2021 (3) TMI 664 - AT - Income Tax

Unexplained Investment u/s 68 / 69 - investment in residential properties by NRI - income received or deemed to be received or accrues or arises or is deemed to be accrued or arise in India - scope of tax liability of Non- Resident in India - treating funds transferred through banking channel earned by a Non-resident outside India as unexplained cash credit or unexplained investment - HELD THAT - The position that emerges from the CBDT Circular No.5 in F.No.73A/2(69)-IT (A-II) , dated 20.02.1969 as well as decision in the case of Keshav Mills Ltd. 1953 (1) TMI 5 - SUPREME COURT is that the money brought in India by Non-Resident for investment or for other purpose is not liable to tax under the provisions of the Income Tax Act. The question of assessment to income tax arises only when there is no evidence to show that amount is question in fact represents remittance from abroad. Admittedly, in the present case, there is ample evidence on record demonstrating that the amounts in question represents remittance from abroad by the appellant himself. The rational behind this legal proposition is that the word receipt implies two persons viz. the person who receives and the person from whom he receives; a person cannot receive a thing from himself. Appellant herein is Non-Resident for the last 30 years for income tax purpose and citizen of USA. The scope of tax liability of Non- Resident is required to be considered in the light of section 4 and 5 of the Income Tax Act. In the present case remittance received from the appellant s account Bank of Baroda, Dubai to appellant s account to SBI NRE SB Account, Mapusa, Goa or remittance to the vendors of the properties is neither income received or deemed to received in India or nor was accrued or arisen or deemed to be accrued or arisen in India, therefore, the question of chargeability to income tax in India does not arise. The impugned addition does not represent either income received or deemed to be received in India or income accrued or arisen or deemed to be accrued or arisen in India. The remittance brought to India which are subject matter of impugned additions are obviously income received at first instance outside taxable territories of India or accrued or arisen outside taxable territories of India. Therefore, it is beyond the scope of jurisdiction of the Assessing Officer to go into the source of income earned outside taxable territories of India, once the Assessing Officer is satisfied that the source of money for acquisition of property represent remittance from the abroad from the appellant himself. Rejection and acceptance of explanation given as to the source of credits in the bank account of Bank of Baroda, Dubai is totally immaterial and had no relevance at all, as the Assessing Officer was not concerned about the taxability or otherwise of income received or accrued and arisen outside the taxable territories of India to Non- Resident. Therefore, the fact that the lower authorities had rejected the explanation as to the sources of credits in the Bank of Baroda, Dubai account does not come in the way of deleting the impugned additions. Lower authorities not accepting the explanation offered by the assessee is not based on proper appreciation of material on record and other attending circumstances available on record. It is needless to say that the opinion of the Assessing Officer is required to be formed with reference to the material on record and application of mind in sin qua non for forming the opinion as held in the case of CIT vs. P. Mohanakala, 2007 (5) TMI 192 - SUPREME COURT ). In the present case, there is total lack of application of mind, the Assessing Officer had not formed the opinion objectively with reference to any material on record and is merely based on the surmises and conjectures. We fail to understand as to why the Assessing Officer, having rightly taken note of the correct legal position governing the credits in the bank account i.e. he had chosen to bring the same to tax u/s 68 of the Act instead of section 69 of the Act. This itself goes to show the mala-fides on the part of the Assessing Officer, perhaps he intends to assess to tax in the hands of the appellant under more vigorous the provisions of section 68 of the Act than provisions of section 69 - Decided in favour of assessee.

Summary

Issues Involved:

1. Treatment of investment in residential properties as unexplained investment under Section 69 of the Income Tax Act.
2. Treatment of funds transferred through banking channels as unexplained cash credit or unexplained investment under Section 68 of the Income Tax Act.
3. The applicability of the legal principles and precedents regarding the explanation of sources of investment by a Non-Resident Indian (NRI).

Issue-wise Detailed Analysis:

1. Treatment of Investment in Residential Properties as Unexplained Investment under Section 69:

The appellant, a Non-Resident Indian (NRI), acquired two properties in Mumbai for a total consideration of ?16,63,21,060 during the assessment year 2014-15. The Assessing Officer (AO) treated the investment as unexplained under Section 69 of the Income Tax Act, citing the appellant's failure to satisfactorily explain the sources of funds. The AO disbelieved the appellant's explanation that the investments were made from income earned from businesses in the USA and remitted through banking channels. The AO also rejected the evidence provided by the appellant, including financial statements and tax returns filed in the USA, and held that the appellant had not generated enough income to make such investments. The Commissioner of Income Tax (Appeals) [CIT(A)] confirmed the AO's decision without providing independent reasons.

The Tribunal, however, held that the appellant had provided credible evidence explaining the sources of funds, including remittances from Bank of Baroda, Dubai, and maturity proceeds of fixed deposits held by Asia Pacific Investments INC, Dubai. The Tribunal noted that the AO's rejection of the explanation was based on mere surmises and conjectures without any cogent reasons. The Tribunal emphasized that once the appellant offered a credible explanation, the burden shifted to the department to rebut it, which the AO failed to do. Consequently, the Tribunal directed the AO to delete the addition made under Section 69.

2. Treatment of Funds Transferred through Banking Channels as Unexplained Cash Credit under Section 68:

The AO also made an addition of ?16,42,21,550 under Section 68, treating the funds transferred through banking channels as unexplained cash credit. The AO disbelieved the appellant's explanation regarding the remittances from Bank of Baroda, Dubai, and the sale proceeds of gold bars in Dubai. The AO held that the appellant failed to prove the existence of the gold sold and the sources of funds for Asia Pacific Investments INC, Dubai.

The Tribunal held that the unexplained cash deposits/credits in bank accounts could only be assessed under Section 69 of the Act, not under Section 68, as per the Hon'ble Supreme Court's decision in CIT vs. K. Chinnathamban and the Jurisdictional High Court's decision in CIT vs. Bhaichand H. Ghandhi. The Tribunal noted that the AO's decision to assess the credits under Section 68 was incorrect and demonstrated a lack of application of mind. The Tribunal directed the AO to delete the addition made under Section 68.

3. Applicability of Legal Principles and Precedents:

The Tribunal referred to several legal precedents, including the Hon'ble Supreme Court's decision in CIT vs. Smt. P. K. Noorjahan, which held that the AO has discretion to treat unexplained investments as income only if the explanation is not found satisfactory. The Tribunal emphasized that the AO must exercise this discretion judiciously, considering the facts and circumstances of each case. The Tribunal also referred to CBDT Circular No. 5 dated 20.02.1969, which clarified that money brought into India by non-residents is not liable to Indian income tax, provided there is evidence to support the remittance.

The Tribunal concluded that the appellant, being an NRI, had satisfactorily explained the sources of funds for the investments, and there was no material evidence to rebut the explanation. The Tribunal held that the remittances from abroad were not chargeable to tax in India, and the AO's decision to treat them as unexplained investments/cash credits was not justified. The Tribunal directed the AO to delete the impugned additions and allowed the appeal in favor of the appellant.

Conclusion:

The Tribunal allowed the appeal, holding that the appellant had satisfactorily explained the sources of funds for the investments in residential properties, and the additions made by the AO under Sections 68 and 69 of the Income Tax Act were not justified. The Tribunal directed the AO to delete the impugned additions.