2024 (9) TMI 1052 - AT - Income Tax

Foreign bank accounts trigger valid reassessment under Section 147 despite borrowed satisfaction claims

The ITAT Ahmedabad dismissed the assessee's challenges to reassessment orders under Section 147 for undisclosed foreign bank accounts. The Tribunal held ... Reopening of assessment under section 147 on account of undisclosed foreign assets - search under section 132 and incriminating material - statement recorded under section 132(4) as evidentiary material - assessment under section 153A and scope of total income computation - Explanation 2(d) to section 147 - deemed escapement for assets located outside India - reading bank statements in totality - consideration of credit and debit entries - onus of proof on assessee to explain credits in undisclosed foreign accounts - set off and carry forward of losses - requirement of timely return filing - treatment of additions under sections 68/69A and applicability of section 115BBE (no deduction) Principle of natural justice - opportunity of being heard before assessment and appellate remand - Whether the assessee was denied sufficient opportunity of hearing in assessment and appeal - HELD THAT: - The Tribunal examined the timeline of notices, show-cause communications, provision of documents and the sequence of submissions before the Assessing Officer and the CIT(A). The AO furnished bank statements and other documents to the assessee on request and issued repeated notices and extensions; the assessee filed an affidavit disowning the foreign accounts and did not seek further time before passing of the assessment order. The CIT(A) admitted additional evidence, forwarded documents for remand and considered the rejoinder. On these facts the Tribunal found no breach of natural justice: sufficient opportunities were afforded at both assessment and appellate stages and the case law relied on by the assessee was inapplicable to the factual matrix. [Paras 21, 24, 25, 26] Assessee's claim of violation of principle of natural justice rejected; ground dismissed. Reopening of assessment under section 147 on account of undisclosed foreign assets - Explanation 2(d) to Section 147 - deeming escapement for foreign assets - retrospective application of amendment to limitation for reopening - Validity of reopening assessments (A.Ys. 2000-01 to 2009-10) by notice under section 148 - HELD THAT: - The AO recorded reasons based on information received from the FT&TR Division and contemporaneous material including the assessee's statement under section 132(4). Explanation 2(d) to section 147 (as amended w.e.f. 01.07.2012) treats income in relation to assets located outside India as deemed escapement; the Explanation expressly clarifies retrospective application to assessment years beginning on or before 1 April 2012. Applying that statutory Explanation and legislative memorandum, and following precedents on retrospective amendments, the Tribunal held that reopening up to 16 years was permissible in foreign asset cases. The recorded reasons were considered specific and not a mere borrowed satisfaction; quantification in the reasons and the applicability of clause (c) rendered further quantification unnecessary. [Paras 34, 36, 37, 50, 51] Reopening of assessments valid; objections to reopening dismissed. Search under section 132 and incriminating material - statement recorded under section 132(4) as evidentiary material - assessment under section 153A and scope of total income computation - Whether assessments for unabated/completed years could be completed in absence of incriminating material and whether statements under section 132(4) constitute incriminating material - HELD THAT: - The Tribunal applied the Supreme Court's decision in Abhisar Buildwell to hold that if incriminating material is found/unearthed, the AO can reassess the 'total income' for unabated/completed years under section 153A. The Tribunal analysed the material actually available: documents received from foreign authorities (CCPS, settlor forms), seized corroborative items (visiting cards, Barclays correspondence, pen-drive/mobile backups) and the assessee's admissions in statements under section 132(4). It held that such statements, when they confront the assessee with other incriminating materials and when corroborated by evidence found during search, constitute incriminating material. The AO therefore had jurisdiction to assess unabated years and to use the statements and other materials to compute total income. [Paras 57, 58, 61, 68, 74] Assessee's plea that unabated/completed assessments could not be completed absent incriminating material rejected; statements under section 132(4) and corroborative materials held to be incriminating for purposes of section 153A. Onus of proof on assessee for undisclosed foreign accounts - ownership of foreign bank accounts and credibility of affidavit - Whether the foreign bank accounts belonged to the assessee (settlor) or to his sister, and whether the affidavit claiming accounts belonged to sister sufficed to discharge onus - HELD THAT: - The Tribunal reviewed documentary evidence (company formation letters, CCPS, settlor profile forms), seizure material, bank statements, cheques drawn in the assessee's name deposited into the foreign accounts, visiting cards and the assessee's contemporaneous admissions. The assessee's shifting explanations and unverified self-serving affidavit were found