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TMI Blog2006 (1) TMI 120X X X X Extracts X X X X X X X X Extracts X X X X ..... ribunal, Indore Bench, Indore (for short the Tribunal) and by order dated June 7, 2000, the Tribunal deleted some of the additions made by the Assessing Officer to the undisclosed income of the respondent and allowed the appeal in part. The first ground urged by the appellant in the appeal is that the Tribunal's decision to delete addition of Rs. 1,03,50,020 as unexplained deposits in the NRE accounts of the respondent was erroneous in law. Accordingly, on August 13, 2001, the court while admitting the appeal formulated the first substantial question of law for decision in this appeal as follows: "Whether, on the facts and circumstances of the case, the learned Tribunal was justified in deleting the addition of Rs. 1,03,50,020 made on account of unexplained deposits in the NRE bank accounts of the assessee even when the assessee had failed to discharge his onus of establishing the genuineness of the source of credits in his NRE bank accounts?" Mr. Rohit Arya, learned senior counsel appearing for the appellant, submitted that the proviso to section 5(1)(c) of the Act provides that in the case of a person not ordinarily resident in India, the income which accrues or arises to h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the respondent, on the other hand, submitted that the Assessing Officer has recorded a clear finding that the respondent was a person not ordinarily resident in India and the proviso to section 5(1)(c) of the Act made it sufficiently clear that income which accrues or arises to such a person outside India, shall not be included in his total income for the purpose of assessment under the Act. He submitted that the Assessing Officer gave credit to all such income of the respondent earned by him outside India and brought into India in respect of which declarations were produced but did not give credit in respect of all such income earned by him outside India and brought into India in respect of which no declarations were produced but other documents such as exchange vouchers issued by exchange centres in foreign countries were produced. He further submitted that besides exchange vouchers, bank certificates were produced, in which it was certified that the amounts were credited as per rules governing NRE accounts of non-resident Indians or that the amounts were received from abroad through normal or proper channels. He referred to copies of some exchange vouchers and bank certificates ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o him in India during such year; or (c) accrues or arises to him outside India during such year: Provided that, in the case of a person not ordinarily resident in India within the meaning of sub-section (6) of section 6, the income which accrues or arises to him outside India shall not be so included unless it is derived from a business controlled in or a profession set up in India." Section 5(1)(c) quoted above provides that subject to the provisions of the Act, the total income of any previous year of a person who is a resident includes all income from whatever source derived, which accrues or arises to him outside India during such year. In the case of a person not ordinarily resident in India within the meaning of sub-section (6) of section 6 of the Act, however, an exception has been made in the proviso to section 5(1)(c) of the Act. The exception is that the income of such a person not ordinarily resident in India accruing or arising to him outside India shall not be so included in his total income, unless it is derived from a business controlled in or a profession set up in India. The aforesaid proviso to section 5(1)(c) of the Act thus grants a person not ordinarily r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his NRE accounts. Similarly, the Assessing Officer had excluded from such deposits of foreign currency within the limits beyond which declarations had to be made presuming that the respondent during his different visits may have brought foreign currency without declarations to India and deposited the same in his NRE accounts during the block period because such income brought inside India within such limits could be treated as income having accrued or arisen to the respondent outside India. After having excluded the aforesaid items of foreign currency deposits in the NRE accounts of the respondent, the Assessing Officer found that foreign currencies representing Rs. 1,03,50,020 were unexplained deposits and treated the same to be undisclosed income of the respondent. Before the Tribunal, the respondent made a grievance that prior to the block period, he visited India a number of times and on each such occasion, had brought foreign currency with him in the form of pounds and dollars either in cash or traveller's cheques and had produced declarations with regard to such foreign currency brought by him into India before the Assessing Officer to prove that the foreign currency was re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o sell the foreign currency to the RBI or any authorised dealer. In any case, the respondent has been able to show by production of declarations made as per notifications issued under the FERA that he had brought in foreign currency out of income which had accrued or arisen to him outside India prior to the block period and in the absence of any finding by the Assessing Officer that such foreign currency, which had accrued or arisen to the respondent as income outside India and brought into India, had been either sold or exchanged for Indian currency as per such notifications issued under the FERA or had been utilised in any other manner, or had accrued or arisen to him from a business controlled or a profession set up in India, the explanation of the respondent that such income had been deposited in the NRE account during the block period subsequently had to be accepted and the finding of the Tribunal in this regard on a question of fact cannot be disturbed by this court in the present appeal under section 260A of the Act, which is confined to only substantial question of law. Before the Tribunal, the respondent also made a grievance that for the