2024 (9) TMI 1052 - AT - Income Tax

Validity of Order passed u/s 147 r.w.s. 143(3) - undisclosed income from foreign bank account - Non providing sufficient opportunities and violation of principle of natural justice are dismissed - HELD THAT - Once having denied the ownership of the accounts before the AO, the assessee cannot take a plea that no sufficient opportunity was allowed by the AO to explain the credit entries in the foreign bank account. It is found that the Ld. CIT(A) had also allowed sufficient opportunities to the assessee to explain the transactions in the foreign bank accounts by admitting the additional evidences filed before him. The assessee had made submissions before the AO in the course of remand proceeding as well as before the Ld. CIT(A) after receipt of the remand report. Even if the Ld. CIT(A) passed his order within a month of the remand report, it is not the case that the he didn t consider the submissions of the assessee on the rejoinder of the remand report. Rather, the ld. CIT(A) has passed a detailed order considering and taking into account the submissions of the assessee and has substantially reduced the additions as made by the AO. We, therefore, do not find any instance of violation of natural justice in this case. The assessee was allowed sufficient opportunities to explain the transactions in the foreign bank accounts. The case laws relied upon the assessee are not found applicable to the peculiar facts of this case as discussed above. Therefore, the grounds taken by the assessee in respect of providing insufficient opportunities and violation of principle of natural justice are dismissed. Reopening u/s 147 - Mere deposits in the bank account cannot lead to the conclusion or even inference that the income chargeable to tax has escaped assessment - The Explanation-2 to Section 147 of the Act enumerates certain conditions where the income chargeable to tax shall be deemed to have escaped assessment. As per Clause (d) of the said Explanation where a person is found to have any asset (including financial interest in any entity) located outside India, then such a case will be deemed to have escaped assessment. It is found that Explanation (2)(d) of Section 147 of the Act was directly applicable in this case. There is no dispute to the fact that the foreign bank accounts, which were confronted to the assessee in the course of his statement recorded u/s 132(4) of the Act during the search, were not disclosed in the income tax returns filed with the Department. In view of the specific provision of deemed escapement of income in respect of foreign assets (bank account of the assessee), the case laws as relied upon by the Ld. Sr. Counsel in this respect are not found applicable to the facts of the present case. Whether reopening was based on borrowed satisfaction? - We do not find any merit in this objection. The details received by the AO from FT TR Division of CBDT was an information based on which the AO had formed his opinion that the income chargeable to tax had escaped assessment - AO had recorded a detailed reasons (as reproduced above) and he had considered all the information as available including the statement of the assessee recorded u/s. 132(4) of the Act and the documents confronted therein as well as the information received through FT TR Division; analysed the information as available and thereafter recorded his detailed, independent and logical reason for escapement of income. We don t find any semblance of borrowed satisfaction on the part of the AO. Whether reason for reopening was vague, scanty and non-specific? - contention of the assessee that the reason for reopening was vague, scanty and non-specific and the nature of underlying transaction was not specified in the reason is also not found correct - AO has discussed in detail the reason for reopening of the cases on account of undisclosed foreign bank accounts of the assessee. The background of the case, the information available with the AO, the explanation of the assessee has been discussed in detail and taken into account, while the AO formed his opinion that the foreign bank accounts of the assessee were undisclosed and that the income had escaped assessment. Therefore, the ground taken by the assessee in this regard is found to be baseless, and is dismissed. The facts of the case laws as relied upon by the assessee in this respect are found to be totally different and not directly applicable to the facts of the present case, as the nature of underlying transaction was specified in the reasons recorded in this case. Whether quantification of escaped income is necessary? - The quantification of escaped income was necessary only if the case was reopened u/s.149(1)(b) of the Act, which stipulates that the cases beyond 4 years cannot be reopened unless the income escaped assessment is Rs. 1 Lakh or more. In the present case, the provision of Section 149(1)(c) of the Act was applicable and no quantification was required if the cases were reopened in respect of escapement of any income in relation to any asset located outside India. This specific provision the case laws relied upon by the assessee are not found applicable in the present case as those cases are not related to foreign account cases. Therefore, the objection of the assessee regarding non-quantification of escapement of income is without any merits, and is dismissed. Whether reopening was barred by limitation? - In view of the express language of the section 147 of the Act for reopening of cases up to 16 years in respect of foreign assets, the retrospective nature of amendment made vide the Finance Act, 2012 and the judicial pronouncements as discussed above; we are of the considered opinion that the AO had rightly reopened the assessment for the A.Ys. 2000- 01 to 2005-06. Further, in view of the discussions in para-29 to para-50 above we don t find any merit in the objection taken by the assessee against reopening of the cases for the A.Y. 2000-01 to 2009-10. Accordingly, the grounds taken by the assessee in this regard are dismissed. Completion of unabated assessment without incriminating material - DR submitted that in spite of being confronted with all the documentary evidences which clearly established that the foreign bank accounts belonged