TaxTMI 
TaxTMI 
2019 (9) TMI 806
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....lty u/s.271(1)(c) of the Income Tax Act, 1961 (in short 'Act') 1.1. Both these appeals are disposed off by this common order for the sake of convenience. 2. We find that the assessee had filed an additional ground challenging the validity of reopening of assessment made in this case. At the time of hearing before us, the ld AR stated that on instructions from the assessee, the same is not pressed by him. Infact the ld AR also had filed a written submission dated 26.7.2019, wherein he had duly confirmed that the additional ground raised challenging the validity of reopening is not pressed. Accordingly, the same is dismissed as not pressed. 3. The only issue involved in quantum appeal is as to whether the ld CITA was justified in upholding the addition in the sum of Rs. 5,35,23,181/- in the facts and circumstances of the case. 4. The brief facts of this appeal are that the assessee is an individual and had filed his original return of income for the Asst Year 2003-04 on 30.9.2003 declaring total income of Rs. 1,53,160/- comprising of income from house property, other sources and capital gains. The return was duly processed u/s 143(1) of the Act. Subsequently, information ....
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....as been furnished. (B) Origin of the deposit has been stated as "Family Money" The above facts make it clear that you have no explanation to offer regarding the amount of $ 43,87,146.00 deposited in the name of Dryade Stifftung and Dianese Stiftung Vaduz , in LTG Bank Liechtenstein for which you along with your other three members were the sole beneficiaries. The LTG Bank, Liechtenstein is a bank which has been put under "Grey List" by Paris based Organization for Economic Cooperation and since 2007. The activities of LTG Bank, Liechtenstein are under the scanner of almost all the countries as this is considered as one of the safe uncooperative tax heavens along with Andorra and Monaco. The activities of LTG Bank, Liechtenstein which are downloaded from the website, are summarized as under:- Background Millions of Euros belonging to hundreds of citizens living in Germany were channeled into the LGT Bank and other banks in Liechtenstten, taking advantage of Liechtenstein-based trusts to evade paying taxes in Germany. According to the prosecutor's office these trusts have been created apparently only to evade paying taxes. According to the law ....
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....uck & Aufhauser bank, Dresdner Bank, UBS in Munich and the Berenberg Bank in Hamburg. In the meantime revenue offices also noted a higher number of voluntary self incriminations this will avoid or reduce punitive damages - for possible tax evasions by people with financial assets in Liechtenstein. While the BND received the data in 2006, the LGT group indicated 'that in 2002 secret information had; been stolen but the informant had been caught and tried in 2003, and all material had been returned. United States of America The informant also had sold data to the government of the United States. After the affair broke open, Senator Carl Levin, chairman of a senate Investigations committed, indicated his intention to probe to what degree American citizens have used the LGT Bank to evade his intention to probe to what degree American citizens have used the LGT bank to evade taxes. In July 2008 the U.S. Subcommittee determined that offshore tax haven supported tax cheats to the cost of about $100 billion per year for the U.S. taxpayer. Specifically mentioned were Switzerland UBS AG and Liechtenstein LGT Group. The report indicates that the LGT group contri....
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....on 18/12/2009 at 11:30 am in my office at the address given on the letterhead above. Since the matter is getting barred by 31-12-2009, your cooperation in not seeking any adjournment will be highly appreciated." 4.1. The assessee in response to the said show cause notice replied vide letter dated 18.12.2009 as under:- "This has reference to the Notices under Section 142(1) and 143(2) of the Income tax Act 1961 dated 9th December 2009 received along with the letter dated 8th December 2009, in respect of the re-assessment proceedings initiated under Section 148 of the Act for the Assessment Years 2002-03 and 2003-04. In this connection, I wish to make the following submissions for your perusal and record: 1. I understand that my elder brother Shri Arun R Mehta has also been issued similar notices referred to above under the relevant provisions of the Income tax Act for which he has already made his submissions. These submissions also hold good for me. However, for the sake of good record I wish to make the following submissions for your perusal and record. 1.1 I am a citizen of India and have been born and brought up in India. I was born in Augu....
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.... role whatsoever to play, in the said Stiftung during the assessment years under reference. iii) I strongly deny the allegation that I, along with others have deposited the said sum of $4,387,146.00 in LGT Bank, Liechtenstein. iv) My brother Arun Mehta has already enquired with our non-resident younger brother Dilip Mehta about the aforesaid allegations. A communication received from LGT Bank (now known as Fiduco Treuhand AG) through his lawyer is enclosed marked Annexure "A" v) I have been advised that a Stiftung is akin to a discretionary trust with absolute and exclusive powers vested in the Foundation Board of the Trust to appoint and/or replace the beneficiaries and to amend the statutes and/or bye laws and to manage the assets of the Stiftung. As mentioned earlier, I had no role to play either with the creation or the management of the Stiftung and this is borne out by the confirmation furnished by Fiduco Treuhand AG. I may reiterate that the Foundation Board has never exercised discretion in my favour and hence I have never been a member of the Foundation Board and no income has accrued to me or has been received by me from the said Stiftung which ....
