TaxTMI 
TaxTMI 
2012 (7) TMI 772
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....ng the additional evidence filed on 11-02-2011 under rule 46A of the Income-tax Rules, 1962 in spite of calling for remand report from the AO, without giving any valid reason. 6. That on the facts and in the circumstances of the case, the Ld. CIT(A) has grossly erred in upholding the action of the Assessing Officer taking the status of the assessee as "resident' as against status of 'non' resident' claimed in the return and accepted in the original assessment made u/s 143(3) for A.Y. 2001-02 and in appeal by the CIT(A) which became final as no appeal was preferred in ITAT by the Department. 6.1 That on the facts and in the circumstances of the case, the Ld. CIT(A) has grossly erred in holding that assessee's residential status is governed by clause (c) and not by clause (b) of section 6 of the Income-tax Act, 1961 by saying that assessee is actually involved in managing his business in India directly or indirectly through his son, Mr. Sanjeev Nanda. 6.2 The Ld. CIT(A) has further erred in saying that clause (b) cannot override clause (c) of section 6 of the Income-tax Act, 1961. 6.3 The ld. CIT(A) has erred in law in holding the assessee as a residen....
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....its in foreign bank account of the non-resident are not exigible to tax in India as already held by the CIT(A) in his order dated 19-11-2004 in assessee's own case." A.Y. 2002-03 7. That on the facts and in the circumstances of the cases, the Ld. CIT(A) has erred in upholding the action of the AO in adding a sum of Rs. 45,95,000/- towards unexplained expenditure incurred on the wedding ceremony of daughter Sonali Nanda. 11. That on the facts and in the circumstances of the cases, the Ld. CIT(A) has erred in upholding the action of the Assessing Officer in adding a sum of Rs. 18,76,165/- on the basis of certain documents purportedly recovered from the possession of Mr. Mohan Sambha Ji Jagtap. 11.1 That the above addition made by the AO and confirmed by the CIT(A) is illegal as the same was on a false presumption that assessee has a proprietary concern by the name M/s Globtech International Corporation and the amount was received by the said proprietary concern. 12. That on the facts and in the circumstances of the cases, the Ld. CIT(A) has erred in upholding the action of the AO in adding a sum of 1,20,000/- on the ground that during the search proceedings in the ....
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.... u/s 153A claiming the same status i.e. 'Non Resident' as claimed consistently. During the course of assessment proceedings AO found that some papers seized from Dr. D V Rao were confidential order sheet entries of the Ministry of Defence. Some of these papers are related to M/s Tadiran Communication Israel. M/s Transcom Services Ltd. was representing Tadiran in India for the servicing of communication equipment used by Indian armed force. 4.5 Among the papers received from the Delhi Police were page nos. 58 & 59 of Annexure A-10 which allegedly detail the working of commission on arms contracts and the corresponding payments. Other papers include a note on Page wirh page nos. 60 & 61 as its attachments. The contents of page no. 58 & 59 and other pages are reproduced in the assessment order. 4.6 AO was of the view that these documents were details of the commission payments related to contracts for Radio Sets of the Indian Defence establishment. According to Delhi Police. Dr. M.V. Rao did not furnish any explanation contending that he was not in a position to comment upon the documents due to his critical health condition. The contents and purported meaning of the pag....
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....ration as partnership concern dealing in consultancy and shipping activities of a technical nature. Another profile of Sh. Suresh Nanda was found and seized at page no. 22 Annexure A7, Party R-I, mentioning assessee as owner of Globtech International Corporation. AO rejecting assessee's explanations held that these papers represented that he had been receiving commission on supply of these goods to India, which was deposited in bank accounts situated in tax haven countries like Jersey Islands etc. as stated in the documents. 4.13 On the basis of these observations and material found during the course of search from the premises of the assessee, said M/s Dr. M.V. Rao & Mohan Jagtap, the Assessing Officer drew following inferences:- 3.1 Before year 2003 assessee had small set up in India in the form of small companies namely M/s. Crown Corporation Pvt. Ltd., M/s. Dynatron Services Pvt. Ltd., M/s C-l India Pvt. Ltd. and M/s. Transcom Services India Pvt. Ltd. etc. These companies were mostly engaged in services and spares of defence armaments. Mr. Nanda being a former Navy Man specializes in contracts for services and spares for equipment used by the Indian Navy. 3.2 In ye....
