2019 (4) TMI 94 - AT - Income Tax

Addition u/s 69 on account of deposit with HSBC Bank account - Income received /Accrued or deemed to be received/ Accrued in India u/s 5 - deposits made out of foreign source - assessee and his wife are NRI and are US citizens - A.O. was of the view that the assessee was not able to prove that the deposits in HSBC Bank account are on account of foreign earned income - AO jurisdiction to tax the deposits held by the assessee abroad - CIT(A) deleted the additions - HELD THAT - The assessee is NRI and a citizen of USA for many years prior to concerned assessment year is not in dispute. In the said circumstances, the Assessing Officer has no jurisdiction to tax the deposits held by the assessee abroad unless it is proved that the source of deposits are from India. On identical issue in DCIT (IT) -3 (3) (2) , MUMBAI VERSUS SHRI HEMANT MANSUKHLAL PANDYA 2018 (11) TMI 949 - ITAT MUMBAI decided the issue in favour of the assessee. (i) The Assessing Officer has no jurisdiction to tax the deposits made by the assessee in HSBC unless the source of deposits are from India, as the assessee is a citizen of USA and is a Non-resident in India within the meaning of the Income-tax Act, 1961 from 1993 onwards and even for the earlier years. (ii) The assessee has to prove that the source of deposit in the HSBC account was out of India and not from India. (iii) If the deposits were not made out of foreign source during the years for which assessments are made, but are carried over balances from NRI Bank account in 1999, then the assessee has to prove by producing relevant bank account to confirm that it was deposited into Indian bank account out of transfer of funds from foreign NRI Bank account. Remit the issue in dispute to the file of the Assessing Officer with a direction to pass fresh order in the light of our above directions - Appeals filed by the Revenue are allowed for statistical purposes.

Summary

Issues Involved:
1. Validity of the addition made by the Assessing Officer (AO) under Section 69 of the Income Tax Act, 1961, for deposits in HSBC Bank account.
2. Determination of the residential status of the assessee and its implications on taxability.
3. Burden of proof regarding the source of deposits in the HSBC Bank account.
4. Jurisdiction of the AO to tax foreign deposits of a non-resident Indian (NRI).

Issue-wise Detailed Analysis:

1. Validity of the Addition under Section 69:
The primary issue raised in these appeals is whether the CIT(A) was justified in deleting the addition made by the AO under Section 69 of the Income Tax Act on account of deposits in the HSBC Bank account. The AO made the addition on the grounds that the assessee failed to explain the source of the deposits, treating them as unexplained investments. The AO noted that the assessee had not filed a return of income for the relevant assessment years and could not provide concrete proof linking the deposits to income earned abroad. Consequently, the AO added ?2,35,01,408 as unexplained investments under Section 69.

2. Residential Status and Taxability:
The CIT(A) found that the assessee and his wife were NRIs and US citizens. The CIT(A) observed that the assessee had left India in 1973 for employment in UAE and migrated to the USA in 1987. The assessee had not been a resident of India since 1993 and had not stayed in India for more than 40 days in any calendar year from 1993 to 2015. The CIT(A) concluded that the assessee was not assessable in India as he was a non-resident and had no source of income from India. The CIT(A) emphasized that the AO had failed to prove that the deposits in the HSBC Bank account were earned in India.

3. Burden of Proof:
The CIT(A) stated that the onus was on the AO to prove that the income had been earned in India if the AO wanted to tax the deposits. The CIT(A) noted that the AO had not provided any evidence to establish that the deposits were sourced from India. The assessee had contended that the deposits were from savings from previous employment abroad, but the AO did not accept this explanation due to a lack of supporting documents. The CIT(A) found the assessee's submission credible and deleted the additions.

4. Jurisdiction of the AO:
The Tribunal concurred with the CIT(A) that the AO had no jurisdiction to tax the deposits held by the assessee abroad unless it was proven that the source of the deposits was from India. The Tribunal noted that the assessee was a non-resident and a US citizen, and as per Section 5(2) of the Income Tax Act, only income received or deemed to be received in India or income that accrues or arises in India can be taxed. The Tribunal emphasized that the AO had to establish that the deposits were sourced from India to justify the addition.

Remand and Directions:
The Tribunal remitted the issue back to the AO with specific directions:
- The AO must verify if the source of the deposits was from India.
- The assessee should produce relevant bank account statements to confirm that the deposits were from foreign sources.
- If the deposits were carried over from an NRI account, the assessee must provide evidence of the transfer from the foreign NRI account to the Indian bank account.

Conclusion:
The appeals filed by the Revenue were allowed for statistical purposes, and the issue was remitted to the AO for fresh consideration in light of the Tribunal's directions. The Tribunal emphasized the need for the AO to establish the source of the deposits and verify the assessee's claims with supporting evidence. The Tribunal's order was pronounced on March 19, 2019.