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.... undisclosed source. However, for an investment to be assessed as income, it must be established that the person who is sought to be assessed has made such an investment. In the present case, there is no material whatsoever that I as an alleged beneficiary of a Stiftung have made an investment in such a Stiftung and accordingly, the question of assessing any amount in my hands does not arise. In view of the above, I humbly state that; i) l have not deposited $ 4,387,146.00 in the account of Dryade Stiftung and Dianese Stiftung Vaduz. ii) I have not received any income from these Trusts Under the circumstances, I request you to drop the proceedings initiated under Section 148 of the Act against me." 4.2. The ld AO observed that the explanation offered by the assessee is to be rejected in the light of following evidences available on record :- 1) "Verification of the beneficial owner's identity signed by Proxy holder ABN AMRO Trust Company (Suisse) SA, which stated that the beneficial owner of the assets deposited with the Bank are - Dilip Ramniklal Mehta Antwerp, Belgium Arun Ramniklal Mehta Bombay, India Harshad Ra....
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....hare thereon, was brought to tax as his undisclosed income for the Asst Year 2003-04. Penalty proceedings u/s 271(1)(c) of the Act for deliberate concealment of such income were also initiated in the assessment order. 5. The assessee reiterated his submissions before the ld CITA. Among other submissions, it was specifically pleaded that the ld AO had made the addition on the footing that no contradictory evidence was produced by the assessee and therefore the deposit made in the bank account of Dryage Stiftung among represented undisclosed income of the assessee from his business activities. In this regard, the assessee submitted that it is an established fact that the assessee along with his brother had ventured into manufacture and export of diamond trade in the year 1969; that the family business was conducted through Rosy Blue (India) Private Limited, engaged in the manufacture and export of diamonds from India; that his assessment records would establish beyond doubt that he had never carried any business activities in his personal capacity ; that it would appreciated that to carry on a business of such magnitude, one needs an establishment and that there was no evidence of....
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....he assessee is in appeal before us. 8. The ld AR before us vehemently argued that the assessee during the reassessment proceedings had placed on record a written confirmation furnished by LGT Treuhand AG (now known as Fiduco Treuhand AG) confirming that the assessee had no role to play either in the creation or the management of Dryade Foundation and had also received no benefit from the same. He argued that though this confirmation was placed on record, the same was not dealt with by the lower authorities. The main crux of the various arguments made by the ld AR could be summarized as under:- a) The assessee had neither contributed any money to the said trust nor receivbed any distribution of income or capital from it. This has been stated before the ld AO vide letters dated 31.7.2009 and 18.12.2009. b) The aforesaid assertions have been backed by leading evidence by way of written confirmation furnished by Fiduco Treuhand AG dated 5.11.2009 that : (i) No contribution has been made by the assessee to the Foundations. (ii) The assessee had no role to play either with the creation or the management of the Stiftung. (iii) No distribution of income ....
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....sprove the said confirmation and it has also not been considered by the lower authorities. i) During the course of hearing, ld Special Counsel for the revenue sought to translate and explain the various documents which are at pages 21,22 to 25 and 31 of the Paper Book by referring to the German translation. A preliminary point was made that the document at page 24 was not in German but in French. Therefore, reference to the German translation is wholly inappropriate. It is further submitted that, seeking to give an additional thrust to the Department's case, by referring to a translation at the first stage before this tribunal, had denied the assessee a full and effective opportunity of defense. It was submitted that if in fact, the Department wanted the bench to consider the documents in light of translation claimed by ld Special Counsel for the revenue , consistent with the principles of natural justice, the assessee must be made aware and given an opportunity to respond thereto, as even on a prima facie basis, there were some errors in the translations referred to. j) The matter in the present case has serious monetary and reputational consequences. There are also related ....