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....e has failed to disclose his exact and true relationship and interest in the foreign entities controlling the Indian companies on the pretext of assessee being a non resident and these companies being foreign entities. 4.17 Assessing Officer was of the view that the assessee had been working as middlemen for looking after various defense deals involving tedious procedure, documentation, persuasions and liaisoning in clandestine manner. These services were rendered in India by the assessee. The resultant commission income arising from these were received abroad. AO alleged that this income has been brought into India in form of F.D.I, and external commercial borrowings and by floating various entities abroad. Thus, all these incorporated foreign entities and their Indian investments were held to be assessee's front organizations. 4.18 It was held that Dr. M.V. Rao is a close associate of assessee, who operated from the office building of the companies of Nanda group at D-5. Defence Colony, New Delhi. Dr. M.V. Rao was a Director in C1 India Pvt. Ltd. and M/s Transcom Services Pvt. Ltd. Therefore, these companies were held to be benami entities including C 1 India Pvt. Ltd. ....
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....n the above facts, it is was observed that the assessee has been bringing in unaccounted money through Mauritius based entity Y2K Systems International Limited due to weak exchange control norms there. 4.24 The e-mail of Shri Vivek Agrawal established that assessee was controlling C-l India and was the ultimate source of investment in C-l India Pvt. Ltd. through YK2 Systems and controlled its affairs. Hence, the capital received by Cl India Pvt. Ltd. was treated as unexplained investment of the assessee and added to his taxable income. Thus Assessing Officer held that- (i) Assessee was engaged in the business of arms dealings along with Dr. M.V. Rao & Mohan Jagtap. (ii) Y2K was benami company of the assessee. (iii) Capital introduced by Y2K in C-l India was assessee's money. 4.25 Assessing Officer also proposed to assessee to show cause, as to why he should not be treated as 'Resident' assessee instead of 'Non-Resident' as held earlier and taxed accordingly in India. The passport entries about assessee's stay over a period in India were found to be as under- A.Y. No. of days in India as computed by the asses....
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.... two days or more or; (b) If- i. he has been in India within the four years preceding that year for a period or periods amounting in all to three hundred and sixty five days or more, and ii. is in India for a period or periods amounting in all to sixty days or more in that year. 4.30 It was observed by the Govt. that the application of clause (c) was harsh on the first category of individuals as an Indian citizen who has become a non-resident for the first time by departure for employment outside would have necessarily stayed for more than one hundred and eighty two days in India in the year previous to the year when he became a non-resident. Thus, in calculating the four years previous to the assessment year within the meaning of clause (c) in the case of an Indian citizen going abroad would include the year or years when he was a resident during which he might have stayed all three hundred and sixty five days in one year in India. In order to set off this disadvantage and mitigate the hardships the legislature has provided in clause (a) the Explanation to section 6(1) that where an Indian citizen goes for employment in any previous year....
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.... Indians would not lose their "non-resident" status if their stay in India, during their visits, is up to one hundred and eighty one days in a previous year." 4.33 The Assessing Officer was of the view that if Clause (b) of Explanation to Section 6(1) is interpreted in the above manner it will render clause (c) of section 6(1) nugatory in its application to citizens of India or persons of Indian origin. It was held that assessee's interpretation of Explanation (b) of Section 6(1)(c) would render Section 6(1)(c) itself redundant as far as its application to citizens of India/persons of Indian origin are concerned, which was not permissible in law. Reliance was placed on the judgment in the case of Hardev Motor Transport v. State of M.P., [2006] 8 see 613(626): "31. The role of an Explanation of a statute is well known. By inserting an Explanation in the Schedule of the Act, the main provisions of the Act cannot be defeated By reason of an Explanation, even otherwise, the scope and effect of a provision cannot be enlarged It was so held in S. Sundaram Pillai v. VR. Pattabiraman in the following terms: 4.34 The AO, however, held that assessee was to be treated as Resident....
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....nt is found during the search to suggest any increase in the number of days of stay in India. Only on the basis of second thought, about the interpretation of same law, AO has arbitrarily held the assessee to be Resident. Thus department has done a somersault on the issue of Non Resident status, which is settled and constantly followed over a number of years in the assessments of the assessee. When facts & circumstances and legal proceedings are same and no incriminating material is found, about days of stay, the rule of consistency as laid down by Hon'ble Supreme court in Radhasoamy Satsang and Delhi High court in Lovely Bal Shiksha Parishad and other cases has to be followed. Though the principle of resjudicata is technically not applicable to the income tax proceedings, the rule of consistency is fully applicable. 5.3 Ld counsel contends that a plain reading of section 6 of Income-tax Act, along with Explanation, makes it clear that- a. Clause (c) above and part (b) of the Explanation to the sub section, make it abundantly clear that for an individual covered by part (b) of the Explanation, the period of stay in India is to be counted at 182 days and not at....
