2022 (8) TMI 619 - AT - Income Tax

Addition u/s 69A/68 - Unexplained investment from NRE account which was transferred from Mauritius Branch of Bank of Baroda - unexplained credit entries from undisclosed source - addition of unexplained investment u/s. 69A on the ground that the assessee failed to explain the source of credit entries in NRE account - assessee has failed to substantiate his source of income in India and abroad with documentary evidence, though multiple opportunities were provided by the AO during the course of assessment proceedings - HELD THAT - NRE account refers to foreign funds deposited with a financial institution that allows for the efficient conversion and transfer of Indian and foreign currency both within and outside India. One can deposit Indian rupees into NRE account. The only way to deposit in NRE account is by way of foreign currency remittance. Thus entries in NRE account of Bank of Baroda, Satellite Branch, the Assessing Officer is not correct in invoking Section 69A as unexplained investment by the assessee. The assessee has earned the commission income from Mauritius and having Non-Resident status under section 6 of the Income Tax Act. The assessee has transferred such funds to India through NRE account at Bank of Baroda, Satellite Branch. Thus the income earned by the assessee accrues or arises or is deemed to accrue or arise into India is not covered under the charging Section 5 of the Income Tax Act. What is not charged u/s. 5 of the Act cannot be taxed u/s. 68 or 69A of the Act. In our considered view, the income of the non-resident is not chargeable under Section 5(2) and the provisions of Section 69A cannot override the provisions of Section 5(2). As relying on FINLAY CORPORATION LTD. 2003 (1) TMI 266 - ITAT DELHI-D we have no hesitation in confirming the order passed by the Ld. CIT(A) and delete the addition being addition made u/s. 69A of the Act. - Decided in favour of assessee.

Summary

Issues Involved:
1. Legitimacy of the addition of Rs. 3,11,80,920/- as unexplained credit entries from undisclosed sources under Section 69A read with Section 115BBE of the Income Tax Act.
2. Adequacy of documentary evidence provided by the assessee to substantiate the source of income.
3. Compliance with Rule 46A of the Income Tax Rules, 1962, regarding the admission of additional evidence.
4. Adherence to principles of natural justice in providing the Assessing Officer (AO) an opportunity to verify the source of funds.

Issue-Wise Detailed Analysis:

1. Legitimacy of the Addition under Section 69A:
The Assessing Officer (AO) added Rs. 3,11,80,920/- to the assessee's income as unexplained credit entries under Section 69A read with Section 115BBE of the Income Tax Act. The AO held that the assessee failed to provide documentary evidence for the source of credits in the NRE account from the Bank of Baroda, Mauritius Branch. The AO determined the assessed income as Rs. 3,16,21,080/- and initiated penalty proceedings for concealment of income.

2. Adequacy of Documentary Evidence:
The assessee, a Non-Resident Indian (NRI), argued that the funds in question were transferred from his NRE account in Mauritius and were not taxable in India. The assessee provided several documents, including:
- Bank account statements from the NRE account and the Mauritius Branch.
- Certificates from the Bank of Baroda confirming the transfer of funds.
- Invoices and other documents establishing commission income from Highlife Trading Company in Mauritius.

The Commissioner of Income Tax (Appeals) [CIT(A)] examined these documents and was satisfied that the funds were legitimately earned outside India and transferred to India through the NRE account. The CIT(A) relied on judgments from the Hon'ble Kolkata Tribunal and the Hon'ble Delhi High Court to support this view.

3. Compliance with Rule 46A:
The Revenue contended that the CIT(A) erred by considering additional evidence without giving the AO an opportunity to verify it, thus violating Rule 46A of the Income Tax Rules, 1962. However, the CIT(A) found the evidence provided by the assessee sufficient to explain the source of the funds and deleted the addition made by the AO.

4. Adherence to Principles of Natural Justice:
The Revenue argued that the CIT(A) violated the principles of natural justice by not providing the AO an opportunity to verify the source of funds despite admitting additional evidence. The Tribunal, however, found that the CIT(A) had correctly deleted the addition, as the income earned by the assessee in Mauritius and transferred to India through the NRE account was not taxable under Section 5 of the Income Tax Act. The Tribunal noted that the provisions of Section 69A could not override Section 5(2), which governs the scope of total income for non-residents.

Conclusion:
The Tribunal upheld the CIT(A)'s decision, confirming that the addition of Rs. 3,11,80,920/- as unexplained credit entries under Section 69A was unjustified. The Tribunal found that the assessee had adequately explained the source of the funds and that these funds were not taxable in India under Section 5 of the Income Tax Act. The appeal filed by the Revenue was dismissed, and the order pronounced in the open court on 27-07-2022.