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TMI Blog2015 (3) TMI 755X X X X Extracts X X X X X X X X Extracts X X X X ..... he website of the SEBI and came to the conclusion that the said company is one of the group companies of assessee listed as persons constituting group under Monopolies and Restrictive Trade Practices Act, 1969 and further noticed from the red herring prospectus of M/s.Lanco Infratech Limited, wherein this company was shown as single shareholder company of assessee as on 29-07-2006. This means the existence of the company is accepted by the authorities, not only by SEBI and other statutory authorities but even by the Assessing Officer, as can be seen from the enquiries conducted. We are unable to understand how the Revenue could raise ground on existence of the above company in Ground No.7 about the identity of the company when Assessing Officer himself acknowledged the same in the assessment order. Coming to the creditworthiness of the amount, assessee's explanation is that the amounts were transferred from his own bank account in Mauritius to the NRI account in India. Therefore, the immediate source of funds is his own account from Mauritius which is not disputed. If funds are received into Mauritius account, then that becomes source of the source which cannot be examined b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1482/HYD/2014 - - - Dated:- 18-3-2015 - Shri B. Ramakotaiah And Smt. Asha Vijayaraghavan,JJ. For the Petitioner : Smt. G. Aparna Rao, DR For the Respondent : Shri P. Murali Mohan Rao, AR ORDER Per B. Ramakotaiah, A. M. This is a Revenue's appeal filed against the order of the Commissioner of Income Tax(Appeals)-V, Hyderabad dated 30-05-2014. 2. The only issue in this appeal is with regard to addition of ₹ 78,04,58,374/- made u/s.68 / 69 / 69A / 69C of the Income Tax Act (Act) in the assessment completed u/s.143(3) on 28-03-2014 by Dy. Director of Income Tax-I, International Taxation, Hyderabad. On the basis of the enquiries done by CIT(A) and considering the submissions of assessee, entire addition was deleted by CIT(A), on which Revenue is aggrieved. 3. The facts of the case are that, assessee is a non-resident Indian, generally resident of Dubai. He has various investments in India and has filed his return of income mainly disclosing salary income in the capacity as Chairman of M/s.Lanco Infratech Limited, Hyderabad and claiming the status as non-resident. Total income declared by assessee was to the tune of ₹ 3,84,87,850/-. Assessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company M/s.Vitrual International Ltd., was shown as 'persons constituting group' as defined under MRTP Act, 1969 as on 31-03-2011. Assessing Officer also verified the website of SEBI and noted that in the 'red herring' prospectus of M/s. Lanco Infratech Limited, the above said company was shown as a single person company in which assessee is the sole shareholder of single share available as on 29-07-2006. Based on the above, Assessing Officer came to the conclusion that the above said company is nothing but an alter ego of assessee and therefore funds, if at all proved to be transferred from M/s.Vitrual International Ltd., Mauritius to the bank account of assessee in Mauritius, still do not explain the source of funds in the hands of assessee. Considering the above and also the legal position as discussed by him in para 6 of the assessment order, he came to the conclusion vide para 8 of the assessment order as under: 8. The assessee who is a high net worth individual and who has significant business interest in India, as can be seen from the Statement of Affairs, has failed to furnish sufficient evidence with regard to nature and source of ₹ 78,04,58,374/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oan obtained from M/s.Vitrual International Limited, Mauritius in support of which, he has filed before the Assessing Officer, a copy of the confirmation letter from M/s.Vitrual International Limited, Mauritius. 6.1 In order to examine the correctness or otherwise of the assessee's claim, I have called for the Balance Sheet and other details of M/s.Vitrual International Limited, Mauritius, in response to which the appellant has filed before me, copies of the following documents so as to prove the identity, credit worthiness and qenuineness of the creditor-company (M/s.Vitrual International Limited, Mauritius) (a) Certificate of Incorporation of Mls Vitrual International Limited, Mauritius. (b) Annual report of M/s.Lanco Infratech Ltd for the financial year 2009-10. (c) Loan confirmation from Vitrual International Limited, Mauritius. (d) Copy of audited financial statements for year ended 31-3- 2011 of M/s. Vitrual International Limited, Mauritius, (e) Copies of documents in support of substantial share holding of the creditor company viz, M/s Vitrual International Limited in M/s Lanco Infratech Lir1ited (LITL). 