2024 (7) TMI 130 - AT - Income Tax

Black Money - Undisclosed Foreign Income and Asset noted - as alleged layering of funds was done through various paper companies as clearly established in the assessment order and hence the affairs of the company itself were not beyond doubt - CIT(A) deleted addition holding that the investment in the shares of the foreign company, RH Global Pte. Ltd. was made out of declared income - HELD THAT - After going through the finding of ld. CIT(Appeals) and various details before adverting to the adjudication of facts of the case, we would first like to peruse the relevant provisions of Black Money Act, 2015 applicable in the instant case. Undisclosed asset located outside India is defined in Section 2(11) and means an asset (including financial interest in any entity) located outside India, held by the assessee in his name or in respect of which he is a beneficial owner, and he has no explanation about the source of investment in such asset or the explanation given by him is in the opinion of the ld. Assessing Officer unsatisfactory . Section 2(12) of the Act defines undisclosed foreign income and asset means the total amount of undisclosed income of an assessee from a source located outside India and the value of an undisclosed asset located outside India, referred to in Section 4, and computed in the manner laid down in section 5. Undisclosed assets in the form of funds remitted from India to Singapore in the Bank account held with SBI, Singapore in the name of RBGPL - Various documentary evidences have been placed in the paper book, which are more than sufficient to prove that RBGPL is a registered company in Singapore and is regularly assessed to tax and filing the audited financial statement with the authority at Singapore. Secondly it is also an admitted fact that the assessee being a Director has been receiving salary from RBGPL and is regularly filing the income tax return at Singapore and is paying due taxes. The ld. Assessing Officer has taken note of this fact and has observed that the assessee has received income in INR 7,08,47,050 from 2013 to 2019 and had paid total income tax in Singapore at Rs. 82,53,263/-. Though there is a mistake at the end of the assessee that he being a resident of India should have declared global income in his income tax return in India, but apart from not disclosing the global income in the return, sufficient details have been filed to prove that taxes have been paid in the country where salary was earned and there is no prejudice caused to the revenue in terms of Double Taxation Avoidance Agreement (DTAA) with Singapore. We thus note that for the alleged period, income earned by the RBGPL as well as the income received by the assessee from RBGPL has been disclosed with the authorities in the country, where it is earned and due taxes have been paid. Proper explanation has been given about the source of funds applied for making investment in the equity shares of RBGPL and the same have been channelized through the authorized banks and information about the sender and receiver have been provided by the assessee at the time of making payment. Therefore, the investment made in the equity of RBGPL is explained from the disclosed sources in India. Credits in the account with SBI, Singapore in which funds were remitted by the assessee for making investment towards purchasing of equity shares in RBGPL - made the addition for lack of necessary details and assessee having not explained the purpose of remittance and confined its proceedings only to examine the various individual/firm/company/ concern, which remitted the funds to RBGPL - HELD THAT - Assessing Officer erred in only focusing up the credit entries in the Bank account with SBI, Singapore and failed to take note of the goods received against such remittances and which have entered into the regular business cycles of the various business concerns. The ld. Assessing Officer also erred to take note of the fact that RBGPL, Singapore is not only exporting goods in India to the alleged concerns but other concerns in India and abroad also. Further importing of goods from other countries is a part of regular business activity. The ld. CIT(Appeals) has taken note of this aspect and on finding that it is not a case of creating asset/earning income outside India through undisclosed sources but it is merely a commercial transaction between two concerns of which one is in India and one is based on abroad has given relief to assessee. We would like to observe that the purpose of Black Money Act, 2015 is mainly to bring those cases into light where resident-assessees are having assets located abroad or having income in abroad but the source of such asset is not coming from any declared source in India or the source is from any other income assets located in any part of the world other than India or undisclosed source in any other part of the world. However, in the instant case, the assessee has made the investment in the equity of RBGPL from the declared sources and the funds are applied for making investment. The other remaining entries in RBGPL with SBI, Singapore are part of the regular business transactions and even though the assessee is a beneficial owner of RBGPL but he has paid due taxes in Singapore on the income earned, accrued and received in Singapore. Since the assessee has successfully explained about the source of investment in the equity of RBGPL, to our satisfaction and has also explained the source and genuineness of remaining credit entries appearing in the Bank account held with SBI, Singapore in the name of RBGPL by way of placing documentary evidences that such funds remitted outside India through proper banking channel are for the purpose of importing goods from RBGPL and complete details to this effect has been placed before us and therefore, the alleged asset in the form of funds remitted to SBI, Singapore held in the name of RBGPL do not fall in the category of undisclosed assets located outside India as defined to section 2(11) of the Act and there being no undisclosed foreign income as per section 2(12) of the Black Money Act. Since in the given case, there is neither any undisclosed asset located outside India nor undisclosed foreign income, we fail to find any infirmity in the finding of ld. CIT(Appeals) deleting the impugned addition. Therefore, all the grounds of appeal raised by the Revenue are dismissed.

