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TMI Blog2019 (9) TMI 806X X X X Extracts X X X X X X X X Extracts X X X X ..... in through his independent research made with the assistance of Google . It is not in dispute that the translated version of those contents were not made available either to the assessee or to the bench at or before the time of hearing. We find that the ld AR had tried to take shelter from the observation of the ld AO that Dryade Stiftung is a Discretionary Trust and that any monies could be sought to be taxed in the hands of the assessee, purported to be beneficiary, only in the event of any actual receipt of money from the said discretionary trust. We find that the ld Special Counsel for the Revenue on the contrary had argued that a Trust is different from Foundation and hence the argument of the ld AR that Dryade Stiftung is a Discretionary Trust cannot be appreciated Admittedly, the contents of various papers as detailed above in German language were produced by the ld AO to the assessee and hence it is the duty of the revenue to furnish the translated version of the said documents to the assessee for his effective rebuttal. We hold that all the relevant facts were not brought on record by both the parties in the instant case. It is just and fair that the English tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. The only issue involved in quantum appeal is as to whether the ld CITA was justified in upholding the addition in the sum of ₹ 5,35,23,181/- in the facts and circumstances of the case. 4. The brief facts of this appeal are that the assessee is an individual and had filed his original return of income for the Asst Year 2003-04 on 30.9.2003 declaring total income of ₹ 1,53,160/- comprising of income from house property, other sources and capital gains. The return was duly processed u/s 143(1) of the Act. Subsequently, information was received that the assessee was beneficiary in Dryade Stiftung, an entity with LGT Treuhand AG, which belongs to the LGT group based in Liechtenstein. The information received showed transaction in the account of the said entity during April 2002 relevant to the Asst Year 2003-04 to the tune of USD 4387146. The ld AO observed that information received also showed that certain assets were being held in the account of the said entity as in December 2001. Since all these assets and bank accounts were not reflected in the statements filed along with the return of income u/s 139(1) of the Act, the assessment was reopened by issui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tenstein are under the scanner of almost all the countries as this is considered as one of the safe uncooperative tax heavens along with Andorra and Monaco. The activities of LTG Bank, Liechtenstein which are downloaded from the website, are summarized as under:- Background Millions of Euros belonging to hundreds of citizens living in Germany were channeled into the LGT Bank and other banks in Liechtenstten, taking advantage of Liechtenstein-based trusts to evade paying taxes in Germany. According to the prosecutor's office these trusts have been created apparently only to evade paying taxes. According to the law in Liechtenstein, such trusts allow the separation of monetary assets from their owners and are kept anonymously. In contrast to trusts of most other countries, Liechtenstein trusts can be revoked at any time and the assets will be returned to the owner. Furthermore, such trusts as well as their maintaining shell entities are only charged 0.1% (minimum 1,000 Swiss francs) annually. Liechtenstein thus is known to be a tax haven. Investigations Germany According to the lead prosecuting office r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad been returned. United States of America The informant also had sold data to the government of the United States. After the affair broke open, Senator Carl Levin, chairman of a senate Investigations committed, indicated his intention to probe to what degree American citizens have used the LGT Bank to evade his intention to probe to what degree American citizens have used the LGT bank to evade taxes. In July 2008 the U.S. Subcommittee determined that offshore tax haven supported tax cheats to the cost of about $100 billion per year for the U.S. taxpayer. Specifically mentioned were Switzerland UBS AG and Liechtenstein LGT Group. The report indicates that the LGT group contributed to a culture of secrecy and deception According to the report UBS holds 1,000 declared accounts versus 19,000 that are not declared to the IRS. The report recommended a number of steps including tighter regulations for financial institutions. Other Countries On February 24, 2008, it became apparent that secret bank information had also been sold to the British tax authorities and that about 100 individuals in the UK are at risk ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me tax Act 1961 dated 9th December 2009 received along with the letter dated 8th December 2009, in respect of the re-assessment proceedings initiated under Section 148 of the Act for the Assessment Years 2002-03 and 2003-04. In this connection, I wish to make the following submissions for your perusal and record: 1. I understand that my elder brother Shri Arun R Mehta has also been issued similar notices referred to above under the relevant provisions of the Income tax Act for which he has already made his submissions. These submissions also hold good for me. However, for the sake of good record I wish to make the following submissions for your perusal and record. 1.1 I am a citizen of India and have been born and brought up in India. I was born in August 1947. My present age is 62 years. 