insufficient. The documents received from foreign authorities identified the assessee and his wife as beneficial owners; cheques in the assessee's name deposited into the foreign account and other corroborative material established ownership. The Tribunal held that, being resident, the assessee bore the onus to explain the source of credits and failed to do so. [Paras 83, 84, 85, 88, 91] Foreign bank accounts held to belong to the assessee and his wife; affidavit unsupported by evidence rejected; additions in their hands sustained on ownership ground. Reading bank statements in totality - consideration of credit and debit entries - treatment of additions under sections 68/69A - Whether credit entries in foreign bank statements must be treated as income without considering debit/expense entries, and whether CIT(A) was right to consider debits for computing real income - HELD THAT: - The AO treated aggregate credits as unexplained income (section 68/69A). The CIT(A) considered both credit and debit entries and allowed deductions for expenses and contra entries, computing year wise net income. The Tribunal emphasised the principle that only real income is taxable and that bank ledgers (even if maintained by a bank) reflect the assessee's transactions. Many credit entries were dividends, interest and capital gains where expenses may be allowable. The Tribunal accepted the CIT(A)'s approach of reading the bank statements in totality and allowing deductions/contra entries where supported by the bank records. [Paras 92, 93, 95] CIT(A)'s approach of considering debit entries and reading bank statements in totality upheld; Revenue's challenge dismissed. Set off and carry forward of losses - requirement of timely return filing - computation of year-wise profit/loss from mutual fund transactions - Whether losses computed from foreign bank account transactions could be carried forward/set off and whether the year's MF profit/loss computation by CIT(A) was correct - HELD THAT: - The Tribunal noted statutory requirement (section 139(3)) that a return must be filed within due date to enable carry forward of business/capital losses. The assessee had not filed timely returns claiming those losses; hence carry forward was not permissible. Further, the Tribunal found the methodology adopted by the assessee/CIT(A) to compute mutual fund profits/losses (simple difference of purchases and sales) flawed because opening and closing stock of MF units were not considered, producing potentially inflated year wise losses/profits. Given inaccuracies, the Tribunal set aside quantification and directed a factual remand to the AO to compute year-wise profit/loss taking opening/closing stock into account and allowing the AO to obtain and confront necessary details. [Paras 98, 99, 100, 101, 102] Loss carry forward denied for lack of timely return; quantification of MF profit/loss set aside and remanded to AO for fresh computation year-wise after giving opportunity to assessee. Unexplained jewellery found during search - protective addition and declaration under Vivad se Vishwas - Whether protective addition in respect of jewellery in the hands of Smt. Manjulaben Patel should be sustained where substantive addition has been accepted/declared by another family member - HELD THAT: - Records showed that the substantive addition in respect of the jewellery had been finalized in the hands of Smt. Jigishaben Patel (including payment under Vivad Se Vishwas). The Tribunal verified the paperwork (Forms under VSVA and CIT(A) and AO orders) and accepted that substantive tax had been paid/declared in her hands. Given that, the protective addition of corresponding amount in the hands of Smt. Manjulaben Patel was no longer necessary. Conversely, in respect of jewellery found in a locker connected to the assessee, the assessee had given inconsistent explanations with no corroboration; that addition was sustained in the assessee's hands. [Paras 103, 104, 105, 106, 108] Protective addition in respect of jewellery deleted in the hands of Smt. Manjulaben Patel as substantive tax accepted in hands of Smt. Jigishaben Patel; addition of Rs.10 lakhs in the hands of the (late) assessee confirmed. Application of section 115BBE - no deduction/set off against income characterised as unexplained under sections 68/69A - Whether, once credit entries are treated as unexplained income under sections 68/69A (and covered by section 115BBE), expenditures/debits can be allowed as deductions - HELD THAT: - The Revenue argued that where additions are held to be unexplained money under sections 68/69A and taxed under the special provisions such as section 115BBE, no deduction or set off should be allowed. The Tribunal observed that many credit entries were shown in the statements as dividends, interest and capital gains for which expenses may legitimately be deductible; where the AO/CIT(A) had verified and allowed deductions based on bank records and the nature of entries, those adjustments were appropriate. The Tribunal therefore did not accept a blanket disallowance of all debits; treatment depends on the character of the entries and verification. [Paras 92, 93] Blank application of section 115BBE to deny all deductions rejected; debits/expenses may be considered where supported by bank records and nature of entries - CIT(A)'s allowances upheld where justified. Remand for quantification and verification - Whether quantification of mutual