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....should be obtained and placed on record. If necessary, cross-examination of the experts may also require to be carried out. k) The revenue cannot make an altogether a new case before the tribunal for the first time which was not the subject matter of the consideration by the ld AO. Reliance in this regard was placed on the Special Bench decision of Mumbai Tribunal in the caes of Mahindra and Mahindra Ltd vs DCIT reported in 2009-TIOL-255-ITAT-MUM-SB. In the instant case, the ld Special Counsel for the revneue is making an altogether new case before this tribunal in relation to the following:- a) Unsupported translations of the foreign language documents provided by the Department; b) Whether the ld AO was incorrect in giving a finding that the Dryade Foundation is in the nature of a 'Discretionary Trust' c) Reliance on the laws of Liechtenstein, on the basis that as the Trusts are of Liechtenstein, the tax laws of Government of India do not apply. l) It is well settled that under the Income Tax Act, a Discretionary Beneficiary who has not received any distribution cannot be taxed until there is an actual distribution in his favour. Reliance in this regard was placed ....
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....fted to the assessee. Infact, where the legislature intended to shift the burden of proof under the Income Tax Act to the assessee, specific provisions have been enacted for this purpose as under:- (i) Section 278D - Presumption as to assets, books of account, etc in certain cases (ii) Section 278E - Presumption as to culpable mental state (iii) Section 292C - Presumption as to assets, books of account, etc Accordingly, shifting of onus of proof under the Income Tax Act is only envisaged in the aforesaid situations and cannot be pressed into play in any other situation. q) Assessee cannot be asked to prove the negative. Reliance in this regard was placed on the following decisions:- (i) K.P.Varghese vs ITO Ernakulam reported in 131 ITR 597 (SC) (ii) Advani Oerlikon Ltd and Anr vs UOI and Ors reported in 1981 ELT 432 Hence onus is on the revenue to prove that the assessee has received a distribution from the Foundation, which constitutes income in respect of which he was liable to discharge tax in India. Further, the department cannot palce a negative burden of proof on the assessee to show that he has not received a distribution....
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....upelia are reproduced :- 18. In our considered opinion the above evidence is cogent and sufficeitn. Furthermore, we note that in terms of the extant secrecy provisions of Liechestein, no further information from the said bank can be obtained by the AO. The assessee is clearly trying to get benefit under this provision and denying the existence of the said bank account. This as per the facts discussed hereinabove is a self serving statement not at all sustainable. In the background of the above discussion, the onus now is clearly on the assessee to prove that the assessee has no beneficial interest in the said bank account or that the said bank account is a fictitious story, which the assessee has failed to discharge. Hence, the impugned additions in the hands of the assessee are justified and I uphold the same. Contrary to the aforesaid judgements relied upon by the department, in the instant case, the assessee had not blanketly denied the existence of the bank account in question. Rather, the assessee has produced on record the confirmation dated 5.11.2009 from Fiduco Treuhand AG. No proof has been submitted by the department to demonstrate that the assessee has a bene....
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.... paper book) (ii) It is the Founder who endows assets for a specific purpose and regulates the beneficial interest (Page 31 of paper book) (iii) The Foundation is a separate legal entity. A Foundation and Trust are distinct entities (Pages 26 and 30 of paper book) In view of the foregoing, the existence of a Foundation per se has no implication for the taxability of the assessee. Infact, the confirmation of Fiduco Treuhand AG that the assessee is not the Founder is critical in as much as it affirms that the assets of the Foundation have not been endowed by the assessee. w) In any event, if Liechtenstein law is to be relied upon, the matter perforce requires to be remanded to the file of ld AO for this purpose. 9. The ld Special Counsel for the revenue filed a detailed written submission on 29.7.2019 which is reproduced hereunder for the sake of convenience :- "Synopsis of submissions made for & on behalf of Revenue in the course of hearing before Hon'ble Bench In order to explain the documents submitted by and on behalf of the appellant-assessee in its compilation filed on 10.02.2017, a brief page-wise break up was filed to segregate and identif....
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....n Ramniklal Mehta. It was however assured to Hon'ble Bench on the part of the special counsel appearing for & on behalf of the Revenue that efforts are continuing to ascertain the status thereof. It is now brought to the notice of Hon'ble Bench that learned Assessing Officer has on 18/07/2019 forwarded through WhatsApp message a copy of the assessment order dated 30.12.2009 in the case of the brother, Shri Arun Ramniklal Mehta to the special counsel appearing for and on behalf of the Revenue and under instructions a copy of the said assessment order is enclosed as "Annexure A" to this submission. A reading of this assessment order would show that an addition of Rs. 5,35,23,181/- has been made in the case of Shri Arun Ramniklal Mehta being 25% share of the deposit made in the bank account of Dryade Foundation on identical facts and circumstances as in the case of the appellant-assessee. Further, it would be seen that the explanation offered on the part of Shri Arun Ramniklal Mehta is almost similar as given in the case of the appellant-assessee. Pursuant to assessment order under section 143(3) read with section 148 dated 30.12.2009, demand of Rs. 3,08,08,337/- including int....