1.2 I joined my brother Shri Arun Mehta in our diamond business in the year 1969.. I have shifted to Dubai in 2004 for my own business. 2. I have perused the notices and the letter referred to above which alleges that; 2.1 I am a beneficiary of Dryade Stiftung and Dianese Stiftung Vaduz in L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... My brother Arun Mehta has already enquired with our non-resident younger brother Dilip Mehta about the aforesaid allegations. A communication received from LGT Bank (now known as Fiduco Treuhand AG) through his lawyer is enclosed marked Annexure A v) I have been advised that a Stiftung is akin to a discretionary trust with absolute and exclusive powers vested in the Foundation Board of the Trust to appoint and/or replace the beneficiaries and to amend the statutes and/or bye laws and to manage the assets of the Stiftung. As mentioned earlier, I had no role to play either with the creation or the management of the Stiftung and this is borne out by the confirmation furnished by Fiduco Treuhand AG. I may reiterate that the Foundation Board has never exercised discretion in my favour and hence I have never been a member of the Foundation Board and no income has accrued to me or has been received by me from the said Stiftung which can be brought to tax for the assessment years under reference. It is well settled that a beneficiary of a discretionary trust can only be assessed in respect of an amount which is received by him from the trust or in resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... present case, there is no material whatsoever that I as an alleged beneficiary of a Stiftung have made an investment in such a Stiftung and accordingly, the question of assessing any amount in my hands does not arise. In view of the above, I humbly state that; i) l have not deposited $ 4,387,146.00 in the account of Dryade Stiftung and Dianese Stiftung Vaduz. ii) I have not received any income from these Trusts Under the circumstances, I request you to drop the proceedings initiated under Section 148 of the Act against me. 4.2. The ld AO observed that the explanation offered by the assessee is to be rejected in the light of following evidences available on record :- 1) Verification of the beneficial owner's identity signed by Proxy holder ABN AMRO Trust Company (Suisse) SA, which stated that the beneficial owner of the assets deposited with the Bank are Dilip Ramniklal Mehta Antwerp, Belgium Arun Ramniklal Mehta Bombay, India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to INR at ₹ 48.80 as prevailing in April 2002, the deposit in equivalent INR was worked out at ₹ 21,40,92,725/- and 25% thereon worked out to ₹ 5,35,23,181/-, being the assessee s share thereon, was brought to tax as his undisclosed income for the Asst Year 2003-04. Penalty proceedings u/s 271(1)(c) of the Act for deliberate concealment of such income were also initiated in the assessment order. 5. The assessee reiterated his submissions before the ld CITA. Among other submissions, it was specifically pleaded that the ld AO had made the addition on the footing that no contradictory evidence was produced by the assessee and therefore the deposit made in the bank account of Dryage Stiftung among represented undisclosed income of the assessee from his business activities. In this regard, the assessee submitted that it is an established fact that the assessee along with his brother had ventured into manufacture and export of diamond trade in the year 1969; that the family business was conducted through Rosy Blue (India) Private Limited, engaged in the manufacture and export of diamonds from India; that his assessment records would establish beyond dou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e department from making direct assessment of the appellant and hence even on this account the argument of the appellant fails. 19. In view of the above, the stand of the AO is upheld and the grounds of appeal of the appellant are dismissed. 7. Aggrieved, the assessee is in appeal before us. 8. The ld AR before us vehemently argued that the assessee during the reassessment proceedings had placed on record a written confirmation furnished by LGT Treuhand AG (now known as Fiduco Treuhand AG) confirming that the assessee had no role to play either in the creation or the management of Dryade Foundation and had also received no benefit from the same. He argued that though this confirmation was placed on record, the same was not dealt with by the lower authorities. The main crux of the various arguments made by the ld AR could be summarized as under:- a) The assessee had neither contributed any money to the said trust nor receivbed any distribution of income or capital from it. This has been stated before the ld AO vide letters dated 31.7.2009 and 18.12.2009. b) The aforesaid assertions have been backed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence Act, 1872, in a bid to draw a presumption that the income is that of the assessee. In this regard, the ld AR submitted that even if any such presumptions arise, they would clearly stand rebutted by the confirmation from Fiduco Treuhand AG, which states that the assessee had made no contribution nor received any distribution qua the Dryade Foundation account. The ld AR stated that infact it is the department which has failed to disprove the said confirmation and it has also not been considered by the lower authorities. i) During the course of hearing, ld Special Counsel for the revenue sought to translate and explain the various documents which are at pages 21,22 to 25 and 31 of the Paper Book by referring to the German translation. A preliminary point was made