I.T.O.(IT)-3(1), MUMBAI V. MS NAMITA KHANNA, MUMBAI

ITA 816/MUM/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 2219 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-05-2010
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2005-2006
• Appeal Filed On: 06-02-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: SUSHANT DAS; S C KAPADIA
• Keywords: Unexplained investment; Source of fund; Cost of acquisition; Fair market value
• Section: 68; 69

Judgement Text

AIN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH B, MUMBAI BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI A.L. GEHLOT, ACCOUNTANT MEMBER ITA NO. 816/M/09 ASSESSMENT YEAR: 2005-06 INCOME TAX OFFICER(IT)-3(1), APPELLANT R.NO. 114, SCINDIA HOUSE, BALLARD PIER, MUMBAI 40 038 VS. MS NAMITA KHANNA, RESPONDENT 132, BUENA VISTA GEN J B MARG, NARIMAN POINT MUMNBAI 400 021 (PAN AGRPK3856B) APPELLANT BY : MR. AARSI PRASAD RESPONDENT BY : MR. S.C. KAPADIA & MR. SUSHANT DAS ORDER PER A.L. GEHLOT, A.M.: THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAIN ST THE ORDER PASSED BY THE CIT(A)-XII, MUMBAI, ON 29TH OCTOBER , 2008 FOR THE ASSESSMENT YEAR 2005-06. 2. GROUND NO. 1 IS THAT THE CIT(A) ERRED IN DIRECTI NG THE AO TO RECOMPUTE THE CAPITAL GAIN BY TAKING INTO CONSIDERA TION THE FAIR MARKET VALUE AS ON 01.04.1981 AS SHOWN BY THE ASSES SEE AND DETERMINE THE COST INFLATION INDEX OF THE PROPERTY AS ON 01.04.1981. 3. THE LEARNED REPRESENTATIVES OF THE PARTIES SUBMI TTED THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE D ECISION OF THE ITAT, MUMBAI BENCH IN THE CASE OF CO-OWNERS IN THE CASE O F MR. VIVEK V. ITA NO. 816/M/09 NAMITA KHANNA 2 NAYYAR IN ITA NO. 166/M/2009 VIDE ORDER DATED 9.3.2 010 WHEREIN THE ITAT HELD AS UNDER:- 3. WE HAVE HEARD BOTH THE PARTIES PERUSED THE RECOR DS AND CONSIDERED THE MATTER CAREFULLY. THERE IS NO DISPUT E THAT THE ASSESSEE HAD RECEIVED THE PROPERTY BY INHERITANCE O N DEATH OF HIS FATHER ON 5.3.90 AND THEREFORE PROVISIONS OF SECTIO N 49(1) ARE APPLICABLE AND THE COST TO THE ASSESSEE HAS TO BE T AKEN AS COST TO THE PREVIOUS OWNER WHO WAS HIS FATHER WHO HAD ACQUI RED THE PROPERTY ON FAMILY PARTITION ON 30.3.1976. FURTHER IN SUCH CASES AS PER SECTION 2(42A) THE PERIOD FOR WHICH THE PREV IOUS OWNER HELD THE PROPERTY HAS ALSO TO BE TAKEN INTO ACCOUNT IN COMPUTING THE HOLDING PERIOD. SINCE THE PREVIOUS OWNER ACQUIR ED THE PROPERTY PRIOR TO 1.4.81 THE COST HAS TO BE TAKEN A S FMV AS ON 1.4.81 AND THE COST INDEX OF THAT DATE HAS TO BE TA KEN INTO ACCOUNT IN COMPUTING THE INDEXED COST. AS REGARDS T HE FMV, THE ASSESSEE HAD FILED THE REGISTERED VALUERS REPORT R EGARDING THE FMV AS ON 1.4.81. IN THE OPINION OF THE AO THE FMV