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.... of the beneficiary of this debit is shown to be Sundew Company Limited. Page (31) indicates the details of the Dryade Foundation as to (1) who are the foundation Board; (2) since when it is active; (3) who are the bankers; (4) various details as to institutional clients, representatives, customers; (5) purpose; (6) investment participation etc. There can be seen various instructions relating to the transactions of the family concerns involving loans of USD 4 million and USD 2 million to Rosy Blue Finance and of debit notes to ABN Amro Bank for the period 06.09,2000 to 14.09.2000 and to keep updated the Rosy Blue Finances and with delivery instructions to Luxembourg. As explained in the course of hearing it was an attempt to understand the nature of these transactions by using the translation platform available on the Google public domain. 4. As far as explanation dated 18th December, 2009 of the appellant-assessee is concerned, it was submitted that the explanation offered does not sound credence as the reference made to the Brother Arun Mehta's enquiries with another brother Dilip Mehta has missing links. No supporting evidence has been filed as to when the appellant....
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....ence between the appellant-assessee, his brother Shri Arun Ramniklal Mehta, the non-resident brother, Shri Dilip Ramniklal Mehta and Fiducio Treuhand AG as stated in item (iv) at page (33) of the compilation filed by the appellant has not been furnished which is evident from the fact that letters of dated 13/11/2009 at Pages (36) and (40) are referred to in relation to the appellant-assessee; 2. The advice received & stated in item (v) at page (33) of the compilation filed by the appellant-assessee has not been furnished; 3. Complete information on the Memorandum of Formation of Dryade Foundation has not been given; and 4. Fact of assessment made in the case of brother, Shri Arun Ramniklal Mehta for the A. Yr. under consideration and payment by him of the entire demand raised on the inclusion of l/4th share of the entire amount of Rs. 21, 40, 92,725/- being Rs. 5, 35, 23,181/- has been withheld though it is through him that admittedly enquiry was made with their non-resident brother, Shri Dilip Ramniklal Mehta about the transactions appearing in the Bank in relation to Dryade Foundation. 5. Both foundations are shown as dissolved [Kindly refer pa....
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....Act." 10. The ld AR filed a rejoinder on 1.8.2019 in response to the written submissions filed by the Ld Special Counsel for the revenue. The said rejoinder is reproduced herein for the sake of convenience :- 1.This Submission-ln-Rejoinder is filed in response to the Written Submissions ('WS') dated 29 07.2019 made in the above matter by the Special Counsel for the Revenue ('SCR'). This Submission-in-Rejoinder is necessitated as several assertions, factual and legal, have been made in the WS of the SCR which are beyond the scope of the proceeding to date, and which are raised for the very first time at the level of the appeal before this Hon'ble Tribunal. While normally the matter would have rested with the Appellant's WS (filed on 26.07.2019) and the SCR's WS, in the peculiar facts of the present case and given the nature of issues agitated in the WS by the SCR, it is prayed that this Submission-ln-Rejoinder be taken on record oy this Hon'ble Tribunal. 2. At Para 2 of the WS of the SCR: it is submitted that the Learned SCR has attempted before this Hon'ble Tribunal to explain the documents based on a translated version of th....
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....ble Supreme Court is therefore clearly misguided in terms of the very pleadings in the WS by the SCR. It is submitted that if this issue is intended to be raised any further by the Tax Department or the SCR. a full and proper opportunity should be afforded to the Appellant in this regard.(Refer Hadibandhu Das v. District Magistrate, Cuttack(1969 AIR 43 SC), Nandkumar Alias Nandu v. S. Ramamurthi Commissioner (1992 Cri LJ 1078) The SCR claims that the Appellant has not made a full disclosure to assist the Hon'ble Tribunal. The assertions in this regard are wholly misguided and unsustainable for the reasons that: i. The Hon'ble Tribunal was aware that the appeal was pending in the case of Mr. Arun Ramniklal Mehta, Reference was made by the SCR, as also a member of Bench. When this specific issue came up as to whether the Department is suggesting that both the appeals be heard together, the SCR himself responded to say that he was not suggesting that the present appeal be delayed and both the matters be heard together. ii. The proceedings of Mr. Arun Ramniklal Mehta referred to are the proceedings at the level of the Assessing Officer. The amounts me....