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.... or subtracting anything to the main section; this has been observed by the Supreme Court in the case of Keshavji Ravji & Co. v. CIT [1990] 183 ITR 1 (SC). Explanation to be read so as to harmonize with and clear up any ambiguity in main section and should not be construed as to widen the ambit of the section. Rules of interpretation are applied only when words used in statute are ambivalent and don't manifest legislative intention. When language is clear, supposed intention of legislation cannot be applied to defeat the plain statutory language which otherwise is unambiguous. b. Sampath Iyengar in his commentary "Law of Income Tax", 10th edition at page 1127, has noted the decision of English court in the case of Mackenzie, Re (1941) Ch 69. and has observed "It is thus not necessary that the stay must have been in connection with the purpose of earning income which is sought to be taxed; the intention and the purpose of the stay is not relevant". c. Amendment has been brought into effect for benefit of the citizen of India who 'stay abroad but have investments in India. The basic purpose appears to be that citizen of India who are non-resident should not ....
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....5.9 Without prejudice to the aforesaid it is argued that 'being outside India' means that the assessee came from abroad to India. Admittedly, the assessee has been outside India for larger number of days as compared to his stay in India in each of the 6 years. Hence, from this angle alone, he could said to have visited India from abroad, purpose being immaterial as held by Abdul Razzaq's status of Non Resident has been properly given earlier. 5.10 Assessee is having a bank account in Singapore. Large deposits are appearing therein. Remittances being made to India from this account for expenses in India suggest that assessee's active income and business enterprise remained abroad. Thus assessee has passive income from India. 5.11 Ld counsel for the assessee vehemently relied on Rule of consistency. It is submitted that, the assessee has been a non-resident since more than 20 years in the status of Non Resident. It is based on the test of no of days of stay in India, which have not be doubted to be below 182 days in these years. There is no change in law, facts and circumstances. The issue of Non resident status has attained finality in earlier years in view of ....
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....r the provisions of FEMA. (g) The assessee has been a resident of UAE since 2000 having residential address in UAE which is 312, Wafi Residence, Wafi City, Dubai. This is also an unrebutted fact. He holds a UAE resident card, UAE driver's license and UAE health card. This fact has not been rebutted by the assessing officer and the evidence of the same is part of the seized record. Thus the seized record also supports the claim of the assessee. (h) AO at para 3 of his has mentioned that Mr Nanda has houses in London, Dubai and other parts of the world. Consequently on one hand he admits that the assessee has permanent residences abroad on other hand it is being held that he is resident in India because of visits and farm house repairs done by assessee. This is an apparent contradiction in AOs conclusion and militates against the proposition that assessee is to be treated as Resident in India. (i) It is accepted by AO that assessee is Director in various Companies abroad and income and has earned income abroad from Infotec Services Ltd, UBS FZC etc. which is a matter of seized record itself. (j) The assessee has no steady income in India and ha....
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....s owing 80% through companies i.e. Mideast Online and Infotech Services Ltd and he owns remaining 20%. Thus assessee has no stakes in Hotel Claridges. (c) Details about shareholding of C-l India's ownership have been fully explained which reveals that assessee hold no stakes. It belongs to Mauritius based Y2K Systems (P) Ltd. Assessee is only a minor share holder in Y2K Systems. By figment of imagination and pure surmises, AO held that these are assesses's benami concerns. (d) Datasheet of Infotech Services Ltd reveals that it is an independent company, not owned by the assessee. (e) Details about loan received by Y2K Systems from another foreign company one Palm Technologies in 2007 was explained to be source of share capital money and loan given to C-I India. Thus assessee furnished a proper explanation supported by documents in this behalf. 5.14 Thus, for investment in M/s C1 India P Ltd., Ld. AR contended that complete details of ownership of C-1 India were given during assessment proceedings. About assessee's interest in foreign concerns, following submissions are made: a. Some investment by way of advance was made in Y2....
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....aj) (2) CIT v. Smt. Tara Devi [2007] 292 ITR 539 (Raj) (3) Lalji Haridas v. ITO [1961] 43 ITR 0387 (SC) (4) ACIT v. Precision Metal Works and ors [1985] 156 ITR 0693 (Del) (5) Smt. Dayabai v. CIT [1985] 154 ITR 0248 (MP) (6) ITO v. Ch. Atchaiah [1996] 218 ITR 0239 (SC) (7) CIT v. Smt Durgawato Singh [1998] 234 ITR 0249 (All) (8) CIT v. Taj Oil Traders [2003] 262 ITR 0500 (Raj) (9) CIT v. Cochin Company Pvt. Ltd. [1976] 104 ITR 0655 (Ker) (10) Jaggannath Hanumanbux v. ITO [1957] 31 ITR 603 (Cal) 5.15 As regards addition on the basis of documents recovered by Delhi Police on 20.02.2007 from the possession of Dr. M.V. Rao, the Ld counsel for the assessee contends that: i. During the course of assessment proceedings, copies of document Nos. 58 and 59 seized from Mr. Rao were not given and were only shown. Despite this handicap, assessee, to best of his ability, on 21-12-2009 responded to them. No further questions were asked by the Department and huge addition was made. . ii. The AO has relied on various documents and other papers found from the premises of Dr. M.V. Rao, wi....
