2025 (9) TMI 8 - AT - Income Tax

Additions over alleged HSBC Geneva account quashed; BUP ID was name identifier linked to assessed profile, reassessments barred by limitation

ITAT MUMBAI - AT held that the assessing officer's additions for an alleged undisclosed HSBC Geneva account were unsustainable: the BUP ID referenced in ... Reopening of assessment - Substantive and protective additions - initial deposit made by the assessee in the foreign bank account maintained in HSBC Bank, Geneva - maintenance cost incurred on such bank account - foreign bank account was not disclosed in his Return of Income - AO on the basis information received of Base Note alleged that assessee was having another bank a/c in the HSBC having BUP ID 5090260796 which has not been disclosed by the legal heirs HELD THAT:- In the Base Note alongwith name of the account holder under the head profile client the name of related parties with code BUP has also been provided. Accordingly, in the case of Canbar Holding Corporation its name (code BUP) is 5090260976. Similarly, in the base note in the case of FLAG Telecom Group its account (profile code) is 509142631 and there are a number of name (code BUP) start with 5091 of the various connected parties i.e. Venkat Ramesh Sandeep Tandon, Harsh Kumar, Satpal Malhotra etc. We do not find any merit in the action of the assessing officer in treating the name id of 5090260976 as account and adding the amount of initial deposit and maintenance charges merely on presumption basis purely on the pretext that assessee had not signed consent waiver without controverting the various submission and relevant supporting material as discussed filed by the assessee. It is also evident from the Base Note that account (profile code) start with 5091 that is 5091327690 and connected name start with 5090 that is 5090260976 in respect of Canbar Holding Corporation. In respect of 5091327690 the AO had already assessed peak balance of USD 55,46,646 mentioned in the base note vide order dated 13.01.2012 passed u/s 143(3) r.w.s. 147 of the Act for the A.Y. 2006-07. As in the case of the assessee it was explained after referring the relevant material that customer profile 5091327690 for account holder Canbar Holding Corporation mentioned in the Base Note showing maximum peak balance of USD 55,46,646 has already been taxed in the A.Y. 2006-07 vide order dated 13.01.2012 u/s 143(3) r.w.s. 147 of the Act and the BUP ID 5090260976 was the name id of Canbar Holding Corporation linked to a/c no. 5091327690 and not another bank account as discussed supra in the order. Reassessment proceedings beyond period of limitation - HELD THAT:- We have perused the decision of Brahm Dutt [2018 (12) TMI 832 - DELHI HIGH COURT] wherein it is held that amendment to section 149 by Finance Act, 2012 which extended limitation for reopening assessment to sixteen years could not be restored for reopening of concluded proceedings in respect of which limitation had already expired/lapsed before amendment became effective. In that decision the case of K.M. Sharma [2002 (4) TMI 7 - SUPREME COURT] was also referred wherein the Hon’ble Supreme Court held that the law of limitation was intended to give certainty and finality to legal proceedings and therefore, proceedings which had attained finality under the existing law due to bar of limitation could not be held to be open for revival unless the amended provision was clearly given retrospective operation so as to allow upsetting of proceedings which had already been completed and attained finality. Thus, we consider that reopening of assessment for A.Y. 2001-02 to A.Y. 2005-06 are not valid. ISSUES PRESENTED AND CONSIDERED 1. Whether the BUP ID appearing in the HSBC Geneva 'Base Note' constitutes a separate foreign bank account (account number) such that initial deposit, maintenance charges and income attributable to that BUP ID can be assessed in the hands of the taxpayer. 2. Whether additions under section 69A (and related assessments) based on presumed initial deposit and maintenance charges can be sustained where no documentary evidence of deposit/maintenance exists and the assessee has explained the Base Note entries. 3. Whether reassessment notices under section 148/147 for assessment years beginning on or before 01.04.2012 can be validly issued after amendment by Finance Act, 2012 (section 149 extended limitation), when the pre-amendment period of limitation had already expired - i.e., whether the amended section 149(1)(c) can revive proceedings that had attained finality prior to the amendment. 4. Whether reassessment is barred or void when the same asset/income (peak balance of a client profile) has already been offered and assessed in a later assessment year (i.e., risk of double addition / reopened matters already taxed). 5. Whether reopening based on information in a foreign 'Base Note' without independent application of mind, opportunity for cross-examination of the information source, or consent/waiver to obtain bank records renders reassessment invalid. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Character of BUP ID in Base Note: whether BUP ID is a separate bank account Legal framework: Assessment requires identification of assets/foreign accounts disclosed or undisclosed; additions for undisclosed monies may be made under provisions such as section 69A and under reopening provisions where income chargeable to tax has escaped assessment. Precedent Treatment: The Tribunal followed prior ITAT Mumbai treatment (DCIT v. Kumar Rasiklal Mehta) where the Base Note showed both a client profile code and BUP IDs and the tribunal treated the BUP ID not as a separate account where Base Note did not show account-type particulars for the BUP ID. A contrasting decision (Renu T. Tharani) where the assessee was clearly beneficial owner of funds based on Base Note facts was distinguished. Interpretation and reasoning: The Base Note distinguishes between 'Client Profile Concerned' (profile/client account) which carries account details (date of creation/closure, maximum assets observed etc.) and entries under 'Autres Personnes Liees Aux Profils Clients' (other persons linked to client profiles) where BUP IDs appear alongside names. The Tribunal examined the Base Note and found that account-specific fields (creation date, status, patrimony/peak balance) are shown only for the client profile code (starting with 5091) and not for the BUP ID entries (starting with 5090). The BUP ID therefore reads as an identification code linked to the client profile (business partner/customer identifier) rather than an independent bank account number. The AO's treatment that the BUP ID was a separate account was not supported by account-type details in the Base Note; the AO also failed to produce independent evidence of an initial USD 100,000 deposit or recurring maintenance charges attributable to the BUP ID. The tribunal held that the plain reading of the Base Note and context indicates BUP ID functions as a name/id linked to the client profile, not a separate account. Ratio vs. Obiter: Ratio - Where a foreign intelligence Base Note differentiates a client profile (with account particulars) from linked BUP IDs (name/id entries) the latter cannot be treated as separate bank accounts in absence of account particulars or independent evidence. Obiter - Reliance on other decisions for guidance (distinguishing Renu T. Tharani). Conclusion: BUP ID 5090260976 is a business/partner identification number linked to the client profile 5091327690 (Canbar Holding Corporation) and cannot be treated as a separate bank account for assessment purposes. Issue 2 - Legitimacy of additions under section 69A based on presumed initial deposit and maintenance charges Legal framework: Additions under section 69A require that unexplained monies or assets be treated as income where the assessee fails to satisfactorily account for them; however the AO must form satisfaction that the assessee's explanation is not true or sufficient and base additions on evidence, not conjecture. Precedent Treatment: ITAT in Kumar Rasiklal Mehta rejected additions where initial deposit was made on surmises and stood merged in balances shown. Tribunal distinguished Renu T. Tharani where Base Note directly evidenced large peak balances attributable to the assessee and no explanation was offered. Interpretation and reasoning: The AO relied on unspecified public-domain assertions that USD 100,000 was required to open an HSBC private bank account and USD 300 p.a. maintenance applied that sum to the BUP ID. The AO did not controvert the assessee's explanation that the BUP ID was not an account, nor produce documentary proof of any such initial deposit or maintenance charges for the BUP ID. The Base Note lacks entries of creation date, peak balance or status for the BUP ID; furthermore, where the AO had assessed the client profile's peak balance in AY 2006-07, treating an alleged initial deposit as a separate addition amounted to speculation/double counting. Section 69A additions cannot rest on conjecture; absence of consent waiver to obtain bank records does not relieve the AO of the obligation to produce evidence to displace the assessee's explanation. Ratio vs. Obiter: Ratio - Additions under section 69A cannot be sustained where they are premised on surmise, absent documentary evidence of the alleged deposit/charges and absent adequate foundation for treating an identification code as a separate account. Obiter - Practical note that AO may seek bank records subject to proper legal process, but refusal to provide consent does not automatically validate speculative additions. Conclusion: Substantive and protective additions based on presumed initial deposit and maintenance charges in respect of the BUP ID are unsupported and are deleted. Issue 3 - Validity of reopening assessments after amendment to section 149 (limitation) where pre-amendment limitation