2024 (6) TMI 734 - AT - Income Tax

Search assessment under section 153A upheld despite no incriminating material found during search operation

Rajinder Kumar Versus ACIT, Central Circle-30, New Delhi And (Vice-Versa)

ITAT Delhi upheld search assessment u/s 153A despite no incriminating material found during search, as assessee accepted HSBC London bank account ... Assessment u/s 153A - Addition of Notional Bank Interest - Alleged documents of bank account with HSBC London - Reliance on loose paper containing bank statement - As AR submitted that the alleged documents of bank account with HSBC London belongs to the assessee is not admissible as electronic evidence considering the fact that the revenue has not made efforts to corroborate the contents of the documents under section 65B of the Indian Evidence Act, 1872. Therefore, it cannot be admitted as electronic evidence. It is mandatory on the part of the revenue authorities to follow the conditions laid down u/s 65B(2) and (4) of the IE Act. HELD THAT:- After careful consideration of facts on record, we are of the view that the relevant documents were confronted before the assessee and the assessee after considering the various contents in the bank account received from the foreign bank, it does not matter how it was acquired, the assessee has accepted the same and proceeded to revise the return of income shows that the documents collected by the revenue from the foreign authorities are genuine and no need to follow the procedure laid down in the section 65B of IE Act considering the fact that the assessee has not retracted the acceptance on the contents of the statement of bank account produced before him neither before revenue authorities in the revision proceedings or appellate proceedings. Therefore, we do not see any reason to consider the above submissions of the Ld AR. Absence of any incriminating material found during the search operation - The search was initiated on the basis of information which was confirmed by the assessee in the search assessment proceedings, further, the assessee has not retracted means he has accepted, it goes to prove that the information with the revenue is substantially correct. Hence the material with the revenue has to be considered proper and the action of the AO to accept the revised return of income and proceeded to complete the assessment goes to prove that the material with the revenue can be assessable u/s 153A of the Act. Therefore, we have no choice but to reject the contentions of the assessee. Whether sum in question is not taxable in view of Article 23(3) of Indo-UK DTAA on the expression “may be” taxed employed therein? - As detailed submissions made by the Ld AR that in case of income declared under the head Income from other sources, the relevant article 23(3) of Indo-Uk is applicable and as per the concept of “may be taxed”, the various courts have held that it should be taxed only in the other country of source. We are not in dispute with the above submissions and he has relied on several case law. By acknowledging the various case law on this subject, the facts in this case is quite different to the facts of other cases relied by the assessee. Therefore, the facts in this case is that the assessee has disclosed the deposits in the HSBC London account as income from other sources, since the assessee was not in a position to disclose the sources of such cash deposits. It is the assessee who has disclosed the income voluntarily in its revised return of income and the same was accepted by the AO. It does not mean that the income actually falls in the category of income from other sources. Therefore, we are of the view that the assessee has not actually established or disclosed the sources of the deposits in the above said bank account. There is nothing coming out of the submissions made by the assessee. Merely because the income was declared by the assessee as income from other sources and the same was accepted by the AO, the article 23 will not be invoked automatically. The assessee first has to establish the source of income declared in the UK relevant to the bank deposits or establish that the bank deposits are not generated in India and earned outside India, further the income is falling under the category of other income without considering the fact that global income is chargeable to tax in the case of Indian resident. Therefore, the case of SBI, Patna branch,[2001 (7) TMI 997 - ITAT PATNA] is not applicable in the present case and distinguishable. As discussed above, the assessee itself declared the income under the head income from other sources without clearly disclosing the nature of income earned by the assessee in the source country in this case, UK. Merely because the AO accepted the same as such, it does not mean that the article 23(3) will automatically apply. Therefore, this contention of the assessee also dismissed. Impugned assessment was completed with extended period due to reference to FT & TR division of CBDT calling for certain information - AO made the reference to FT&TR division for collecting information from the UK counterpart for the simple the reason that the information relevant for the case under consideration is from UK and not from Swiss even though the original information from Swiss authorities however, in this case the relevant information required from UK. There is no bar on the part of the AO to seek information from FT&TR division. This contention also cannot be accepted at this stage. Assessee appeal dismissed. Additions proposed by the AO on the basis of accrued interest on the outstanding amount in the bank account maintained by the assessee in the HSBC bank, UK - We observed from the record that the AO proceeded to make the addition in AY 2006-07 and 2007-08 only on the basis of bank statement obtained from the data contained in pen drive forwarded by the French Authorities relating to the various account maintained in the HSBC. The information contained in the above sourced information which contained the details