of the Hon’ble High Court before the Hon’ble Supreme Court, both on the issue of residential status of the assessee as well as the deletion of additions on merits. She relied on the order of the AO and supported the same.
After hearing the rival submissions and perusing the material on record, particularly, the judgements/orders cited by the ld. AR, we find that the common issue as mentioned above, involved in the appeals for the AYs 2006-07 and 2007- 08 are squarely covered by the judgements/orders cited by the ld. AR (supra) in favour of the assessee. The ld. DR could not controvert the factual finding of the ld.CIT(A) that the AO had not brought on record any evidence to link the money brought into India or kept in foreign accounts by the assessee have a link with any Indian defence contract payment. The income has not accrued or arisen in India.
We therefore, uphold the orders of the CIT(A) on this issue.
In so far as the reliance on Kabul Chawla (supra) is concerned, since the deletion of addition has been upheld, there is no need to examine the instant issue in the light of the decision on Kabul Chawla (supra). to 4806/Del/2015 CO Nos.266 to 269/Del/2015
Consequential addition of interest, on amounts outstanding in ILORA (HSBC) account on presumptive basis by the AO has been rightly deleted by the ld.CIT(A). Thus, the grounds of the revenue on this issue for AY 2007-08, 2008- 09, 2009-10, 2010-11, 2011-12 and 2012-13 are dismissed.
Another common ground raised for the AYs 2006-07 & 2007-08 relate to the deletion of additions made by the AO on account of documents seized from Shri Suresh Gulati’s residence.
The ld. CIT(A) vide the impugned order held as under:-
“8.1 The fourth ground of appeal in AYs 2006-07 & 2007-08 are against additions of Rs.4,82,543/- & Rs.1 ,66,07,257/-, respectively, based on certain documents seized from the residence of Sh. Suresh Gulati. These payments were made by the appellant from his account with Deutsche Bank, Singapore for the purpose of renovations made in Sonali Farms. The matter was decided in favour of the appellant in the earlier appeals, wherein it was held that money kept in his account at Singapore is not taxable in India. It was also held that remittances made from the said account for expenses in India could not be held as unexplained expenditure/investments. Details are available in the submissions filed by Ld. AR reproduced in Para-4 above. Following the earlier appeal orders, these additions are deleted and these grounds of appeal are allowed.”
18. It was submitted by the ld. AR that this issue relates to the payment made outside India from bank account in Deutsche Bank, Singapore. He relied on the to 4806/Del/2015 CO Nos.266 to 269/Del/2015 judgements of the jurisdictional High Court on the very same issue in assessee’s own case for the earlier assessment years 2006-07 & 2007-08.
19. We find that this issue is also squarely covered in favour of the assessee by the judgements/orders of the Hon’ble High Court/ITAT cited above for AYs 2006- 07 & 2007-08. The ld. DR could not factually dispute the findings of the ld.CIT(A) that the issue is no more res integra. The remittances were made from the NRE account, which were held by the assessee. The deposits and balances in these non-resident bank accounts were held as not taxable in India vide para 13 of this order. Hence remittances from the same accounts are also not taxable in India.
Respectfully following those judgements/orders, we uphold the order of the CIT(A) on this issue also and dismiss this ground of revenue for A.Y. 2006-07 and 2007-08.
For AY 2007-08 the Revenue has raised a ground that the ld.CIT(A) has erred in deleting the addition of Rs.3,44,18,350/- made by the AO on account of remittance in NRE account.
The ld.CIT(A) held as under:-
“8.2 The sixth ground of appeal in AY 2007-08 is against addition of Rs.3,44,18,350/- being the difference between the balance of Rs.9,81,48,350/- in NRE account of the appellant in Deutsche to 4806/Del/2015 CO Nos.266 to 269/Del/2015
Bank, India and amount of Rs.6,37,30,300/- already taxed in the hands of the appellant being entries recorded in documents seized in 2007. The issue of taxability of deposits in Deutsche Bank, Singapore and transfer of funds from the said account to Deutsche Bank, India stands decided in favour of the appellant in the earlier appeals, wherein it was held that money kept in his account at Singapore is not taxable in India. Details are available in the submissions filed by Ld. AR reproduced in Para-4 above. Following the earlier appeal orders, this addition also does not survive and is deleted. This ground of appeal is allowed.”
