Beneficial ownership denied; Rs 56,647,000 Black Money Act addition deleted after companies, benami and PMLA tests showed no link

ITAT (Delhi) upheld the CIT(A)'s deletion of a Rs. 56,647,000 addition under the Black Money Act, finding the assessee was not the beneficial owner of a foreign bank account held by a foreign company. Applying tests under the Companies Act, Benami Act and PMLA rules, the tribunal found no shareholding, control, management rights, consideration or other evidence linking the assessee to the account; funds traced to a related family-owned entity. Mere mention of the assessee on account-opening documents, rebutted by affidavit and ownership records, was insufficient for taxability.

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Issues Involved:
1. Validity of the assessment order under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015.
2. Determination of beneficial ownership of the foreign bank account.
3. Inclusion of returned income under the Income Tax Act in the assessment under the Black Money Act.
4. Imposition of surcharge, cess, and interest under the Income Tax Act in the assessment under the Black Money Act.
5. Validity of the appeal filed by the Assessing Officer (AO) in the prescribed form.

Detailed Analysis:

1. Validity of the Assessment Order:
The assessee challenged the assessment order dated 29/03/2019 passed by the AO under Section 10(3) of the Black Money Act, claiming it was illegal, invalid, and void ab initio. The contention was that the AO included Rs. 6,57,30,070/- (returned income under the Income Tax Act) in the total undisclosed foreign income and asset, which should not form part of the total undisclosed foreign income under the Black Money Act. The AO's computation of the total undisclosed foreign income at Rs. 12,23,77,070/- and the subsequent demand of Rs. 2,66,61,977/- were argued to be erroneous and beyond the provisions of the Black Money Act. The Tribunal noted that the Black Money Act does not provide for charging interest, surcharge, or cess, and the AO's action was ultra vires the Act, making the assessment order void ab initio.

2. Determination of Beneficial Ownership:
The AO made an addition of Rs. 5,66,47,000/- based on the information that the assessee was the beneficial owner of a foreign bank account (No. 806694) with Clariden Leu Ltd, Singapore, held in the name of Watergate Advisors Ltd. The assessee contended that the account belonged to his son, Mr. Rajneesh Mehra, a non-resident Indian, and he was merely a nominal settler of the trust without any investment or benefit. The CIT (A) and Tribunal found that the beneficial ownership of the account rested with Mr. Rajneesh Mehra, the sole shareholder and director of Watergate Advisors Ltd. The Tribunal held that the mere mention of the assessee's name as the beneficial owner in the account opening form, without any evidence of his control or contribution to the funds, was insufficient to classify him as the beneficial owner under the Black Money Act.

3. Inclusion of Returned Income Under the Income Tax Act:
The AO included the returned income of Rs. 6,57,30,070/- under the Income Tax Act in the assessment under the Black Money Act, which was challenged by the assessee. The Tribunal noted that Section 4(3) of the Black Money Act provides that income included in the total undisclosed foreign income and assets under this Act shall not form part of the total income under the Income Tax Act. Therefore, the AO's action of including the returned income was incorrect and beyond the provisions of the Black Money Act.

4. Imposition of Surcharge, Cess, and Interest:
The AO imposed surcharge, cess, and interest under Section 234B of the Income Tax Act on the assessed income under the Black Money Act. The Tribunal observed that Section 3 of the Black Money Act provides for a tax rate of 30% on the total undisclosed foreign income and assets, without any provision for surcharge, cess, or interest. Hence, the AO's imposition of surcharge, cess, and interest was ultra vires the Act and invalid.

5. Validity of the Appeal Filed by the AO:
The assessee argued that the AO's appeal was invalid as it was filed in Form 36 under the Income Tax Rules, 1962, instead of Form 3 prescribed under Rule 7(1) of the Black Money Rules, 2015. The Tribunal noted that both forms require similar information and the substance of the appeal was not affected by the form used. Therefore, the appeal was considered valid despite the procedural defect.

Conclusion:
The Tribunal upheld the CIT (A)'s order, deleting the addition of Rs. 5,66,47,000/- made by the AO under the Black Money Act. The Tribunal found that the assessee was not the beneficial owner of the foreign bank account, and the funds belonged to his son, Mr. Rajneesh Mehra. The Tribunal also held that the AO's inclusion of returned income, imposition of surcharge, cess, and interest were beyond the provisions of the Black Money Act, rendering the assessment order invalid. The appeal filed by the AO was considered valid despite the procedural defect in the form used.

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