of account held by the assessee and his family members for the period Nov’2005 to Oct’2006. Further the relevant information contained in the above statement itself shows that the account was in closed status. Therefore, in our considered view, the AO cannot presume that the account was in existence beyond the period mentioned in the above statement. The information with the department was only the above said statement, beyond that they do not have any information nor they recovered any information during the search or subsequent proceedings. Therefore, the AO cannot apply the concept of presumption to tax the notional income. Hence, we are inclined to allow the grounds raised by the assessee in the AYs 2008-09 to 2012-13. Penalty u/s 271(1)(c) - We have to interpret the provision literally in order to invoke the provisions of penalty whereas in the quantum appeal, certain information can be interpreted in order to confirm the quantum owing to the situation. In the given case, the assessee had accepted the existence of bank account in order to buy peace and the situation was such that the search was initiated based on the information already existed with department. In the search they could not find any material to substantiate the same. Only because the assessee had accepted the bank account only in the search assessment proceedings. In our view the penalty can be imposed only on the basis of material found during the search in order to invoke the explanation 5A of section 271(1)(c) of the Act. Therefore, in our view the AO had accepted the revised return of income and had not found any misreporting or concealment of income or even inaccurate particulars of income. Therefore, we are inclined to dismiss the penalty levied by the AO in the present case for the AY 2006-07 and AY 2007-08. Further, Ld CIT(A) has increased the quantum of penalty from 100% to 200% of Tax sought to be evaded. Since we have already deleted the penalty levied by the AO, the enhancement of above said penalty by the Ld CIT(A) also deserves to be deleted. Accordingly, the grounds raised by the assessee in AYs 2006-07 to 2007-08 are allowed. Other penalties levied by the AO, in the quantum appeals - AO had applied the presumptions to make the addition of interest income with the belief that the assessee had maintained the funds in the HSBC Account in the subsequent years also. Since, we have deleted the above additions, imposing the penalty on the above interest income is not proper. Accordingly, we direct the AO to delete the penalty levied for the AY 2008-09 to AY 2012-13. Addition on the basis of loose sheets - Officers found a loose sheet having certain details of expenses, which may or may not have any relevance to the accounts. The loose sheet never have a evidentiary value unless it is brought on record that these were having direct link with the financials or to the activities of the assessee. In this case, it is only certain probable expenses were recorded by the accountant, which is only a projected expenses and the assessee has already recorded the actual expenses on cash basis in its books of account, therefore, this loose sheet cannot be the basis of any addition. Hence, we do not see any reason to interfere with the findings of the Ld CIT(A). Accordingly, the grounds raised by the revenue are dismissed. Issues Involved:1. Validity of assessment orders u/s 153A.2. Addition based on foreign bank account information.3. Applicability of Article 23(3) of the India-UK DTAA.4. Extension of assessment period u/s 153B.5. Penalty u/s 271(1)(c).Summary:1. Validity of Assessment Orders u/s 153A:The assessee challenged the assessment orders u/s 153A on the grounds that no incriminating material was found during the search. The Tribunal held that the information about the foreign bank account was already with the department before the search and was confirmed by the assessee during the post-search proceedings. Therefore, the material with the revenue was considered proper and assessable u/s 153A.2. Addition Based on Foreign Bank Account Information:The assessee argued that the documents related to the HSBC bank account were not admissible as electronic evidence under section 65B of the Indian Evidence Act. The Tribunal rejected this argument, stating that the assessee had accepted the existence of the bank account and revised the return of income accordingly. The Tribunal found the information collected by the revenue to be genuine and upheld the additions made by the AO.3. Applicability of Article 23(3) of the India-UK DTAA:The assessee contended that the income from the HSBC bank account should be taxed only in the UK under Article 23(3) of the India-UK DTAA. The Tribunal held that the assessee had not established the source of the deposits in the UK and that the income was declared under the head 'income from other sources' in India. Therefore, Article 23(3) was not applicable, and the income was taxable in India.4. Extension of Assessment Period u/s 153B:The assessee argued that the extension of the assessment period based on a reference to Swiss tax authorities was invalid. The Tribunal held that the AO made the reference to the FT&TR division for collecting information from the UK, and there was no bar on seeking such information. Therefore, the extension of the assessment period was valid.5. Penalty u/s 271(1)(c):The Tribunal analyzed whether the penalty could be imposed under Explanation 5A of section 271(1)(c). It was held that since no incriminating material was found during the search and the assessee had accepted the existence of the bank account in the post-search proceedings, Explanation 5A was not applicable. The Tribunal deleted the penalties for AY 2006-07 to AY 2012-13.Conclusion:The appeals filed by the assessee on quantum for AY 2006-07 and AY 2007-08 were dismissed, while those for AY 2008-09 to AY 2012-13 were allowed. The penalty appeals filed by the assessee for AY 2006-07 to AY 2012-13 were allowed, and the appeal preferred by the revenue for AY 2010-11 was dismissed.