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....ilable by the SCR. 5. In respect of Para 4 at Page 3, submissions have been made for the first time that there are certain issues in relation to the Appellant's reply dated 18.12.2009 and the letter dated 5.11,2009 from Fiduco Treuhand AG. It is submitted that the reply dated 18.12.2009 and the Fiduco Treuhand AG letter dated 05.11.2009 were first placed on record before the Tax Authorities on 18,12.2009. It is significant that the submissions now made vis-a-vis there being some missing link or missing documents have never been raised as an issue either at the level of Assessing Officer or the CIT(A). These submissions are an afterthought to try and discredit documents which have been on record and remained uncontested for almost 10 years. It is submitted that if the factual veracity of documents is sought to be challenged after a period 10 years it would have a disastrous effect across the tens of thousands of proceedings pending before this Hon'ble Tribunal if such issues could be raised for the first time before this Hon'ble Tribunal, as it would lead all similar matters in a state of uncertainty if it were permissible to try and reinvent the factual matrix ....
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....uch Beneficiary has neither contributed to the deposit nor received a distribution from the relevant entity. This argument is wholly new and is distinct from the Department's case as made out at earlier stages of the proceeding. The proposition that a deposit alone is enough runs contrary to the provisions of Section 5 and Section 9 of the Income Tax Act ("Act"). To support a charge of tax based merely on a deposit would require a specific provision of law empowering such a charge on presumptive basis. In the Act as it currently is, there is clearly no provision to this effect, viz. that a deposit in a foreign account in respect of which a Resident is shown as a beneficiary is itself singularly sufficient to support a charge of income tax on such Resident. It is submitted by the SCR that relevant to the foreign account, since the credit preceded the debit, it was incumbent on the part of the Appellant-Assessee to explain the source of the credit which he failed to explain. It is well settled that a person cannot be asked to speak to or explain events wholly beyond the remit of his knowledge. There is clear evidence on record that the present Appellant has neither opene....
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....er dated 15.11.2017 in ITA No. 2795 and 2796 Mumbai 2011] (relied on by the SCR) at para 19, it is said that the issue of the character of the trust needed to be determined not in terms of the Indian Law (which it is submitted is contrary to the law laid down by the Supreme Court in CWT, Rajkot vs. Estate of HMM Vikramsinhji of Gondal. {(2015) 5 SCC 666]}, but should instead be determined as per the local law of the jurisdiction where the Trust/Foundation is formed If this is in fact the relevant test, it was submitted by the Appellant that in terms of Section 45 of the Indian Evidence Act, 1872, the position in relation to foreign law must be proved as a relevant fact based on expert evidence from the relevant jurisdiction. The submission in this regard is therefore consequent only to Para 19 of the said judgement. It is also required to be noted that the Appellant has strongly urged that, given the evidence produced by way of Letter dated 05.11 2009 by Fiduco Treuhand AG, no addition can be made in the present Appellant's hands as per the test laid down in Para 18 of the case of Hasmukh Gandhi (supra). In view of what is set out hereinabove and what is set out in the Appellan....
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....he entire contents from pages 21 to 25 of the paper book are purported to be in German language as admitted by the ld Special Counsel for the Revenue and he tried to translate the contents reflected therein through his independent research made with the assistance of 'Google'. It is not in dispute that the translated version of those contents were not made available either to the assessee or to the bench at or before the time of hearing. We find that the ld Special Counsel for the Revenue vehemently argued that the assessee had furnished the Memorandum of Formation of Dryade Stiftung dated 2.7.1986 before the ld AO in page 38 of the paper book, wherein it had been specifically mentioned that there were some attachments forming an integral part of that Memorandum and that no such attachment was ever filed by the assessee either before the lower authorities or in the paper book filed before us. We find that the ld Special Counsel for the Revenue submitted that this attachment probably would prove the fact as to who is the Founder of Dryade Stiftung and who had deposited the initial contribution in the said foundation etc, which would be crucial for adjudication of the issue in disput....
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....tion has not been dealt with at all by the lower authorities in their order. With regard to the averment of the ld Special Counsel for the Revenue that the attachment to Memorandum of Formation dated 2.7.1986 of Dryade Stiftung not enclosed by the assessee before the lower authorities, we find that the lower authorities had not disputed the same or even remotely suggested in their orders that absence of the said attachment had led them to eventually draw an adverse inference against the assessee. 11.2. We hold that all the relevant facts were not brought on record by both the parties in the instant case. It is just and fair that the English translated version of all the documents relied upon by the revenue need to be given to the assessee by the revenue in order to enable the assessee to understand the contents of the documents furnished by the revenue for his effective rebuttal. Without adjudicating the relevant facts on record, it would be pre-matured to directly address the various case laws relied upon by both the sides and hence the same are not addressed here at this stage. Each decision is rendered in the context of facts and circumstances of that case and one decision re....