2023 (1) TMI 15 - AT - Income Tax

Unexplained Credits u/s 68 - AO noticed inward Telegraphic transfer in the assessee s NRE account with DCB Bank Limited, Mumbai - assessee has filed certain additional evidences and prayed that these additional evidences be admitted under rule 29 of the Appellate Tribunal Rules 1962 - HELD THAT - There is no explanation whatsoever as to the purpose for which this money was given by Topline International Inc to the assessee. What is filed as additional evidence before us included certain emails between Topline International Inc and it s bankers, as also certificates of incumbency of two customers of Topline International Inc. It is indeed true that just because the assessee has received the money from a company based in the BVI, it cannot be taxed as unexplained credit. Assessee has to give complete details of the BVI entity and establish bonafides of the said entity as also of the transaction. The burden of the assessee cannot stand discharged just by his giving some incomplete and incoherent details of this entity and copies of some documents in a foreign language. All such treasonable details, in respect of this entity, as the authorities may requisition will have to be furnished by the assessee. The fact that the assessee has access to these documents and that close relatives of the assessee are major shareholders of the company shows that the assessee has close relationship with Topline International Inc. I We deem it fit and proper to remit the matter to the file of the learned CIT(A) with a direction to adjudicate on the matter de novo after giving an assessee one more opportunity of producing documents, including all the bank statements, relating to Topline International Inc and establish the credit worthiness of the said company, explain the nature of transactions that the assessee had with Topline International Inc and respond to such questions as the CIT(A) may have with respect to this transaction. The assessee is further directed to file certified copies of all such documents as he may seek to rely upon translated in English-where necessary, within two weeks of receipt of notice of remanded hearing before the CIT(A), as also with the Assessing Officer. The CIT(A) will thus decide on the matter afresh after giving an opportunity of hearing to the assessee, by way of a speaking order and in accordance with the law. Ordered, accordingly. Levy of interest u/s 234B - HELD THAT - No specific arguments were advanced before us beyond placing the reliance on the non-discrimination clause in the tax treaty, as set out in Article 24(1) of the Indo-Portugal Double Taxation Avoidance Agreement. In any case, it is only elementary that article 24(1) can come into play only when discrimination is based on nationality; that does not seem to be the case here. If interest is wrongly charged by the AO, then just because the assessee is a Portuguese citizen, it does not amount to non-discrimination under the Indo-Portuguese tax treaty. Be that as it may, as the matter is being remitted to the file of the CIT(A) for adjudication de novo, the assessee is also granted liberty to take up this issue regarding alleged wrong levy of interest u/s 234B, if so advised, before CIT(A). CIT(A) may examine the matter, if so raised before him, and adjudicate upon the same in accordance with the law and by way of a speaking order. On both the issues thus matter stands restored to the file of the learned CIT(A). Appeal is allowed for statistical purposes.

Summary

Issues:
1. Addition of unexplained credits under Section 68 of the Income Tax Act.
2. Levying of interest under Section 234B of the Income Tax Act.

Analysis:
1. The appellant contested the addition of Rs. 7,63,55,610 as unexplained credits under Section 68 of the Income Tax Act. The Assessing Officer noted a significant inward transfer in the appellant's NRE account from a company based in the British Virgin Islands. Despite the appellant's claims, no satisfactory explanation was provided regarding the source of these funds. The appellant's appeal before the CIT(A) was unsuccessful, leading to further appeal. The Tribunal emphasized that receiving funds from a foreign company does not automatically warrant taxation as unexplained credit. However, the appellant failed to establish the legitimacy of the transaction and the credibility of the foreign entity. Consequently, the matter was remitted to the CIT(A) for a fresh assessment, directing the appellant to provide comprehensive documentation to verify the transaction's authenticity and the company's creditworthiness. The appellant was instructed to present all relevant documents in English within a specified timeframe for a thorough reevaluation by the CIT(A).

2. The issue of interest levied under Section 234B was also addressed. The appellant raised concerns about the alleged wrongful imposition of interest, citing the Indo-Portugal Double Taxation Avoidance Agreement's non-discrimination clause. However, the Tribunal clarified that Article 24(1) of the treaty applies only when discrimination is based on nationality, which was not the case here. As the matter was being remitted to the CIT(A) for a fresh assessment, the appellant was granted the liberty to challenge the interest levy issue before the CIT(A) if desired. The CIT(A) was instructed to address this issue, if raised, in accordance with the law and by issuing a detailed order. Consequently, both the issues were referred back to the CIT(A) for comprehensive reconsideration and decision-making.

In conclusion, the Tribunal allowed the appeal for statistical purposes, directing a reevaluation of both issues by the CIT(A) in adherence to legal procedures and principles.