6.2 On examination of the above documents, I f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecision in the case of Vodafone International Holdings B.V vs. Union of India [341 ITR I (SC)] has no relevance to the facts of the appellant's case. I agree with the contention of the appellant that there is no Round-Tripping in respect of the source of funds of M/s. Vitrual International Limited, Mauritius. Further, the Assessing Officer's observation that the purpose of the remittance as per FIRC is family maintenance / personal use / savings and the remitter is assessee himself, has no relevance when once the same is explained. Also, the AO's observations that the confirmation letter is not an original certificate, that the relationship between the assessee and the company is not stated therein, that there is no mention of tax residency of the company, that there is no seal of the company on the copy of certificate submitted, that there is no date on the certificate and that there are no contact details on the certificate except for the postal address have no merit in view of the above mentioned evidence. Since the appellant has satisfactorily explained the source for the amount of ₹ 78,04,58,374/-, no separate explanation for the investment in shares, monie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted from abroad by such persons might be subjected to income-tax in India, The apprehension appears to be due to lack of information regarding the correct legal position about the taxability of the remittances of money from abroad, The general position, in this regard is clarified below. 2. Money brought into India by non-residents for investment or other purposes is not liable to Indian income-lax. Therefore, there is no question of a remittance into the country being subjected to income- tax in India. The question of assessment to tax arises only when there is no evidence to show that the amount, in question, in fact represents such remittance. In other words, in the absence of proper supporting evidence. the taxpayers' story that the money has been brought into India from outside may be disbelieved by the Income-tax Officer who may then proceed to hold that the money had in fact been earned in India. 3. If the money has been brought into India through banking channels or in the form of assets like plant and machinery or stock-in-trade, for which the necessary import permits had been obtained, no questions at all are asked by the Income-tax Officers as to the origin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essed as resident in India either for the assessment year preceding the year of his/her migration or in the earlier years, will not be entitled to any special concession. Thus, any claim by such migrants that the funds or the jewellery have been brought from the above mentioned countries will be accepted only if the person concerned produce adequate evidence to show that they had sufficient funds/ wealth in those countries and that the transfer of the cash/jewellery to India can directly be linked with the said funds or wealth. In other words, these migrants will have to lead proper evidence like any other assessees, about the source of the cash/jewellery alleged to have been brought by them from these countries. In support of the claim that they had sufficient funds in those countries. they might produce before the income-tax authorities in India their bank accounts in those countries as also copies of the assessment orders passed in their cases by the income-tax authorities of those countries. The migrants would also then be required to prove that the amounts brought Into India can directly be linked with the funds which they had possessed in those countries. . 9.1 A combin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isions contained in section 5(2)(b) of the act are very clear in this regard. I have also held at Para No.11 of this order that the provisions of section 68 or 69 of the act cannot prevail over section 5(2)(b) of the act as the assessee is a Non-Resident Indian and income other than Indian income cannot be taxable in India. In view of this, section 68/69/69A/69C of the Act cannot be applied. Since the identity of the creditor company viz., M/s.Virtual International Limited, Mauritius, credit- worthiness of the creditor company and the genuineness of the impugned transactions are proved and in view of the provisions of section 5(2)(b) r.w. Board Circular No.5 dated 20.02.1969, the addition made by the AO for the year under consideration u/s.68/69/69A/69C of the Act for ₹ 78,04,58,374/- is not in order. The AO is, therefore, directed to delete the addition. The appellant gets relief of ₹ 78,04,58,374/- for the year under. 