2014 (7) TMI 908 - AT - Income Tax

Manipulation of bank account - AO has computed the peak deposits in each bank and half of the amount was taxed in the hands of the assessee and rest of the amount was taxed in the hands of his brother Held that - CIT(A) rightly held that the deposits in these accounts can be made by foreign remittances / drafts - Shri Mohd. Mohsin in his statement u/s. 132(4) had also given details and the reason for the possession of bank passbooks / cheque books - The accounts seized at the time of search were NRE accounts - Since inception when the raid was conducted, the assessee's stand was that the purpose of having all those accounts was to issue presigned cheques for charity - assessee and his brother had no connection with those bank accounts - they have not derived any benefits from those accounts revenue has not established any nexus of the accounts with the business activity of the assessee - only foreign remittance was permissible to transfer the funds in NRE account - CIT(A) was right in holding that the addition was merely on a conjecture that the bank accounts belonged to poor and gullible relatives of the assessee, the deletion is upheld Decided against Revenue.

Summary

Issues involved:
Challenge to deletion of addition pertaining to deposits in bank accounts stated to be in the names of relatives.

Detailed Analysis:

Issue 1: Challenge to deletion of addition pertaining to deposits in bank accounts stated to be in the names of relatives

The appeals had identical facts consolidated for a common order. The Revenue contested the order of the learned CIT(A)-III, Ahmedabad, dated 18.12.2009, primarily objecting to the deletion of additions related to deposits in bank accounts allegedly owned by relatives. The AO had conducted a search in the "Dosani Group" cases, a coal trading business, where bank pass-books and cheque books were found at the premises of M/s. Black Diamond Trading Co. The AO attributed ownership of these accounts to the assessee based on control and possession. The AO taxed 50% of the peak deposits in these accounts in each hand for the relevant assessment year.

Issue 2: Explanation and defense by the assessee before the First Appellate Authority

Before the First Appellate Authority, the assessee clarified that the bank accounts belonged to close friends and relatives who were NRIs holding UK and Canadian citizenship. These individuals deposited funds in their NRE accounts through legitimate channels from abroad for charity purposes in India. The accounts were opened and operated by the account holders, not the assessee or his brother. The assessee denied any connection with the funds in these accounts and highlighted that the accounts were NRE accounts with foreign remittances as the only source of deposits, exempt from interest tax. The First Appellate Authority, after considering the submissions and evidence, concluded that the additions made by the AO lacked basis and were conjectural, thus deleting the additions for all relevant assessment years.

Issue 3: Arguments and counter-arguments before the Tribunal

The Revenue argued that the accounts belonged to the assessee since they were found in his possession, invoking Section 132(4A) presumption. The Revenue contended that the funds in these accounts were unexplained money of the assessee and criticized the charity explanation provided by the assessee. On the other hand, the respondent-assessee reiterated that the accounts were NRE accounts funded only through foreign exchange, emphasizing that the assessee had no benefit from these accounts. The assessee's statement recorded during the search was deemed true and correct, supporting the charitable intent behind the accounts. The Tribunal analyzed the evidence, including NRE account details, and affirmed that the accounts were indeed NRE accounts funded by foreign remittances. The Tribunal upheld the CIT(A)'s decision to delete the additions, emphasizing the lack of nexus between the accounts and the assessee's business activities.

Conclusion:

The Tribunal dismissed all appeals of the Revenue, affirming the deletion of additions related to deposits in bank accounts allegedly owned by relatives. The decision was based on the conclusive evidence that the accounts were NRE accounts funded by foreign remittances, supporting the charitable purpose claimed by the assessee and refuting the Revenue's conjectural assertions.