remaining foreign currency depos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ited as per rules governing NRE accounts and therefore do not constitute evidence of the fact that the dollars and pounds which were obtained from exchange centres abroad, as evidenced by foreign currency exchange vouchers, were brought into India and deposited in the NRE accounts of the respondent. The respondent was required to explain the deposit of foreign currency in his NRE accounts and the respondent's case was that the said deposits were out of his income which had arisen or accrued to him outside India. Since section 13 of the FERA imposed restrictions on the import of foreign currency into India, he could establish this fact by producing declarations made by him at the time of his visits to India from abroad in which he had declared the value of dollars or other foreign currency brought into India by him in accordance with the notifications issued thereunder. The currency declaration forms prescribed by the notifications issued under the FERA in which declarations were made stipulated as follows: "(b) Visitors to India may please note that in case they do not wish to encash all the foreign exchange/special rupee notes declared above, they should retain this form with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... court for decision in this appeal is as follows: "Whether, on the facts and circumstances of the case, the learned Tribunal was justified in law in deleting the addition of Rs. 1,45,000 made on account of interest earned on unexplained deposits in the NRE bank account of the assessee even when such interest was not exempt in view of the provisions of section 10(4) (ii) of the Income-tax Act?" In paragraph 32 of the impugned order, the Tribunal, after perusing the provisions of section 10(4)(ii) of the Act, has held that since the deposits of dollars in the NRE accounts was duly explained by the respondent and his explanation has been accepted by the Tribunal, the interest accrued thereon is not chargeable to tax in view of the provisions of section 10(4)(ii) of the Act. Section 10(4)(ii) of the Act is quoted hereinbelow: "10. In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included-... (ii) in the case of an individual, any income by way of interest on moneys standing to his credit in a non-resident (external) account in any bank in India in accordance with the Foreign Exchange Regulation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of the Act. The Tribunal was thus not justified in deleting the addition of the interest earned on foreign currency deposits in the NRE bank account of the assessee beyond the limits prescribed by the notifications issued under the FERA for which no declaration was produced by the assessee before the Assessing Officer or the Tribunal. The third substantial question of law which arises for decision in this appeal as formulated by the court on August 13, 2001, is as follows: "Whether, on the facts and circumstances of the case, the learned Tribunal was justified in law in deleting the addition of Rs. 22,39,000 on account of unexplained investment in shares and whether such finding is not inconsistent with and contrary to the material available on record?" While Mr. Rohit Arya, learned counsel for the Department submitted that the Assessing Officer has rightly added Rs. 22,39,000 on account of unexplained investment in the shares and relied on the findings of the Assessing Officer in this regard, Mr. Shrivastava, learned counsel for the respondent, submitted that the Assessing Officer has made the addition on the erroneous assumption that the shares were purchased by the respo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd and the Tribunal was justified in deleting the addition of Rs. 22,39,000 on account of unexplained investment in shares. We answer the third substantial question of law accordingly. The fourth substantial question of law formulated in order dated August 13, 2001, of the court for decision in this appeal is as follows: "Whether, on the facts and circumstances of the case, the learned Tribunal was justified in law in holding that the transaction of purchase and sale of land at village Shyampur in the name of the assessee's wife, Smt. Jyoti Khatri, was not an adventure in the nature of trade without assigning reasons for the same and whether such holding was not contrary to the established legal position?" We find that the Tribunal has held in paragraph 76 of the impugned order that Smt. Jyoti Khatri, the wife of the respondent, had purchased 8 acres of land at village Shyampur at Rs. 56,076 from Ghasiram as per sale deed dated May 24, 1990 and made the entire payment in cash, but the respondent had not filed any explanation and instead included the entire payment in a cash chart filed as on March 31, 1990 and no payment had been shown in the cash chart for the period ending ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich the return was not filed before the search was conducted, is below the taxable limit after claiming deduction under section 80L of the Act, the income of that year shall not be considered as part of the undisclosed income and whether the decision of the learned Tribunal is not contrary to the scheme of the Income-tax Act?" On this question, the direction of the Tribunal in paragraph 35 of the impugned order is to the following effect: "In the light of the above observations we direct the Assessing Officer to work out the income of the assessee in the light of our decision on the aforesaid issue and if the income of the assessee for those assessment years in which the return was not filed before the search was conducted is determined below the taxable limit after claiming the deduction under section 80L of the Act, the income of that year shall not be considered as part of the undisclosed income. In other cases in which the income of the assessee after claiming deduction under section 80L, crosses the taxable limit, the total income of the assessee without allowing deduction under section 80L shall be considered as part of the undisclosed income for that period. We further d ..... X X X X Extracts X X X X X X X X Extracts X X X X
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