MOHIT MAHESHWARI , MUMBAI V. INT. TAX WARD- ITO 3(2)(1), MUMBAI

ITA 602/MUM/2023

AI Insights

The case involves Mohit Maheshwari, an individual resident of Singapore, who appealed against the order of the CIT(DRP-3), Mumbai, which confirmed the addition of Rs. 4.76 crores as unexplained income under section 69 of the Income Tax Act. The Assessing Officer (AO) had initially added this amount after suspecting the genuineness of the funds received from M/s. Royal Global Exports Pte Limited, a Singapore-based company involved in a drug smuggling case. The Tribunal found that the AO's reasoning did not align with the provisions of section 69, as the assessee had satisfactorily explained the source of the funds. The Tribunal also noted that the assessee had not been charged with any offence related to the alleged drug smuggling and that all accused had been acquitted.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 124021 (ITAT-MUMBAI)
• Duration Of Justice: 2 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-05-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 10-05-2023
• Assessment Year: 2016-2017
• Appeal Filed On: 27-02-2023
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: SURESH CHANDRA KABRA; UMESH KUMAR BANGUR
• Keywords: Opportunity of being heard; Set aside
• Section: 69; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI ‘I’ BENCH, MUMBAI. Before Shri B.R. Baskaran (AM) & Shri Pavan Kumar Gadale (JM) I.T.A. No. 602/Mum/2023 (A.Y. 2016-17) Mohit Maheshwari C/o. Suresh C. Kabra 13, Desai Residency 144, Princess Street Mumbai-400 002. PAN : BWZPM2994M V s. ITO, International Tax, Ward 3(2)(1) Air India Building 16 th Floor Room No. 1627 Nariman Point Mumbai-400 021. (Appellant) (Respondent) Assessee by Shri Suresh Chandra Kabra & Shri Umesh Kumar Bangur Department by Shri Soumendu Kumar Dash D ate of He ar ing 11.05.2023 D ate of P r onou nce me nt 24.05.2023 O R D E R Per B.R.Baskaran (AM) :- The assessee has filed this appeal challenging the order dated 31.12.2022 passed by the learned CIT(DRP-3), Mumbai and it relates to A.Y. 2016-17. All the grounds raised by the assessee relate to addition of Rs. 4.76 crores made by the Assessing Officer as unexplained income under section 69 of the I.T. Act. 2. The Ld Counsel appearing for the assessee submitted that the assessee is an individual and is resident of Singapore. He submitted that the AO has wrongly described the assessee as NRI. The status of the assessee under the Income tax Act is “Non-resident”. He submitted that the assessment of the year under consideration was reopened by the Assessing Officer by issuing notice under section 148 of the Act on the reasoning that the assessee has purchased an immovable property for a sum of Rs. 14,06,05,536/-. During the course of assessment proceedings, the Assessing Officer noticed that the Mohit Maheshwari 2 assessee has availed bank loan of Rs.10 crores and the remaining amount of Rs.4.06 crores was received from M/s. Royal Global Exports Pte Limited, a Singapore based company, in which the assessee is a director. The Assessing Officer noticed that the M/s. Royal Global Exports Pte Limited along with its directors have been found to be involved in smuggling of Cocain. Hence he asked the assessee as to why the sources of funds should not be treated as non-genuine source. 3. In response thereto, the assessee submitted that he became director of the above said company only in 2015, whereas the proceedings under NDPS Act was taken prior to 2006 and the order of High Court discharging the directors was delivered in 2006. The AO noticed that there were transfer of funds between various directors and accordingly took the view that tainted money has been used to issue cheque to the assessee. Accordingly, the Assessing Officer held that the money received by the assessee from the above said company cannot be considered as genuine source and accordingly did not accept the said source. 4. The AO noticed that the assessee has incurred expenses on stamp duty and registration charges amounting to Rs. 0.70 lakhs. Hence the AO added Rs.4.06 crores and Rs.0.70 lakhs, both aggregating to Rs.4,76,69,956/- as unexplained income under section 69 of the Act. The Learned DRP confirmed the addition and accordingly, the AO added the above said amount in the final assessment order. Hence the assessee has filed this appeal before the Tribunal. 