2021 (7) TMI 325 - AT - Income Tax

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 ... Black Money Undisclosed Foreign Income And Assets And Imposition Of Tax Act, 2015 - Assessee as Sole beneficiary of the Foreign Account - non disclosing such foreign asset in his Income Tax Return - ultimate beneficial owner - CIT- A deleted the addition holding that the assessee is not the beneficial owner of the bank account and further the source of the fund in that bank account is emanating from Rajvin Limited trust in which the business receipts are credited belonging to the business dealings of son of the assessee - Under what circumstances the undisclosed asset located outside India can be taxed in the hands of the assessee ? - HELD THAT:- Testing the case before us on the parameters laid down by The Companies’ Act it is apparent that there is no any arrangement, contract et cetera between Watergate advisors private limited or Mr. Rajneesh Mehra with the assessee. There is no demonstration by the revenue that assessee exercises any control as a shareholder of Watergate advisors limited over that company. There is no evidence that assessee has received any interest. It is not also demonstrated that assessee exercises any control to appoint directors or control the management or policy decision of that company. This is also adequately narrated by the learned CIT – A. Thus, the test of beneficial ownership as per the criteria laid down Under The Companies’ Act 2013 does not satisfy that assessee is a beneficial owner of the bank account owned by Watergate advisors Limited. Another law, which deals with the beneficial ownership, is The Benami Property (Prohibition) Act 1988. Section 2(12) The Benami Property (Prohibition) Act, 1988 defines beneficial owner to mean a person, whether his identity is known or not, for whose benefit the benami property is held by a benamidar. Benami property has been defined to mean any property, which is the subject matter of a benami transaction and also includes the proceeds from such property. 'Beneficial owner' has been defined as 'an individual who ultimately owns or controls a client of a reporting entity or the person on whose behalf a transaction is being conducted and includes a person who exercises ultimate effective control over a juridical person'. Testing the above facts with respect to this law, here there is no evidence that the consideration has been provided by the assessee of the sum deposited in the bank account of Watergate advisors Limited. Contrary to that assessee has shown that above funds have been transferred from Rajvin Limited, which is owned and controlled by the son of the assessee. Similar to the provisions of the Companies act here also it is not demonstrated that assessee enjoys and exercises any control the Watergate advisors Limited or the owner of the Watergate advisors Limited. It is also required to be tested the test of beneficial ownership in the context of Prevention Of Money Laundering Act where reference is made to the ultimate ownership or control of the entity. Provisions of Rule 9(3) of The Prevention of Money Laundering (Maintenance of Records) Rules, 2005 provides that : In the case of a company, 'the beneficial owner is the natural person(s), who, whether acting alone or together, or through one or more juridical persons, has/have a controlling ownership interest or who exercise control through other means Testing the transactions before us it is apparent that assessee does not own any share capital in case of Watergate advisors Limited as well as it also does not controls the above company as he does not have any shareholding or management rights in that company. With respect to the mention of the name of the assessee in the account opening form as beneficial owner, assessee has relied upon the decision of the coordinate bench in case of Mr. Kamal Galani[2020 (10) TMI 1077 - ITAT MUMBAI] Merely mentioning the name of the assessee in the account opening form which is rebutted by the assessee by filing an affidavit and complete details of the ownership of the bank account, the assessee cannot be held the beneficial owner of such sum. Therefore, such solitary fact cannot lead to addition in the hence of the assessee where there is no other evidence available with respect to the ownership or beneficial ownership over such bank account. In view of this it is apparent that the mere account opening form where the assessee is mentioned as the beneficial owner of the account mentioning is details of his passport as an identification document, does not necessarily, in absence of any other corroborative evidence of the beneficial ownership of the assessee over that for an asset cannot lead to taxability in the hands of the assessee Under the Black Money Act. We hold that assessee does not have beneficial ownership of the amount deposited in Watergate advisors Limited, assessee also do not held that asset. The learned CIT – A has also held so giving the detailed reasons as reproduced above. The learned departmental representative could not show us any evidence that assessee is the owner or beneficial owner of the sum lying in the bank account of Watergate advisors Limited. The assessee has given an overwhelming evidence of the fact that money belong to the son of the assessee which were not at all controverted by the learned assessing officer. CIT – A was correct in deleting the addition of ₹ 56,647,000/– in the hands of the assessee. 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.