TaxTMI 
TaxTMI 
2015 (3) TMI 755
X X X X Extracts X X X X
X X X X Extracts X X X X
....urn of income mainly disclosing salary income in the capacity as Chairman of M/s.Lanco Infratech Limited, Hyderabad and claiming the status as non-resident. Total income declared by assessee was to the tune of Rs. 3,84,87,850/-. Assessing Officer noticed from the capital account that assessee has shown an amount of Rs. 78,04,58,374/- as credit to the capital account under the head 'NRI A/c'. He has made enquiries as there is increase in the liabilities side to the same extent. Assessing Officer noted that assessee applied the funds as under: i. Investment of shares of M/s. Lanco Infratech Limited, M/s. Lanco Group Services Limited to the tune of Rs. 44 Crores (approximately); ii. Gifts to relatives to the tune of Rs. 21 Crores (approximately); iii. Cash in Bank is about Rs. 9 Crores (approximately); and iv. Personal expenses to the tune of Rs. 4 Crores (approximately) 4. Assessing Officer asked for the source of the above credit. Assessee explained and also accepted by the Assessing Officer that assessee has received US $1,74,00,000 valued at Rs. 78,04,58,374/- as a credit into his NRI A/c. Assessee provided bank transcripts from Indus....
X X X X Extracts X X X X
X X X X Extracts X X X X
....can be seen from the Statement of Affairs, has failed to furnish sufficient evidence with regard to nature and source of Rs. 78,04,58,374/- credited in the NRI Ledger. The assessee has merely relied on a copy of a certificate of loan from a company in Mauritius in which assessee has 100% ownership and claimed that to be sufficient explanation for the purpose of Sec.68 / 69 / 69A /and Sec.5(2)(b) of the I.T.Act, 1961. In such circumstances, a fair analysis of factual evidences and legal position was done by the undersigned and accordingly, I am of the considered view that Rs. 78,04,58,374/- credited in the NRI Ledger Account of the assessee shall be treated as the income of the assessee for AY.2011-12 as per Sec.68 / 69 / 69A / 69C of the I.T.Act, 1961." 5. Before the Ld.CIT(A), assessee had filed detailed submissions and contended point-wise observations of Assessing Officer which was extracted by the CIT(A) in the order. Ld.CIT(A) also directed assessee to furnish further evidence with reference to the creditworthiness of the said company and on examination, came to the conclusion that action of Assessing Officer in treating the amount as income of assessee is not correct, not ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ing of the creditor company viz, M/s Vitrual International Limited in M/s Lanco Infratech Lir1ited (LITL). 6.2 On examination of the above documents, I find that the identity of the creditor company, viz., Vitrual International Limited, Mauritius is proved. 6.3 It is clear from the above documents that the loan given to the appellant for USD 1,74,00,000 (Rs.78,04,58,374) is shown under the head "Non Current Assets" in the statement of Financial position of M/s.Vitrual International Limited, Mauritius as at 31.3.2011 where in the capital and Reserve amount to USD 2,37,33,247 and the current liabilities amount to USD 59,50,478. Hence, creditworthiness of the creditor-company is also proved in the appellant's case. 6.4 After the examination of the above mentioned documents, I am of the considered view that the whole transaction is a genuine transaction. Since these documents were not furnished before the AO, he had no alternative except to deny the assessee's claim in this regard. However, I also agree that the appellant has satisfactorily explained as to how the amount of Rs. 78,04,58,374/- has reached his hands. Since the appellant has proved the I....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed evidence. Since the appellant has satisfactorily explained the source for the amount of Rs. 78,04,58,374/-, no separate explanation for the investment in shares, monies in the bank account and expenses incurred is needed. 8. Further, I find that the credit appearing in the capital account of the appellant is the amount of Rs. 78,04,58,374/- received into the NRI A/c held in Axis Bank and Indusind bank from the Barclays bank account No.7404418 held by him at Maurit us. The fact of receipt of the above said amount is supported by the .nward remittances certificates, bank statements and the certificate from the accountant from Mauritius [Quiyoom Dustogheer, FCCA, MIPA(M)]. I, therefore, agree with the explanation of the assessee that the amount of Rs. 78,04,58,374/- is received by the assessee from his own bank account maintained outside India. 9. Since the appellant is a non-resident, Section 5(2) of the I.T.Act and Board Circular No.5 dated 20-2-1969 deal with the issue on hand. The provisions of sub section(2) of section 5 of the Act are extracted as under: "Sec.5(2): Subject to the provisions of this Act the total income of any previous year of a pers....