that the document at page 24 was not in German but in French. Therefore, reference to the German translation is wholly inappropriate. It is further submitted that, seeking to give an additional thrust to the Department s case, by referring to a translation at the first stage before this tribunal, had denied the assessee a full and effective opportunity of defense. It was submitted that if in fact, the Dep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the Court may resort for its aid to appropriate books or documents of reference. If the Court is called upon by any person to take judicial notice of any fact, it may refuse to do so, unless and until such person produces any such book or document as it may consider necessary to enable it to do so. On a conjoint reading of the above provisions, if any foreign law (other than mentioned under the above provision) is to be relied on or applied by an Indian Court / Tribunal, then expert opinion(s) on the same should be obtained and placed on record. If necessary, cross-examination of the experts may also require to be carried out. k) The revenue cannot make an altogether a new case before the tribunal for the first time which was not the subject matter of the consideration by the ld AO. Reliance in this regard was placed on the Special Bench decision of Mumbai Tribunal in the caes of Mahindra and Mahindra Ltd vs DCIT reported in 2009-TIOL-255-ITAT-MUM-SB. In the instant case, the ld Special Counsel for the revneue is making an altogether new case before this tribunal in relation to the following:- a) Unsupported translations of the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt that entity must strictly fall within the charging provisions of the law:- (i) AV. Fernandez vs State of Kerala reported in AIR 1957 SC 657 (ii) CWT, Gujarat vs Ellis Bridge Gymkhana reported in (1998) 1 SCC 384 Reliance was placed on the following decisions to drive home the point that onus of establishing the condition of taxability is on the department:- (i) K.P. Varghese vs ITO Ernakulam reported in 131 ITR 597 (SC) (ii) CIT vs Shivakami Co. Pvt Ltd reported in (1986) 2 SCC 418 p) It is clear that the default position is that the onus of proof to demonstrate taxability is on the department and cannot be reversed or shifted to the assessee. Infact, where the legislature intended to shift the burden of proof under the Income Tax Act to the assessee, specific provisions have been enacted for this purpose as under:- (i) Section 278D Presumption as to assets, books of account, etc in certain cases (ii) Section 278E Presumption as to culpable mental state (iii) Section 292C Presumption as to assets, books of account, etc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... son must be regarded as income liable to tax. In all cases in which a receipt is sought to be taxed as income, the burden lies upon the Department to prove that it is within the taxing provision. In the present case, neither the assessment order nor the ld CITA order make mention or invoke any provision of the Income Tax Act under which the amount is liable for taxagtion (i.e no mention is made of any of the typical provisions such as section 5, section 68, section 69A etc). t) With regard to judgements cited by the ld Special Counsel for the department in the case of Mohan Manoj Dhupelia vs DCIT in ITA No. 3544/Mum/2011 dated 31.10.2014 reported in 67 SOT 12 (Mumbai Trib) and Hasmukh Gandhi vs DCIT in ITA Nos. 2795 2796/Mum/2011 dated 15.11.2017, the relevant paragraphs of the decision in the case of Hasmukh Gandhi which followed Mohan Manoj Dhupelia are reproduced :- 18. In our considered opinion the above evidence is cogent and sufficeitn. Furthermore, we note that in terms of the extant secrecy provisions of Liechestein, no further information from the said bank can be obtained by the AO. The assessee is clearly trying to get benefit under thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... must necessarily occur: (i) The Department cannot urge this ground for the first time at the Tribunal stage, in a bid to sidestep the binding rulings of the Indian Supreme Court in the cases of (i) CWT, Rajkot vs Estate of HMM Vikramsinhji of Gondal reported in [(2015) 5 SCC 666] (ii) CIT vs Kamalini Khatau reported in [(1994) SCC (4) 308] (ii) The Department must lead evidence as to the applicable law in Liechtenstein; and (iii) The assessee must be given an opportunity to lead all evidence in its defense, in accordance with the principles of natural justice. v) Furthermore, without prejudice to the foregoing, even if the Liechtenstein law is to be considered, even the extracts of the law in Hasmukh Gandhi supra which were relied upon by the ld Special Counsel for the Department, show that the law supports the following: (i) A Foundation may be constituted for private use (Page 31 of paper book) (ii) It is the Founder who endows assets for a specific purpose and regulates the beneficial interest (Page 31 of paper book) (iii) The Founda ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a responsible officer of the court and an important adjunct of the administration of justice, the lawyer undoubtedly owes a duty to the court as well as to the opposite side. He has to be fair to ensure that justice is done. Necessity of extracting the quote from the above judgment is felt for the reason that in the course of hearing of the appeal, Hon'ble Bench was at pains and anxious, to know the status of assessment in the case of the brother of the appellant-assessee, Shri Arun Ramniklal Mehta and there was complete silence on the part of the appellant-assessee nor any instruction was given in this regard to the learned Counsel appearing