GIVEN BY THE REGISTERED VALUER WAS HIGHER THAN THE MARKET VALUE AND THEREFORE PROVISIONS OF SECTION 55(A) WILL NOT BE APPLICABLE. FURTHER THE PROVISIONS OF SECTION 55(B) WILL ALSO NOT APPLICABL E AS THIS WILL APPLY ONLY WHEN THE ASSESSEE HAD NOT FILED ANY REGI STERED VALUERS REPORT. THIS VIEW IS SUPPORTED BY THE DEC ISION OF COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF SMT . KRISHANBAI TINGRE (101 ITD 317). IN TERMS OF THE SAID DECISION OF THE COORDINATE BENCH THE REFERENCE MADE BY THE AO TO TH E DVO IS LEGALLY INVALID AND THE COST OF ACQUISITION BE AS P ER THE REPORT OF THE REGISTERED VALUER HAS TO BE ACCEPTED. WE THEREF ORE SEE NO INFIRMITY IN THE ORDER OF CIT(A) UPHOLDING THE COMP UTATION OF CAPITAL GAIN MADE BY THE ASSESSEE AND THE SAME IS T HEREFORE UPHELD. 4. AFTER HEARING THE LEARNED REPRESENTATIVES OF THE PARTIES AND PERUSING THE RECORD, WE FIND THAT ON IDENTICAL SET OF FACTS THE ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE I TAT IN THE CO- OWNERS CASE IN THE CASE OF MR. VIVEK V. NAYYAR (SU PRA), WE RESPECTFULLY FOLLOW THE ORDER OF THE ITAT AND IN TH E LIGHT OF THAT WE CONFIRM THE ORDER OF THE CIT(A) ON THIS ISSUE. 5. GROUND NO. 2 IS AGAINST THE ACTION OF THE LEARNE D CIT(A) IN DELETING THE ADDITION OF RS. 30,00,000/- MADE BY TH E AO HOLDING THAT THE INVESTMENT IN PAINTING IS THE UNEXPLAINED INCOM E OF THE ASSESSEE UNDER SECTION 69 OF THE ACT. ITA NO. 816/M/09 NAMITA KHANNA 3 6. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSES SEE HAS CREDITED AN AMOUNT OF RS. 30,00,000/- AS FOREIGN REMITTANCES (PAINTING PURCHASED). THE AO ASKED TO PROVE THE PURCHASE/ACQU ISITION OF THE PAINTING. THE ASSESSEES VIDE HIS LETTER DATED 15 TH OCTOBER, 2007 REPLIED AS UNDER:- THE ASSESSEE IS AN NRI AND HER HUSBAND HAS PURCHASE D A PAINTING WORTH USD $ 68075 (COPY OF BILL ENCLOSED) FOR THE ASSESSEE. THE ASSESSEE HAS BOUGHT THE PAINTING TO I NDIA & HAS REFLECTED THE SAID PAINTING IN HER PERSONAL BALANCE SHEET IN INDIAN RUPEE BY CONVERTING THE USD $ INTO RUPEE PRE VAILING RATE AT RS. 30 LACS. 7. THE AO FURTHER ASKED THE ASSESSEE TO EXPLAIN THE CREDIT OF RS. 30 LAKHS FOR OPENING IN CAPITAL ACCOUNT. THE SUBMIS SION OF THE ASSESSEE HAS REPRODUCED BY THE AO IN HIS ORDER AT P AGE 3 READS AS UNDER:- DUE TO OVERSIGHT, ALONG WITH LETTER DATED 15.10.20 07, COPY OF PROFORMA INVOICE WAS SUBMITTED WITH YOU. NOW WE HEREBY SUBMIT COPY OF ACTUAL PURCHASE BILL N O. PSI/C/05- 315-125 DATED 12.3.2005 IN NAME OF NAMITA KHJANNA A ND DEEPAK KHANNA, FOR TOTAL VALUE OF USD $ 68326, WHIC H HAS BEEN CREDITED IN CAPITAL ACCOUNT OF THE ASSESSEE IN INDI A AFTER CONVERSION INTO RUPEE DOLLAR EXCHANGE RATE AT RS. 30,00,000/- AS THE PAINTING IS BROUGHT