fund/share transactions should be remanded - HELD THAT: - Given defects in year-wise computations of profit/loss (absence of opening/closing stock adjustments and incomplete working), and the practical difficulties owing to the assessee's death and passage of time, the Tribunal directed remand to the AO. The AO is to compute year-wise profit/loss for mutual funds/shares after taking into account opening and closing stock, giving opportunity to the legal heirs, and, if necessary, apportion the net computed positive amount proportionately by year when primary data is unavailable. [Paras 100, 101, 102] Matter remanded to AO for fresh factual computation and verification of year-wise mutual fund/share profit or loss; appeals deemed partly allowed for statistical purposes pending quantification. Final Conclusion: The Tribunal dismissed the assessee's procedural objections and upheld reopening for the years 2000-01 to 2009-10; held that incriminating/materials (including statements under section 132(4) and seized corroborative documents) permitted assessment under section 153A; confirmed ownership of the foreign accounts by the assessees and sustained additions subject to adjustments. The CIT(A)'s approach of considering debit entries in bank statements was accepted; loss carry forward was disallowed for lack of timely return. Quantification of mutual fund/share profits/losses was set aside and remanded to the AO for fresh year wise computation; protective jewellery addition in Manjulaben's hands deleted as substantive tax was accepted by another family member, while the locker jewellery addition was sustained. Appeals and cross appeals were disposed as recorded in the order. Issues Involved:1. Principle of natural justice.2. Reopening under Section 147 of the Act for the A.Ys. 2000-01 to 2009-10.3. Completion of unabated assessment without incriminating material for A.Ys. 2010-11 to 2014-15.4. Merits of the addition.5. Unexplained jewellery found during search.Detailed Analysis:Principle of Natural Justice:The assessee argued that the AO had passed the order with a predetermined mind without allowing proper opportunity to be heard. It was contended that the details and statements related to offshore trust accounts were provided almost after 22 months of the search and no proper opportunities were allowed to represent the case. However, the tribunal found that the AO had provided numerous opportunities to the assessee to explain the transactions in foreign bank accounts, and the assessee had failed to provide necessary explanations. It was concluded that there was no violation of the principle of natural justice.Reopening under Section 147 of the Act:The cases for A.Ys. 2000-01 to 2009-10 were reopened under Section 147 based on details of foreign bank accounts received from FT&TR division of CBDT. The assessee contended that mere deposits in bank accounts cannot lead to the conclusion that income had escaped assessment, and the reopening was based on borrowed satisfaction without independent application of mind by the AO. The tribunal found that the AO had recorded detailed reasons for reopening based on specific information and documents, and the reopening was valid. The tribunal also upheld the retrospective application of the amended provision of Section 149(1)(c) of the Act for reopening cases up to 16 years in respect of foreign assets.Completion of Unabated Assessment Without Incriminating Material:The assessee argued that no incriminating material was found during the search, and the additions made in respect of credits reflected in foreign bank accounts for unabated assessment years were not justified. The tribunal found that certain evidences regarding foreign assets were found during the search, and the statements recorded during the search constituted incriminating material. The tribunal concluded that the AO had rightly assumed jurisdiction to assess or reassess the total income based on incriminating material and other available material.Merits of the Addition:The AO had made additions in respect of all credit entries reflected in the foreign bank accounts by treating them as income of the assessee. The CIT(A) considered all debit and credit entries to work out the income. The tribunal upheld the CIT(A)'s approach, stating that only real income has to be taxed, and the bank statements had to be read in totality. The tribunal also found that the assessee had not provided sufficient evidence to establish that the foreign bank accounts belonged to his sister. The tribunal set aside the matter to the AO to work out the correct profit or loss for different years on account of mutual fund transactions.Unexplained Jewellery Found During Search:The AO had made additions for unexplained jewellery found during the search. The tribunal found that the assessee had not given any convincing explanation for the jewellery found from the locker, and the addition of Rs. 10 Lakhs in respect of unexplained jewellery was upheld. However, the tribunal directed that the protective addition of Rs. 51,93,444/- in the hands of Smt. Manjulaben Patel should be deleted, as the entire substantive addition was accepted in the hands of Smt. Jigishaben Patel.Final Outcome:The appeals were disposed of with detailed directions for each issue, and the final outcome was summarized in a table format, indicating which appeals were dismissed, partly allowed, or allowed for statistical purposes.