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Income Tax Appellate Tribunal, “D” BENCH, AHMEDABAD
Before: SMT. ANNAPURNA GUPTA & SHRI SIDDHARTHA NAUTIYAL
PER SIDDHARTHA NAUTIYAL - JUDICIAL MEMBER:
This appeal has been filed by the assessee against the order passed by the Ld. Commissioner of Income Tax (DRP-2), Mumbai-2 vide order 29.12.2023 passed for Assessment Year 2018-19.
The assessee has taken the following grounds of appeal:-
“1. Addition of Rs. 2,17,48,600/ u/s 69A rws 115BBE Assessee is an Israeli citizen ( around 51 yrs old) holding Israeli Passport and a Non Resident as he does not comply with either of the basic condition per provision of Sec. 6(1). He carries the business of tiles, ceramics in I Hong Kong. He has no business connection with India. He had opened bank accounts in India with HDFC Bank, One NRE Account No 50100221413770 with HDFC Malad Orlem Branch, and other NRO Account No 50100221413780. During the year assessee remitted Rs. 2,17,08,596/ to his NRE Account from own funds and
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received Rs.40,000/ from his sister in India in his NRO account. Out of this fund he made fixed deposit with HDFC Bank, amounting to Rs. 2,01,50,000/-. The FIRC presented by the assessee clearly says that remittance was made from assessee's own bank account 370-201246-882 held with Hang Seng Bank, Hong Kong to his NRE account 50100221413770 with HDFC Bank and NRO Account 50100221413780 with HDFC Bank . Since the remittance made by assessee from his own bank account in India can not be considered income the addition made by the department overriding the provision of Section 5(2),6,9 of the Income Tax Act 1961 is prayed to be deleted.”
The brief facts of the case are that the assessee had not filed his return of income for Assessment Year 2018-19. Certain information was in possession of the Department that the assessee had entered into high-value transactions during Assessment Year 2018-19 and assessee had made time deposits in HDFC Bank of Rs. 2 crores and Rs. 1.5 lakhs respectively. During the course of assessment proceedings, the assessing officer observed that the assessee had made total credits in two NRE and NRO accounts held with HDFC Bank to the tune of Rs. 2,17,48,596/- and out of the said amount, the assessee made time deposits of Rs. 2,00,00,000/- and Rs. 1,50,000/- in HDFC Bank. Accordingly, the assessing officer asked the assessee to furnish certain details like list of all bank account maintained in foreign country, to submit the supporting documents for the source of amount credited in foreign bank accounts, tax residency certificate, file relevant profit and loss account of the overseas business etc. In response, the assessee submitted that the assessee is a non-resident and has earned income from business in Hong Kong during Assessment Year 2018-19. The assessee had opened NRE FD account for such business income and earned interest thereon. The interest from NRE account is exempt from tax under Section 10 (4) (iii) of the Act. Further, the assessee submitted Certificate of
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Foreign Inward remittance to support the fact that the amount has come from assessee’s own bank account outside of India. However, the assessing officer did not agree with the contentions of the assessee and added a sum of Rs. 2, 17, 48, 596/- to the income of the assessee, with the following observations:
“4.3. The reply of the assessee is considered but not found to be acceptable. The assessee has submitted that he had earned income from business in Hong Kong during the A.Y.2018-19. The assessee had opened NRE FD account from that income and earned interest, which is exempt u/s.10(4)(ii) of the IT. Act. The said contention of the assessee is not acceptable because the assessee has failed to submit details as called for in above para 4.1. The assessee in his reply submitted copy of certificate of foreign inward remittance. However, the assessee failed to submit source of remittance. The assessee has not submitted copy of bank accounts maintained in foreign country and supporting documentary evidences for source of amount credited in foreign bank accounts. The assessee had not submitted copy of return of income filed in country of resident and copy of tax residency certificate. The assessee has also failed to submit source of amount transferred from foreign bank account to HDFC bank above mentioned bank account. Therefore, amount credited to the tune of Rs.2,17,48,596/- remains unexplained. Out of credit entries, the assessee has made Time deposit of Rs.2,00,00,000/- and Rs.1,50,000/-. Since the assessee has failed to submit source of credits amounts, the investment in time deposits is also unexplained investment. However, credit amount to the tune of Rs.2,17,48,596/- is treated as unexplained credit in NRE & NRO bank account, so telescoping is given for investment in Time Deposit and no separate addition was proposed for the same. Considering the above facts, amount of Rs.2,17,48,596/- is treated as unexplained credits in bank accounts and added to the total income u/s. 69A r.w.s. 115BBE of the Income tax Act for the year under consideration. Penalty proceedings initiated u/s.271AAC(1) of the IT. Act separately. (Addition Rs.2,17,48,596/-)”
The assessee filed application before DRP, who upheld the order of the assessing officer, with the following observations:
“Thus, Section 69A lays down two conditions for treating the monies (Bank deposits owned and held by the Applicant) etc. as unexplained: (i) Assessee is owner of money (Sums of money into bank deposits of the applicant) which has been deposited and held as investment in the account during relevant period;
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(ii) The explanation about the source of acquisition of the money in bank held as investment is not at all satisfactory. Thus, (i) The Applicant does not have any satisfactory explanation for the source of the money in bank (deposits); (ii) The source of the money / Bank Deposits have not been satisfactorily explained. The explanation of the Applicant assessee is predicated a number of improbable steps. Therefore, the veracity of such claims is not acceptable. (i) The Applicant does not have any active source of income (In India, or abroad and no such evidence has been tendered); (ii) The explanation and accountability of source of the FD has not been explained; Notwithstanding anything as discussed above, in the landmark case of CIT v. P. Mohanakala [2007] 291 ITR 278 (SC), the Apex Court has laid down a novel approach to the issue of unexplained deposits. The Hon'ble SCI has observed that: The express/on "the assesses offers no explanation" means the assessee offers no proper, reasonable and acceptable explanation as regards the sums found credited in the books maintained by the assessee. The opinion of the Assessing Officer for not accepting the explanation offered by the assessee as not satisfactory is required to be based on proper appreciation of material and other attending circumstances available on the record. The opinion of the Assessing Officer is required to be formed objectively with reference to the material on record... Thus, as held by the Ld. A.O., the explanation of the assessee is not satisfactory and the money deposited interbank deposits are held as unexplained money and are deemed income for the financial year in which the investments in form of money ownership are made, the 'Unexplained investments are deemed income for the financial year in which the investments in form of money ownership are made. 7.3.4 On the basis of above discussion, it is concluded that the nature and source of the money in bank deposits made by the applicant assessee have not been adequately or satisfactorily explained. Considering the details presented and the explanations provided, the Panel sustains the adverse findings under Section 69A of the Income Tax Act, 1961. The panel, therefore, notes that the amount of Rs. 2,17,48,596/- remains unexplained and therefore the Ld. AO is directed to add the said amount. Thus, the objections raised by the assessee are not tenable and therefore, are rejected.”
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The assessee is in appeal before us against the aforesaid order passed by DRP, dismissing the appeal of the assessee. Before us, the Counsel for the assessee submitted that the assessee, Mr. Alan Moses is a citizen of Israel and was carrying on business in Hong Kong. He is a non-resident as per the provisions of the Income Tax Act, and the Counsel for the assessee produced a copy of passport of the assessee for two purpose. It was submitted before us that the assessee was carrying on business in Hong Kong and there is no allegation that he was having any business connection with India and hence no part of the income was taxable in India. During the year under consideration the assessee opened two bank account with HDFC Bank and in the NRE account, there was credit entry of Rs. 2,17,08,595/- on account of remittance from outside India. The assessee made fixed deposits of Rs. 2,01,50,000/- with HDFC Bank out of the aforesaid remittances from his own account from outside India. The Counsel for the assessee submitted that the Department has not challenged the residential status of the assessee as “non-resident”. There is also no allegation on the part of the Department that the income so remitted to the HDFC NRE account was not from the overseas bank account held by the assessee outside of India and the same is also evident from the Foreign Inward Remittance Certificate filed by the assessee, giving details of the remittance made by the assessee from his overseas bank account to NRE bank account in HDFC Bank in India. The Counsel for the assessee submitted that when the assessee has repatriated fund from his own bank account in Hang Seng Bank, Hong Kong for a sum equivalent to Rs. 2,17,08,595/- to his HDFC NRE account in India and copy of the Foreign Inward Remittance Certificate dated 21.03.2018 shows the name of the remitter from Hong Kong and name of beneficiary in India,
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which is the same as name of Alan Moses and the purpose of remittance is a fixed deposit to be made, there is no question of invoking Section 69A of the Act, when the remittance has been made by the assessee from his own bank account in Hong Kong to his bank account in India. The Counsel for the assessee submitted that the source of inward fund has been explained by submitting copy of Foreign Inward Remittance Certificate and copy of foreign bank account with Hang Seng Bank, Hong Kong showing the transfer of corresponding fund. Accordingly, the Counsel for the assessee submitted that the DRP erred in confirming and treating such deposit as unexplained money under Section 69A of the Act.
In response, the Ld. DR placed reliance on the observations made by the assessing officer and DRP in their respective orders.