to the assessee, the assessee was in denial mode and didn t answer the specific questions about the foreign account transactions as evident from the seized documents. According to the CIT. DR, the statement recorded during the search also constituted incriminating material and the AO had rightly based his additions on this statement. No evidence was brought on record by the assessee in support of his contention that the foreign bank accounts belonged to his sister - AO had rightly made the addition after confronting the evidences available with the Department in the course of statement recorded during the search, which constituted incriminating material. Our finding on incriminating material - The essence of the judgement is that the incriminating material found during the search gives the AO the jurisdiction to assess or reassess the total income u/s 153A of the Act of the unabated/completed assessment. In the absence of any incriminating material unearthed during the search the AO would not have the jurisdiction to proceed in the unabated/completed year(s) only on the basis of other material. However, once the jurisdiction is assumed by the AO on the strength of incriminating material found during the search, the AO has to assess or reassess the total income of the unabated year not only on the basis of incriminating material found during the search but also taking into account the other material as available with him as well as the return of income. We have to, therefore, examine as to what were the incriminating materials found during the search and what were the other materials available with the AO, to assess/reassess the total income of the assessee. In the present case, incriminating materials regarding non-disclosure of foreign bank accounts in the Income Tax returns, was already available with the department in the form of the documents which were confronted to the assessee in the course of the statement recorded during the search. The correctness or authenticity of these other incriminating materials has not been questioned. Therefore, any evidence found in the course of search that corroborates the other materials as already available with the department, partakes the character of incriminating material found during the search. Such corroborating evidences found during the search may be documentary or oral and the same has to be considered by the AO during the search assessment as per section 153A of the Act. Therefore, we have to examine whether any documentary or oral evidence was found in this case during the search, which corroborates the incriminating material already available with the department regarding existence of foreign bank accounts of the assessee. Obviously, these documents were not available with the Revenue on the original date of search, else questions would have been put to the assessee in this respect on the date of original search itself. However, in the statement recorded on 27/01/2016 there is no mention in the questions raised by the Revenue as to from where these documents, which were confronted to the assessee, were found. Be that as it may, there is no doubt that evidences for foreign bank accounts as available with the Revenue and the bank statement of the foreign bank accounts of the assessee were confronted to the assessee in the course of statements recorded during the search u/s 132(4) of the Act. We have to, therefore, decide whether the statements recorded during the search can be considered as an incriminating material. Whether statement u/s 132(4) is incriminating material? - The statements recorded during the search wherein the assessee was confronted with other incriminating materials was also incriminating evidence collected during the search and such incriminating material/evidence can be utilised to compute the total income in the course of assessment u/s 153A of the Act. The statements were recorded with specific reference to the circumstantial evidences found during the search as well as the other materials available with the Department and such statement is incriminating evidence collected during the search which certainly can be used as evidence in any proceedings under the Act as expressly mandated by virtue of the explanation to Section 132(4) of the Act. Therefore, the grounds taken by the assessee in respect of completion of unabated assessment without incriminating material and against considering the statement u/s 132(4) as incriminating evidence, are dismissed. Deposits in foreign bank accounts - It is evident from the above statement that the cheques in the name of the assessee were deposited in the foreign bank account with Merill Lynch Bank, which is a conclusive proof that those bank accounts belonged to the assessee. The assessee couldn t explain how the cheque drawn in his name was deposited in the bank account, if the account belonged to her sister, as contented. When the assessee was specifically asked to produce documentary evidence that the accounts belonged to his sister, no documentary evidence could be provided and an evasive reply was given by the assessee that the documents will be available with the banker or Mr. Chaturvedi. If so, why the documents couldn t be obtained and furnished by the assessee. Not only the assessee had signed the account opening forms for all the foreign bank accounts, but he was also in constant touch with Merrill Lynch through his telephone number as acknowledged in the statement. The evidences as available with the Revenue leave no doubt that the assessee and the assessee only, along with his wife, were the actual owner of all the foreign bank accounts. Therefore, the action of the AO to treat all the foreign bank accounts as belonging to the assessee is upheld. The grounds taken by the assessee and his wife that they being settlors, no addition could have been made in their hands are rejected. Credit entries in the bank accounts as income of the assessee and accordingly made the addition in the hands of the assessee and his wife, 50% on substantive basis and 50% on protective basis - As rightly pointed out by the assessee only the real income has to be taxed as held by the Hon ble Supreme Court in the case of Godhara Electricity Co. Ltd. 1997 (4) TMI 4 - SUPREME COURT The real income can be worked