Foreign remittance credit cannot be denied on mere suspicion without specific statutory basis or source-of-source proof.

Foreign remittances received through bank channels from Singapore could not be denied credit merely on suspicion or by demanding proof of the source of the source. The Tribunal held that unexplained-income deeming provisions cannot be invoked in an omnibus manner without identifying the specific statutory basis and showing how the remittances fall within it, and it noted that the India-Singapore tax treaty, read with section 90(2), favoured the assessee. Credit for the demand drafts was allowed. Claims for tax deducted at source and advance tax credit were not finally decided and were remitted to the assessing authority for verification and disposal in accordance with law.

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Issues: (i) Whether credit was to be granted for demand drafts remitted from Singapore and credited in the assessee's bank account. (ii) Whether the assessee's claims for tax deducted at source and advance tax credit were to be granted.

Issue (i): Whether credit was to be granted for demand drafts remitted from Singapore and credited in the assessee's bank account.

Analysis: The remittances through demand drafts were found to have originated from Singapore, and the revenue's refusal to grant credit rested on suspicion that the source of the drafts was not proved. The Tribunal held that the draft purchases were not to be treated as unexplained Indian assets merely because the Department demanded proof of the source of the source. It further noted that the deeming provisions relating to unexplained income could not be invoked in an omnibus manner without identifying the specific provision and demonstrating how the remittances fell within it. The Tribunal also held that, even otherwise, the India-Singapore double taxation avoidance arrangement and the more beneficial rule under section 90(2) supported the assessee.

Conclusion: Credit for the demand drafts of Rs. 1,22,15,500 was allowed, in favour of the assessee.

Issue (ii): Whether the assessee's claims for tax deducted at source and advance tax credit were to be granted.

Analysis: The Tribunal did not itself finally quantify or allow these claims, but directed the assessing authority to examine them and decide them in accordance with law after giving a reasonable opportunity of hearing.

Conclusion: The claims were remitted for verification and decision by the assessing authority.

Final Conclusion: The appeal succeeded on the principal dispute regarding credit for foreign demand drafts, while the remaining credit claims were left for examination by the assessing authority, resulting in a partial allowance of the appeal.

Ratio Decidendi: Foreign remittances proved to have been received through bank channels from abroad cannot be denied credit merely on suspicion or by demanding proof of the source of the source, and deeming provisions cannot be applied without a specific factual and statutory foundation.

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