2023 (9) TMI 601 - AT - Income Tax

Disallowances of exempted income and unsecured loan respectively - assessee is a non-resident individual and holds tax residency certificate of UAE as claimed to be engaged in the business of general trading through a partnership firm, namely Baba Tex General Trading LLC, in which he is partner of 49% for the share of profit - HELD THAT - There is no dispute that the assessee has shown the exempted income in the income tax return and therefore the onus lies upon the assessee to justify based on the documentary evidence. The assessee has furnished the necessary supporting evidence by raising his contentions during the appellate proceedings which have nowhere been denied by the revenue based on cogent material suggesting that the exempted income shown by the assessee represents the undisclosed income of the assessee taxable in India as per the provision of section 5(2) of the Act. In our considered view, the income of the assessee cannot be decided based on a mere piece of paper. As such, it should be corroborated by the material available on record. However, in the case before us, the AO has not brought any material on record to disprove the contention of the assessee. To classify any item based on paper as income, it is necessary for the party alleging so to pinpoint the specific instances and corroborative material. However, in the case before us no material has been brought on record by the AO. Merely the amount shown by the assessee under the head of exempted income cannot represent the undisclosed income of the assessee in the absence of corroborative material suggesting that the income earned by the assessee is taxable in India. Credit in the bank account of the assessee on account of foreign remittance - We note that the money was remitted from the foreign bank account of the assessee which can be verified from the details available - Such entry in the bank account of the assessee was not reflecting any business transactions in India and therefore the same cannot be treated as income of the assessee. It is also pertinent to note that the assessee being non-resident Indians has remitted the money in his bank account in India which cannot be termed as loan to the assessee or income of the assessee. It is for the reason that the status of the assessee being individual cannot be treated differently and therefore any receipt to the and NRE account of the assessee cannot be classified as income of the assessee. The relevant provisions of section, in this regard, have already been elaborated in the preceding paragraph. Thus the amount of remittance from the UAE does not represent an income of the assessee and therefore we decline to interfere in the finding of the learned CIT(A). Hence the ground of appeal of the revenue is hereby dismissed.

Summary

Issues Involved:
1. Deletion of addition of Rs. 5,15,48,663/- claimed as exempt income.
2. Deletion of addition of Rs. 4,00,00,000/- on account of secured loans.
3. Delay in filing the appeal by the Revenue.

Summary:

Issue 1: Deletion of Addition of Rs. 5,15,48,663/- Claimed as Exempt Income
The Revenue argued that the Ld. CIT(A) erred in deleting the addition of Rs. 5,15,48,663/- made in respect of income claimed as exempt by the assessee. The AO found deficiencies in the documents provided by the assessee, such as the absence of a partnership agreement and lack of clarity on how the exempt income was derived. The assessee, a non-resident individual with a tax residency certificate from UAE, claimed the income was earned from a partnership firm in UAE. The Ld. CIT(A) observed that the appellant being a non-resident is not liable to tax in India for income earned outside India as per Section 5(2) of the Act. The CIT(A) noted that the appellant had provided sufficient documentation to support his claim and that the AO had no jurisdiction to inquire into the appellant's foreign income. The Tribunal upheld the CIT(A)'s decision, stating that the AO did not bring any material evidence to disprove the assessee's claim.

Issue 2: Deletion of Addition of Rs. 4,00,00,000/- on Account of Secured Loans
The Revenue contended that the Ld. CIT(A) erred in deleting the addition of Rs. 4,00,00,000/- on account of secured loans. The AO had treated the amount remitted to the assessee's NRE account in India as unexplained cash credit under Section 68 of the Act. The assessee argued that the amount was remitted from his business income earned in UAE. The CIT(A) found that the remittances were through normal banking channels and that the AO had no jurisdiction to question the source of funds deposited in a foreign bank account. The Tribunal agreed with the CIT(A), stating that the remittance from a foreign bank account to the NRE account in India cannot be treated as income of the assessee. The Tribunal also noted that the AO did not provide any evidence to suggest that the remittance represented the assessee's income taxable in India.

Issue 3: Delay in Filing the Appeal by the Revenue
The Tribunal noted that there was a delay of 118 days in filing the appeal by the Revenue, which fell during the COVID-19 period. The Hon'ble Supreme Court had directed to exclude the period from 15-03-2020 till 31-05-2022 for the purpose of limitation. Considering this, the Tribunal condoned the delay and proceeded to adjudicate the issue on merit.

Conclusion
The Tribunal dismissed the appeal filed by the Revenue, upholding the CIT(A)'s decision to delete the additions made by the AO. The Tribunal found that the assessee had provided sufficient evidence to support his claims and that the AO had no jurisdiction to question the foreign income and remittances of a non-resident. The Tribunal emphasized that the AO did not bring any material evidence to disprove the assessee's claims.