2018 (6) TMI 1174 - AT - Income Tax

Money in a foreign country to be taxed in India - Addition of deposits in HSBC Account, Geneva in the hands of non-resident assessee - foreign bank account as sourced from India - test of taxability of non-resident - Held that - CIT(A) recorded a finding to the effect that the source of deposits is no where proved by the four instances relied on by the AO being termed as circumstantial evidence. AO has himself observed based on the survey report dated 18 November 2011 that the assessee had retired from partnership of M/s Kanubhai B. Shah & Co. since October 1978. Also, the learned AO observed in the next para that the assessee became a non-resident as per section 6 of the Act since 1979 which is the year after which he retired from being the partner in the firm. Thus, the addition of undisclosed income of the firm M/s Kanubhai B. Shah & Co. during the FY 2011-12 has no connection with the assessee, as he was not a partner during this period. In the instant case, even it is seen that the bank account with HSBC Bank, Geneva was opened during the year 1997. Hence, the circumstantial evidences discussed above including the report of Indian express of 10 February 2015, relied by the learned AO nowhere conclusively establishes that the source of the deposits, since the inception, in the bank account was from India. In view of the above discussion, we do not find any infirmity in the order of CIT(A) for deleting the addition made in respect of deposits in HSBC Account, Geneva in the hands of non-resident assessee - decided against revenue

Issues Involved:
1. Deletion of addition of amount credited in HSBC Bank account, Geneva, Switzerland.
2. Assessment of non-resident status and its implications.
3. Use of circumstantial evidence in tax proceedings.
4. Double taxation of the same income.

Issue-wise Detailed Analysis:

1. Deletion of Addition of Amount Credited in HSBC Bank Account:
The Revenue challenged the CIT(A)'s decision to delete the addition of ?6,13,09,845/- credited in the HSBC Bank account in Geneva, Switzerland. The AO had presumed that the amounts in the HSBC Bank account were undisclosed income sourced from India, relying on circumstantial evidence and the provisions of section 114(g) of the Indian Evidence Act, 1872. However, the CIT(A) observed that the AO did not provide sufficient evidence to prove that the deposits were sourced from India. The CIT(A) held that the amounts in the foreign bank account could not be taxed in India as the assessee was a non-resident and the income did not accrue or arise in India.

2. Assessment of Non-Resident Status and Its Implications:
The assessee was a non-resident as per section 6 of the IT Act since 1979. The CIT(A) and the Tribunal both agreed that the non-resident status of the assessee was not disputed by the AO. According to section 5(2) of the IT Act, a non-resident is liable to pay tax only on income received or deemed to be received in India, or income that accrues or arises or is deemed to accrue or arise in India. Since the assessee had no business operations in India during the relevant assessment years, there was no income that could be deemed to accrue or arise in India under section 9 of the Act. Therefore, the initial contributions or other amounts in the foreign bank account did not fall under the purview of section 5(2) read with section 9 of the Act.

3. Use of Circumstantial Evidence in Tax Proceedings:
The AO relied on circumstantial evidence to conclude that the deposits in the HSBC Bank account were sourced from India. However, the CIT(A) and the Tribunal found that the circumstantial evidence presented by the AO was not conclusive. The AO's reliance on the survey report and other instances did not establish a direct link between the deposits and income sourced from India. The Tribunal agreed with the CIT(A) that circumstantial evidence must be conclusive and that the AO failed to prove the source of the deposits in the foreign bank account.

4. Double Taxation of the Same Income:
The CIT(A) noted that the peak balance in the HSBC Bank account had already been added to the income and subjected to tax in the hands of Mr. Deepak Shah and Mr. Kunal Shah in their respective assessments for the relevant assessment years. Both individuals had paid taxes on the amounts added to their income. The CIT(A) held that taxing the same amounts in the hands of the assessee would result in double taxation. The Tribunal agreed with this observation, citing judicial rulings that prohibit double taxation of the same income.

Conclusion:
The Tribunal upheld the CIT(A)'s decision to delete the addition of ?6,13,09,845/- in the hands of the non-resident assessee, as the AO failed to provide sufficient evidence to prove that the deposits were sourced from India. The Tribunal also agreed that the non-resident status of the assessee exempted the foreign bank account from Indian tax laws, and that taxing the same income in multiple hands would result in double taxation. Consequently, both appeals of the Revenue were dismissed.

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