2018 (11) TMI 126 - AT - Income Tax

Tribunal directs deletion of tax additions for lack of ownership in HSBC accounts

Deepak B Shah And Kunal N Shah Versus ACIT 16 (2), Mumbai

Deepak B Shah And Kunal N Shah Versus ACIT 16 (2), Mumbai - TMI Issues Involved:1. Re-assessment proceedings under Section 147 of the Income Tax Act.2. Addition under Section 69A of the Income Tax Act for deposits in HSBC Bank, Geneva.Issue-wise Detailed Analysis:1. Re-assessment Proceedings under Section 147:The appellants initially challenged the re-assessment proceedings initiated under Section 147 of the Income Tax Act. However, during the hearing, the appellants did not press this ground. Consequently, this issue was dismissed as not pressed.2. Addition under Section 69A for Deposits in HSBC Bank, Geneva:The main contention revolved around the addition of Rs. 3,06,54,922/- for AY 2006-07 and Rs. 2,74,007/- for AY 2007-08 under Section 69A of the Income Tax Act. The facts of the case reveal that the Government of India received information from the French Government under the Double Taxation Avoidance Agreement (DTAA) about Indian nationals holding undisclosed foreign bank accounts in HSBC Bank, Geneva. This information led to the reopening of assessments for the appellants.During the survey conducted by the Investigation Wing of the Income Tax Department, the appellants denied any knowledge of the foreign bank accounts. The accounts were linked to an overseas discretionary trust named Balsun Trust, set up by an NRI, Shri Dipendu Bapalal Shah, who named the appellants as discretionary beneficiaries. Shri Dipendu Bapalal Shah provided an affidavit confirming that he had settled the trust with his initial contribution and that the beneficiaries had neither contributed to nor received any distribution from the trust.Despite the affidavits and clarificatory letters from HSBC Bank, Geneva, the Assessing Officer (AO) added the peak balances of the accounts in the hands of the appellants. The same additions were also made in the hands of Shri Dipendu Bapalal Shah. On appeal, the Commissioner of Income Tax (Appeals) [CIT(A)] reduced the additions to half of the peak balances to avoid double taxation.In the appellate proceedings, the Tribunal upheld the CIT(A)'s decision in the case of Shri Dipendu Bapalal Shah, noting that as an NRI, his foreign income could not be taxed in India unless it was shown to have arisen or accrued in India. The Tribunal found no evidence contradicting Shri Dipendu Bapalal Shah's affidavit.For the appellants, the Tribunal considered the submissions and affidavits asserting that they neither owned the accounts nor received any distributions from the trust. The Tribunal also noted that the AO failed to provide any cogent evidence linking the appellants to the ownership of the foreign bank accounts. The Tribunal emphasized that under Section 69A, the ownership of the money must be established, which was not done in this case.The Tribunal referred to several judicial precedents, including decisions of the Supreme Court, which clarified that discretionary beneficiaries of a trust are not liable to tax on the trust's income unless it is distributed to them. The Tribunal concluded that the additions under Section 69A were not sustainable as the appellants were not the owners of the money in the HSBC accounts.Conclusion:The Tribunal set aside the order of the CIT(A) and directed the AO to delete the additions made under Section 69A for the assessment years 2006-07 and 2007-08 in the case of the appellants. The appeals were allowed, and the Tribunal's decision emphasized the importance of establishing ownership and linkage to Indian income for taxability under the Income Tax Act.