2017 (9) TMI 1914 - AT - Income Tax

Unexplained cash credit u/s 68 - treatment to migrants from Pakistan - assessee had made cash deposit in eight bank accounts, of which five were current accounts - assessee explained that she had migrated from Pakistan on 30.07.2009 with a view to permanently settle in India and while coming to India, she had brought ₹ 2.71 crores in cash and 1387.50 grm. of gold ornaments and jewellery - CIT- A deleted the addition - revenue argued that assessee had filed declaration with ITO, Mumbai regarding cash brought into India and deposited in various bank accounts in Aurangabad, knowing fully the fact that the jurisdiction of the case over the assessee was not in Mumbai, but was in Aurangabad - Revenue aggrieved by the observations of CIT(A) in treating it as mere venial breach as against the jurisdictional issue in law HELD THAT - Assessee had opened bank accounts in Aurangabad. It may be clarified herein itself that the said ITO had accepted the declaration in line with the Circular and had issued certificate to the assessee both for cash and the jewellery declared. Whether the declaration so made before the ITO, Mumbai affects his jurisdiction and such declaration cannot be accepted? - As coming to the Circular issued in 1969, wherein it is clearly provided that Indians migrating from Pakistan were not required to produce documentary evidence in support of their claim for transfer of money and personal jewellery but had to prove the resources in Pakistan to which such money or jewellery could be reasonably attributed. We find merit in the order of CIT(A) in this regard in holding that the Income Tax Officer at Mumbai is a functionary of the Income Tax Department. We hold that he is competent to receive the said declaration and to issue certificate in this regard. Even if there is default in filing the said declaration before the ITO in Mumbai but the default is of venial breach in nature and does not affect the declaration so made by the assessee and the subsequent order passed by the ITO, Mumbai - vide said certificate after having considered all the facts of the case and on going through the documents produced, stated that the declaration made by the above person is accepted. In the said certificate, the Assessing Officer referred to the CBDT Circular dated 03.02.1969 and also noted that the lady was Hindu of Indian origin and was residing in Pakistan. Further, she came to settle permanently in India and she brought in sum of ₹ 2.71 crores in cash and gold ornaments jewellery weighing 1387.50 grms. In support thereof, she produced the passport, Visa and RP number. AO not accepting the declaration made by the assessee on the ground that the assessee did not prove that it had transferred the assets which it claims to have sold by her and her husband - CIT(A) has not only considered the said evidence filed by the assessee but had forwarded the same to the Assessing Officer, who has not offered any comments in this regard. The CIT(A) vide paras 13, 14 and 15 had elaborately discussed the transactions entered into by the assessee vis- -vis sale of her gas stations and gas stations sold by her husband, wherein both the assessee and her husband had 40% share each. The assessee had claimed that it had received ₹ 2 crores being her share in the said gas station and her husband had received ₹ 1.50 crores being 40% share in sale of said gas station. Vide para 15, the CIT(A) has further relied on the documentation of sale of property for ₹ 1.10 crores by the husband of assessee. In respect of all these transactions, the CIT(A) had also taken note of mutations in the name of purchasers as per registered sale deeds. As supporting evidence available with the assessee, the assessee having established its case of availability of cash in its hands, which in turn, was withdrawn by way of cash withdrawal, it cannot be said that the assessee did not have resources of cash, which she had brought into India. In view thereof, we find no merit in the findings of Assessing Officer in this regard and hold that where the assessee has successfully established the resources in her hand, then the plea of assessee of having brought into India of ₹ 2.70 crores cannot be brushed aside. Bringing huge cash to India in the absence of any banking channels where the assessee has failed to produce any evidence - It may also be pointed out that the bank statement of the bank account held by the assessee in Pakistan clearly shows a credit in her name of ₹ 4.38 crores, which is the evidence of resources held by the assessee and the same cannot be brushed aside. The manner in which the money was transferred and brought into India cannot be looked into by the Assessing Officer, in view of clear-cut guidelines issued by the CBDT and once the assessee is holding requisite amount of cash balance in her bank account, out of which the assessee claims that she had brought the money into India in cash, then the availability of such cash stands explained and does not warrant any addition under section 68 Whether the said amount has been brought into by hawala transaction or hawala means or not? - Admittedly, the transactions through hawala are not to be accepted as such but in the absence of any direct banking facilities between India and Pakistan, modes other than the banking channels are used for the transfer of funds by the migrants from Pakistan to India. The assessee had sought her migration to India because of compelling circumstances, where she has migrated along with her five children. The learned Authorized Representative for the assessee clarified that the husband of assessee is still in Pakistan but on her migration for her settlement, she brought the said cash through unauthorized channels; but in the absence of banking channels between Pakistan and India, the assessee was forced to do so. The Circular issued by CBDT in this regard and the Reserve Bank of India in its letter to the Asst. Director (FERA) had insisted upon a lenient and liberal view in such circumstances in respect of such monies brought into India. The Hon ble High Court of Madras in S.R. Lakshmanan Vs. CIT 1990 (2) TMI 21 - MADRAS HIGH COURT had held that if resources were established to have been available in Sri Lanka, then the manner in which those resources were repatriated to India, though not recognized as one, would not be questioned, but would be accepted As assessee placed on record certain material from the web in respect of lack of direct banking facilities between India and Pakistan. In another report dated 20.09.2016, wherein it is mentioned that trade between India and Pakistan had increased but there was lack of direct banking channels, limited connectivity and hence, the same was affecting the trade. Accordingly, we uphold the order of CIT(A) in deleting the addition made under section 68 of the Act. Revenue pointed out that in case the assets were sold in Pakistan and whether the assessee had paid taxes on the said income as she was resident in India. The learned Authorized Representative for the assessee has fairly pointed out that the assessee is resident in India but in the year under consideration is not ordinary resident and as per proviso to section 5 of the Act, only income arising in India is taxable in the hands of such non-ordinary resident persons. We find merit in the plea of assessee. Theory of probability - AO has accepted the declaration of jewellery and has not made any addition in this regard. The said jewellery was also brought by the assessee on her migration from Pakistan to India and was declared in the same declaration before the same ITO, Mumbai. No adverse comments have been raised in respect of said jewellery declaration nor the same has been added as income of the assessee, consequently, the declaration of cash made by the assessee in the same declaration merits to be accepted. We find no merit in the plea of learned Departmental Representative for the Revenue that no extra corroborative evidence has been brought on record. The assessee has very clearly establishes its case of having transferred the properties in the name of persons to whom it claims to have sold the same and it cannot be the case of Revenue that the said transfers in the name of purchasers was made without taking consideration due for the said transfers. We find no merit in the plea of learned Departmental Representative for the Revenue in this regard and dismiss the same. We uphold the order of CIT(A) in deleting the aforesaid addition under section 68 - Decided in favour of assessee.