We have heard the rival contentions and perused the material on record. On going to the facts of the instant case, we observe that in the instant facts, the Department has not disputed the non-residential status of the assessee during the impugned year under consideration. The Department has also not brought anything on record to show that the assessee was having any source of income in India, from which the aforesaid deposits were made in the HDFC bank account. Admittedly, the assessee was a non- resident of Israel and had remitted funds from his bank account with Hang Seng Bank, Hong Kong to his NRE bank account in HDFC in India. The assessee had also submitted copy of Foreign Inward Remittance Certificate to show that the funds had been commuted by the assessee from his overseas bank account with Hang Seng Bank in Hong Kong to NRE bank account with HDFC Bank, India. A perusal of the Foreign Inward
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Remittance Certificate also shows that the remitter of the funds was assessee himself and the funds were sent by the assessee from his overseas bank account in Hong Kong. In the case of CIT v. Suresh Nanda35taxmann.com199 (Delhi), the Delhi High Court held that since in none of relevant Assessment Years assessee stayed in India for 182 days or more, he was to be regarded as non-resident and, therefore, amount transferred from his foreign account to domestic account could not be brought to tax by invoking provisions of Section 68 of the Act. In the case of DCIT v. Hemant Mansukhlal Pandya 100 taxmann.com 280 (Mumbai - Trib.), the ITAT held that Where additions were made to income of assessee, who was a non-resident since 25 years, since, no material was brought on record to show that funds were diverted by assessee from India to source deposits found in foreign bank account, impugned additions were unjustified. In the case of Smt. Susila Ramasamy v. ACIT 37 SOT 146 (Chennai), the Assessee, a non-resident Indian, had made substantial Non-Resident Non-Repatriable (NRNR), Foreign Currency Non-Resident (FCNR), and NRSB deposits with Indian Bank. She filed return in Form No. 2D showing total income as nil. The Assessing Officer passed assessment order and assessed aforesaid deposits as income of assessee under Section 69. The ITAT held that since assessee had brought money into India through proper banking channel, it could be said that onus on assessee under Section 69 stood discharged and, therefore, it was not taxable in India under Section 5(2)(b). In the case of Iqbal Ismail Virani v. ITO 128 taxmann.com 181 (Panaji - Trib.), the ITAT held that money brought in India by non-resident for investment or for other purpose is not liable to tax under provisions of Act and question of assessment to
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income-tax arises only when there is no evidence to show that amount in question in fact represents remittance from abroad. In the case of Smt. Sumana Bandyopadhyay 88 taxmann.com 847 (Calcutta), the Calcutta High Court held that salary received by assessee, a non-resident marine engineer, from two foreign employers for services rendered outside India could not be subjected to tax in India merely because foreign employers, on instructions of assessee, had remitted a part of amount of salary to assessee's NRE bank account in India. In the case of Shyamal Gopal Chattopadhyay 82 taxmann.com 209 (Kolkata - Trib.), the ITAT held that where foreign employer directly credited salary for services rendered outside India into NRE bank account of non-resident seafarer in India, same could not be brought to tax in India in terms of Section 5. In the case of Arvind Singh Chauhan 42 taxmann.com 285 (Agra - Trib.), the Agra ITAT held that salary received by NRI from foreign company for rendering services outside India as crew on merchant vessels and tankers plying on international routes, is not taxable in India merely because said salary was remitted to India from foreign bank account to NRE bank account of assessee in India. In the case of Asim Kumar Bera 85 taxmann.com 275 (Kolkata - Trib.), the Calcutta ITAT held that salary accruing to a non-resident seafarer for services rendered outside India on a foreign ship shall not be included in total income merely because salary has been credited in NRE account maintained with an Indian Bank by seafarer.
Accordingly, in our view, looking into the instant facts, wherein the residential status of the assessee, being a non-resident is not in dispute, there is no allegation that the assessee had any business connection India or that
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the amount remitted by the assessee from his overseas bank account in Hong Kong to his NRE bank account in India is coming out of income earned by the assessee in India, the copy of passport and other documents confirm that the assessee was a non-resident during the year under consideration, the assessee has furnished Foreign Inward Remittance Certificate to establish that the money had been remitted by the assessee from his bank account held with Hang Seng Bank, Hong Kong to his NRE account in India, in our considered view, the assessee has discharged the primary onus regarding the source of funds being outside of India and accordingly, the addition made by the assessing officer is liable to be deleted looking into the instant facts.
In the result, the appeal of the assessee is allowed.
This Order pronounced in Open Court on 24/07/2024
Sd/- Sd/- (ANNAPURNA GUPTA) (SIDDHARTHA NAUTIYAL) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 24/07/2024 TANMAY, Sr. PS TRUE COPY आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त(अपील) / The CIT(A)- 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER,
उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील�य अ�धकरण, अहमदाबाद / ITAT, Ahmedabad