2014 (12) TMI 335 - AT - Income Tax

Validity of reopening of assessment u/s 147 tax haven banks - undisclosed income - income lying in the name of the trust - opportunity of being heard provided to assessee or not - Held that - There was no substance in the assertion of the assessee that the reopening of assessment was bad, without following the due process of law or violation of principle of natural justice, more specifically when sanction was granted by the Additional Commissioner after considering the facts and due application of process of law - The AO provided the reasons for reopening of the assessment wherein it was specified that a tax-evasion petition (TEP) has been received from CBDT - in the return of income the assessee neither offered any income with reference to the trust nor disclosed any details to the effect that the appellant was a beneficiary of the said trust. CIT(A) was rightly of the view that the assessee has wrongly alleged that complete material was neither given nor opportunity to cross examine was given - AO has handed over complete set of documents received by him to the appellant during the course of assessment proceedings - as a part of the remand report, the AO had called the appellant and opportunity to cross examine the AO himself was available to the appellant, however, the appellant chose not to appear and hence cannot raise the bogey of cross examination here - Further, the right to cross examine is available when the department has already recorded the statement and is being used against the appellant. In the instant case, no such thing was done by the department or the AO - the information passed to the AO had been received as a part of the tax information exchange treaty and therefore, there could not have been any cross examination thus, the AO rightly assumed jurisdiction to reopen the assessment Decided against assessee. Addition of undisclosed income Held that - Not only the documents rather the English translated copy of such documents was also provided - another assertion made by the assessee was that the information was unvouched and not corroborated with any evidence - the documents were received officially by the Government pursuant to an investigation made by permanent subcommittee on investigation of United States Senate - the distribution to the beneficiaries as well as profits earned are not subject to any further tax and, further, the supreme authority is vested in the settler and is transferable - the Liechtenstein jurisdiction qualifies as an off shore financial centre due to a very modest tax regime, high standard of secrecy laws and further foreign investors had the opportunity to establish companies or trust with HOST trust reg. in the principality of Liechtenstein to enjoy the advantages of off-shore financial centre. As per the report Indian Investigating Agencies came across a number of cases where individual or entities from India were detected using banking channels of Liechtenstein to hide their illegal income or stash funds and it was only possible when India became signatory to a world-wide convention formulated by OECD an international policy advisory body which formulated global tax standards to fight tax evasion and concealment of illicit funds - It also provided option to undertake automatic exchange of information - It is a common knowledge that discretionary trusts are created for the benefit of particular persons and those persons need not necessarily control the affairs of the trust - still the fact remains that they are the sole beneficiaries of the trust - the deposit made in the bank account of the trust represents unaccounted income of the assessee, as the same was not disclosed by the these assessees in their respective returns in India, consequently, the addition was rightly upheld by CIT(A) Decided against assessee.

Issues Involved:
1. Reopening of assessment.
2. Addition on account of alleged undisclosed income.
3. Non-adjudication of alternative ground regarding taxability of income.

Detailed Analysis:

1. Reopening of Assessment:
The assessee challenged the reopening of the assessment on the grounds that the due process of law was not followed, resulting in a violation of the principles of natural justice. The assessee argued that the sanction by the Additional Commissioner was without application of mind, objections to the reopening were not addressed, and the reasons for reopening were served beyond the limitation period. The notice under section 148 was issued on 26/03/2009, and the reasons for reopening were provided on 13/05/2009. The assessee denied any knowledge of the trust and claimed no benefits were received from it.

The Revenue defended the reopening, stating that objections can only be raised after filing the return. The Revenue provided authenticated documents showing the assessee as a beneficiary of the trust. The tribunal found no merit in the assessee's assertion, noting that the reasons for reopening were duly provided, and the sanction was granted after due consideration. The tribunal concluded that the reopening of the assessment was valid and dismissed this ground of appeal.

2. Addition on Account of Alleged Undisclosed Income:
The assessee contested the addition of Rs. 2,34,64,398 on the grounds that the trust was discretionary, and neither the amount accrued nor credited to the assessee's name. The Revenue presented documents showing the assessee as a beneficiary of the trust with a credit balance of USD 24,06,605 in the account. The tribunal noted that the trust was established on 21/03/1997, and the status of the account was "active." The tribunal referred to the global efforts to combat tax evasion and the automatic exchange of information agreements.

The tribunal found that the documents provided were official and authenticated. The tribunal emphasized that discretionary trusts benefit particular persons, and the deposit in the trust's bank account represented unaccounted income of the assessee. The addition was thus rightly made by the Assessing Officer and confirmed by the Commissioner of Income Tax (Appeals).

3. Non-Adjudication of Alternative Ground Regarding Taxability of Income:
The assessee argued that the Commissioner of Income Tax (Appeals) did not adjudicate the alternative grounds regarding the taxability of income only of USD 13,500 earned by the trust and not the amount outstanding of USD 24,06,604.90 as of 31st December 2001. The tribunal did not find merit in this assertion, as the main issue was the undisclosed income represented by the deposit in the trust's bank account.

Conclusion:
The tribunal dismissed all the appeals, upholding the reopening of the assessment and the addition on account of undisclosed income. The tribunal found that the process followed by the Revenue was in accordance with the law, and the documents provided were sufficient to justify the additions made. The tribunal emphasized the importance of global efforts to combat tax evasion and the role of automatic exchange of information in uncovering undisclosed income.

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