22. The ld. AR made the same submissions and relied on the same judgements/orders as for AYs 2006-07 & 2007-08 in support of this issue also.
23. We find that this issue is also squarely covered by the judgements/orders of the Hon’ble High Court/ITAT cited above while dealing the first common issue for AYs 2006-07 & 2007-08. Respectfully following those judgements/orders, and consistent with our view on the issue of deposits in foreign bank accounts drawn from para 7 to para 13, we uphold the order of the CIT(A) on this issue also and dismiss the ground of revenue.
24. For AYs 2007-08 & 2008-09 the common ground raised by the Revenue is that the ld.CIT(A) has erred in deleting the additions of Rs.1,15,40,179 (AY 2008- 09) and Rs.3,61,47,562 (AY: 2007-08) made by the AO on account of unexplained deposits in ICICI, London. to 4806/Del/2015 CO Nos.266 to 269/Del/2015
The ld. CIT(A) held as under:-
“8.3 The seventh ground of appeal in AY 2007-08 and the fourth ground of appeal in AY 2008-09 is against addition ofRs.3,61,47,562/- & Rs.1,15,40,179/-, respectively, being deposits in the bank account of the appellant held with ICICI Bank, London. It has been held by Hon'ble ITAT in appellant's case in the earlier appeals that moneys kept in accounts held by him outside India could not be taxed as he is a non-resident. I have also held in the case of the appellant that unless it can be established that the money held by the appellant in his foreign bank accounts are proceeds of income accruing or arising in India or deemed to have accrued or arisen in India it cannot be brought to tax. Following these decisions I hold that as the appellant is a non-resident amounts kept in the account held by in ICICI Bank London, or for that matter any other foreign bank account, cannot be taxed in India unless it can be established that the moneys are proceeds of income accruing or arising in India or deemed to have accrued or arisen in India. As there is no evidence to establish that the money kept in ICICI Bank, London has accrued or arisen from a source in India, these amounts cannot be brought to tax. I hold accordingly and delete these additions. These grounds of appeal are allowed.”
26. The ld. AR made the same submissions and relied on the same judgements/orders as for the first common issue for AYs 2006-07 & 2007-08 in support of this issue also.
27. We find that this issue is also squarely covered by the judgements/orders of the Hon’ble High Court/ITAT cited above while dealing the first common issue for AYs 2006-07 & 2007-08. Respectfully following those judgements/orders, and to 4806/Del/2015 CO Nos.266 to 269/Del/2015 consistent with our view on the issue of deposits in foreign bank accounts drawn from para 7 to para 13, we uphold the order of the CIT(A) on this issue also and dismiss the ground of revenue.
28. The common grounds for AYs 2008-09 & 2009-10 states that the ld.CIT(A) has erred in deleting the addition of Rs.7,20,000/- made by the AO on account of deemed dividend received.
The facts of the case in brief are that Crown Corporation Pvt. Ltd., entered into a commercial agreement with the assessee in respect of property at Som Vihar for which initially an amount of Rs.7,20,000/- was paid as security deposit to the assessee on 04.03.2008. Subsequently, the said security deposit was refunded on 28.03.2009 to Crown Corporation and the same property was let out to Dynatron Exports Pvt. Ltd., receiving security of Rs.7,20,000/- on 20.02.2009. Another property, i.e., Sonali Farms was let out to Crown Corporation Pvt. Ltd., on 11.6.2008 and a security deposit of Rs.50,00,000/- was received.