6. Aggrieved, Revenue has raised the following grounds: (i) The order of the Ld. CIT(A) is erroneous on facts and in law (ii) The Ld. CIT(A) erred in deleting the addition of ₹ 78,04,58,374/- made in the assessment order u/s.68 of the I.T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in Mauritius. (ix) The Ld. CIT(A) erred in holding that the creditworthiness of M/s. Vitrual International Ltd. is considered to be proved on the basis of the capital, reserves and current liabilities shown in the statement of financial position of the said company as on 31/03/2011 disregarding the fact that fresh capital of US$ 64 lacks is shown to have been contributed by the assessee himself to the said companv during the relevant year in his capacity as the sole shareholder in the statement of cash flows and the note-14 to financial statements. (x) The Ld. CIT(A), while considering the creditworthiness of M/s.Vitrual International Ltd., also erred in disregarding the fact that a fresh borrowing of US$ 52,95,478 by the said company is shown to have been taken during the year in the statement of cash flows which formed one of the sources for the loan advanced to the assessee and that the genuineness of the same requires verification as the creditor company is a single shareholder company with assessee as the sole shareholder. (xi) The Ld. CIT(A) erred in holding that the amount of ₹ 78,04,58,374/- remitted by the assessee to India from his bank account in Mauriti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esident outside India which is not taxable in India as per section 5(2)(b) of the Act and it will not be applicable to the assessee as the remittance was made out of a loan purported to have been borrowed outside India from a company in which the assessee himself is the sole shareholder. (xvi) The Ld. CIT(A) erred in relyinq on the decisions of ITAT, Delhi in the case of Finlay Corporation Ltd. (84 TTJ 788) and ITAT, Chennai in the case Susila Ramasamy (130 TTJ 363) to hold that the provisions of section 68/69 of the I.T. Act do not prevail over the provisions of section 5(2)(b) of the Act. The Ld. CIT(A) ought to have seen that the provisions of section 5 are subject to other provisions of the Act including section 68/69 in view of the presence of the specific phrase subject to provisions of the Act in section 5 of the I.T. Act. (xvii) The Ld. CIT(A) ought to have appreciated that the above mentioned decisions of ITAT, Delhi and ITAT, Chennai, have been rendered without considering the ratio laid down by the Hon'ble Supreme Court in the case of Kale Khan Mohammad Hamf (50 ITR 1) that the onus of proving the source of a sum of money received by the assessee is on the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ose in any of the years. It was further submitted that the sections under which Assessing Officer tried to consider assessee's own funds as income of assessee are not legally correct. He has given detailed written submissions countering the written submissions filed by the Revenue and his submissions can be summarized as under: a. The remittance of ₹ 78,04,58,374/- has been made from the assessee's own Overseas Bank account and thus income, if any had already been received in abroad. Consequently the question of receiving the same income again in India does not arise. Hence, such receipt shall not be taxed under Section 5(2) of the Act. b. The assessee has merely transferred his own money from Mauritius to India and no credit has been obtained by the assessee as the money has been transferred from his Barclays Bank, Mauritius to NRI A/c. held in Axis Bank and Indusind bank. This tantamount to nothing but passing of money from right hand to left hand. Hence, no addition can be made as Unexplained Credit u/s.68/69/69A/69C of the act. c. The assessee has received the above said amount from his Barclays Bank, Mauritius to NRI A/c. from the loan obtained from M/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing Officer himself acknowledged the same in the assessment order. 11. Coming to the creditworthiness of the amount, assessee's explanation is that the amounts were transferred from his own bank account in Mauritius to the NRI account in India. Therefore, the immediate source of funds is his own account from Mauritius which is not disputed. If funds are received into Mauritius account, then that becomes source of the source which cannot be examined by Assessing Officer, unless there is any incriminating evidence. Except presumptions and allegations, virtually there is no evidence against assessee that these funds received into his bank account in Mauritius are his own incomes from India or 'round trip' funds of assessee as alleged. Therefore, all the grounds raised on this issue, particularly Ground No.10 11 does not require any consideration on the facts of the case. 12. Coming to the issue of creditworthiness of the above said company, there is no dispute with reference to the funds. It has its own funds and Ld.CIT(A) took pains to examine and hold that it is creditworthy. Nothing was brought on record to counter the findings of Ld.CIT(A), except contending t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such further enquiry as he thinks fit or to direct the