2020 (4) TMI 95 - AT - Income Tax

Addition u/s 68 - Unexplained source of the bank deposits of the assessee - assessee received his earnings from various consultancy work carried out in India, through his fully owned foreign companies, located outside India and brought the same earnings back in India - HELD THAT - It is settled law from Hon ble Apex Court in the case of Sumati Dayal Vs. CIT 1995 (3) TMI 3 - SUPREME COURT and CIT Vs. Durga Prasad More 1971 (8) TMI 17 - SUPREME COURT that revenue authority are not to put on blinkers and ignore the overwhelming surrounding circumstances. CIT(A) s reliance upon the case laws and the circular is totally not applicable on the facts of the present case. The facts of the case prima facie indicate that assessee has received sums abroad from foreign concern on account of services rendered in India. In these circumstances it was incumbent upon the assessee to cogently rebut that assessee has not received any sums abroad for services rendered in India which could have been transferred from abroad in his Indian account through these concerns. The sole reliance upon the FIRC which is only a certificate of remittance from abroad in absence of the overwhelming surrounding circumstances by the learned CIT appeals not at all sustainable. Order of learned CIT(A) is to set aside the order of the assessing officer is to be restored. Accordingly we set aside order of learned CIT(appeals) and restore that on the assessing officer on the issue of credits in the bank account. As regards the investment in shares out of the said bank account the same cannot be added again as unexplained investment. It is settled law that assessee cannot be subject to double jeopardy. Hence qua the unexplained investment in shares the order of CIT(A) is upheld. - Revenues appeal stands partly allowed.

Issues Involved:
1. Whether the source of the bank deposits of the assessee is explained.
2. Whether the money invested by the assessee in the shares of Indian Companies from foreign remittance is exempt.

Issue-wise Detailed Analysis:

1. Source of Bank Deposits:
The primary issue revolves around whether the source of the bank deposits made by the assessee is adequately explained. The assessee, a Non-Resident Indian, did not file an original return of income, claiming his total income was below the taxable limit. The case was reopened under Section 147 of the Income Tax Act, 1961, based on a statement recorded during a search action. The statement revealed that the assessee had provided consultancy services to Gulf Finance House (GFH) and Khaleeji Bank of Commerce (KBHC), Bahrain, and received payments through his fully owned foreign companies, Dar Capital Ltd. and Thurles International Ltd. The Assessing Officer (AO) noted that since the services were rendered in India, the money received through these companies is taxable in India. During the assessment, the AO found foreign remittances in the assessee's NRE account from HSBC Bank Middle East Ltd., Dubai, totaling ?1,56,84,464/-. The AO added this amount as unexplained cash credit under Section 68 of the Act, as the assessee failed to provide confirmation from GFH regarding the source of these funds.

2. Investment in Shares:
The second issue pertains to whether the money invested by the assessee in shares of Indian companies from foreign remittance is exempt. The AO observed that the assessee made investments worth ?2,57,970/- in various Indian companies during the financial year 2007-08. The AO treated this amount as unexplained investment under Section 69 of the Act, as the source of these funds was not disclosed.

Judgment Analysis:

Reopening of the Case:
The learned CIT(A) confirmed the reopening of the case, holding that the AO had sufficient material to believe that income had escaped assessment. The CIT(A) noted that the search action and the statement recorded provided enough cogent material for reopening the assessment under Section 147.

Merit of the Addition under Section 68:
The CIT(A) accepted the assessee's contention that the Foreign Inward Remittance Certificate (FIRC) was sufficient to explain the source of the funds and that Section 68 was not applicable. The CIT(A) relied on Board Circular No. 5 dated 20.02.1969 and various case laws, concluding that the money transferred through banking channels was explained and not subject to inquiry under Section 68.

Merit of the Addition under Section 69:
The CIT(A) deleted the addition of ?2,57,970/- under Section 69, based on the adjudication under the above ground, holding that the source of the funds was explained through the FIRC.

Tribunal's Decision:
The Tribunal, upon hearing both parties, found that the CIT(A) had erred in ignoring the facts of the search and the incriminating material found. The Tribunal noted that the assessee's entities abroad had received substantial sums from GFH Bahrain for services rendered in India, and the entries in the bank account mentioned GFH and Dar Capital. The Tribunal held that it was incumbent upon the assessee to provide confirmation from GFH that no fee was paid for services rendered in India. The Tribunal concluded that the CIT(A)'s reliance on the FIRC and the case laws was not applicable in the present case, given the overwhelming surrounding circumstances indicating that the funds were related to services rendered in India. Therefore, the Tribunal set aside the CIT(A)'s order and restored the AO's order regarding the credits in the bank account.

Investment in Shares:
The Tribunal upheld the CIT(A)'s decision that the investment in shares could not be added again as unexplained investment, as it would subject the assessee to double jeopardy.

Conclusion:
The Tribunal's order partly allowed the Revenue's appeal, setting aside the CIT(A)'s order regarding the credits in the bank account while upholding the decision on the investment in shares. The judgment emphasized the need for the assessee to provide conclusive evidence regarding the source of funds, especially when substantial amounts are involved and related to services rendered in India.

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