5. The Learned AR submitted that the assessee is a resident of Singapore and does not have any source of income in India and hence there is no requirement to file return of income under Indian Income Tax Act. The Learned AR further submitted that the assessee has, in fact, purchased the property for a sum of Rs.15.15 crores and the payments have been made in Mohit Maheshwari 3 several installments commencing from financial year 2012-13. He furnished details of payment as under:- F.Y. AMOUNT TOTAL AMOUNT SOURCE OF PAYMENT 2012-13 25,00,000 25,00,000 REMITTANCE FROM FATHER 2013-14 3,15,60,560 3,15,60,560 REMITTANCE FROM FATHER 2014-15 1,74,98,301 1,74,98,301 REMITTANCE FROM FATHER 2015-16 7,70,00,000 7,70,00,000 STATE BANK OF INDIA-HOME LOAN 2016-17 1,20,00,000 1,20,00,000 STATE BANK OF INDIA-HOME LOAN 2017-18 1,10,00,000 1,10,00,000 STATE BANK OF INDIA-HOME LOAN 15,15,58,861 The Learned AR submitted that the assessee has duly explained the sources for making above said investment, i.e., Rs.10.00 crores loan was availed from State Bank of India and the remaining amount was received by way of remittances from the father of the assessee, who is a Singapore resident. However, the Assessing Officer has rejected the claim of receipt of money from M/s. Royal Global Exports Pte Limited/father on the reasoning that they were involved in smuggling of cocaine and hence the funds are tainted one. He contended that the above said reasoning given by the AO is not in accordance with the provisions of sec. 69 of the Act. He submitted that the AO was otherwise satisfied with the fact that the amount of Rs.4.06 crores was received from abroad. He contended that the AO is not entitled to make any addition, once he is satisfied with the sources explained by the assessee. He submitted that the allegation is that the payer M/s Royal Global Exports Pte Ltd is involved in smuggling of cocains and the legality or illegality in generation of funds by the lender is not relevant for income tax purposes both in the hands of the lender and the assessee. So far as the assessee is concerned, it is a fund received from the above said company/father by way Mohit Maheshwari 4 of remittances and the AO is not entitled to assess foreign remittances as income of the assessee, once he accepts that the assessee has received funds from abroad. He further submitted that the AO has ignored the fact that the assessee has not been charged in committing of above said alleged offence. 6. The Ld A.R submitted that, even if it is considered for a moment that the allegation of smuggling is relevant for income tax proceedings, yet the facts remain that all the accused in the above said case have been acquitted as on date and the case has been finally closed. He further submitted that PMLA court has also discharged all the accused. Accordingly, he submitted that the allegation of the Assessing Officer that the assessee has used tainted money for purchasing property does not survive as on date. He reiterated that the above said facts are not relevant in income tax proceedings. 7. He submitted that the AO has omitted to consider certain vital facts, i.e., he has made the addition on the presumption that the entire purchase consideration has been paid during the year under consideration. Referring to the table of payments extracted above, the Ld A.R submitted that during the financial year 2015-16 relevant to A.Y. 2016-17, i.e., during the year under consideration, the assessee has paid a sum of Rs. 7.70 crores only and further, the entire payment has been made out of housing loan taken from State bank of India. He submitted that the AO has accepted the sources available by way of bank loans. In the absence of any other payment made during this year, AO was not correct in law in making the impugned addition u/s 69 of the Act on presumptions. Accordingly, he prayed that the impugned addition made by the Assessing Officer may kindly be deleted. 8. The Learned DR, on the contrary, submitted that the assessee has brought on record certain new facts and arguments. Hence those factual aspects require verification at the end of the Assessing Officer. Mohit Maheshwari 5 9. In the rejoinder, the Ld A.R submitted the assessee has submitted before AO as well as Ld DRP that the consideration has been paid in installments from Financial Year 2012-13 to 2017-18. He submitted that the Ld DRP has extracted the details of payments made by the assessee at page 36 of its order. 10. We have heard the rival contention and perused the record. We noticed that the Assessing Officer has made the impugned addition of Rs. 4.76 crores only on the reasoning that the above said sum was received from M/s. Royal Global Exports Pte Limited, Singapore and the said company and some other persons have been charged with smuggling of cocaine, i.e. according to the Assessing Officer if the sources of fund is out of any tainted money, then the same is required to be ignored for the purposes of section 69 of the Act. We notice that the above said view of the AO do not find support from the provisions of sec.69 of the Act. A perusal of the provisions of sec.69 would show that it enables the AO to make addition (a) if the assessee offers no explanation about the nature and source of acquisition