in the case on the part of the appellant-assessee. It was rather on the part of the Revenue that efforts taken to find out the status of that assessment was stated and it was informed that after much efforts, the counsel for Revenue could find that Hon'ble Co-ordinate Bench for the assessment year 2005-06 quashed the re-assessment proceeding where re-assessment proceeding was initiated to include notional interest in the hands of the brother, Shri Arun Ramniklal Mehta. It was however assured to Hon'ble Bench on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ber G 20 4109. Extrait Journalier means Account statement. The credit entry of USD 43,86,034.37 with balance at the end of the day at USD 43,87,146.86 in the account is of 17.04.2002 with narration Bonification AA1452197 Rosy Blue FIN SA . The term Bonification , as defined in Black's Law Dictionary means the remission of tax, particularly on goods intended for export, being a special advantage extended by government in aid of trade and manufactures, and having the same effect as a bonus or drawback. It is a device resorted to for enabling a commodity affected by taxes to be exported and sold in the foreign market on the same terms as if it had not been taxed. Copy of the definition is already filed with Hon'ble Bench in the course of hearing of the appeal. At Page (23) the same account is debited with USD 43,87146/- as payment to AA 1454221 with closing balance at USD 0.86. These entries would show that opening balance as on 17.04.2002 was USD 1112.49 in this account with a fresh credit of USD 43, 86,034.37 on 17.04.2002. Page (24) is a review of the debit entries which were instant and with narration we debit to account and the name of the benefic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... beneficial owners came forward to explain the credit entries. In absence of any explanation, the learned Assessing Officer was justified in including 25% share of the amount of credit found in the bank account of the Foundation. 6. It must be appreciated that the Principality of Liechtenstein operates in complete secrecy and through management companies who maintains clients' accounts in complete secrecy. Part of these details from Pages (17) to (31) were communicated to, and received by the Government of India from the Government of Federal Republic of Germany. The other part of the details from pages (36) to (43) were filed by the appellant-assessee. It is also a fact that an integral part forming the Dryade Foundation and the Dianese Foundation have been withheld by the appellant-assessee. It is a fact that the documents submitted by the appellant-assessee are incomplete and thus can be said to have been withheld for reasons best known to the appellant-assessee. From the conduct of the appellant-assessee as can be witnessed from the following fact that the appellant-assessee has not come clean and deliberately withheld vital information: 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but no date is given. Whereas at Page (40) of the compilation the date of dissolution of Dianese Foundation is given as 21st August, 2003. If these two foundations are dissolved then what was done at the time of dissolution. 7. The Assessing Officer has made addition without the mention of section of the Act in the assessment order under which the addition is made. It was submitted in the course of hearing of the appeal that being unexplained money, addition is made under section 69A of the Act. It is a fact that no explanation has been offered of this deposit of USD 43, 86034.37 with ABN Amro Bank, Geneva by any of the beneficial owners nor by Manacor Management Services who were acting as manager/administrator for and on behalf of Dryade Foundation and not by any other person on behalf of the four beneficial owners. The deposit having remained unexplained, learned Assessing Officer has correctly made an addition of ₹ 5,35,23,181/- being l/4th Share of the appellant-assessee. The justification of this addition is found by admission on the part of the resident brother, Shri Arun Ramniklal Mehta of the appellant-assessee who has paid tax not only on the addit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ards that the Department should have met to sustain its case. ii. It is worth noting that at the stage of the hearing before this Hon'ble Tribunal, from the same internet sources as relied on by the SCR, the Appellant was able to establish that some of the translations as claimed were inaccurate and therefore -required to be fully authenticated and answered to. iii. In view of the above, for the reasons stated in the Appellant's submissions dated 26.07.2019 at Para 19, if the translations in question are to be relied on, it is necessary to comply with the principles of natural justice and requirements of due process that the Appellants be given an opportunity to respond to the authenticity of the translations and the consequential factual or legal issues which are sought to be articulated for the first time by the Department before this Hon'ble Tribunal. 3. In response to Para 3 of the WS of the SCR; reliance is placed on a judgment of the Hon'ble Supreme Court which deals with an issue which is clearly extraneous to the present proceedings as, at the top of page 2 of the WS of the Department it is clearly state ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disclosure is unfortunate, given the status of the facts available to the Department as to both the present appeal proceedings and the proceedings in relation to ARM. v. It also is required to be emphasized that the AO and CIT(A) in relation to both, the present Appellant and Mr. Arun Rammklal Mehta, are the same. vi. As the payments have been made under protest and without prejudice, in light of the Appeals which have been lodged by both assessees, there is clearly no question of treating such payment as an admission or acceptance of the addition. 