2007 (11) TMI 440 - AT - Income Tax

Summary

Issues Involved:
1. Confirmation of the addition of Rs. 7,00,000 as income from other sources.
2. Addition of Rs. 22,15,116 being remittances from abroad.
3. Requirement for the appellant to prove the source of remittances from abroad.
4. Rejection of evidence produced by the appellant to prove the foreign remittances.
5. Status of the appellant as a resident or non-resident during the assessment year.

Issue-wise Detailed Analysis:

1. Confirmation of the Addition of Rs. 7,00,000 as Income from Other Sources:
The first issue concerns whether the CIT(A) was justified in confirming the addition of Rs. 7 lakhs made by the Assessing Officer. The facts reveal that the assessee filed his return of income for the assessment year 1995-96 declaring a total income of Rs. 13,840, which was initially accepted. During scrutiny, it was noticed that substantial cash deposits were made in the SB Account No. 3536 in the name of the assessee's wife. The assessee admitted that these deposits were out of his own funds and provided various explanations, including remittances from abroad, borrowings from an NRE friend, and sale proceeds from 12 gold bars brought from Muscat. The Assessing Officer recorded statements from five individuals who purportedly bought the gold bars but found discrepancies and contradictions in their statements. The CIT(A) upheld the addition, noting that the assessee failed to furnish satisfactory explanations and there were discrepancies in the statements of the individuals.

2. Addition of Rs. 22,15,116 Being Remittances from Abroad:
The CIT(A) enhanced the assessment by including Rs. 22,15,116 as income from abroad, arguing that since the assessee had declared his status as a resident in the income tax return, his global income should be taxable in India. The CIT(A) issued a notice of enhancement under section 251(1)(i) of the Act. The assessee contended that this income was earned abroad and should not be taxed in India, especially considering his status as a non-resident in the wealth tax return.

3. Requirement for the Appellant to Prove the Source of Remittances from Abroad:
The CIT(A) required the assessee to prove the source of the remittances from abroad, which the assessee argued was not a statutory requirement. The CIT(A) rejected this contention, insisting that the assessee must provide evidence for the source of the income claimed to be earned abroad.

4. Rejection of Evidence Produced by the Appellant to Prove the Foreign Remittances:
The CIT(A) rejected the evidence produced by the assessee to prove the foreign remittances, citing various discrepancies in the statements of the individuals who purportedly bought the gold bars. The CIT(A) noted that these individuals were of small means and had already incurred heavy expenditures, making their purchase of gold from the assessee unconvincing.

5. Status of the Appellant as a Resident or Non-Resident During the Assessment Year:
The assessee claimed non-resident status, arguing that he was out of India since 1980 and working abroad. The CIT(A), however, held that the assessee was a resident during the year based on the income tax return filed. The CIT(A) rejected the assessee's contention that the status was mistakenly shown as resident in the income tax return but correctly shown as non-resident in the wealth tax return.

Judgment Summary:

1. Addition of Rs. 7,00,000:
The Tribunal found that the assessee had discharged the primary burden of proving the identity, source, and genuineness of the transactions by providing confirmation letters and statements from individuals. The Tribunal noted that the contradictions in the statements were minor and did not warrant the addition. Therefore, the Tribunal deleted the addition of Rs. 5 lakhs made by the Assessing Officer.

2. Addition of Rs. 22,15,116:
The Tribunal held that the CIT(A) was not justified in enhancing the assessment by including the income from abroad. The Tribunal emphasized that the CIT(A) cannot travel outside the subject matter of the assessment order to discover new sources of income. The Tribunal noted that the status of the assessee as a non-resident was accepted in the wealth tax and gift tax assessments. Consequently, the Tribunal deleted the enhancement of Rs. 22,15,116 made by the CIT(A).

3. Requirement to Prove Source of Remittances:
The Tribunal agreed with the assessee's contention that there was no statutory requirement to prove the source of remittances from abroad. The Tribunal found that the assessee had provided sufficient evidence to explain the source of the remittances.

4. Rejection of Evidence:
The Tribunal found that the CIT(A) erred in rejecting the evidence produced by the assessee. The Tribunal noted that the minor discrepancies in the statements of individuals did not justify the rejection of the evidence.

5. Status as Resident or Non-Resident:
The Tribunal held that the assessee was a non-resident during the assessment year, as evidenced by the wealth tax return and other documents. The Tribunal found that the CIT(A) erred in holding the assessee as a resident based on the income tax return alone.

Conclusion:
The Tribunal allowed the assessee's appeal partly, deleting the additions of Rs. 7 lakhs and Rs. 22,15,116 made by the CIT(A) and confirming the addition of Rs. 2 lakhs made by the Assessing Officer.