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....enami transactions Ld. Counsel vehemently argues that the entire burden to prove that assessee is a Benami beneficiary of these transaction lies on the department. The allegation is devoid of any cogent material and is based on suspicions, surmises and conjecture. 5.17 Various Courts have held that the burden of proving that a particular sale is Benami and apparent purchasers are not the real owners always rests on the person asserting it to be so. This burden is discharged by strictly adducing legal evidence of a definite character which would either directly prove the fact of the Benami or establish circumstances unerringly and unreasonably raising an inference of that fact. 5.18 Further reliance is placed on judgment of Hon'ble Allahabad High Court in the case of Prakash Narain 134 ITR 364 wherein the following four propositions have been propounded:- (a) The burden of proof regarding Benami is upon the person who alleges Benami. (b) To prove Benami the most important point is to examine the source of consideration. (c) The mere rejection of an explanation would not entitle the department to claim that the consideration for the purchase of pr....
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....maintenance to his wife in the year 1997-98 and therefore, why would he not pay more at least the same amount 5 years later. (b) The estimation of the payment that would have been made to his wife is to be based on the agreement dated 11.09.2004 wherein Mrs. Nanda was to be paid Rs. 1 lacs per month and Rs. 2 lacs for diwali. 5.23 The addition is contested as untenable and deserves to be deleted for the following reasons- (a) That during the course of search on 28.02.2007, no evidence, whatsoever, was found to even remotely suggest that any payment other than Rs. 7,60,000/- by cheque was made to Mrs. Renu Nanda by the assessee. (b) The assessee has paid Rs. 7,60,000/- by cheque for her day to day expenses which is more than enough considering that Mrs. Renu Nanda is alone in the house provided by the assessee and all the other fixed expenses are paid by the assessee. (c) No corroboration from the end of Mrs. Renu Nanda was made to arrive at the estimation. (d) The estimation is based on the agreement dated 11.09.2004 which is three years after F.Y. 2001-02. the agreement which is valid after 11.09.2004 cannot be applied to the period ....
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.... on just and proper reasons. Looking at the information, bank accounts, business affairs, number of visits to foreign countries and India it is apparent that the assessee was not visiting India but he was an Indian resident for all practical purposes and was visiting abroad in relation to his business affairs. The Explanation (b) to sec. 6(1) provides stay of less than 182 days in the case of PIO who live outside and visit India to look after their investments. In this case, assessee is living in India carrying out various business activities and visits outside India. Therefore, the benefit of Explanation (b) to sec. 6 (1) has been rightly denied. 6.1 Principles of res judicata are not applicable to Income Tax assessments. If the AO comes in possession of such information which suggests that the assessee has been claiming the status of Non Resident without disclosing the proper facts! AO is justified to change the status to Resident. The principle of consistency will not apply in a case where there is a change in facts due to unearthing of some new information during the course of search. Therefore, the assessee's plea to apply rule of consistency based on Hon'ble Suprem....
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....hnology during the year 31-3-2007. Therefore, there is no discovery of new facts for these years. As such, no adverse inference thereof can be taken in these years which are prior happenings in time. The lower authorities have tried to clutter the facts to create confusion and have relied on the facts which may have some effect in 2004. Thus, there being no change in facts and law, the rule of consistency has to apply. 7.1 AO applied section 6(1)(b) on the terms of provisions of which were omitted by Finance Act 1982 w.e.f. 1-4-1983 which provided that an individual would be resident in India if he maintained for himself a dwelling place in India. The provisions have undergone amendments and maintenance of dwelling place has been omitted. Since the Legislature has consciously omitted the provision about dwelling place in India, it is a clear indicator that dwelling place, no. of residence places in one or other country are no more relevant for deciding the issue of residential status. Govt. desired to keep the parameter of no. of days of stay simpliciter as the conclusive test. 7.2 It is trite law that the literal meaning to the words and terms used in Income-tax has to be ac....
