2014 (4) TMI 739 - AT - Income Tax

Determination of the Status of the Assessee Residential or not Whether the strict and literal construction of sec 6 and other provisions leads to absurd results which cannot be intended by legislature - Held that - The proceedings clearly reveal that the repeated impounding of assessee's passport and lodging of criminal case was found to be untenable by courts - This entangled the assessee into spat of litigation, forcing him to stay in India and unwillingly loose his NRI status on strict and literal interpretation of relevant provision - the assessee was restrained by govt. from traveling abroad, compelled to stay in India for more than 180 days - The circumstances were beyond assessee's control and no fault can be attributed to assessee in this behalf the facts and circumstances create a peculiar situation. No fault can be attributed to assessee who has shown active diligence in defending his legal rights - legislature cannot have enacted the provision with an intention to forfeit the NRI status by unlawfully compelling the assessee not to leave India even if he has found not to have violated the alleged law - assessee was forced to stay in India for a period of more than 182 days by which he lost his NRI status and became liable to enhanced income tax on his global - assessee's case becomes fit where doctrine of forced meajure may be applicable as it was impossible for the assessee to move out of country and therefore doctrine of impossibility of performance is also applicable - This is a fit case where strict legal reading of the provisions regarding residence in India should not be applied - An interpretation or construction should be applied which results in harmonious meaning, equity rather than injustice. For calculation of stay in India for these years the same should be calculated after exclusion of days of wrongful impounding of passport which constitutes forced stay in India - Thus period for which assessee could not travel outside India in above facts and circumstances i.e. from 10.10.2006 to 21-9-2011 i.e. till the passport was finally handed over to assessee and allowed to travel outside India should be excluded - the assessee's residential status is held to be as 'non-resident' for the years Decided in favour of Assessee. Validity of reference made to Govt. of Mauritius, Jersey and British Islands Held that - The direction given to AO does not amount to set aside of the AOs order - CIT(A) has tried to caution the AO to keep the interest of revenue in mind - the appellate authorities should restrict their conclusions to the subject matter and should avoid generalized directions - Such directions are susceptible to be taken to be orders of a higher authority - CIT(A) has deleted the entire addition without any pre condition, therefore, general instructions given to Assessing Officer do not amount to binding order and at best amount to obiter dicta the observations of CIT(A) are general Decided against Assessee. Addition made on protective basis Held that - As decided in assessee s own cse for the previous assessment years, it has been held that the CIT(A) has made the addition on protective basis without justification thus, the alternate retention of addition on protective basis is set aside Decided in favour of Assessee. Addition on account of excess cash found during search Held that - Assessee contended that without considering opening balance and arbitrarily estimating household expenses, the CIT(A)'s action in confirming the action of AO is not justified thus, the matter is remitted back to the AO for fresh adjudication Decided in favour of Assessee. Addition on account of investment in renovation of farms Held that - The assessee is held to be a non-resident consequently any amount is not taxable in India unless it is deemed to have been received or accrues or arises or deemed to have arisen to assessee in India As decided in assessee s own case for the previous years, the order is set aside and the AO id directed to verify as to whether the total amount spent on Sonali Farms exceeded the amount as estimated by the valuer and if any addition is possible under section 69C Decided in favour of Assessee.

Issues Involved:
1. Residential status of the assessee.
2. Addition of share capital of Universal Business Solutions Mauritius in Claridges Pvt. Ltd.
3. Addition of share capital subscribed by Palm Technologies Ltd. Mauritius in Claridges SEZ (P) Ltd.
4. Unexplained cash found during the search by CBI.
5. Investment in the renovation of Sonali Farms.
6. Deposits in Deutsche Bank, Singapore.
7. Foreign remittance of GBP 10,000.
8. Unexplained jewellery found in possession of the assessee's wife.

Issue-wise Detailed Analysis:

1. Residential Status of the Assessee:
The primary issue was whether the assessee should be considered a "Resident" or "Non-Resident" for the assessment years 2007-08 and 2008-09. The assessee argued that his stay in India exceeded 182 days due to the illegal seizure of his passport by the CBI, which forced him to stay in India against his will. The Tribunal held that the literal interpretation of the law should be modified to avoid absurd results. It was concluded that the period of forced stay due to passport impounding should be excluded while calculating the days of stay in India, thereby maintaining the assessee's status as a "Non-Resident."

2. Addition of Share Capital of Universal Business Solutions Mauritius in Claridges Pvt. Ltd.:
The Tribunal found that the investment made by Universal Business Solutions Mauritius (UBSM) in Claridges Hotels Pvt. Ltd. was a legitimate foreign direct investment (FDI) under the automatic route permissible by the Government of India. The ownership and source of funds were established, and there was no evidence to suggest that the money was sourced from the appellant. The addition was deleted, and the Assessing Officer was directed to pursue further references to the Governments of Mauritius, Jersey, and British Virgin Islands to ascertain the real facts.

3. Addition of Share Capital Subscribed by Palm Technologies Ltd. Mauritius in Claridges SEZ (P) Ltd.:
The Tribunal observed that the investment by Palm Technologies Ltd. (PTL) in Claridges SEZ was sourced from entities under the appellant's control. However, it was held that the money sourced from these entities could not be treated as the appellant's income unless there was direct evidence linking the investment to the appellant's personal income. The addition was sustained on a protective basis, and further references were directed to the Governments of Mauritius, Jersey, and British Virgin Islands.

4. Unexplained Cash Found During the Search by CBI:
The Tribunal upheld the addition of Rs. 7,29,000/- as unexplained cash, finding no infirmity in the Assessing Officer's conclusions. The need for keeping large quantities of cash was deemed inexplicable, and the addition was sustained under Section 69A.

5. Investment in the Renovation of Sonali Farms:
The Tribunal held that the appellant failed to explain the source of investments/expenditure in Sonali Farms. Since the appellant was held to be a "Resident" for tax purposes, his global income was taxable, and he was entitled only to credit for taxes paid abroad. The addition was sustained under Section 69 as unexplained expenditure.

6. Deposits in Deutsche Bank, Singapore:
The Tribunal upheld the addition of Rs. 5,10,57,115/- representing the appellant's deposits in Deutsche Bank, Singapore. The primary onus of explaining the nature of the transactions and sources thereof was not discharged by the appellant. The addition was sustained as unexplained credits/deposits/expenditure in the appellant's bank account.

7. Foreign Remittance of GBP 10,000:
The Tribunal confirmed the addition of Rs. 8,45,288/- (10,000 GBP) as unexplained receipt in the appellant's bank account, finding no explanation or justification provided by the appellant.

8. Unexplained Jewellery Found in Possession of the Assessee's Wife:
The Tribunal deleted the addition of Rs. 1,20,73,114/- made by the Assessing Officer on account of unexplained jewellery found in possession of the appellant's wife. It was held that the jewellery was already disclosed in various wealth tax returns of the appellant and his family members.

Conclusion:
The appeals filed by the assessee were partly allowed for statistical purposes, while the appeals filed by the revenue were dismissed. The Tribunal's decision emphasized the need for a harmonious and equitable interpretation of tax laws to avoid unintended and absurd results.

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