2023 (11) TMI 429 - AT - Income Tax

Unexplained credit in the Foreign bank account - AO on submissions of the assessee and statement recorded on oath u/s. 131 observed that assessee has not submitted any documentary evidences to justify the claim that funds available in the foreign bank account were earned outside India and that they had been offered to tax outside India- HELD THAT - Since assessee has submitted financial statements and which is submitted as an year end balances by bringing on record the fact that assessee held enough funds with M/s. Lennox Overseas Inc., and we also observe that the financial statements of Salome Holdings INC and Hereford Properties Limited also certified by the same auditor. Since these documents proves that assessee has enough funds with the M/s. Lennox Overseas Inc., and in our considered view the informations submitted by the assessee shows only the year end outstanding balances in M/s. Lennox Overseas Inc., Since the certified auditor is based in Mumbai we direct the assessee to submit the consolidated ledger account of M/s. Lennox Overseas Inc., from F.Y. 1998-99 to F.Y. 2008-09 with the movement of balances during this period before the AO. Since the additional evidences also submitted before us needs verification accordingly, we remit this issue also back to the file of the Assessing Officer to verify the claim made by the assessee along with consolidated ledger accounts of M/s. Lennox Overseas Inc., from the assessee and verify the same and delete the addition if found proper. Accordingly, ground raised by the assessee is allowed for statistical purpose. Addition of petty foreign currency in hand this being a small petty cash deposits it does not need any proof of earning. This being a petty cash held by the assessee, we direct the Assessing Officer to delete the same. Addition of amount from HSBC Life (UK) Ltd., toward paid up value of Life Insurance Policy - We observe from the record that assessee has received insurance maturity amount of GBP 35295.58 and assessee has submitted a confirmation from HSBC Life (UK) Ltd., and relevant bank statement along with the confirmation of insurance policy from HSBC Life (UK) Ltd., goes to prove that the credit received by the assessee in his bank account is nothing but insurance surrender value. Since the bank itself has submitted the confirmation of surrender value from insurance company. Therefore, it goes to prove that what assessee has received is only an insurance surrender value. Therefore, we do not see any reason to hold otherwise. Further, this information relates to A.Y. 2009-10, we do not see any reason to hold it otherwise. Accordingly, Ground raised by the assessee is Accordingly, allowed.

Summary

Issues Involved:
1. Addition of unexplained credits in foreign bank accounts.
2. Treatment of credits as income under Section 68 of the Income Tax Act.
3. Admissibility of additional evidence.
4. Specific credits related to insurance policy proceeds.

Summary:

1. Addition of unexplained credits in foreign bank accounts:
The assessee was subjected to a search and seizure action under Section 132 of the Income Tax Act, 1961, which revealed undisclosed foreign bank accounts. The Assessing Officer (AO) made additions based on credits in these accounts, including GBP 202.84 and USD 10,00,000, treating them as unexplained credits. The assessee contended that these amounts were from earnings while being a non-resident and were kept with M/s. Lennox Overseas Inc. The Income Tax Appellate Tribunal (ITAT) directed the AO to verify the additional evidence provided by the assessee, including financial statements and consolidated ledger accounts of M/s. Lennox Overseas Inc., and delete the addition if found proper.

2. Treatment of credits as income under Section 68:
The AO added the amounts credited in the foreign bank accounts as income under Section 68, treating them as unexplained cash credits. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's decision, citing the absence of documentary evidence to justify the source of funds. The ITAT, however, noted that the assessee had provided additional evidence, including financial statements certified by auditors, and remitted the issue back to the AO for verification.

3. Admissibility of additional evidence:
The assessee submitted additional evidence, including financial statements and an affidavit detailing foreign income and assets/liabilities from FY 1998-99 to FY 2008-09. The ITAT admitted these additional evidences, noting their relevance in proving the source of funds and remitted the matter back to the AO for verification.

4. Specific credits related to insurance policy proceeds:
For AY 2009-10, the AO added GBP 35,295.58 (equivalent to Rs. 25,63,871) received from HSBC Life (UK) Ltd. as unexplained credit. The assessee provided confirmation from HSBC Life (UK) Ltd. and the relevant bank statement, showing the amount as the surrender value of a life insurance policy. The ITAT accepted this explanation and directed the deletion of the addition.

Conclusion:
The ITAT allowed the appeals for statistical purposes, directing the AO to verify the additional evidence and delete the additions if the evidence supports the assessee's claims. The ITAT also directed the deletion of small petty cash deposits, recognizing them as not requiring proof of earning.