The AO has treated these deposits as deemed dividend being the amount received by the assessee from companies in which he held substantial interest. to 4806/Del/2015 CO Nos.266 to 269/Del/2015
The ld.CIT(A) deleted the said addition holding as under:-
“The view taken by the revenue is incorrect inasmuch as this is not a case of loan or advance but that of money received for consideration, i.e., security deposit against property let out. Such cases of amounts received for consideration and having commercial expediency are not covered in the purview of Section 2(22)(e). It is noted that the security deposit was also refunded by the appellant on termination/cancellation of lease agreement. The additions made are erroneous and are deleted. These grounds of appeal are allowed.”
32. The ld. AR submitted that the deemed dividend applies to loans or advances in the nature of loans. It does not apply to business or commercial transaction.
Hence, the security deposit is not in the nature of a loan, but, is a consideration for the benefit which the company has acquired by getting property on rent. He placed reliance on the following case laws:-
(a) CIT v. Ambassador Travels (P) Ltd. (2008) 318 ITR 376 (Del); (b) CIT vs. Creative & Printing (P) Ltd. (2009) 318 ITR 416 (Del) (c) Sunil Sethi vs. DCIT (2008) 26 SOT 95 (Del).
Having heard the rival submissions and perused the relevant material on record, we are in agreement with the ld.CIT(A) that the consideration in question received by the assessee is not covered by section 2(22)(e) of the Act. This common ground raised by the Revenue for AYs 2008-09 & 2009-10 is, therefore, rejected. 14 to 4806/Del/2015 CO Nos.266 to 269/Del/2015
Cross Objection No.1 for all the Assessment Years states that the ld.CIT(A) has erred in law in upholding the assessment u/s 153A of the Act., without there being any incriminating evidence/document found during the course of search.
We find that by applying the ratio of the judgement of the Hon’ble jurisdictional High Court in the case of Kabul Chawla in the assessment is liable to be quashed, as the undisputed fact is that the additions in all these appeals are not based on any incriminating material found during the course of search u/s 132 consequent to which the assessments were framed u/s 153A r.w.s. 143(3), since in the Revenue’s appeals the issues involved have been decided on merits in favour of the assessee, taking into consideration the status of the assessee as a non-resident Indian and the fact that the revenue could not discover any incriminating material during the course of search, this Cross Objection has become infructuous and, is therefore, dismissed as such.
Ground No.2 of the Cross Objections for AYs 2006-07 & 2007-08 states that the ld.CIT(A) has erred in upholding the contention of the ld. AO that the onus is on the appellant to establish that the amount kept in HSBC account did not belong to him. to 4806/Del/2015 CO Nos.266 to 269/Del/2015
We hold that since the addition made on account of the amount found in the HSBC account of the assessee has been deleted, this ground of the Cross Objections has become academic and, therefore, this ground is dismissed as such.
Ground No.3 of the Cross Objections for AYs 2006-07 & 2007-08 states that the ld.CIT(A) has erred in holding that the appellant has admitted to pay tax on the amounts kept in HSBC bank account and therefore all due taxes on the said amounts along with interest thereon are to be realized from the appellant despite the fact that the ld.CIT(A) has himself deleted the addition relating to balances in HSBC account.
After hearing the parties and perusing the material on record, we subscribe to the view of the assessee that when the CIT(A) has deleted the additions relating to the balances in HSBC account, the assessee is not liable to pay any tax nor any interest thereon when it is held that this amount cannot be taxed under the Act. The question of paying income tax on the same does not arise. The AO is directed to refund the tax paid is in excess of tax payable on income finally assessed in accordance with the appellate orders. Hence this view of the ld.CIT(A) is right.
There is no estoppel against law. This ground of the assessee is, therefore, allowed. to 4806/Del/2015 CO Nos.266 to 269/Del/2015
The common grounds raised in the Cross Objections of the assessee for AYs 2007-08, 2008-09, 2009-10 & 2011-12 states that: (i) the ld.CIT(A) has erred in stating on presumptive basis that interest on amounts outstanding in ILORA (HSBC) account, if at all, can be charged at the prevalent actual rates or alternatively at the mean rate for the entire block period of assessment; and (ii) that the ld.CIT(A) has erred in stating the above despite the fact that he has himself deleted the addition relating to the amounts in HSBC account and has also stated that since the principal amounts cannot be brought to tax, the question of taxing interest on those amounts does not arise.