Summary

Issues Involved:
1. Deletion of addition of Rs. 133,20,62,815 on account of undisclosed foreign income and assets.
2. Determination of whether the investment in shares of RH Global Pte. Ltd. was made from declared income.
3. Verification of the genuineness of imports by various Indian entities.
4. Tracing and creditworthiness of import parties.
5. Control of alleged import parties by the assessee.
6. Reliance on the acceptance of RB Global Pte Ltd's income by Singapore Tax authorities.
7. Applicability of the decision in Srinidhi Karti Chidambaram -vs.- PCIT to the present case.

Detailed Analysis:

1. Deletion of Addition of Rs. 133,20,62,815 on Account of Undisclosed Foreign Income and Assets:
The Revenue contended that the Ld. CIT(A) erred in deleting the addition made by the AO under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015. The AO had treated the total credits in the SBI, Singapore bank account of RBGPL as undisclosed foreign income and assets. The Ld. CIT(A) found that the investments were made from disclosed sources in India and the transactions were legitimate business activities.

2. Determination of Whether the Investment in Shares of RH Global Pte. Ltd. Was Made from Declared Income:
The AO noted that the assessee held shares in RBGPL but did not disclose these in the income tax returns for A.Ys. 2012-13 to 2018-19. The assessee argued that the investments were made from declared banking channels following RBI guidelines. The Ld. CIT(A) accepted the assessee's explanation and supporting documents, concluding that the investments were from disclosed sources.

3. Verification of the Genuineness of Imports by Various Indian Entities:
The AO questioned the genuineness of imports, noting that the assessee failed to provide supporting books of account and other relevant documents. The Ld. CIT(A) found that the imports were adequately explained with documents like shipping bills, invoices, bills of lading, and customs clearance certificates, proving the genuineness of the transactions.

4. Tracing and Creditworthiness of Import Parties:
The AO noted that some import parties could not be traced, did not comply with notices, or lacked creditworthiness. The Ld. CIT(A) observed that discrepancies in addresses and non-compliance with summons alone could not establish control by the assessee. Most receipts in the bank accounts of these concerns were through RTGS and cheques, indicating legitimate transactions.

5. Control of Alleged Import Parties by the Assessee:
The AO alleged that the assessee controlled the import parties and used them to siphon off funds. The Ld. CIT(A) noted that the AO failed to establish control by the assessee with supporting evidence. The assessee provided bills of entry and inspection certificates from forest authorities, proving the receipt of imported goods in India.

6. Reliance on the Acceptance of RB Global Pte Ltd's Income by Singapore Tax Authorities:
The AO ignored the fact that the Singapore Tax authorities had accepted the income of RBGPL. The Ld. CIT(A) observed that the tax authorities in Singapore considered the transactions genuine, and the AO failed to point out any discrepancies in the imports.

7. Applicability of the Decision in Srinidhi Karti Chidambaram -vs.- PCIT:
The AO disregarded the decision in Srinidhi Karti Chidambaram, where the non-declaration of foreign assets was due to human error. The Ld. CIT(A) found that the assessee's case was covered by the same principles, as the investments were made from disclosed sources in India, and the omission to declare was a technical default.

Conclusion:
The Tribunal upheld the Ld. CIT(A)'s decision, confirming that the investments in RBGPL were from disclosed sources and the transactions were legitimate business activities. The appeal of the Revenue was dismissed, and the addition of Rs. 133,20,62,815 was deleted. The Tribunal emphasized that the Black Money Act targets undisclosed foreign income and assets, and in this case, the assets and income were fully explained and disclosed.