2021 (2) TMI 1182 - HC - Income Tax

Undisclosed interest income in HSBC Geneva - balance appearing in the undisclosed foreign bank account - HELD THAT - As same amount is taxed once in assessment years 2006-07 and 2007-08 ITAT has rightly held that there could not be any dispute on the legal proposition that the very same amount cannot be taxed twice in the two assessment years. We do not find any perversity in the aforesaid observations made by the learned ITAT in respect of additions made on quantum and interest. In view of the aforesaid, the question of law raised by the Appellant-Revenue in the present appeals in respect of quantum does not arise for our consideration. Since the addition on quantum cannot be sustained, the addition of interest cannot survive. Thus, no question of law arises in respect of deletion of addition of interest component Discovery of undisclosed jewellery in search proceedings - HELD THAT - We note that undisputedly the quantum of jewellery declared in the wealth tax returns of the assessee and his family members was much higher, than the jewellery found during the course of search. CBDT Instruction dated 11-5-1994 provides that no seizure should be made in the search for the jewellery held by the ladies at 500 gms, girls at 250 gms and males at 100 gms each. Though the Instruction speaks of not seizing the same, the extended meaning of the same shows the intention that the jewellery is to be treated as explained one and is not to be treated as unexplained for the purpose of Income-tax Act. This instruction came to be considered by several Benches all over India in which it has been held that it would be relevant for the purposes of making addition as well. When this instruction is applied to the facts of the case, we observe that the possession of gold jewellery of 38,748.28gms, which is far less than declared jewellery of 46,634.842 gms it cannot be held to be unexplained.

Summary

Issues:
1. Assessment of undisclosed income from a foreign bank account under Section 69 of the Income Tax Act, 1961.
2. Taxability of interest income on undisclosed funds in a foreign bank account.
3. Maintainability of appeals after the demise of the Respondent-Assessee.
4. Addition of unexplained jewellery found during a search operation.

Analysis:

Issue 1: Assessment of Undisclosed Income from a Foreign Bank Account
The case involved a search and seizure action revealing an undisclosed Swiss bank account maintained by the Respondent-Assessee. Despite denial, the Respondent agreed to offer income equivalent to US $11,46,368 to avoid litigation. The Appellant-Revenue contended that undisclosed foreign investments should be deemed income under Section 69 of the Act. However, the ITAT held that the same amount cannot be taxed twice in different assessment years, and the addition made by the assessing officer for AYs 2006-07 and 2007-08 was not sustainable in law. The ITAT's decision was based on the principle that the same amount cannot be taxed twice, leading to the deletion of the additions.

Issue 2: Taxability of Interest Income
The AO added interest income on the undisclosed funds in the foreign bank account, assuming the Respondent would have earned interest. However, the CIT(A) deleted the addition as no corroborative evidence was presented. The ITAT upheld this decision, stating that since no evidence proved interest earnings, the addition of interest income could not be sustained. The ITAT concluded that the Respondent did not make investments in the foreign bank account in certain assessment years, hence Section 69 could not be invoked for additions.

Issue 3: Maintainability of Appeals
Due to the demise of the Respondent-Assessee, the Court found the appeals not maintainable in their present form. As no legal questions were deemed necessary for consideration, the Court declined to entertain the appeals further.

Issue 4: Addition of Unexplained Jewellery
Regarding the addition of unexplained jewellery found during the search operation, the ITAT held that the jewellery declared in wealth tax returns was higher than that found during the search. Referring to CBDT instructions, the ITAT concluded that the possession of gold jewellery, less than the declared amount, cannot be treated as unexplained. Therefore, the ITAT's decision on the jewellery addition did not warrant any interference, and no substantial question of law arose for consideration.

In conclusion, the Court dismissed the appeals along with pending applications, as no substantial legal questions were found to be raised in the case.