2017 (10) TMI 1088 - AT - Income Tax

Reopening of assessment - denial of natural justice - assessee neither offered any income with reference to the trust nor disclosed any details to the effect that the appellant was a beneficiary of the said trust - Held that - So far as, the contention of the ld. Counsel for the assessee that there is violation of principal of natural justice and reasonable opportunity was not provided to the assessee by the Assessing Officer, are concerned, we are not in agreement with this assertion of the ld. Counsel because the assessee was duly provided with the reasons of reopening of assessment and English translated copy of the documents. In view of the above, we find no substance in the assertion of the assessee that the reopening of assessment was bad, without following the due process of law or violation of principle of natural justice, more specifically when sanction was granted by the Additional Commissioner after considering the facts and due application of process of law. The Assessing Officer vide letter dated 13/5/2009 provided the reasons for reopening of the assessment wherein it was specified that a tax-evasion petition (TEP) has been received from CBDT. As per the information contained in the said TEP the assessee is a beneficiary of Ambrunova Trust and Merlyn Management SA. In the return of income the assessee neither offered any income with reference to the trust nor disclosed any details to the effect that the appellant was a beneficiary of the said trust. The Assessing Officer, from the, summary of the trust account in LTG Bank, found credit balance of US 24,06,604 as on 31/12/2001 (Rs.11,60,99,390/- @ 48.242 per USD) interest accrued of USD 13500 (equivalent to ₹ 6,51,267/-) was credited to the said account. As the same was not reflected in the return of income thus, the Assessing Officer correctly presumed that income has escaped assessment. So far as the contention of the assessee that enough opportunity was not provided to the assessee is concerned we find no merit in this assertion as is evident from para-28 (pg-14) of the order of the ld. CIT(A) wherein un-controverted finding is that the assessee chose not to use the same when it was provided . Therefore, from this angle also the assessee is having no case. The totality of the facts clearly indicates that the Assessing Officer rightly assumed jurisdiction to reopen the assessment. Thus, this ground of the assessee in the respective appeal is dismissed. Addition on account of alleged undisclosed income - argument advanced by assessee is that the addition was made by the AO without appreciating the fact that the alleged trust was discretionary trust and neither the amount was accrued/credited nor the name of the assessee appeared as beneficiary of Ambrunova Trust - Held that - Liechtenstein jurisdiction qualifies as an off shore financial centre due to a very modest tax regime, high standard of secrecy laws and further foreign investors had the opportunity to establish companies or trust with HOST trust reg. in the principality of Liechtenstein to enjoy the advantages of off-shore financial centre. As per the report Indian Investigating Agencies came across a number of cases where individual or entities from India were detected using banking channels of Liechtenstein to hide their illegal income or stash funds and it was only possible when India became signatory to a world-wide convention formulated by OECD an international policy advisory body which formulated global tax standards to fight tax evasion and concealment of illicit funds. It also provided option to undertake automatic exchange of information. It is a common knowledge that discretionary trusts are created for the benefit of particular persons and those persons need not necessarily control the affairs of the trust. Still the fact remains that they are the sole beneficiaries of the trust. Thus totality of facts clearly indicate that the deposit made in the bank account of the trust represents unaccounted income of the assessee, as the same was not disclosed by the these assessees in their respective returns in India, consequently, the addition was rightly made by the Assessing Officer and confirmed by the ld. CIT(A). - Decided against assessee.

Summary

Issues Involved:
1. Reopening of assessment.
2. Addition on account of alleged interest/benefit derived from deposits in LGT Bank, Liechtenstein in the name of Ambrunova Trust.

Issue-Wise Detailed Analysis:

1. Reopening of Assessment:
Background: The appeals concern the reopening of assessments for the assessment year 2005-06. The grounds of appeal include the legality of reopening based on information received from the Central Board of Direct Taxes (CBDT) regarding the appellant's alleged interest income from a foreign bank account.

Arguments by Appellant:
- The appellant contested the reopening, claiming there was no credible material to justify the assumption of jurisdiction under Section 147 of the Income Tax Act.
- It was argued that the Assessing Officer (AO) did not apply his mind to the information received from CBDT before forming the belief that income had escaped assessment.
- The appellant pointed out that similar alleged interest income reassessed for the preceding assessment year 2004-2005 had been deleted in appeal.

Findings:
- The Tribunal noted that the reopening was based on information from German authorities, passed through CBDT, indicating the appellant was a beneficiary of Ambrunova Trust with an account in LGT Bank, Liechtenstein.
- The Tribunal upheld the reopening, referencing its earlier decision for A.Y. 2002-03, where similar reopening was confirmed.
- The Tribunal emphasized that the AO had valid reasons to believe the income had escaped assessment, supported by credible information from sovereign authorities.
- The Tribunal cited the Hon’ble Bombay High Court's decision in Bright Start Syntex P. Ltd. vs ITO, which clarified that at the stage of reopening, the sufficiency of reasons is not to be examined, only the existence of reasons.

Conclusion: The Tribunal upheld the reopening of the assessment, finding that the AO had sufficient cause to believe that income had escaped assessment based on credible information received from international authorities.

2. Addition on Account of Alleged Interest/Benefit:
Background: The appeals also contested the addition of interest income allegedly derived from deposits in LGT Bank, Liechtenstein, in the name of Ambrunova Trust.

Arguments by Appellant:
- The appellant argued there was no evidence of receiving any income from the trust.
- It was contended that the trust, being a non-resident, should not have its income taxed in India as per Section 6 of the Income Tax Act.
- The appellant claimed that the trust's nature (specific or discretionary) was unknown, and therefore, the tax liability could not be determined.
- The appellant stated that no income was received, and the addition was based on assumptions without concrete evidence.

Findings:
- The AO, based on information from CBDT, calculated the interest accrued on the deposits using average interest rates and added the appellant's share as undisclosed income.
- The Tribunal noted that the appellant's denial of knowledge about the trust and the bank account was not supported by any evidence.
- The Tribunal referred to its earlier decision for A.Y. 2002-03, where the addition of the deposit amount in the same foreign bank account was confirmed.
- The Tribunal emphasized that the onus was on the appellant to prove that the information was incorrect, which the appellant failed to do.
- The Tribunal cited the Hon’ble Supreme Court's decision in CIT vs. Rajesh Jhaveri Stock Brokers P. Ltd, which supports the AO's right to reassess if there is a reason to believe income has escaped assessment.

Conclusion: The Tribunal upheld the addition of interest income, finding that the appellant failed to disprove the credible information regarding the foreign bank account and the interest accrued thereon.

Summary:
The Tribunal consolidated and disposed of the appeals, upholding both the reopening of the assessment and the addition of interest income derived from the foreign bank account. The Tribunal's decision was based on credible information received from international authorities, the appellant's failure to provide contrary evidence, and relevant legal precedents supporting the AO's actions.