Assessing Officer to make further enquiry and report the result of the same. There are many judgments to the effect that in view of the provisions of section 250(4), the first appellate authority is duty bound to make an enquiry even if such an enquiry was not made by the Assessing Officer if the facts and circumstances of the case warrant such an enquiry to be made. It, therefore, follows that the matters to be considered by the first appellate authority need not be confined to what was considered by the Assessing Officer while making the order appealed against. {Para 6] There are of course several judgments whcre it has clearly been laid down that the assessee on his own cannot produce any additional evidence not furnished before the Assessing Officer without meeting the various conditions provided under rule 46A for which satisfaction is to be recorded by the appellate authority in writing and with which the appellate authority is further required to confront the Assessing Officer and allow him a reasonable opportunity to have his say in the matter. [Para 9] From the various authorities of courts, the legal position i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t appellate authority on its own motion, there is no requirement, in law, to consult/confront the Assessing Officer with such additional evidence. There may be cases where additional evidence is admitted by the first appellate authority on a request or application made by the assessee. In such cases sub-rule (2) of rule 46A requires the first appellate authority to allow the Assessing Officer a further opportunity to rebut the fresh evidence filed by the assessee. Even that requirement cannot be said to be a rule of universal application. If the additional evidence furnished by the assessee before the first appellate authority is in the nature of a clinching evidence leaving no further room for any doubt or controversy, in such a case no useful purpose would be served by performing the ritual of forwarding the evidence/material to the Assessing Officer to obtain his report. In such exceptional circumstances the requirement of sub-rule (3) may be dispensed with. [Para 14] Therefore, there was no infirmity in the impugned order of the Commissioner (Appeals) who had taken pains to comprehensively examine the issue before him and arrive at a correct finding of fact and he should be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the Board. Ld.CIT(A) having examined that the principles laid down by the Board circular are clearly applicable to the facts of the case, we do not see any merit in Ground No.15 raised by Revenue unless it is established that assessee has earned income in India or received in India. Provisions of Section 5 does not permit taxation of amounts remitted to India from sources outside India which are not incomes under the provisions of the Act. This issue was discussed elaborately by the co-ordinate bench in the case of DCIT Vs. Finlay Corporation Ltd., [86 ITD 626], Delhi, wherein it was held as under: The issue whether the income of non-resident is taxable or not is still to be decided with reference to the provisions of section 5(2) and, the provisions of Section 68 or 69 cannot enlarge the scope of section 5(2). What is not taxable under section 5(2) cannot be taxed under the provisions of section 68 or section 69. Under section 5(2) the income accruing or arising outside India is not taxable unless it is received in India. Similarly, if any income is already received outside India, the same cannot be taxed in India merely on the ground that it is brought in India by way o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s was received by the assessee outside India it does not become chargeable to income tax in India by reason of that money having been brought into India. This is because what is chargeable is the first receipt of the money and not a subsequent dealing by the assessee with the said money. In that event the money is brought by the assessee as his own money which he had already received and had control over it and it does not take the character of income, profits and gains after being brought into India. [Para 14.3]. There could of course be a situation where a non-resident has money in India, transmits it to a foreign country then brings it back to India through a banking channel. If this circular motion of the money is conclusively proved with evidence then the non resident will surely do the, explaining under section 69, despite the money having been brought into India through banking channel. But merely on suspicions or doubts, conjectures or surmises, no inference can be drawn against the assessee. It is trite law that there can be no presumption in favor of any illegality of a transaction. In fact the presumption is the other way about. [Para 14.4]. In the cases of remittances t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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