2018 (11) TMI 949 - AT - Income Tax

Tribunal affirms non-residents not liable for foreign asset disclosure without Indian income proof

DCIT (IT) -3 (3) (2), Mumbai Versus Shri Hemant Mansukhlal Pandya

The Tribunal upheld the CIT(A)'s decision to delete the addition made by the AO, emphasizing that non-residents are not required to disclose foreign ... Addition towards amount found credited in HSBC Bank account, Geneva - income accrued in India - assessee has failed to explain and prove that deposit is not having any connection to income derived in India and not sourced from India - Held that:- It is a settled law that a judgement / order delivered by consent has no precedential value. Admittedly, in this case, the assessee is a non resident and he does not have any business connection / interest in India. No amounts have been transferred from his Dena Bank account in India to any of the bank accounts maintained including HSBC, Geneva. In fact, the balance in the account maintained in Dena Bank is so less that it cannot fund an amount of ₹ 4.28 crores which has been added by the AO as assessee’s income. - Despite this, the AO sought to put the onus of proving a negative that the deposits in foreign bank account are not sourced from India, on the assessee. - AO is not justified in placing the onus of proving a negative on the assessee We are of the considered view that the AO was erred in making addition towards deposits found in HSBC Bank account, Geneva u/s 69 of the Act. CIT(A), after considering relevant facts, has rightly deleted addition made by the AO. We do not find any error or infirmity in the order of Ld.CIT(A). Hence, we are inclined to uphold the findings of Ld.CIT(A) and dismiss the appeal filed by the revenue. Issues Involved:1. Validity of reopening of assessments under Section 147 of the Income-tax Act, 1961.2. Addition made by the Assessing Officer (AO) based on credits found in HSBC Bank, Geneva.3. Obligation of non-residents to disclose foreign bank accounts and assets to Indian Income-tax authorities.4. Burden of proof regarding the source of deposits in foreign bank accounts.Issue-wise Detailed Analysis:1. Validity of Reopening of Assessments:The assessee challenged the reopening of assessments on the grounds that the information received from the French Government (referred to as 'base note') was fabricated and unauthenticated. The assessee argued that the reopening was based on incorrect evidence and lacked a live nexus between recorded reasons and income escapement. The CIT(A) rejected this challenge, stating that the AO had recorded reasons based on information from the Investigation Wing, which prima facie indicated income escapement under Section 147 of the Income-tax Act, 1961.2. Addition Based on Credits in HSBC Bank, Geneva:The AO made additions based on the base note, alleging that the assessee had a peak balance in HSBC Bank, Geneva, which was not disclosed to Indian tax authorities. The AO presumed that the deposits were sourced from India, invoking Section 114 of the Indian Evidence Act, 1872. The assessee countered that he was a non-resident since 1990, holding a business visa in Japan, and had no obligation to disclose foreign assets to Indian authorities. The CIT(A) found that the AO failed to substantiate claims that the deposits belonged to the assessee or were sourced from India. The CIT(A) ruled that the AO should have conducted independent inquiries to establish a nexus between Indian income and the foreign deposits.3. Obligation of Non-residents to Disclose Foreign Bank Accounts:The assessee argued that non-residents are not required to disclose foreign bank accounts and assets to Indian tax authorities. This was supported by various government clarifications and the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, which applies only to residents. The CIT(A) noted that the AO accepted the assessee's non-resident status but still made additions based on the presumption that the deposits were sourced from India. The CIT(A) held that the AO's approach was incorrect and that non-residents are not obliged to disclose foreign assets unless there is evidence of income sourced from India.4. Burden of Proof Regarding Source of Deposits:The AO placed the burden on the assessee to prove that the deposits in HSBC Bank, Geneva, were not sourced from India. The CIT(A) and the Tribunal found this approach flawed, emphasizing that the onus is on the department to prove that the deposits fall within the taxing provisions. The Tribunal cited the Supreme Court's decision in Parimisetty Seetharaman vs CIT, which held that the burden lies on the department to prove that an asset is taxable. The Tribunal concluded that the AO failed to establish a nexus between the foreign deposits and Indian income, and the addition was made based on unverified and unauthenticated information.Conclusion:The Tribunal upheld the CIT(A)'s decision to delete the addition made by the AO, emphasizing that non-residents are not required to disclose foreign assets unless there is evidence of Indian-sourced income. The appeals filed by the revenue were dismissed, and the cross objections by the assessee were deemed academic and dismissed as infructuous. The judgment reinforced the principle that the burden of proof lies on the department to establish the taxability of foreign assets in the hands of non-residents.