X X X X Extracts X X X X
X X X X Extracts X X X X
....dia through banking channels or in the form of assets like plant and machinery or stock-in-trade, for which the necessary import permits had been obtained, no questions at all are asked by the Income-tax Officers as to the origin of the money or assets brought in. It is only in case where the money is claimed to have been brought from outside otherwise than through banking channels and there is no evidence regarding the transfer of the money, that the department has to make enquiries about the source thereof. Even in these cases, having regard to the difficulties experienced persons migrating from Pakistan, Burma and East African countries, instructions have been issued to the lncome-tax Officers that such claims should be freely admitted up to the limit of Rs. 50,000 in each case provided the following conditions are satisfied: 1. The assessee migrated to India on or alter the dates mentioned below from the countries shown against each and had no source of income in India: a. 30-7- Mozambique [vide Ministry of Finance Press Note. dated 1962 22-05-1967 (Circular No. 8, dated 22-5-1967 printed as Annex I) b. 1-1- Zanzibar Kenya, Tanzania and Uganda [vide M....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ries as also copies of the assessment orders passed in their cases by the income-tax authorities of those countries. The migrants would also then be required to prove that the amounts brought Into India can directly be linked with the funds which they had possessed in those countries.". 9.1 A combined reading of Section 5(2) of the Act and Board Circular No.5 dated 20-2-1969 makes it clear that in a case of non-resident, remittances from aboard into India throuqh normal banking channels are not liable to Indian Income Tax, unless it is proved that they have accrued or arisen or received in India In the present case, it is found that the amount of Rs. 78,04,58,324/- has been remitted into India from aboard through normal banking channels from the appellant's own bank account at Mauritius. 10. Further, I agree with the submissions of the appellant that the amount of Rs. 78,04,58,324/- havl iq been received in India by the appellant from Mauritius through normal banking channels is not to be included in the total income of the assessee as per the provisions of Section 5(2) of the LT. Act, 1961. Board Circular No.5 dated 20/2/1969 also supports the view that the s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ets relief of Rs. 78,04,58,374/- for the year under." 6. Aggrieved, Revenue has raised the following grounds: (i) The order of the Ld. CIT(A) is erroneous on facts and in law (ii) The Ld. CIT(A) erred in deleting the addition of Rs. 78,04,58,374/- made in the assessment order u/s.68 of the I.T. Act as well as u/s.69, 69A and 69C of the I.T. Act. (iii) The Ld. CIT(A) erred in admittinq additional evidences furnished by the assessee during the appellate proceedings though the conditions prescribed for such admission in Rule 46A(1) are not satisfied and without recording his reasons for admission as required under Rule 46A(2) of the I.T. Rules. (iv) The Ld. CIT(A) erred in considering the additional evidences furnished by the assessee durinq the appellate proceedings without affording an opportunity to the Assessing Officer to examine such evidences and furnish his rebuttal as mandated under Rule 46A(3) of the I.T. Rules. (v) The Ld. CIT(A) erred in accepting the veracity of the copy of certificate of incorporation of M/s.Vitrual International Ltd., Mauritius and the copies of the audited financial statements of the said company furnishe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....med one of the sources for the loan advanced to the assessee and that the genuineness of the same requires verification as the creditor company is a single shareholder company with assessee as the sole shareholder. (xi) The Ld. CIT(A) erred in holding that the amount of Rs. 78,04,58,374/- remitted by the assessee to India from his bank account in Mauritius stated to have been sourced OL t of loan borrowed from M/s. Vitrual International Ltd. is correctly depicted as a credit in the capital account of the statement of affairs of the assessee. The Ld. CIT(A) ought to have appreciated that the same should have been shown as a loan in the statement of affairs irrespective of whether it was received outside India or in India, if the claim of the assessee that the said amount was sourced out of loan taken in Mauritius was true. (xii) The Ld. CIT(A) erred in holding that there is no round tripping of funds without citing any supporting reasons and disregarding the fact that fresh capital of US$ 64 lacks was introduced into the creditor company in Mauritius by the assessee himself during the year as its sole shareholder to enable it to advance the loan to the assessee. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of the Act" in section 5 of the I.T. Act. (xvii) The Ld. CIT(A) ought to have appreciated that the above mentioned decisions of ITAT, Delhi and ITAT, Chennai, have been rendered without considering the ratio laid down by the Hon'ble Supreme Court in the case of Kale Khan Mohammad Hamf (50 ITR 1) that the onus of proving the source of a sum of money received by the assessee is on the assessee only and if he disputes his liability for tax, it is for him to show either that the receipt was not income or that if it is income, it is exempt from taxation under the provisions of the Act. The Ld. CIT(A) ought to have seen that in view of this ratio, merely establishing that the money was received outside India and was remitted to India through regular banking channels cannot be considered as amounting to discharging the onus cast on the assessee u/s.68/69 of the Act. 7. As can be seen from the above, Ground No.2 to 5 pertain to issue of additional evidence under Rule 46A(1) and Ground No.6 to 10 pertain to identity and creditworthiness of M/s. Vitrual International Ltd. Ground No.11 & 12 pertains to findings of CIT on the genuineness of the amount remitted. Ground No.13 to ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....as the money has been transferred from his Barclays Bank, Mauritius to NRI A/c. held in Axis Bank and Indusind bank. This tantamount to nothing but passing of money from right hand to left hand. Hence, no addition can be made as Unexplained Credit u/s.68/69/69A/69C of the act. c. The assessee has received the above said amount from his Barclays Bank, Mauritius to NRI A/c. from the loan obtained from M/s.Vitrual International Limited, Mauritius in support of which the assessee has submitted confirmation letter from M/s.Vitrual International Limited, Mauritius. d. Without prejudice to the above, the assessee has not only established the source of the money as also established the source to source by way of submitting the confirmation from M/s.Vitrual International Limited, Mauritius. As the assessee is a non-resident Indian and the source of money is raised from outside India, the application of 5(2) r.w.s. 9 of the Act is not valid. e. In support of the submissions/arguments of the respondent here in, he relies on the order of the CIT(Appeals)-V, Hyderabad". 10. We have considered the rival contentions, perused the documents placed on record and the ord....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the grounds raised on this issue, particularly Ground No.10 & 11 does not require any consideration on the facts of the case. 12. Coming to the issue of creditworthiness of the above said company, there is no dispute with reference to the funds. It has its own funds and Ld.CIT(A) took pains to examine and hold that it is creditworthy. Nothing was brought on record to counter the findings of Ld.CIT(A), except contending that the order of the CIT(A) is not correct. Therefore, the ground regarding creditworthiness of the company particularly from Ground No.6 to 10 also does not require any consideration. 13. One of the issues to be considered is whether the admission of additional evidence by assessee at the directions of CIT(A) required to be sent to Assessing Officer under Rule 46A(1). It is not assessee who furnished the additional evidence. Therefore, it cannot be strictly considered as additional evidence under Rule 46A. CIT has co-terminus powers as that of Assessing Officer as far as appeals before him are concerned. In fact, he even had enhancement powers, if Assessing Officer has missed out bringing into tax any amounts. He also has powers of enquiry and investigation. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....roduce any additional evidence not furnished before the Assessing Officer without meeting the various conditions provided under rule 46A for which satisfaction is to be recorded by the appellate authority in writing and with which the appellate authority is further required to confront the Assessing Officer and allow him a reasonable opportunity to have his say in the matter. [Para 9] From the various authorities of courts, the legal position is that the first appellate authority has wide powers over the order of assessment appealed against before him. In the course of exercise of such power the first appellate authority can direct the assessee to produce any evidence, information or material that was not produced before or was not considered by the Assessing Officer. The purpose of rule 46A is to place fetters on the rights of an appellant to produce additional evidence before the first appellate authority and not on the rights of the first appellate authority to call for production of any fresh evidence or information. This aspect of the provisions of rule 46A is clear from the provisions of sub-rule (4) of rule 46A itself that nothing contained in rule 46A shal....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n such a case no useful purpose would be served by performing the ritual of forwarding the evidence/material to the Assessing Officer to obtain his report. In such exceptional circumstances the requirement of sub-rule (3) may be dispensed with. [Para 14] Therefore, there was no infirmity in the impugned order of the Commissioner (Appeals) who had taken pains to comprehensively examine the issue before him and arrive at a correct finding of fact and he should be congratulated for having done so. Therefore, his order was to be upheld and the appeals were to be dismissed. [Para 15]. 14. In this case CIT(A) requisitioned the evidence to examine the contentions. Therefore, the grounds raised from Ground No.3 to 6 on the issue of additional evidence are infructuous and does not require any consideration. 15. Therefore, on the facts of the case, it is to be admitted that assessee having his own funds abroad has remitted the amount to India and this inward remittance cannot be considered as unaccounted income of assessee for the year under consideration. 16. Revenue has raised various grounds on the legal principles. We are of the opinion that these are all misplaced or w....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the provisions of section 68 or section 69. Under section 5(2) the income accruing or arising outside India is not taxable unless it is received in India. Similarly, if any income is already received outside India, the same cannot be taxed in India merely on the ground that it is brought in India by way of remittances. Reference can be made to the judgment of Supreme Court in the case of Keshav Mills Ltd. V. CIT (1953) 23 ITR 230 (Supreme Court of India) if such income is shown in the books of account then it cannot be taxed in India merely because the assessee is unable to prove the source of such entry. For example, there may be appearing an entry of cash credit in the name of a person of USA by way of loan received through cheque and deposited in the bank account maintained at any city in USA. Such money being received outside India cannot be taxed under section 5(2) unless it is proved that such money is relatable to the income accrued or arising in India. Therefore, the same cannot be taxed under section 68 merely on the ground that the assessee fails to prove the genuineness and source of such cash credit. Therefore, we are of the considered view that the provisions of Secti....
X X X X Extracts X X X X
X X X X Extracts X X X X
....banking channel. But merely on suspicions or doubts, conjectures or surmises, no inference can be drawn against the assessee. It is trite law that there can be no presumption in favor of any illegality of a transaction. In fact the presumption is the other way about. [Para 14.4]. In the cases of remittances through banking channel the nature and source of the funds get explained and the onus on the assessee under section 69 gets discharged, and consequently such remittances cannot be taxed under section 5(2) (b). Therefore, the argument of the revenue that, in the present case, the impugned money was taxable under section 5(2)(b) read with section 69, on the facts, as no merit and cannot be accepted. [para 14.6]. But, the position will be entirely different if the money has been brought into India otherwise than through banking channel, because in that case the onus on the assessee under section 69 will not stand discharged. In such a case the provisions of section 5(2)(b) read with section 69 will surely be attracted. [Para 14. 7]. In the present case, the AO while relying on the CBDT circular, has committed an error of reproducing in his order from Para 4 of the circular, which d....