Summary

Issues Involved:
1. Deletion of addition made on account of unexplained cash credit under section 68 of the Income Tax Act.
2. Validity of the declaration filed by the assessee before the ITO, Mumbai.
3. Acceptance of the assessee’s explanation regarding the source of cash brought to India.
4. Evaluation of the sale agreements and the substantial cash claimed by the assessee.

Detailed Analysis:

1. Deletion of Addition Made on Account of Unexplained Cash Credit Under Section 68 of the Income Tax Act:

The primary issue in the appeal was the deletion of an addition of ?2.71 crores made by the Assessing Officer (AO) under section 68 of the Income Tax Act, treating it as unexplained cash credit. The AO noted that the assessee had deposited ?2.50 crores in eight bank accounts and invested ?1.57 crores in commercial property. The assessee claimed that the cash was brought from Pakistan upon migrating to India and had filed a declaration with the ITO, Mumbai. The CIT(A) accepted the assessee's explanation and deleted the addition, which was challenged by the Revenue.

2. Validity of the Declaration Filed by the Assessee Before the ITO, Mumbai:

The Revenue contended that the declaration made by the assessee before the ITO, Mumbai, was invalid as the jurisdiction was with the AO in Aurangabad. The CIT(A) held that filing the declaration with the ITO, Mumbai, was a technical violation and treated it as a "venial breach" that did not invalidate the declaration. The CIT(A) emphasized that the ITO, Mumbai, was a competent authority to receive such declarations, and the procedural lapse did not affect the validity of the declaration.

3. Acceptance of the Assessee’s Explanation Regarding the Source of Cash Brought to India:

The assessee explained that the cash was sourced from the sale of properties and business interests in Pakistan. The CIT(A) examined the evidence, including sale agreements, bank statements, and certificates from Pakistani banks, and concluded that the assessee had sufficient resources in Pakistan. The CIT(A) noted that the Board's Circular dated 03.02.1969 provided that migrants from Pakistan were not required to produce documentary evidence for the transfer of money and personal jewellery, provided they had sufficient resources in Pakistan. The CIT(A) accepted the assessee's explanation and held that the conditions of the Circular were satisfied.

4. Evaluation of the Sale Agreements and the Substantial Cash Claimed by the Assessee:

The AO questioned the validity of the sale agreements, noting that they were executed on a ?100 stamp paper and lacked a schedule of payments. The CIT(A) found that the properties were transferred to the buyers, and the transactions were supported by revenue records and bank statements. The CIT(A) held that it was inconceivable that the properties were transferred without receiving the sale consideration. The CIT(A) also addressed the AO's concerns about internal bank transfers, noting that the bank statements and certificates confirmed the cash withdrawals. The CIT(A) concluded that the assessee had sufficient resources to cover the amount brought into India and deleted the addition.

Conclusion:

The Tribunal upheld the CIT(A)'s order, dismissing the Revenue's appeal. The Tribunal agreed that the declaration made before the ITO, Mumbai, was valid and that the assessee had satisfactorily explained the source of the cash brought into India. The Tribunal emphasized that the Board's Circular provided for a lenient approach towards migrants from Pakistan, and the assessee had met the conditions laid down in the Circular. The Tribunal also noted that the AO's concerns about the sale agreements and internal bank transfers were adequately addressed by the CIT(A). Consequently, the addition under section 68 was deleted, and the appeal of the Revenue was dismissed.