BY NAMITA KHANNA TO INDI A. AS THE ASSESSEE IS NON-RESIDENT INDIAN AND HAD PURC HASED PAINTING OUTSIDE INDIA, WHEN SHE BROUGHT THE PAINTI NG TIN INDIA, SAME WAS RECORDED IN HER CAPITAL ACCOUNT AT RS. 30, 00,000/- ON CONVERSION OF RUPEE DOLLAR RATE. 8. THE AO ASKED THE ASSESSEE TO SHOW THE CAUSE WHY THE CREDIT ENTRY OF RS. 30 LAKHS IN THE CAPITAL ACCOUNT BEING FOREIGN REMITTANCES PAINTING PURCHASE, SHOULD NOT BE TREATED AS UNEXP LAINED CREDIT U/S 68/69 OF THE ACT. THE SUBMISSION OF THE ASSESSEE HA S BEEN REPRODUCED BY THE AO AT PAGE 4 OF HIS ORDER, EXTRAC TED BELOW: THE ASSESSEE IS A NON-RESIDENT INDIAN (NRI) WORKING OUTSIDE INDIA. SHE IS ALSO HAVING INCOME IN INDIA & FILING HER TAX RETURNS REGULARLY SHOWING HER INCOME / EXPENDITURE AND ASSE TS/LIABILITIES IN INDIA. DURING THE FINANCIAL YEAR 2004-05, THE ASSESSEE HAS PURCHASED A PAINTING OUTSIDE INDIA FOR TOTAL VALUE OF USD 68326 AND PAYMENT ITA NO. 816/M/09 NAMITA KHANNA 4 FOR THE PAINTINIG HAS BEEN MADE IN FOREIGN CURRENCY I.E IN USD OUTSIDE INDIA, OUT OF THE INCOME EARNED BY THE ASSE SSEE OUTSIDE INDIA. THE PAINTING WAS BROUGHT TO INDIA BY THE ASS ESSEE, WHILE SHE PERSONALLY VISITED TO INDIA, DURING THE ASSESSM ENT YEAR 2005- 06 AND SINCE THEN THE PAINTING IS KEPT BY HER IN IN DIA. SINCE THE ASSESSEE IS FILLING HER BALANCE SHEET IN INDIA, IN ORDER TO SHOW THE PAINTING IN THE BALANCE SHEET, THE ASSESSEE HAS RECORDED IN HER ACCOUNT, BY SHOWING THE PAINTING AS ON ASSET IN BALANCE SHEET AFTER CONVERSION TO RUPEE DOLLAR EXCHANGE RAT E AT RS. 30,00,000/- AND CREDITING HER CAPITAL ACCOUNT FOR R S. 30,00,000/- . THE ABOVE ACCOUNTING ENTRIES HAS BEEN PASSED THRO UGH JOURNAL ENTRIES BY DEBITING PAINTING FOR RS. 30,00,000/- AN D CREDITING BY CAPITAL ACCOUNT BY RS. 30,00,000/- BEING FOREIGN EX CHANGE REMITTANCE OUTSIDE INDIA BY THE ASSESSEE. WE SAY TH AT NO ACTUAL FUNDS/MONEY HAS BEEN DEPOSITED/CREDITED IN THE BANK ACCOUNT OF THE ASSESSEE IN INDIA FOR THE ABOVE PAINTING PURCHA SED. IT IS ONLY TO SHOW TRUE PICTURE OF HER BALANCE SHEET IN INDIA, THE ENTRIES HAS BEEN PASSED TO ACCOUNT FOR AN ASSET, WHICH HAS BEEN HELD BY THE ASSESSEE IN INDIA AFTER PURCHASING OUTSIDE INDIA. SINCE THERE IS NO ACTUAL CASH CREDITS/DEPOSITS IN T HE BANK ACCOUNT OF THE ASSESSEE, MAINTAINED IN INDIA, PROVI SIONS OF SECTION 68 OF THE INCOME-TAX ACT IS NOT APPLICABLE TO THE CREDIT ENTRY OF RS. 30,00,000/- APPEARING IN THE CAPITAL A CCOUNT OF THE ASSESSEE AND SIMILARLY THE PROVISION OF SECTION 69 OF THE INCOME- TAX ACT IS ALSO NOT APPLICABLE TO THE PAINTING SHOW N IN THE BALANCE SHEET AS AN ASSET. 