2023 (11) TMI 759 - HC - Income Tax

Unexplained investments/ amounts deposited in the foreign bank account - no concrete evidence to establish either the ownership of the alleged bank account or the alleged disputed deposits in those accounts to be belonging to the assessee - assessee submitted that the amounts deposited in the foreign bank account was by the nephew of the assessee namely Rajinder Singh Chatha, who was residing in U.K who was the beneficiary of the account - HELD THAT - The profile of the bank as such would go on to show that name of the assessee was struck off from the said account on 11.06.2004, even prior to his visit in the year 2006 and notice was issued in the year 2014. We are of the considered opinion that the explanation offered by the assessee regarding the amounts belonging to his nephew was justified. It is not disputed that the documents as such which were filed showing the certificate of the C.A. whereby the said person had paid taxes on the outstanding amount in this impugned bank account to the revenue authority of U.K under specific disclosure facility. Only in the absence of explanation about the nature and source of income, the explanation offered by the assessee in the opinion of the AO is not satisfactory and the sum so credited may be charged to income-tax as the income of the assessee of the previous year. The assessee had given the explanation about the nature and source of the investments and the explanation offered by him was wrongly not accepted by the AO and the CIT. Once the Tribunal as such noticed the said background and had rightly come to the conclusion that the name of the assessee was withdrawn even prior to the notice being served upon him, the addition could not be made by the AO The factual matrix could not be disputed regarding this aspect by the counsel for the revenue. The justifiable explanation as such is given that the nephew had got his signatures. Sufficient explanation has been given regarding this fact by filing an affidavit, which has not been taken into consideration by the Assessing Officer or by the Commissioner of Income Tax. The assessee being an agriculturist and only having a small holding of land apparently could not be in possession of such huge amounts, which were also in foreign currency. Nothing as such was produced on record that the same was transferred from India where he was doing some business. It is neither the case of the revenue that the amounts were credited from his income while doing business at abroad and neither he was based abroad for such long periods to generate that kind of income. Decided against revenue.

Summary

Issues involved:
The issues involved in this case are related to the assessment of income tax for the years 2006-2007 and 2007-2008, concerning deposits in a foreign bank account, ownership of the account, and the source of the transactions.

Assessment Years 2006-2007 & 2007-2008:
The Tribunal allowed the appeals by concluding that the deposits in the foreign bank account belonged to the nephew of the assessee, not the assessee himself. The name of the assessee was removed from the account before the relevant assessment year, and there was no concrete evidence to establish ownership of the account or the disputed deposits. The addition made by the Assessing Officer was deemed unjustified as the nephew had paid taxes on the amount in the account to the U.K. revenue authority under specific disclosure. The Tribunal held that there was no violation of the Double Tax Avoidance Convention (DTAC) and deleted the addition to the income.

Substantial Questions of Law:
The revenue raised questions regarding the ownership and nature of transactions in the Swiss Geneva Account, emphasizing inconsistencies and lack of confirmation from relevant parties. The Tribunal was criticized for not considering all relevant facts and prematurely concluding on ownership issues, potentially resulting in a miscarriage of justice.

Defence and Assessment:
The assessee denied owning the foreign bank account, attributing it to his nephew residing in the U.K. The Assessing Officer rejected this defense, asserting that the accounts belonged to the assessee and penalties were imposed under Section 271(1)(c) of the Act. The Commissioner of Income Tax upheld the decision, citing lack of evidence to substantiate the defense and considering the income as unexplained.

Ownership and Source of Deposits:
The Tribunal found that the deposits were not made by the assessee, as his name was removed from the account before the deposits were made. The explanation provided by the assessee regarding the nephew's ownership was considered justified. The Tribunal highlighted the nephew's payment of taxes on the amount in the account as evidence supporting the ownership claim.

Legal Provisions - Sections 68 & 69 of the Act:
Sections 68 and 69 of the Income Tax Act were referred to, emphasizing that in the absence of a satisfactory explanation about the nature and source of income, the sum credited may be charged as income. The Tribunal concluded that the explanation provided by the assessee was sufficient, and the addition by the Assessing Officer was unwarranted.

Conclusion:
The Court dismissed the appeals, stating that the Tribunal's decision was based on factual assessments and the lack of evidence linking the deposits to the assessee. The explanation provided by the assessee regarding the ownership of the account by his nephew was deemed acceptable. The Court found no merit in the revenue's contentions and upheld the Tribunal's decision to delete the addition to the income.