Section 68 – Additions made to income of assessee, who was a non-resident since 25 years, were unjustified since no material was brought on record to show that funds were diverted by assessee from India to source deposits found in foreign bank account.

Section
68 – Additions made to income of assessee, who was a non-resident since 25
years, were unjustified since no material was brought on record to show that
funds were diverted by assessee from India to source deposits found in foreign
bank account.

FACTS

The
assessee, a non-resident since financial year 1995-96, is a director in a
company in Japan and living in Japan on business visa since 1990.  He got permanent residency certificate from
Japan in 2001.  The assessee has filed
his return of income for AY 2006-07 declaring total income of Rs.
5,51,667.  Subsequent to processing of
the return, the assessment was reopened u/s. 147 of the Act for the reasons
recorded as per which information was received by Government of India from the
French Government under DTAA that some Indian nationals and residents have
foreign bank accounts in HSBC Private Bank (Swisse SA, Geneva) which were
undisclosed to the Indian Income-tax department. This information was received
in the form of a document (hereinafter referred to as ‘base note’) was processed
with that of the assessee’s Indian income-tax return and found that the details
contained in base note were matching with the information provided by the
assessee in his income-tax return. Accordingly, the DDIT(Inv), Unit VII(4),
Mumbai sent information to the concerned AO for further action. The AO, after
recording reasons, issued notice u/s. 148 of the Act for reopening of the
assessment.

In
the course of assessment proceedings the AO called for various details
including details of bank accounts maintained in HSBC, Geneva in original CD
and other details. In response to notice, the assessee, stated that he is a
non-resident for more than 25 years and being a non-resident, he is not under
obligation to declare his foreign assets and foreign income to the Indian
Income-tax Authorities; hence, the question of submitting the CD of the HSBC
Bank account or the consent waiver form does not arise.  The AO, issued notice and asked the assessee
to file necessary details in support of HSBC Bank account maintained in Geneva
and also show cause as to why assessment shall not be framed u/s. 144 of the
Act, based on material available on record.

In
response, the assessee filed an affidavit and stated that his foreign bank
accounts and foreign assets have no connection with India or any Indian
business. No amounts from India have been transferred to any of his foreign
accounts directly or indirectly.  The assessee
challenged the authenticity and correctness of the base note and contended that
no addition can be made merely on assumptions or presumptions. The assessee
further submitted that the bank account maintained in HSBC, Geneva is having no
connection with India and accordingly question of furnishing details of bank
accounts and foreign assets does not arise. He further stated that he has filed
his income-tax return regularly in India in the status of Non-resident
declaring whatever income accrued or deemed to accrue in India and such returns
have been accepted by the department. In the absence of any provisions to
declare foreign bank accounts and assets by non-residents to Indian Income-tax
department, the question of disclosing those accounts to Indian Income-tax
department does not arise and consequently, the amount lying in HSBC Geneva
account cannot be taxed in India.

The
AO added the peak balance in HSBC account, amounting to Rs. 48,95,304 (Rs.
45.52 per USD) by holding that since the assessee had not produced any
evidences to prove that the money deposited in his foreign bank account does
not have any source from India.  He held
that since the assessee did not produce any documentary evidence to prove that
prior to 2001 he was permitted to have business/profession or work in Japan or
any other country the only conclusion that can be drawn is that prior to this
date, the assessee cannot be engaged in any business, profession or employment
in Japan.  He also held that there is a prima
facie presumption of amounts in the said account being undisclosed and
sourced from India. The circumstances of the case point to only one thing with
regard to source of deposits in HSBC, Geneva accounts; that the deposits were
made by the assessee in his HSBC, Geneva account from sources in India which
have not been disclosed in his return of income.

Aggrieved,
the assessee preferred an appeal to CIT(A) who deleted the addition made by the
AO.

Aggrieved,
the revenue preferred an appeal to the Tribunal. 

HELD

The
Tribunal noted that the assessee had only one bank account in India of which
the bank statements from 1998 to 2008 were furnished by the assessee. On
perusal of the said bank statements it could be seen that no amounts have been
transferred by the assessee from this bank account in India to any of the other
bank accounts including HSBC Geneva.  It
also noted that the balance maintained in this Indian Bank Account is so less
that it cannot fund an amount of Rs. 4.28 crore which has been added by the AO
to assessee’s income.  The Tribunal
observed that the AO sought to put the onus of proving a negative that the
deposits in foreign bank accounts are not sourced from India, on the
assessee.  It held that the AO is not
justified in placing the onus of proving a negative on the assessee.  In fact, only a positive assertion can be
proved and not a negative one.  The onus
of proving that an amount false within the taxing ambit is on the department
and it is incorrect to place the onus of proving negative on the assessee. The
Tribunal held that when the AO found that the assessee is a non-resident
Indian, he was incorrect in making addition towards deposits found in foreign
bank account maintained with HSBC Bank, Geneva without establishing the fact
that the said deposit is sourced out of income derived in India, when the
assessee has filed necessary evidence to prove that he is a non-resident since
25 years and his foreign bank account and assets did not have any connection
with India and that the same have been acquired/sourced out of foreign income
which has not accrued/arisen in India.

The Tribunal then proceeded to examine whether the government/
legislature intended to tax foreign accounts of non-residents.  Having noted the clarifications of Minister
of State for Finance on the floor of the Loksabha and also the provisions of
the Black Money Act and the FAQs issued to the Black Money Act it held that the
AO, without understanding these facts and also without answering the
jurisdictional issue of whether the non-resident assessee was liable to tax in
India in respect of deposits in his foreign bank account, when he had proved
that the source of deposit was not from India, went on to make addition on
wrong footing only on the basis of information in the form of base note which
is unverified and unauthenticated.  It
held that no material was brought on record to show that the funds were
diverted by the assessee from India to source the deposits found in foreign
bank account.  The suspicion, however
strong, cannot take place of proof and no addition could be made on presumption
and assumption.  The Tribunal held that
the AO had not proved that impugned addition could be made within the ambit of
section 5(2) r.w.s. 68/69 of the Act.

The
Tribunal also noted that the co-ordinate Bench of ITAT has in the case of Dy.
CIT vs. Dipendu Bapalal Shah [(2018) 171 ITD 602 (Mum.-Trib.)] decided an
identical issue in respect of foreign bank accounts and held that when the AO
failed to prove the nexus between deposits found in foreign bank accounts and
source of income derived from India, erred in making addition towards deposit
u/s. 68/69 of the Act. 

As
regards reliance of the revenue on the decision of the Mumbai Bench of ITAT in
the case of Rahul Rajnikant Parikh [IT Appeal No. 5889 (Mum) 2016] the
Tribunal held that the said case has no application to the facts of the case as
in the said case, the Tribunal has not laid down any ratio.  The matter was set aside to the file of the
AO.  It is settled law that a
judgment/order delivered by consent has no precedential value. 

The
Tribunal held that the AO erred in making addition towards deposit found in
HSBC Bank Account, Geneva u/s. 69 of the Act. 
It held that the CIT(A) has rightly deleted the addition made by the AO.
The appeal filed by the revenue was dismissed.