The ld. Counsel for the assessee submitted that the additions for these years were made on presumptive basis on account of deemed interest of 4% on the last known balance in the HSBC Geneva Bank Account. When the principle amount in the HSBC Geneva Bank account is itself not taxable due to the non-resident status of the assessee, then, there can’t be any addition on account of interest income on the amount of deposits in the same bank account.
We have heard the parties and perused the relevant material on record.
Since we have held that since the principle amount in the HSBC Geneva Bank account is itself not taxable due to the non-resident status of the assessee, and as there is no proof that the income has accrued or arisen in India consequently, there 17 to 4806/Del/2015 CO Nos.266 to 269/Del/2015 can’t be any addition on account of interest income on the amount of deposits in the same bank account.
For AY 2009-10 the ground raised by the assessee in its Cross Objection is that the ld.CIT(A) has erred in sustaining the addition of Rs.58,00,000/- on account of alleged non-utilisation of capital gains earned by the assessee within the statutory period of three years.
The ld.CIT(A) held as under:-
“8.5 The fifth ground of appeal in AY 2009-10 relates to addition of Rs.58,00,000/- to the taxable income of the appellant, being amount deposited by the appellant in a capital gains deposit account but not utilized within the statutory period of 3 years as required under the law. The facts are undisputed. The appellant did not utilize the amount within the statutory period of 3 years which expired on 26.10.2008. Hence the amount becomes taxable as the Proviso to section 54 comes into operation. The addition has' been correctly made by the revenue and is sustained. This ground of appeal is dismissed.”
45. Relying on the judgement of the Hon’ble jurisdictional High Court in the case of Kabul Chawla in it was submitted by the ld. AR that no incriminating material was unearthed during the search and, therefore, no addition could have been made to the income already assessed. It was further submitted that this issue was examined in detail in AY 206-07 consequent to search dated to 4806/Del/2015 CO Nos.266 to 269/Del/2015 28.2.2007. After due verification of the transaction, the capital gain was accepted to be correct. It is a matter of record that the total expenditure incurred by the assessee for construction of new house property at Sonali Farms (at Westend Greens, NH-8) far exceeded the capital gains of Rs.1.58 crores accrued on sale of property at Colaba, Mumbai. A copy of the chart showing details of expenditure incurred was attached to the written statement. The assessee relied on the following decisions for the proposition that the expenditure to qualify for deduction u/s 54 need not be sourced out of the sale proceeds of the property sold:-
(i) Kapil Kumar Agarwal v. ACIT (2014) 63 SOT 22 (Delhi-Trib.) (ii) Sunil Sachdeva v. ACIT (2013) 56 SOT 321 (Delhi-Trib.) (iii) ITO v. K.C. Gopalan (1999) 107 Taxman 591 (Ker) (iv) Muneer Khan v. ITO (2010) 41 SOT 504 (Hyd. ITAT) (v) Lalit Marda vs. ACIT (2008) 23 SOT 250 (Kol) (vi) DCIT v. Gaylord Investments & Trading Co. (P) Ltd. (2008) 21 SOT
407 (Mum).
The ld. DR relied on the orders of the authorities below.
We have heard the rival submissions and perused the relevant material on record. Since the total expenditure incurred by the assessee for construction of new to 4806/Del/2015 CO Nos.266 to 269/Del/2015 house property at Sonali Farms (at Westend Greens, NH-8) far exceeded the capital gains of Rs.1.58 crores accrued on sale of property at Colaba, Mumbai, we are of the opinion that the amount of Rs.58,00,000/- lying in the account of the assessee should have been deemed to have utilized for acquiring the new asset and the revenue ought not to have made the addition on this count. This addition is, therefore, deleted.
In the result, all the appeals of the Revenue are dismissed and the Cross Objections of the assessee are partly allowed.
The order pronounced in the open court on 22.02.2016.