2025 (6) TMI 1447 - AT - Income Tax

Assessee failed to provide certified documents to establish Hong Kong salary income earned outside India, case remanded for fresh consideration

Saket Agarwal Versus Income Tax Officer, Ward 1 (3), Jaipur

ITAT Jaipur remanded the case to CIT(A) for fresh consideration regarding salary income taxation from Hong Kong entity. The assessee, proprietor of Indian ... Charging of salary income earned by the assessee from an entity registered outside India - Income deemed to accrue or arise in India - residential status - period of stay in India - AO noted that assessee was a proprietor of M/s Saket Gems and also acted as Director in a foreign based company named M/s Saket Gems (H.K.) Ltd. situated in Honkong, China - HELD THAT:- Since the assessee was also directed to place on record the copy of Balance sheet and P&L account of M/s. Saket Gems Hong Kong and M/s. Saket Gems India, Appointment letter from employer, Ownership details of M/s. Saket Gems Hong Kong, Ledger copy of M/s. Saket Gems India in the books of M/s. Saket Gems Hong Kong and ledger of Saket Gems Hong Kong in books of M/s. Saket Gems India, Ledger copy of Sh. Saket Agrawal in the books of M/s. Saket Gems Hong Kong, but the assessee has placed on record copies of documents and that too without any certification as to which of said documents were forming part of the records before the CIT(A) and which were before the ld. AO, it is not possible for us to decide the fact that he earned the income of Salary outside India. This fact needs to be considered by Ld. CIT(A) after providing opportunity to the assessee of being heard. Change of the residential status during the assessment proceeding, this aspect being the change in the factual aspect of the matter and the assessee having rectified the same on having realized the mistake even before the completion of the assessee, the lower authority should have considered said fact to be correct. As relying on Babubhai Ramanbhai Patel [2017 (7) TMI 744 - GUJARAT HIGH COURT] assessee must place on record documents, as desired by ld. CIT(A) before him to enable him to decide the issue. 1. ISSUES PRESENTED and CONSIDERED 1. Whether the delay of 18 days in filing the appeal is liable to be condoned under Section 5 of the Limitation Act, considering the reasons stated by the appellant. 2. Whether the salary income of Rs. 29,86,963/- received from a foreign company for services rendered outside India is taxable in India for the assessment year 2018-19. 3. Whether the appellant's residential status for the assessment year 2018-19 should be treated as Resident or Non-Resident under Section 6 of the Income Tax Act, 1961. 4. Whether the appellant can claim two different residential statuses for the same assessment year for different heads of income. 5. Whether the assessment order was passed in violation of principles of natural justice due to insufficient time granted to the appellant to respond to notices and show cause notices. 6. Whether the initiation of penalty proceedings under Section 270A of the Income Tax Act, 1961 is premature at this stage. 7. Whether the appellant's revised computation of income without filing a revised return is admissible for assessment purposes. 8. Whether the appellant's failure to provide required documents and details during appellate proceedings affects the determination of residential status and taxable income. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Condonation of Delay in Filing Appeal - Legal Framework and Precedents: Section 5 of the Limitation Act permits condonation of delay if sufficient cause is shown. The Supreme Court decision in Collector, Land Acquisition vs. Mst. Katiji (167 ITR 471) establishes that delay caused by sufficient cause such as ill health can be condoned. - Court's Reasoning: The appellant filed appeal 18 days late due to ill health, supported by affidavit and medical evidence. The Revenue did not oppose condonation. - Conclusion: Delay of 18 days is condoned in interest of justice. Issue 2 & 3: Taxability of Salary Income Received Outside India and Residential Status - Relevant Legal Framework: Section 5(1) of the Income Tax Act defines scope of total income for residents and non-residents. Section 6(1) determines residential status based on physical presence in India during the relevant previous year and preceding years. Explanation 1 to Section 6(1)(c) modifies the 60-day threshold to 182 days for Indian citizens leaving India for employment outside India. Judicial precedents establish that an individual who leaves India for employment outside India and stays less than 182 days in India during the relevant year is non-resident, irrespective of presence in preceding years. - Court's Interpretation and Reasoning: The appellant declared himself as Resident in the original ITR but subsequently claimed Non-Resident status during assessment proceedings. The appellant stayed outside India for 188 days during FY 2017-18, which is more than 182 days. However, the appellant was present in India for 177 days during FY 2017-18, less than 182 days, and claimed employment outside India. The AO and CIT(A) held the appellant as Resident based on the original return and the absence of a revised return claiming Non-Resident status. The appellant did not file a revised return but only a revised computation, which the AO rejected relying on Supreme Court precedent that revised claims without filing revised return are not admissible. The appellant failed to produce required documents such as passport copies reflecting stay outside India, appointment letter, foreign company accounts, and ledger details despite repeated requests and adjournments. The appellant's claim of Non-Resident status is supported by various