2015 (12) TMI 902 - AT - Income Tax

Income from undisclosed sources by way of pay orders from Union Bank of Switzerland (UBS) AG for US 4 million - Held that - We find nothing on record to suggest any link between the assessee and the said company, which appears to be an Indian company and is only to be regarded as a distinct legal entity. And income due to or receivable by it could be regarded as the assessee s income only on the strength of evidence which leads to the inference of it being the assessee s money, being transferred to it, or the like. There is, in fact, no mention or even a whisper in this regard, or of any association or link between the two. Clearly, no case for including the amount received or receivable by the said company (US 2 million) in. The concept of income under the Act is vast, so that anything corresponding with the notion of income or gain qualifies to be income . The exception would be where the amount is received on capital account, where, again, that received/receivable on transfer of a capital asset would stand to be assessed, to the extent of the gain embedded therein, as capital gains. There is nothing to suggest that the amount is on capital account, or in lieu of a capital asset. Why, any unexplained deposit or money, etc., is, by virtue of the provisions of the Act, and for the same reason, also deemed as income. That is, the onus to establish the nature (as well as the source) of the money, i.e., as being not in the nature of income, is on the assessee, and which he has clearly not.There is, under the circumstances, no case for or no basis to consider the impugned sum as not received (during the relevant year) and, two, of it being not in the nature of income. The assessment of the amount, sought to be paid to the assessee initially vide Pay Order (No. 004 06298 027 43 2895), as income, is, accordingly upheld. We decide accordingly, and the assessee gets part relief. Addition on account of life style other expenditure - Held that - Though the assessee subsequently, vide his statement u/s.131 dated 01.5.2007, does state that the said estimate by him was only for the current year f.y. 2006-07, and that the household expenditure earlier was much lower at ₹ 20,000/- p.m., there is nothing to indicate that his lifestyle of few years earlier was any different, or any less ostentatious. Why, the letter under reference by UBS AG is itself of April, 1999, suggesting links abroad even at that time. Rather, he shifted to Mumbai and Pune from Hyderabad, whereat he filed his returns up to A.Y. 1999-2000, so that his reference to an earlier living could, then, only be to that at Hyderabad. The said estimate, to be valid in law, has to be an informed one, taking into account the different variables or attributes on which it depends, viz. the number of family members, their living style, including expenditure on food, clothing, domestic helps, etc.; the expenditure on their education, medical bills; the number of residences being maintained; social or health clubs joined, etc. No such exercise has been attempted by the Revenue. Under the circumstances, it is only considered proper to determine the addition on account of lifestyle, including by way of maintenance, expenditure on the basis of the assessee s own estimate, and which we do at ₹ 7.50 lacs. The assessee shall be allowed credit for any sum reflected in his books of account toward the same. We decide accordingly, and the assessee gets part relief. Income from undisclosed sources by way of unexplained capital - Held that - The assessee s claim of having produced computerized books of account before the A.O., so that the latter s stating of him as not maintaining any books of account is incorrect, is neither here nor there. The opening capital has nothing to do with the books of account for the current year. Rather, the books of account could only be of a business, while the bulk of the opening capital is claimed to be in the form of assets carried over from generations, as part of the family heirloom. The books of account for the earlier years have admittedly been not produced. How and why have the same, having been acquired without incurring any cost, been valued? The income as returned for the nine years preceding the current year is meager, being not sufficient for the family even to meet two ends. Then, again, is the question of valuation. The claim of the opening capital, to the extent it relates to cash-in-hand of ₹ 5 lacs, is thus, again, without any explanation, none being even otherwise furnished. The addition is, accordingly, confirmed. - Decided against assessee

Summary

Issues Involved:
1. Addition on account of Pay Orders - Rs. 1714 lacs
2. Addition on account of 'opening capital' - Rs. 17.29 lacs
3. Addition on account of lifestyle and other expenditure - Rs. 28.50 lacs

Issue-wise Detailed Analysis:

Ground 1: Addition on account of Pay Orders - Rs. 1714 lacs

The assessee challenged the addition of Rs. 1714 lacs based on a letter dated 12.04.1999 from UBS (Union Bank of Switzerland) found during a search. The letter indicated expired pay orders favoring the assessee and others. The assessee denied knowledge of the document, claiming no foreign bank accounts and provided an uncertified copy of his local bank account. However, the Tribunal noted that the document was signed by a UBS Chief Manager and the assessee failed to rebut the presumption under section 292C of the Income Tax Act. The Tribunal observed no evidence linking the assessee to Pan Asian Distribution Ltd., thus excluding the pay order favoring this company from the assessee's income. However, the pay order favoring the assessee was upheld as income since the assessee did not provide any contrary evidence or explanation. The Tribunal concluded that the amount receivable by the assessee would not cease to be income merely because the pay order lapsed, and the assessment of Rs. 1714 lacs as income was upheld.

Ground 2: Addition on account of 'opening capital' - Rs. 17.29 lacs

The assessee's claim of Rs. 17.29 lacs as opening capital was rejected due to lack of evidence. The balance-sheet showed assets like ornaments, watches, and cash, but the assessee had not filed returns for several years and provided no books of account. The Tribunal found the assessee's explanation insufficient, noting that the claim of ancestral property was not substantiated with evidence. The Tribunal upheld the addition, stating that the assessee failed to satisfactorily explain the nature and source of the opening capital.

Ground 3: Addition on account of lifestyle and other expenditure - Rs. 28.50 lacs

The assessee had stated his annual earnings to be around Rs. 30 lacs in a statement under section 132(4), but declared only Rs. 1.50 lacs in his return. The Tribunal noted that the assessee led a lavish lifestyle, frequently traveled abroad, and gifted luxury cars, which supported the statement of annual earnings. However, the Tribunal found that the Revenue had already made separate additions for assets found during the search and should not add the same income again based on the statement. The Tribunal decided to estimate the addition for lifestyle expenditure at Rs. 7.50 lacs, allowing the assessee credit for any amount reflected in his books of account.

Conclusion:

The Tribunal partly allowed the assessee's appeal. The addition on account of pay orders was upheld, the addition for opening capital was confirmed, and the addition for lifestyle expenditure was reduced to Rs. 7.50 lacs. The order was pronounced in the open court on 9.12.2015.