2018 (6) TMI 1547 - AT - Income Tax

Penalty u/s. 271(1)(c) - undisclosed deposits in bank account - assessee instead of surrendering his invalid Indian passport has used it to open a bank account in HSBC bank, Geneva - Held that - The time of opening of the bank account in Geneva, the assessee was a US citizen and resident and he was holding a US passport. Still the assessee chose to open the account in HSBC bank account in Geneva by using the address and proof thereof by way of his Indian passport which was no longer valid when he has accepted the US nationality by surrendering Indian citizenship. Here the assessee instead of surrendering his invalid Indian passport has used it to open a bank account in HSBC bank, Geneva. Further, the assessee is not responding that this bank account has been disclosed to the US tax authorities. The suspicion that the deposits in this bank account have Indian origin is not unfounded. It is because of these circumstances, that when the ld. Commissioner of Income Tax (Appeals) has affirmed the reopening, the assessee has not challenged the same before the ITAT. Now coming to the merits of the addition, we find that account is in the name of three persons and the entire amount deposited has been added in the names of these two assessee s twice. If the account is in the name of three persons, how can the full amount be added twice in the hands of both the assessee, has not been spelt out by the Assessing Officer. Secondly, the narrations in the bank accounts do not give any clue that these amounts originate from India. The assessee has responded that he is not able to obtain the necessary details from the bank. AO has also not made any effort to further identify the source of the deposits. It is also not the case that when the Assessing Officer s inference is that the assessee s are having partnership business of diamonds in India, the money belongs to the partnership firm. As held in the case of Kapoorchand Shrimal 1981 (8) TMI 2 - SUPREME COURT it is the duty of the appellate authority to correct the error in the orders of the authorities below and remit the matter for further investigation with a necessary directions unless prohibited by law - remit the issue to the file of the AO. AO is directed to make further investigation into the source of the deposits in the bank accounts and also directed to apportion the amounts in the name of the account holders unless proved otherwise by means of cogent evidence. Since we have remitted the issue of addition in the quantum appeals to the file of the Assessing Officer, the penalties levied also do not survive and stand remitted to the file of the Assessing Officer. AO shall consider the issue afresh of levy of penalty u/s. 271(1)(c) of the Act after passing an order afresh in the quantum appeals. - Decided in favour of revenue for statistical purposes.

Summary

Issues Involved:
1. Validity of reopening of assessment.
2. Quantum addition of undisclosed income.
3. Penalty under Section 271(1)(c) of the Income Tax Act, 1961.

Detailed Analysis:

1. Validity of Reopening of Assessment:

The assessee challenged the validity of reopening the assessment. The Commissioner of Income Tax (Appeals) confirmed the validity of reopening, and the assessee did not further contest this issue before the ITAT. The reopening was based on information regarding undisclosed foreign bank accounts, which justified the reassessment.

2. Quantum Addition of Undisclosed Income:

The Revenue appealed against the deletion of quantum addition by the Commissioner of Income Tax (Appeals). The main contention was the addition of amounts found in the assessee's foreign bank account in HSBC, Geneva. The assessee, a non-resident and US citizen, opened the account using an Indian passport, which he should have surrendered upon obtaining US citizenship. The Revenue argued that the deposits in the foreign account could not be proven to have non-Indian origins and should be taxed in India under Section 5(2) of the Income Tax Act.

The Commissioner of Income Tax (Appeals) deleted the addition, stating that the assessee being a non-resident, the income in the foreign account did not accrue or arise in India. The ITAT found that the Commissioner of Income Tax (Appeals) ignored the fact that the assessee used an invalid Indian passport to open the account, raising suspicion about the origin of the funds. The ITAT noted that the Assessing Officer did not make sufficient efforts to trace the source of the deposits and that the entire amount was added twice in the hands of both assessee's without proper justification. The ITAT remitted the issue back to the Assessing Officer for further investigation and proper apportionment of the amounts among the account holders.

3. Penalty under Section 271(1)(c):

The penalties levied under Section 271(1)(c) were also contested. Since the quantum addition issue was remitted back to the Assessing Officer for further investigation, the penalties were also remitted for fresh consideration. The Assessing Officer was directed to reconsider the penalties after passing a fresh order on the quantum addition.

Conclusion:

The ITAT allowed the Revenue's appeals for statistical purposes, remitting the issues of quantum addition and penalty back to the Assessing Officer for further investigation and adjudication. The Assessing Officer was directed to investigate the source of the deposits in the foreign bank account and apportion the amounts correctly among the account holders, granting the assessee adequate opportunity to explain the sources of the deposits. The penalties under Section 271(1)(c) were to be reconsidered based on the fresh findings on the quantum addition.