9. AFTER CONSIDERING THE ASSESSEES SUBMISSIONS, TH E AO NOTICED THAT THE ASSESSEE FURNISHED AN UNSIGNED PROFORMA IN VOICE DATED 10 TH JANUARY, 2005, WHICH IS IN THE NAME OF MR. DEEPAK K HANNA. THE ASSESSEE VIDE HER LETTER DATED 15 TH OCTOBER, 2007 EXPLAINED THAT PAINTING PURCHASED BY HER HUSBAND WERE BROUGHT TO I NDIA AND REFLECTED IN ASSESSEES PERSONAL ACCOUNT AFTER CONV ERTING INTO INDIAN RUPEES AT THE PREVAILING RATE AT RS. 30 LAKHS. THE AO FURTHER NOTED THAT THE ASSESSEE VIDE LETTER DATED 7 TH NOVEMBER, 2007 FURNISHED ANOTHER BILL, WHICH IS SALE INVOICE DATED 15.3.2005 FOR SIMILAR AMOUNT, WHICH IS IN THE NAME OF THE ASSESSEE AND HER HUSBAN D (NAMITA KHANNA AND DEEPAK KHANNA). THE AO NOTED THAT HE VAL UE FOR DOLLARS $ 68326M AND $ 68075 WERE THE SAME AMOUNT IN INDIAN RUPEES RS. 30 LAKHS. THE AO FURTHER NOTED THAT THE ASSESSEE COULD NOT GIVE ANY DOCUMENTARY EVIDENCE FOR PAYMENT OF $ 68075 & $6832 6. IT WAS ALSO NOTED BY THE AO THAT THE ASSESSEE HAS NOT GIVEN ANY DOCUMENTARY ITA NO. 816/M/09 NAMITA KHANNA 5 EVIDENCE THAT THE PAINTING PURCHASED FROM USA AND S HIPPED TO VIETNAM WERE ACTUALLY BROUGHT TO INDIA. THE ASSESSE E HAD NOT GIVEN ANY EXPLANATION ABOUT THE SOURCE OF FUND, UTILIZED FOR PURCHASE OF THESE ALLEGED PAINTINGS AND HOW SUCH HUGE PAYMENTS WERE MADE ON 10.01.2005 AS PER ALLEGED INVOICES. THE AO MADE TH E ADDITION BY OBSERVING AS UNDER:- 13. FURTHER, AS PER THE SALES INVOICE THE PAINTINGS ARE STATED TO HAVE BEEN PURCHASED BY ASSESSEE AND HER HUSBAND IN THAT CASE, HOW THE PAYMENTS ARE MADE, IS VERY CRUCIAL TO DECID E THE SHARES OF EACH PERSON. IN SUPPORT OF PAYMENT OF PURCHASE C ONSIDERATION, ASSESSEE HAS NOT GIVEN ANY DOCUMENTARY EVIDENCES. A SSESSEE IS DUTY BOUND TO PROVE THE PURCHASE AND PAYMENT THEREO F AS STATED IN THE INVOICES NOW FURNISHED. IN THE CIRCUMSTANCES , I HOLD THAT THE ASSESSEE HAS NOT PROVED THE PURCHASE OF PAINTIN G AND DEBIT SUPPORTING DOCUMENTS FOR PAYMENTS OF US $ 68326, AM OUNTING TO RS. 30 LAKHS. SINCE THE SOURCE OF PAYMENT OF RS. 30 LAKHS IS NOT PROVED WITH DOCUMENTARY EVIDENCE, THE INVESTMENT IS UNEXPLAINED. ACCORDINGLY, THE SAID AMOUNT OF RS. 3O LAKH, DEBITED TO PAINTING ACCOUNT AND CREDITED TO THE CAPITAL ACC OUNT IS ASSESSEES UNEXPLAINED INVESTMENT UNDER SECTION 69 OF HE ACT, AND IS TO BE ADDED BACK TO THE TOTAL INCOME. ACCORD INGLY, RS. 30 LAKH IS ADDED BACK UNDER SECTION 69 AS UNEXPLAINED INVESTMENT IN PAINTINGS. 10. THE LEARNED CIT(A) DELETED THE SAID ADDITION O BSERVING AS UNDER:- 3.3 I HAVE CONSIDERED THE SUBMISSIONS MADE FOR THE APPELLANT AND THE ASSTT. ORDER. THE AOS OBSERVATION THAT US$ 68075 AND 68326 COULD NOT REPRESENT THE SAME AMOUNT OF RS. 30 LAKHS HAVE BEEN EXPLAINED AS DUE TO THE FACT THAT THE SAID TWO AMOUNTS REPRESENTS A PROFORMA BILL AND THE FINAL BILL. THE FACT THAT APPELLANT IS AN NRI AND