2023 (5) TMI 944 - AT - Income Tax

Addition confined to year AO first noticed undisclosed foreign assets; s.3 bars other-year claims; s.6 non-resident assets not taxable

ITAT JAIPUR - AT upheld a substantive addition for the year the undisclosed foreign assets first came to AO's notice, dismissing protective additions and ... Addition on protective basis - credits in the bank accounts of the assessee and foreign company - assessment for the A.Y. 2019-20 stands completed u/s 10(3) of the Black Money Act on a substantive basis - whether the appeal of the revenue for the same assessee be challenged both count first when the addition is made substantively for one year and protective on the other years? - HELD THAT:- Once the substantive addition has been made in the year in which such assets come to the notice of the Assessing Officer that can be charged to tax in the year as per clear mandate of provision of law and since the matter is already under consideration for assessment year 2019-20. The separate addition made in the respective years on protective basis and the appeal filed by the department against the finding of the ld. CIT(A) for these years is not maintainable and has rightly held by the ld. CIT(A) that the protective addition for the year under consideration is not warranted as the same is entirely contrary to the provision of section 3 of the Black money Act. Charge of tax - Beneficial owner of bank accounts of foreign company - Credits in the bank accounts of the assessee and foreign company - Who is beneficial owner of the alleged undisclosed assets and the income therefrom, of an independent non resident foreign company? - HELD THAT:- Place of Effective Management of the said foreign company is situated outside India because of which, the company is a non-resident in India within the meaning of section 6 of the income tax act and none of the assets were liable to be taxed in India. Reference has been made to the CBDT circular dated 23.02.2017 bearing Circular No. 08/2017. Therefore, in no view of the manner taxability arise in the present case proving that the entire edifice of the case is wholly unjust and illegal. Therefore, we are of the view that the non-resident foreign company M/s. Agrasen Polymers FZE based at UAE is a separate legal entity and all the funds/investments etc. belong to the company and no tax liability can be fastened on the assessee. Additions of transactions in the hands of the appellant which solely belong to the non-resident foreign company cannot be added in the hands of the Appellant. Dividend pertained to the non-resident company, cannot be taxed in the hands of the assessee. Issues Involved:1. Protective vs. Substantive Addition2. Admission of Additional Evidence3. Separate Legal Entity of Foreign Company4. Beneficial Ownership5. Double Additions and Contra Entries6. Notional Gains and Leverage FacilitySummary:1. Protective vs. Substantive Addition:The appeals revolved around whether the revenue could make protective additions in the assessment years 2016-17, 2017-18, and 2018-19 when substantive additions were already made for the assessment year 2019-20. The tribunal agreed with the assessee's argument that once substantive additions are made, protective additions cannot be sustained. The tribunal held, 'once the substantive addition has been made in the year in which such assets come to the notice of the Assessing Officer that can be charged to tax in the year as per clear mandate of provision of law.'2. Admission of Additional Evidence:The revenue contested the admission of additional evidence by the CIT(A). The tribunal found that the CIT(A) had appropriately considered the evidence, which included reconciliation charts and bank statements already on record. The tribunal noted, 'the objections of the ld. AO to these evidences are thus general in nature and we do not find any error or mistake of the ld. CIT(A) in accepting and in fact considering the principles of natural justices.'3. Separate Legal Entity of Foreign Company:The tribunal held that the foreign company, M/s Agrasen Polymers FZE, is a separate legal entity and its assets cannot be taxed in the hands of the assessee. The tribunal stated, 'the non-resident foreign company M/s. Agrasen Polymers FZE based at UAE is a separate legal entity and all the funds/investments etc. belong to the company and no tax liability can be fastened on the assessee.'4. Beneficial Ownership:The tribunal found that the assessee was not the beneficial owner of the foreign company's assets. It relied on the definition of 'beneficial owner' under Explanation 4 to Section 139(1) of the IT Act, which requires the individual to have provided consideration for the asset. The tribunal concluded, 'the Appellant clearly does not fall in the ambit of the term '˜beneficial owner' as he is not the provider of the consideration of the asset.'5. Double Additions and Contra Entries:The tribunal upheld the CIT(A)'s deletion of double additions amounting to Rs. 103.64 crores, which included inter-bank transfers, matured investments, and FDRs. It also upheld the deletion of Rs. 32,49,375 as a contra entry. The tribunal noted, 'the amount of Rs. 103.64 Crores is purely a double addition made in the hands of the appellant due to inter-bank transfers, redemptions of FDRs and investments.'6. Notional Gains and Leverage Facility:The tribunal agreed with the CIT(A) that notional gains and leverage facilities provided by the bank could not be taxed. The tribunal stated, 'notional gain of USD 620834/- cannot be added in the hands of the appellant as this is not actual gain received by the appellant but it is the increased value of investments.'Conclusion:The tribunal dismissed the revenue's appeals and allowed the assessee's appeal, holding that the additions made by the AO were not sustainable under the provisions of the Black Money Act. The tribunal emphasized the importance of recognizing the separate legal entity of the foreign company and the need for substantive evidence to support any claims of beneficial ownership or undisclosed income.