out only after considering all the entries i.e., on the credit side as well as on the debit side as appearing in the foreign bank accounts. CIT(A) had rightly considered the totality of all the transactions as appearing in the foreign bank accounts and allowed relief to the assessee in respect of the expenses as evident from the bank accounts. The contention of the Revenue that all the additions were in the nature as mentioned in section 68 or section 69 of the Act is also not found correct. AO had reproduced the description of the credit entries appearing in the bank accounts in the assessment order from which it is found that large number of credit entries were in respect of dividend, interest, STCG, LTCG etc. and the assessee was entitled to claim deduction for the expenses incurred in earning the income of these nature - CIT(A) had rightly allowed the deduction for expenses as evident from the bank account itself. As a result, the ground taken by the Revenue against the deduction for expenses, as allowed by the ld. CIT(A), is dismissed. Addition on account of receipts in undisclosed foreign bank accounts described as spot transactions - Additional evidences as furnished by the assessee in the course of appeal were forwarded to the AO for verification in the remand proceeding. CIT(A) has given a finding that the AO had confirmed full verification of all the entries with ledgers. It is further mentioned in the order of the CIT(A) that spot transactions depicted in Hinduja Bank Account were contra (transfer) entries from one currency account to another currency account which were neither any receipt nor any payment - revenue had not come up with any facts or any specific submission as to how the finding as given by the CIT(A) was not correct. No reason to interfere with the order of the Ld. CIT(A) in this respect. The ground taken by the Revenue in this regard is, therefore, dismissed. Applicability of section 68/69A of the Act in respect of the credit entries appearing in the foreign bank accounts - One of the objections of the assessee is that credit entries in the foreign bank accounts cannot be treated as deemed income u/s 68 or 69A as the assessee had not maintained any books of accounts - No merit in the objection raised by the assessee. The foreign bank account ledgers were the accounts of the assessee only, the only difference being that it was maintained by a 3rd party i.e. the Bank. All the entries in the bank account ledgers pertained to the assessee only which was in essence the books of accounts of the assessee in respect of his bank transactions - CIT(A) had rightly upheld the applicability of section 68/69A of the Act in respect of the credit entries appearing in the foreign bank accounts. The ground taken by the assessee in this regard is, therefore, rejected. Carry forward of losses - The assessee has contended that the return for the block period was filed within the time. The provision of Section 139(3) of the Act stipulates that in order to carry forward a loss under the head business or capital gain , the return of income has to be filed within the time as allowed u/s 139(1) of the Act. Thus, according to this provision, the assessee must file his original return of income within the time stipulated u/s 131(1) in order to carry forward the loss. In the present cases, no return of income was filed claiming any loss within the time limit as prescribed u/s. 139(1) of the Act. Therefore, the direction of the CIT(A) that the assessee was not eligible for carry forward of loss, is found to be in accordance with the provisions of the Act and correct. The ground taken by the assessee in respect of allowing carry forward of losses is, therefore, rejected. Correctness of losses - Since the quantification of actual profit/loss in mutual funds / share transactions as appearing in foreign bank accounts is set aside to the file of the AO, the appeals of the assessee (except for A.Y. 2000-01 wherein no such transaction was involved) are deemed to be partly allowed for statistical purposes. Unexplained jewellery found during search - The assessee has filed Form No.3, Form No.4 and Form No.5 in respect of application of Jigishaben Patel under Vivad Se Vishwas Act, 2020 and it transpires therefrom that the declaration made by the assessee was accepted on payment of the disputed tax. In the Form-5, a reference of appeal pending before the ITAT is also appearing. It thus transpires that the entire substantive addition of the unexplained jewellery as made in the hands of Smt. Jigishaben Patel stands finalized and accepted in her hands. In view of these facts, we direct that the protective addition in respect of unexplained jewellery as made in the hands of Smt. Manjulaben Patel should be deleted. The ground taken by the assessee in the regard is allowed and the ground of the Revenue is dismised. Unexplained jewellery found from locker in the course of search - It is found that the Ld. CIT(A) has taken a holistic view of the entire jewellery found during the search and given a finding that the jewellery valued as unexplained. Since, the addition on account of unexplained jewellery was upheld in the hands of Shri Bipinbhai Patel, only remaining unexplained jewellery was considered for addition in the hands of Smt. Manjulaben Patel. We, therefore, do not find any reason to interfere with the order of the Ld. CIT(A). The addition in respect of unexplained jewellery as upheld in the hands of the assessee is confirmed. The ground taken by the assessee in this regard is dismissed. Substantive addition as well as protective addition made in the hands of Sri Bipinbhai P Patel and Smt. Manjulaben B Patel - As already mentioned earlier, Sri Bipinbhai P Patel had expired during the pendency of these appeals and Smt. Manjulaben B Patel has impleaded herself as legal heir of Sri Bipinbhai P Patel. As a result, the entire addition has now to be considered in the hands of Smt. Manjulaben B Patel as legal heir of Sri Bipinbhai P Patel only on substantive basis and there is no requirement for making any protective addition in her hand as Individual. Therefore, the ground taken by the assessee as well as the Revenue in respect of substantive verses protective addition in the two hands, has become infructuous and is dismissed.