WORKING ABROAD HAD NOT BEEN DISPROVED. THE FACT THAT THE FOREIGN REMITTANCES APPEARING IN HER CAPITAL A/C FILED WITH HER RETURN OF INCOME IN INDIA REPRESENTS HER INCOME FROM ABROAD IS ALSO NOT DISPUTED. THE APPELLANT HAD ALSO SUBMITTED THE PURCHASE BILL EVIDENCING THAT THE PUR CHASES WERE MADE OUTSIDE INDIA AND PAYMENTS WERE MADE IN US$. T HE AOS OBSERVATION THAT MERE PRODUCTION OF BILL DO NOT LEA D TO THE CONCLUSION THAT THE APPELLANT HAD PURCHASED THE PAI NTING WITH HER INCOME DECLARED TO THE DEPT. DOES NOT HOLD GOOD . THE APPELLANT BEING AN NRI IS NOT REQUIRED TO SHOW HER FOREIGN INCOME, WHICH IS NOT TAXABLE IN INDIA, IN THE RETUR N OF INCOME FILED IN INDIA. THE APPELLANT HAD SHOWN IN HER CAPITAL A/ C THE FOREIGN REMITTANCES THEREBY EVIDENCING HER FOREIGN INCOME. THE AO HAD NOT BROUGHT ANY MATERIALS TO SHOW THAT THE APPELLAN T DID NOT HAVE INCOME FROM FOREIGN COUNTRIES. THE FACT THAT T HE APPELLANT ITA NO. 816/M/09 NAMITA KHANNA 6 WAS EARNING INCOME IN FOREIGN COUNTRY, THE PURCHASE OF PAINTING ABROAD CANNOT BE OVERLOOKED IN THE ABSENCE OF ANY E VIDENCES TO THE CONTRARY. IN VIEW OF THE ABOVE I DO NOT FIND AN Y JUSTIFICATION IN HOLDING THE PAINTING VALUED AT RS. 30 LAKHS TO BE A N UNEXPLAINED INVESTMENT U/S 69. ACCORDINGLY, THE AO IS DIRECTED TO DELETE THE ADDITION OF RS. 30 LAKHS. THE ABOVE GROUNDS OF APPE AL ARE ALLOWED. 11. THE LEARNED AR HAS REITERATED THE SUBMISSIONS, WHICH WERE MADE BEFORE THE REVENUE AUTHORITIES THAT THE ASSESS EE AND HER HUSBAND ARE NRIS. THE ASSESSEES HUSBAND DEEPAK KH ANNA IS WORKING WITH WORLD BANK IN VIETNAM. THE ASSESSEE IS ALSO WORKING AS A CONSULTANT TO PLANET SAFRON INC AND IS RECEIVING CONSULTANCY CHARGES FOR ARTS SOURCING FOR VIETNAM AND FAR EAST ASIA. AS THE ASSESSEE IS A NRI, SHE HAD PURCHASED THE PAINTING O UTSIDE INDIA AND WHEN THE PAINTING WAS BROUGHT TO INDIA IT WAS REFLE CTED IN HER CAPITAL AT RS. 30 LACS ON CONVERSION OF THE DOLLAR TO RUPEE RATE. THE VALUE OF THE PAINTING WAS REFLECTED IN ASSESSEES BALANCE SH EET FILED IN INDIA. HE SUBMITTED THAT THE PROFORMA INVOICES WERE ALSO F ILED BEFORE THE AO. THE LEARNED AR RELIED UPON THE DECISION OF ITAT, CH ENNAI BENCH IN THE CASE OF SMT. SUSILA RAMASAMY VS. ACIT, [201`0] 37 SAOT 146 (CHENNAI) AND ALSO RELIED UPON THE CBDT CIRCULAR NO . 168, DATED 28 TH FEBRUARY, 1969. 12. THE LEARNED DR, ON THE OTHER HAND, RELIED UPON THE ORDER OF THE AO. 13. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF TH E PARTIES AND PERUSED THE RECORD. THE ADMITTED FACTS OF THE CASE ARE THAT THE ASSESSEE HAS SHOWN RS. 30 LAKHS IN HER CAPITAL ACCO UNT AND IN THE BALANCE SHEET AS AT 31.03.2005. FOR THE READY REFER ENCE, THE CAPITAL ACCOUNT AND BALANCE SHEET OF THE ASSESSEE ARE REPRO DUCED AS UNDER:- ITA NO. 816/M/09 NAMITA KHANNA 7 CAPITAL ACCOUNT FOR THE YEAR ENDED 31.032.005 TO DEMAT CHARGES 882.43 BY BALANCE B/F 7158158.61 TO PROFESSIONAL FEES 15000.00 BY RENT FROM BANGALORE PROPERTY 46200.00 TO SOCIETY CHARGES 1450.00 BY RENT FROM DELHI PROPERTY 221365.00 TO BANK CHARGES 405.00 BY DIVIDEND 37894.00 TO ADVANCE TAX 30000.00 BY BANK INTEREST 1975.00 TO TELEPHONE EXPENSES 1754.49 BY 1/3 RD SHARE INCOME IN NVR TRUST 21868.76 TO DRAWINGS 268525.00 BY PPF INTEREST 52586.00 TO LIC 16022.00 BY COMMISSION 59261.00 TO TRAVELLING EXP. 5300.00 BY LIC MONEY BACK REFUND 50000 TO TDS(COMMISSION) 17779.00 BY PROFIT ON SALE OF DELHI PROPERTY 3136561.00 TO BALANCE C/D 13825044.50 BY PROFIT ON REDEMPTION OF SBI TRIPLE MAGNUM 191746.05 BY FOREIGN REMITTANCES (PAINTING PURCHASED) 3000000.00 14182192.42 14182192.42 BALANCE SHEET AS ON 31 ST MARCH, 2005 LIABILITIES AMOUNT ASSETS AMOUNT CAPITAL ACCOUNT 13825044.50 BUENA VESTA FLAT (PAYMENTS FOR REDEEMING MORTGAGE RIGHT OF SBI TO THE EXTENT OF 1/3 RD SHARE ALONG WITH VIVEK & RITU NAIR 1300000.00 RITU NAIR 1099132.50 1/3 RD SHARES OF PROPERTY AT BANGALORE 1551382.00 RUMMA NAIR 49160.00 JEWELLERY 100000.00 PAINTINGS PURCHASED-PERSONAL EFFECTS (AS PER LIST ATTACHED) 4100000.00 INVESTMENTS TEMPLETON FLOATING RATE BOND 200000.00 ULIP 54000.00 INTEREST ACCRUED ON ABOVE 4250.00 PPF BALANCE 849187.00 ITA NO. 816/M/09 NAMITA KHANNA 8 INVESTMENTS IN SHARES (AS PER LIST ATTACHED) 1519272.00 NSC 10000.00 INTEREST ACCRUED ON NSC 10291.00 CUMULATIVE TIME DEPOSIT 8000.00 RECEIVABLE FROM BALANCE IN NVR TRUST 398621.64 VIVEK NAYYAR 4423009.23 USHA MORE 220000.00 CASH & BANK BALANCE BANK 221089.33 CASH IN HAND 4252.80 14973337.00 14973337.00 THE DETAILS OF LIST ATTACHED TO BALANCE SHEET IS AS UNDER:_ YEAR NAME OF ARTICLE/THEME AMOUNT 2005 AKBARPADAMSEE/MAN WITH TIE 30,00,0 00/- 2002 RAZAABSTRACT 11,00,000/- --------------------- 41,00,000/- ================ 14. THE LIMITED ISSUE TO BE EXAMINED HERE IS WHETHE R THE AO IN INDIA HAS EMPOWERED TO EXAMINE CREDIT OF ENTRY OF C APITAL ACCOUNT OF NRI AND TO MAKE ADDITION IN TOTAL INCOMEUNDER THE I NCOME TAX ACT. WE FIND THAT THE AO HAS MADE THE ADDITION UNDER BOT H THE SECTIONS 68 & 69 OF THE ACT. THE SECTION 68 & 69 READ AS UNDER: - S. 68. WHERE ANY SUM IS FOUND CREDITED IN THE BOOKS OF AN ASSESSEE MAINTAINED FOR ANY PREVIOUS YEAR, AND THE ASSESSEE OFFERS NO EXPLANATI ON ABOUT THE NATURE AND SOURCE THEREOF OR THE EXPLANATION OFFERED BY HIM IS NOT, I N THE OPINION OF THE [ASSESSING] OFFICER, SATISFACTORY, THE SUM SO CREDITED MAY BE C HARGED TO INCOME-TAX AS THE INCOME OF THE ASSESSEE OF THAT PREVIOUS YEAR. S. 69. WHERE IN THE FINANCIAL YEAR