had expired Legal framework: Section 149 (as amended by Finance Act, 2012) extended the period for reopening assessments (up to 16 years) where income relates to assets located outside India; but statutory amendments impacting limitation are subject to principles of finality and retrospective operation only if clearly intended. Precedent Treatment: The Tribunal applied authoritative decisions holding that amendments to limitation provisions cannot revive proceedings that had attained finality before the amended law took effect (citing Delhi High Court decision and ITAT Mumbai precedents which followed the same principle and noted dismissal of departmental SLP). Interpretation and reasoning: The assessing officer relied on the amended section to reopen AYs that had attained finality under the pre-amendment limitation (i.e., limitation expired prior to 01.07.2012). The Tribunal followed settled jurisprudence that the amendment did not have the effect of reviving closed assessments whose limitation had already expired before the amendment's operative date; doing so would upset the legal certainty the law of limitation supplies unless Parliament manifested clear retrospective intent to that effect. The Tribunal therefore held reopenings for AY 2001-02 to AY 2005-06 invalid to the extent limitation had already expired pre-amendment. Ratio vs. Obiter: Ratio - Amendment to limitation cannot be used to reopen assessments that had attained finality under the pre-amended law; reopening in such circumstances is invalid. Obiter - None significant beyond applying established authority. Conclusion: Reopening of assessments for the years in question insofar as they were time-barred under the pre-amendment law is invalid; cross objections on limitation grounds are allowed in part and reopenings dismissed. Issue 4 - Double addition where the same client profile peak balance was already assessed in AY 2006-07 Legal framework: Principle against double taxation/re-assessment of the same income; finality of assessment once the same asset/income has been offered and accepted in a prior completed reassessment. Precedent Treatment: Tribunal treated as impermissible the AO's re-addition of peak balance already assessed for AY 2006-07 and recognized merger of speculative initial deposit into already assessed balances in earlier decisions (Kumar Rasiklal Mehta reference). Interpretation and reasoning: The client profile 5091327690's peak balance was declared and assessed in AY 2006-07 by the legal heirs. The AO's subsequent reopening and fresh addition of the same peak balance and estimated interest for earlier years amounted to double addition without justification. The AO failed to show new material that would disentitle the assessees from the benefit of the earlier assessment; thus the later additions were not sustainable. Ratio vs. Obiter: Ratio - Reassessment that results in duplicative taxation of amounts already offered and assessed is impermissible absent new and cogent material. Obiter - Estimation of interest without substantiation cannot underpin fresh additions. Conclusion: Additions based on the same peak balance previously taxed are unsustainable; duplicative additions are rejected. Issue 5 - Procedural fairness: reliance on foreign Base Note without independent application of mind, cross-examination or bank consent Legal framework: Reopening must be based on reason to believe and independent application of mind; procedural fairness requires AO to examine explanations and base additions on evidence rather than mere reliance on third-party information. Power to obtain foreign bank records subject to legal process; refusal to sign consent does not license speculative taxation. Precedent Treatment: Tribunal required the AO to displace the assessee's explanation with evidence; mere availability of a Base Note does not substitute for proof of deposit/account where Base Note entries do not support AO's view. Interpretation and reasoning: The AO relied on the Base Note but did not independently verify account particulars for the BUP ID nor rebut the assessee's submissions. The AO also failed to demonstrate that lack of consent prevented obtaining necessary records; more importantly, absence of consent does not validate speculative additions. The Tribunal found AO had not applied independent mind to controvert the assessee's explanations and therefore could not sustain additions. Ratio vs. Obiter: Ratio - Reopening and additions founded solely on untested third-party information without independent application of mind and without evidence are unsustainable. Obiter - Practical suggestion that AO should pursue appropriate legal avenues to obtain bank records where necessary. Conclusion: Reassessment based on the Base Note entries without adequate independent analysis or evidentiary support is invalid to the extent it produced speculative additions; procedural shortcomings contributed to deletion of the contested additions.