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....t as being interpreted by the AO. Whether the days of stay in India is the only test for determining the status as Non Resident and the provisions and Board Circular are clear and this being so require no further interpretation. In our considered opinion the controversy in question stands answered by Hon'ble Kerala High court in the case of Abdul Razaq 337 ITR 350 (Ker.), in similar facts and circumstances by following observations: "There is no controversy on facts inasmuch as the assessee was in India for only 177 days in the previous year relevant for the assessment year 1989-90, and unless it is established that Explanation (a ) to sub-clause (c ) of section 6(1) of the Act is not available to the assessee, he cannot be treated as a resident in India for the purpose of assessing his global income including the business income earned abroad during the previous year. Obviously Explanation (a) is an exception to section 6(1)(c) of the Act, under which 60 days residence referred to in clause (c) is substituted to 182 days if the assessee went abroad in the previous year for the purpose of employment Admittedly, the assessee went abroad on 24-9-1988 only to take up business t....
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....ence in (c) above will stand modified to that extent in such cases." 7. What is clear from the above is that no technical meaning is intended for the word "employment" used in the Explanation. In our view, going abroad for the purpose of employment only means that the visit and stay abroad should not be for other purposes such as a tourist, or for medical treatment or for studies or the like. Going abroad for the purpose of employment therefore means going abroad to take up employment or any avocation as referred to in the Circular, which takes in self-employment like business or profession. So much so, in our view, taking up own business by the assessee abroad satisfies the condition of going abroad for the purpose of employment covered by Explanation (a) to section 6(1)(c) of the Act. Therefore, we hold that the Tribunal has rightly held that for the purpose of the Explanation, employment includes seh°-employment like business or profession taken up by the assessee abroad. We therefore dismiss the appeal filed by the revenue." 8.1 Hon'ble High Court has considered the plain meaning of section 6(1)(c), the Board Circulars and held that the purpose of going abroad ....
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....nd this amendment as the mischief sought to be redressed by this amendment to reduce the hardship and not to increase the hardship by unsettling what is settled. When the law mandates that an Indian Citizen can go abroad for the purpose of seeking employment or business, there is no room to misconstruction to assume that assessees larger presence/business investment/family ties are in India than abroad. This amounts to a guess work contrary to settled propositions. Therefore, we are unable to agree with department that assessee was not visiting India from outside India. There is no restriction for number of days spent abroad. What the law mandates is to look at the number of days stayed in India. 8.2 Similar view has been adopted by the Authority of Advance Rulings in the case of Dr. Virendra Kumar (supra) and Canoro Resources (supra). Departmental authorities, except for interpreting the words in their own manner, have not relied on any case law on the issue of section 6(1)(c) and expln. (b) specifically. Thus no judgment contrary to Hon'ble Kerala High Court has been cited by the Revenue. It is a trite law that in Income tax proceedings the words shall be given plain an....
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....tion if false or the receipts outside India were as a result of any income which accrued in India was on the Department. AO has failed to discharge the burden and no adverse material has been brought on record. Besides the ITAT in the case of the assessee has held that these are remittances from the assessee's own account outside India to Indian bank accounts cannot be taxed u/s 68 of the Act. The decision of the Tribunal has been accepted by the Department and no appeal has been preferred to the High Court. Hence, we delete this addition, this ground of the assessee is allowed and the addition of Rs. 10,51,20,000/- is deleted. 10. Apropos the addition on account of share capital and loans of M/s C-l India Pvt. Ltd. by its holding company M/s Y2K Systems; Id. Counsel for the assessee that C-1 India is a private limited company incorporated on 11-08.2000 with the main object of pursuing E-Commerce and software business. It was contended on behalf of C-1 India that no addition ought to be made as cash credits under section 68 of the Act on account of share capital and also the loans received from Y2K Systems Ltd as the onus that lay upon it had been discharged during the asses....
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....also seems to be ambivalent as to in which case the addition should be made. Considering all the facts, circumstances and the law on the issue, ends of justice will meet if the issue is set aside and sent back to the file of AO accordingly to decide afresh to consider, whether any addition on this account is called for in any case and if so in which case the addition is to be made. 11. Apropos common ground raised in A.Ys. 2002-03 & 2003-04 in respect of alleged income from arms deals made on account of searches in the case of M.V. Rao and Mohan Sambha Ji Jagtap, the relevant statements have neither been provided nor these persons have been allowed to be cross examined by assessee. In the presence of these infirmities in the proceedings, these additions cannot be made. The AO may be directed to do the needful in this behalf; consider the outcome of assessment proceedings in their cases provide the opportunity for the cross examination and decide the issue afresh in accordance with law. We are of the view that the addition based on documents found from third parties cannot be made without confronting the material and allowing the opportunity of cross examination to the assesse....