2012 (7) TMI 772 - AT - Income Tax

Determination of assessee s Residential status - Held that - Going abroad for the purpose of employment only means that the visit and stay abroad should not be for other purposes such as a tourist, or for medical treatment or for studies or the like. Going abroad for the purpose of employment therefore means going abroad to take up employment or any avocation which takes in self-employment like business or profession. Thus taking up own business by the assessee abroad satisfies the condition of going abroad for the purpose of employment covered by Explanation (a) to section 6(1)(c). Therefore the Tribunal has rightly held that for the purpose of the Explanation, employment includes self employment like business or profession taken up by the assessee abroad - The determinative test for the status of Non Resident being number of days of stay in India and in assessee s case in these three years, the days of stay being less than 182 days; the status to be applied in this case is to be held as Non Resident as claimed by assessee. Thus, the assessee will be liable to tax on income accrued in India only. The assessee s grounds in this behalf are allowed. Addition on account of unexplained source of funds - hand written page containing debit and credit entries in assessee s account with Deutsch Bank, Singapore - Held that - Assessee has demonstrated that paper contains details of transfer of his own funds from foreign bank accounts maintained for the investment and business activities carried out in those countries - admittedly the assessee being a non-resident claims to have activities and bank accounts in these countries, thus in these circumstances the burden to prove that assessee s explanation if false or the receipts outside India were as a result of any income which accrued in India was on the Department which AO has failed to discharge the burden and no adverse material has been brought on record - remittances from the assessee s own account outside India to Indian bank accounts cannot be taxed u/s 68 - in favour of assessee. Addition on account unaccounted cash credits - Held that - Share capital and loans had been received by C-I India from its holding company Y2K Systems Ltd Mauritius through banking channels - C1 India has been held as a separate entity held by department by way of assessments as it is not been held to be a Benami concern of the assessee. The addition have been made on account of Share application moneys and loan in both the cases i.e. assessee and C1 India without examining the relevant aspects like identity, creditworthiness, issues about genuineness of transaction and the issue of separate status of the entities - in favour of assessee. Alleged income from arms deals made on account of searches - Held that - there is a presumption in law that the person from whom the document is found is the owner of the document. The Department should discharge their burden before seeking to tax the assessee on the basis of documents found from Dr. M.V. Rao or shri Mohan sambhaji Jagtap. Since the assessee has not been provided necessary material including their statements, opportunity of cross examination and hearing based thereon, interest of justice will be served if the issues about income from commission/ business of dealings in arms are decided afresh by AO in the light of these observations - in favour of assessee by way of remand. Addition in respect of the estranged wife of assessee - Held that - Unable to uphold this addition inasmuch as both were separated by way of deed of settlement and the payments based thereon on were already made - the addition has been made not based on any evidence or incriminating material, indicating that any payment was made out of books. The sole basis of addition is an assumption that there was some unwritten understanding between the assessee and his estranged wife, therefore, it has been assumed that lesser amount for support was paid by the assessee as compared to earlier years - addition being only on presumptions, there being no material what so ever, the addition is deleted - in favour of assessee. Unexplained expenditure on the wedding ceremony of assessee s daughter - Held that - The assessee and his wife are assessed to tax and are persons of means. The reconciliation of availability of cash in hand of ₹ 53.66 lacs with the assessee and his wife has been ignored by AO without giving any reasons - that proper factual verification has not been done by AO. Besides the issue of availability of cash with assessee and his wife needs to be considered in the light of CIT Versus Kulwant Rai 2007 (2) TMI 185 - DELHI HIGH COURT - in favour of assessee for statistical purpose.

Issues Involved:
1. Admissibility of Additional Evidence under Rule 46A.
2. Residential Status of the Assessee.
3. Addition of Share Capital and Loans in M/s C1 India Pvt. Ltd.
4. Addition Based on Documents Recovered from Dr. M.V. Rao.
5. Addition of Payments to Estranged Wife.
6. Addition of Expenditure on Daughter's Wedding.

Detailed Analysis:

1. Admissibility of Additional Evidence under Rule 46A:
The Tribunal noted that the CIT(A) erred in not admitting additional evidence filed by the assessee under Rule 46A of the Income-tax Rules, 1962. The CIT(A) called for a remand report from the AO but did not provide valid reasons for not admitting the evidence.

2. Residential Status of the Assessee:
The Tribunal held that the determinative test for the status of Non-Resident is the number of days of stay in India. The assessee's stay in India was less than 182 days for the relevant years. The Tribunal emphasized that the plain reading of Section 6 of the Income-tax Act, along with the Explanation, makes it clear that for an individual covered by part (b) of the Explanation, the period of stay in India is to be counted at 182 days and not at 60 days provided in clause (c) of sub-section (1) of section 6. The Tribunal cited the case of Abdul Razzaq (337 ITR 350) and concluded that the assessee should be treated as Non-Resident.

3. Addition of Share Capital and Loans in M/s C1 India Pvt. Ltd.:
The Tribunal observed that the share capital and loans received by C1 India from its holding company Y2K Systems Ltd. Mauritius were through banking channels and supported by the company's audited Balance Sheets. The Tribunal noted that the same amount was taxed substantively in both the assessee's and C1 India's hands, which is not permissible under law. The Tribunal set aside the issue to the AO to decide afresh.

4. Addition Based on Documents Recovered from Dr. M.V. Rao:
The Tribunal held that additions based on documents found from third parties cannot be made without confronting the material and allowing the opportunity of cross-examination to the assessee. The Tribunal directed the AO to provide the necessary material, including statements, and allow cross-examination before deciding the issue afresh.

5. Addition of Payments to Estranged Wife:
The Tribunal found that the addition of Rs. 24,40,000/- (A.Y. 2002-03) and Rs. 23,20,000/- (A.Y. 2003-04) on the presumption that the same was paid by the assessee to his estranged wife out of undisclosed sources was based on assumptions and not on any evidence. The Tribunal deleted the addition, noting that the payments were made by cheque and there was no material to suggest any payment outside the books.

6. Addition of Expenditure on Daughter's Wedding:
The Tribunal noted that the addition of Rs. 45,95,000/- towards unexplained expenditure on the wedding ceremony of the assessee's daughter was based on loose papers and assumptions. The Tribunal set aside the issue to the AO for proper factual verification and consideration of the availability of cash with the assessee and his wife, in light of the Delhi High Court judgment in Kulwant Rai (291 ITR 36).

Conclusion:
The Tribunal allowed the assessee's appeals partly for statistical purposes, directing the AO to re-examine certain issues and delete certain additions based on the principles of law and the facts of the case.

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