2025 (8) TMI 49 - AT - Income Tax

ITAT Upholds Income Exclusion Method Under India-USA DTAA, Rejects Additions Under Sections 68 and 69

The Dy. C.I.T International Taxation Circle, Gurugram Versus Mr. Anil Kumar Goel

The ITAT Delhi upheld the CIT(A)'s decision allowing the assessee's claim under the India-USA DTAA, applying the income exclusion method instead of tax ... Income exclusion method of elimination of double taxation under India-USA DTAA instead of tax credit method as per the tax treaty - Additions made u/s 68 and 69 - CIT(A) accepting plea of the assessee/Additional evidences allowed claim HELD THAT:- The assessee lived in USA from 1997 and moved to India in August 2012. He was earlier employed with Amazon.com and all his emoluments were taxed as per US laws and the savings remain with his foreign bank accounts. From the order of the CIT(A), we find that the assessee was not maintaining books of account which he was also not required to maintain any books of account. There is no dispute that the assessee did not explain the large balance in the foreign bank account before the AO. It is equally true that the assessee furnished certain evidences during the appellate proceedings. CIT(A) has examined the additional evidences in the nature of foreign Bank statements and ITRs filed in USA and found that various credits in the bank accounts pertain to opening balances, sale proceeds of ESOP received in earlier years and rent received in USA. CIT(A) examined the tax returns filed in USA and concluded the rent received in the banks are taxed in USA. Similarly, the sales consideration on account of ESOPs were also taxed in appropriate years. CIT(A) as relying on Ivan Singh [2020 (2) TMI 850 - BOMBAY HIGH COURT], Baladin Ram [1968 (8) TMI 4 - SUPREME COURT] and Ms. Mayawati [2011 (8) TMI 12 - DELHI HIGH COURT] as held no additions can be made u/s 68 of the amount which was credited in the preceding previous years - Decided in favour of assessee. ISSUES: Whether the appellate authority erred in admitting additional evidence when conditions prescribed under Rule 46A were not satisfied.Whether the income exclusion method of elimination of double taxation under the India-USA DTAA was correctly applied instead of the tax credit method.Whether the appellate authority erred in adjudicating taxability of credits in account under other provisions of the Income-tax Act based on explanations furnished by the assessee.Whether the appellate authority erred in accepting the assessee's plea without obtaining running ledgers and examining taxability of each credit entry.Whether provisions of sections 68 and 69 of the Income-tax Act apply when no satisfactory explanation on sources of credits is furnished by the assessee. RULINGS / HOLDINGS: The appellate authority did not err in admitting additional evidence as it considered the submissions and remand report, despite the Assessing Officer's objection under Rule 46A.The income exclusion method under the India-USA DTAA was appropriately applied, considering the assessee's foreign income was taxed in the USA and relevant documentation was furnished.The appellate authority rightly adjudicated on the taxability of credits after considering explanations and evidence such as foreign bank statements and US tax returns.The appellate authority's acceptance of the plea without running ledgers was justified since the explanations and evidences sufficiently accounted for the credits.The provisions of sections 68 and 69 were wrongly invoked by the Assessing Officer; the appellate authority held that the addition under section 68 was not justified as the credits related to earlier years and were satisfactorily explained with documentary evidence including Form 16 and tax returns filed in the USA. RATIONALE: The court applied the procedural requirements under Rule 46A of the ITAT Rules regarding admission of additional evidence, balancing the Assessing Officer's objections with the appellant's submissions and remand report.The legal framework under the India-USA Double Tax Avoidance Agreement (DTAA) was interpreted to allow income exclusion where foreign income was taxed abroad, supported by relevant foreign tax documentation.Sections 68 and 69 of the Income-tax Act, 1961, dealing with unexplained credits and unexplained investments, were examined in light of the assessee's explanations and evidence showing prior taxation of the credits, relying on precedents that additions under section 68 cannot be made for amounts credited in preceding years.The appellate authority relied on established case law to affirm that once tax is paid on income in prior years, subsequent credits related thereto cannot be treated as unexplained credits under section 68.No dissent or doctrinal shift was noted; the court upheld the well-reasoned findings of the appellate authority dismissing the Revenue's appeal.