Summary

Issues Involved:

1. Principle of natural justice.
2. Reopening under Section 147 of the Act for the A.Ys. 2000-01 to 2009-10.
3. Completion of unabated assessment without incriminating material for A.Ys. 2010-11 to 2014-15.
4. Merits of the addition.
5. Unexplained jewellery found during search.

Detailed Analysis:

Principle of Natural Justice:

The assessee argued that the AO had passed the order with a predetermined mind without allowing proper opportunity to be heard. It was contended that the details and statements related to offshore trust accounts were provided almost after 22 months of the search and no proper opportunities were allowed to represent the case. However, the tribunal found that the AO had provided numerous opportunities to the assessee to explain the transactions in foreign bank accounts, and the assessee had failed to provide necessary explanations. It was concluded that there was no violation of the principle of natural justice.

Reopening under Section 147 of the Act:

The cases for A.Ys. 2000-01 to 2009-10 were reopened under Section 147 based on details of foreign bank accounts received from FT&TR division of CBDT. The assessee contended that mere deposits in bank accounts cannot lead to the conclusion that income had escaped assessment, and the reopening was based on borrowed satisfaction without independent application of mind by the AO. The tribunal found that the AO had recorded detailed reasons for reopening based on specific information and documents, and the reopening was valid. The tribunal also upheld the retrospective application of the amended provision of Section 149(1)(c) of the Act for reopening cases up to 16 years in respect of foreign assets.

Completion of Unabated Assessment Without Incriminating Material:

The assessee argued that no incriminating material was found during the search, and the additions made in respect of credits reflected in foreign bank accounts for unabated assessment years were not justified. The tribunal found that certain evidences regarding foreign assets were found during the search, and the statements recorded during the search constituted incriminating material. The tribunal concluded that the AO had rightly assumed jurisdiction to assess or reassess the total income based on incriminating material and other available material.

Merits of the Addition:

The AO had made additions in respect of all credit entries reflected in the foreign bank accounts by treating them as income of the assessee. The CIT(A) considered all debit and credit entries to work out the income. The tribunal upheld the CIT(A)'s approach, stating that only real income has to be taxed, and the bank statements had to be read in totality. The tribunal also found that the assessee had not provided sufficient evidence to establish that the foreign bank accounts belonged to his sister. The tribunal set aside the matter to the AO to work out the correct profit or loss for different years on account of mutual fund transactions.

Unexplained Jewellery Found During Search:

The AO had made additions for unexplained jewellery found during the search. The tribunal found that the assessee had not given any convincing explanation for the jewellery found from the locker, and the addition of Rs. 10 Lakhs in respect of unexplained jewellery was upheld. However, the tribunal directed that the protective addition of Rs. 51,93,444/- in the hands of Smt. Manjulaben Patel should be deleted, as the entire substantive addition was accepted in the hands of Smt. Jigishaben Patel.

Final Outcome:

The appeals were disposed of with detailed directions for each issue, and the final outcome was summarized in a table format, indicating which appeals were dismissed, partly allowed, or allowed for statistical purposes.