4. In response to Para 3 (apparently erroneously numbered at Page 2), the Appellant seeks to rely on Para 19 of the Appellant's WS dated 26.07.2019 and Para 2 hereinabove of this Submission-!n-Rejoinder. While the Department may feel entitled to rely on the translations for the first time at the stage of appeal, the Appellant submits that if any such translations are now to be made part of the Department's case, it is essential that the Appellant is afforded full opportunity to deal with the authenticity of the translation, and the connotation sought to be dra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would arise only if (Refer 'CWT Rajkot vs Estate of HMM Vikramsinhji of Gondal. [20155 SCC 666], CIT v. Karnalini Khatau [(1994) SCC (4) 308] (i) the Resident was proven to have contributed to a deposit outside India from any source which has not been taxed in India, or (ii) the Assessee has received a distribution from a Trust or Foundation outside India which the Assessee has not offered to tax in India. The position in this regard is that, the Appellant has led clear evidence by way of the Fiduco Treuhand AG letter 05.11.2009 that: (i) He is not the Founder (not a Contributor) to the Dryade Foundation; (ii) He has received no distribution in the relevant period from the Dryade Foundation. In addition, the documents relied on by the SDR himself at Pages 22 and 24 establish that the contribution was made by Rosy Blue Fin SA and the remittance of the amount of $4,387,146 was made to Sundew Company Limited. In view of these unchallenged facts and documents, the inevitable conclusion would be that the Appellant is not liable to be charged to income tax in the facts and circ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s have been withheld by the Appellant. As pointed out hereinabove, to permit such assertions 10 years after the documents have been first produced and to permit such submissions at the stage of second appeal is wholly impermissible in law and has the potential to add immeasurably to the already long period of pendency of litigation in tax proceedings Any request to redefine the scope of proceedings at this stage would be improper and contrary to the legal diktat that remands, even if necessary, should not be made to reconstruct a case, but only to prevent a failure of justice. (Refer Enumalai vs. Kanthamani Ammal [(2017) 1 MLJ 379] The Department, seeking to rely on the German translation at this stage has created a situation that a fresh opportunity of response must be secured to the Appellant. It is however urged that the proceedings ought not to be entirely reinvented in the interests of certainty and expediency. The suggestion that the Appellant has not come clean and deliberately withheld information is entirely unsustainable as the Appellant has already led his evidence in the year 2009 and it is for the first time that that evidence is sought to be critiqu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is made to suggest that the addition is sustainable u/s 69A of the Act. The articulation for the first time, before the Tribunal, of the provision of law under which the Department is acting, is unsustainable and bad in law. 11. We have heard the rival submissions and perused the materials available on record. At the outset, we find that the ld Special Counsel for the Revenue had vehemently tried to explain the various contents of the paper book submitted by the assessee. We find that the ld Special Counsel for the Revenue submitted that the contents in pages 13 to 16 of the paper book were collected by the Government of India from the Government of Federal Republic of Germany. The content in page 17 of the paper book clearly states that the beneficial owner had deposited the monies into the foreign bank account wherein the assessee s name, along with other brothers, is also included as one of the beneficiaries in the said list. We find that the ld Special Counsel for the Revenue stated that the contents in pages 18 to 20 of the paper book contains the background information of Dryade Stiftung mentioning the purpose of starting the said foundation as Estate Plannin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted to be beneficiary, only in the event of any actual receipt of money from the said discretionary trust. We find that the ld Special Counsel for the Revenue on the contrary had argued that a Trust is different from Foundation and hence the argument of the ld AR that Dryade Stiftung is a Discretionary Trust cannot be appreciated. In this regard, we find that it is the ld AO in page 7 of his order had conceded this fact by stating as under :- It is a common knowledge that discretionary trust are created for benefit of particular persons and those persons need not necessarily controlling the affairs of the Trust. Still the fact remains that they are the sole beneficiaries of the Trust. Hence we are inclined to appreciate the argument of the ld AR that the ld Special Counsel for the Revenue cannot try to improve the case of the ld AO during the appellate proceedings before this tribunal. 11.1. Admittedly, the contents of various papers as detailed above in German language were produced by the ld AO to the assessee and hence it is the duty of the revenue to furnish the translated version of the said documents to the assessee for his ..... X X X X Extracts X X X X X X X X Extracts X X X X
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