judicial pronouncements and AAR rulings which hold that salary income earned outside India by a Non-Resident for services rendered outside India is not taxable in India. The appellant contended that the salary was received from a foreign company for services rendered outside India, and thus not taxable in India. However, the AO and CIT(A) rejected this contention due to the appellant's failure to substantiate claims adequately and the initial declaration of Resident status. The Tribunal noted that the appellant's documents were submitted at the appellate stage without certification or clarity whether they were before the AO or CIT(A), making it difficult to verify the claim. The Tribunal observed that the change in residential status during assessment proceedings is a factual matter and that the appellant should be given an opportunity to place relevant documents before the CIT(A) for proper adjudication. - Treatment of Competing Arguments: The appellant relied on statutory provisions, judicial precedents, and AAR rulings supporting Non-Resident status and non-taxability of foreign salary income. The Revenue relied on the appellant's initial declaration as Resident, absence of revised return, failure to provide documents, and judicial precedent denying acceptance of revised claims without revised return. - Conclusion: The Tribunal held that the issue of residential status and taxability of foreign salary income requires further consideration by the CIT(A) after providing the appellant an opportunity to produce relevant documents. The matter is restored to the CIT(A) for fresh adjudication on merits based on material to be placed on record by the appellant. Issue 4: Dual Residential Status for Same Assessment Year - Legal Framework: Section 6 of the Income Tax Act does not permit an individual to have two different residential statuses for the same assessment year for different heads of income. - Court's Reasoning: The AO and CIT(A) noted that the appellant cannot simultaneously claim Resident status for business income and Non-Resident status for salary income in the same assessment year. - Conclusion: The appellant's claim of dual residential status is rejected. Issue 5: Adequacy of Opportunity and Time to Respond to Notices - Legal Framework and Precedents: Principles of natural justice require adequate opportunity to respond to notices and show cause notices. Various High Court decisions have held that less than seven days' time to respond to notices under Section 142(1) or 148 of the Income Tax Act violates natural justice and renders assessment orders invalid. - Court's Reasoning: The appellant contended that notices were issued with less than seven days' time to respond. The appellant relied on multiple High Court decisions holding such practice unlawful. - Evidence and Findings: The assessment order records notices with short response times, some as low as one or two days excluding the date of notice and hearing. - Treatment of Competing Arguments: The Revenue did not specifically contest the contention but relied on the final assessment order. - Conclusion: While the appellant raised this as a ground, the Tribunal did not decide this issue on merits as the appeal was restored on other grounds. The issue remains open for consideration by the CIT(A). Issue 6: Initiation of Penalty Proceedings under Section 270A - Legal Framework: Penalty proceedings under Section 270A can be initiated only after assessment is completed and on determination of under-reporting or misreporting of income. - Court's Reasoning: The appellant contended that penalty proceedings were premature as the assessment order itself was under challenge. - Conclusion: The Tribunal held the ground premature and dismissed it without adjudication. Issue 7: Admissibility of Revised Computation of Income without Revised Return - Legal Framework: Section 139(5) allows filing of revised return within prescribed time limits. Revised computation without filing revised return is not acceptable for assessment purposes as per Supreme Court precedent. - Court's Reasoning: The appellant filed revised computation but did not file revised return for AY 2018-19. - Conclusion: The AO and CIT(A) rightly rejected the revised computation claim. The Tribunal upheld this view. Issue 8: Failure to Provide Required Documents During Appellate Proceedings - Court's Reasoning: The appellant was repeatedly asked to provide documents such as passport copies, foreign company financials, appointment letters, and ledger copies. The appellant sought adjournments citing difficulty in obtaining documents from Hong Kong. - Findings: The appellant did not furnish the documents before CIT(A) despite multiple opportunities. The documents submitted before the Tribunal were uncertified and unclear whether they were before lower authorities. - Conclusion: The appellant's failure to provide documents hindered proper verification of claims. The Tribunal restored the matter to CIT(A) to decide after the appellant places relevant documents on record. 3. FINAL DISPOSITION The Tribunal condoned the delay in filing the appeal. It restored the appeal to the CIT(A) for fresh adjudication on the issues relating to residential status and taxability of salary income earned outside India, after providing the appellant opportunity to produce relevant documents. Other grounds such as penalty proceedings were dismissed as premature or not adjudicated. The appellant's claim of dual residential status was rejected. The Tribunal did not decide the issue of adequacy of time to respond to notices but noted the appellant's contentions and relevant precedents. The appeal was allowed for statistical purposes and remanded for fresh consideration consistent with the observations made.