of asset or (b) if the AO is not satisfied with the explanation offered by the assessee. We notice that the Assessing Officer has accepted the fact that the amount of Rs.4.76 cores has been received from abroad, i.e., from M/s. Royal Global Exports Pte Limited/father of the assessee. Hence, it is evident that the AO was satisfied with the explanation offered by the assessee with regard to the nature and source of making investment. We have noticed that the AO has refused to accept the source only for the reason that the lender of money is alleged with committing of some offence and hence the money is a tainted one. In our view, as rightly contended by Ld AR, the question as to whether income earned by the lender is legal or illegal is not relevant when assessing the income of the assessee, that too when invoking the provisions of Sec.69 of the Act. If the AO is otherwise satisfied with the explanation given by the Mohit Maheshwari 6 assessee with regard to the nature and source of investment, then, in our view, no addition u/s 69 of the Act could be made. Hence, in our view, the reasoning given by the AO and that confirmed by Ld DRP would fail and the impugned addition is liable to be deleted. 11. In any case, it is the submission of learned AR that all the persons accused under NDPS Act on the allegation of smuggling of cocaine have been acquitted and no further proceedings is pending. It was also stated that the PMLA court has also discharged all the accused. Though these factual aspects are not relevant for the issue under consideration, yet it is the case of learned AR that the very basis on which the impugned addition was made no longer survives and on this count also the impugned addition is liable to be deleted. We find merit in the above said submissions. 12. We notice that the Ld A.R has brought to our notice yet another important fact, which has been totally ignored by the AO/DRP. It is the submission of learned AR that the assessee has paid the purchase consideration in installments as stated in the table above. Further, during the financial year 2015-16 relevant to A.Y. 2016-17 i.e. during year under consideration the assessee has paid a sum of Rs. 7.70 crores only towards purchase of residential property. It is further stated that the above said fund has been paid out of the housing loan taken from the State Bank of India. Thus according to Ld A.R, the assessee has not paid the impugned amount of Rs.4.76 crores during the year under consideration. When no payment has been made during the year under consideration over and above the amount of Rs. 7.70 crores, in our view, there is no scope for making any addition during the year under consideration. The above said submission of Ld A.R would show that the assessee has not received the amount from M/s Royal Global Exports Pte Limited/father during the year under consideration. In that case, there is no scope for making addition in AY 2016-17. Mohit Maheshwari 7 13. In our view, the submission of the assessee that he has paid a sum of Rs.7.70 crores only during the year under consideration out of bank loan would turn in his favour. If the assessee has not paid the impugned amount of Rs.4.76 crores during the year under consideration, no addition u/s 69 of the Act could be made. We notice that these factual aspects have not been examined by the AO. In our view, they require examination as it supports the case of the assessee. Accordingly, we set aside the order passed by the Assessing Officer on this issue and restore the same to his file for the limited purpose of examining the details of payment of consideration in installments. If the assessee has paid a sum of Rs.7.70 crores only during the year under consideration, which is claimed to be funded out of bank loan and if the amount of Rs.4.76 crores has not been received during the year under consideration, then no addition u/s 69 is warranted. The AO may verify these aspects in the set aside proceedings in the light of principles discussed above. Needless to mention, that the assessee should be provided with an adequate opportunity of being heard. 15. The assessee has raised certain alternative grounds. In view of the principles of taxation relevant to the facts of this case discussed above, we are of the opinion that the said alternative grounds are rendered academic in nature. Hence we decline to adjudicate them. 16. In the result, appeal filed by the assessee is treated as allowed for statistical purposes. Pronounced in the open court on 24.5.2023. Sd/- Sd/- (PAVAN KUMAR GADALE) (B.R. BASKARAN) Judicial Member Accountant Member Mumbai; Dated : 24/05/2023 Mohit Maheshwari 8 Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. The CIT(Judicial) 4. PCIT 5. DR, ITAT, Mumbai 6. Guard File. BY ORDER, //True Copy// (Assistant Registrar) PS ITAT, Mumbai