2024 (11) TMI 570 - AT - Income Tax

ITAT deletes notional interest addition on alleged HSBC Geneva deposits without evidence of actual receipt

ACIT Central Circle-26, New Delhi Versus Krishan Kumar Modi

ITAT Delhi allowed the assessee's appeal and deleted the addition of undisclosed interest income on alleged HSBC Bank Geneva deposits. The tribunal held ... Undisclosed interest income on the undisclosed deposits in HSBC Bank Geneva - CIT(A) deleted addition - HELD THAT:- As decided in assessee own case [2019 (7) TMI 596 - ITAT DELHI] addition made in assessment year 2006-07 and also in assessment year 2007-08, therefore, on this ground itself the addition made by the assessing officer is liable to be deleted. Independent thereof, we note that in the instant case, the addition has been made purely on notional basis on the premise that the assessee: (a) had alleged foreign bank account, which itself is under serious challenge; and (b) on such bank account, assessee earned interest @ 4% - case of the assessee is on a much better footing vis-à-vis the facts in judicial precedents relied upon inasmuch as in the aforesaid cases there was at least some basis of taxation of notional amount/ interest, which was never realized/ received by the assessee, but in the case of the assessee, the so-called amount of interest brought to tax is totally without any basis and is clearly hypothetical/ imaginary. Since there is no evidence that the assessee actually received interest on the disputed deposit and just by figment of imagination it has been concluded that the assessee earned interest on such deposits @ 4% p.a., the impugned addition on account of notional interest, has, even on merits, been rightly deleted by the CIT(A). Assessee appeal allowed. Issues Involved:1. Whether the addition of Rs. 35,48,741/- made by the Assessing Officer (A.O.) on account of undisclosed interest income from alleged foreign deposits in HSBC Bank Geneva was justified.2. Whether the Commissioner of Income Tax (Appeals) [CIT(A)] was correct in deleting the addition made by the A.O. based on notional interest calculations.Issue-wise Detailed Analysis:1. Addition of Rs. 35,48,741/- on Account of Undisclosed Interest Income:The primary issue in this case revolves around the addition of Rs. 35,48,741/- made by the A.O. as undisclosed interest income from deposits in a foreign bank account with HSBC Bank Geneva. The A.O. calculated this interest on a notional basis at 4% on the alleged credit balance of Rs. 8,87,18,528/- existing as of the first day of the financial year, i.e., 01.04.2013. The A.O. presumed that the assessee would have earned interest on the credit balance in the foreign bank account, despite the absence of concrete evidence or documentation proving the existence of such an account or the actual receipt of interest. The A.O.'s approach was based on a presumption similar to the Indian banking system, where savings accounts typically earn interest at a certain rate.2. Deletion of Addition by CIT(A):The CIT(A) deleted the addition made by the A.O., noting several critical observations. Firstly, the A.O. did not provide any details or discuss the background of how the foreign bank account was assumed to belong to the appellant. Furthermore, the CIT(A) highlighted that the addition was made purely on a notional basis, without any evidence of interest being credited or received in the alleged foreign bank account. The CIT(A) pointed out that the A.O.'s presumption was based on the standards of the Indian banking system, which may not apply to foreign bank accounts, where interest rates can be significantly lower or even negative.The CIT(A) also referenced a similar case involving another individual, where the addition based on notional interest was deleted due to the lack of documentary evidence supporting the A.O.'s presumption. The CIT(A) emphasized that the rate of interest in developed countries' banking systems is generally lower than in India, and there was no certainty in the A.O.'s presumption. Consequently, the CIT(A) concluded that the addition made on a presumptive basis was not sustainable and directed its deletion.Tribunal's Decision:The Income Tax Appellate Tribunal (ITAT) reviewed the case and upheld the CIT(A)'s decision to delete the addition. The Tribunal noted that the issue had already been addressed in the assessee's own case for previous assessment years (2006-07 to 2012-13), where similar additions were deleted due to the absence of corroborative evidence. The Tribunal reiterated that the addition was made on a notional basis without any substantiating evidence of actual interest income. The Tribunal emphasized that tax liability arises from the accrual or receipt of income, and in the absence of evidence or documentation, notional interest income cannot be added based on mere presumption.In conclusion, the Tribunal dismissed the Revenue's appeal, finding no merit in the grounds raised, and affirmed the CIT(A)'s order to delete the addition of Rs. 35,48,741/- made by the A.O. on account of undisclosed interest income.