IMMEDIATELY PRECEDING T HE ASSESSMENT YEAR THE ASSESSEE HAS MADE INVESTMENTS WHICH ARE NOT RECORDE D IN THE BOOKS OF ACCOUNT, IF ANY, MAINTAINED BY HIM FOR ANY SOURCE OF INCOME, AND THE ASSESSEE OFFERS NO EXPLANATION ABOUT THE NATURE AND SOURCE OF THE INVESTMENTS OR T HE EXPLANATION OFFERED BY HIM IS ITA NO. 816/M/09 NAMITA KHANNA 9 NOT, IN THE OPINION OF THE [ASSESSING] OFFICER, SAT ISFACTORY, THE VALUE OF THE INVESTMENTS MAY BE DEEMED TO BE THE INCOME OF THE ASSESSEE OF S UCH FINANCIAL YEAR. 15. AS STATED ABOVE, THE ASSESSEE HAS CREDITED RS. 30 LAKHS IN CAPITAL ACCOUNT, THEREFORE, IT IS AN ADMITTED FACT THAT A SUM OF RS. 30 HAS BEEN FOUND CREDITED IN BOOKS OF ACCOUNT. SECTIO N 68 EMPOWERS THE AO THAT ANY SUM IS FOUND CREDITED IN BOOKS OF ASSES SEE AND THE ASSESSEE DID NOT OFFER EXPLANATION ABOUT ANY SOURCE THEREOF, OR EXPLANATION OFFERED BY HIM IS NOT IN THE OPINION OF THE AO SATISFACTORILY, THE SUM SO CREDITED CAN BE CHARGED TO TAX AS INCOME OF THE ASSESSEE IN THE PREVIOUS YEAR. IN THE CASE UND ER CONSIDERATION, SUCH CAPITAL ACCOUNT AND BALANCE SHEET CAN BE DRAWN ONLY ON THE BASIS OF BOOKS OF ACCOUNT. THE DECISION OF ITAT, CH ENNAI BENCH IN THE CASE OF SMT. SUSILA RAMASAMY VS. ACIT, [201`0] 37 S OT 146 (CHENNAI) HEAVILY RELIED UPON BY THE LEARNED AR IS DISTINGUISHABLE ON FACTS AS IN THAT CASE THE ASSESSEE WAS A NON-RESIDE NT INDIAN MADE SUBSTANTIAL NON RESIDENT NON REPATRIABLE (NRNR), FO REIGN CURRENCY NON RESIDENT (FCNR) AND NRSB DEPOSITS WITH INDIAN BANK. THE ASSESSEE FILED RETURN OF INCOME. THE AO WHILE MAKING THE ASS ESSMENT MADE THE ADDITION OF THOSE FOREIGN REMITTANCES U/S 69 OF THE ACT WHERE AS IN THE CASE UNDER CONSIDERATION THERE IS NO SUCH FOREIGN R EMITTANCE. THE FACTS OF THE CASE UNDER CONSIDERATION ARE VERY CLEA R AND SIMPLE. THE ASSESSEE CREDITED RS. 30 LAKHS IN CAPITAL ACCOUNT O N ACCOUNT OF PAINTING. THE ASSESSEE FAILED TO EXPLAIN THE SOURCE OF THAT PAINTING. THE CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE SIMPLY ON THE GROUND THAT THE ASSESSEE IS NRI. THE FINDING OF CIT(A) IS THAT THERE IS NO DISPUTE THAT THE ASSESSEE HAD INCOME OUTSIDE INDIA. THIS FINDING OF CIT(A) IS SIMPLY BASED ON PRESUMPTION ON THE BASIS OF ROUTINE AND GENERAL SUBMISSIONS OF THE ASSESSEE. THE CIT(A) HAS ALSO WRONGLY GIVEN A FINDING THAT SINCE THE ASSESSEE CREDITED TH E AMOUNT IN HER CAPITAL ACCOUNT, IT IS EVIDENT THAT THERE IS REMITT ANCE FROM FOREIGN WHERE NO SUCH MATERIAL IS ON RECORD AND NO SUCH MAT ERIAL POINTED OUT AT THE TIME OF HEARING BEFORE US THAT THE ASSESSEE RECEIVED FOREIGN REMITTANCE OR THE SOURCE OF INVESTMENT MADE IN PURC HASES OF PAINTING. ITA NO. 816/M/09 NAMITA KHANNA 10 MERELY BY SAYING THAT THE ASSESSEE IS NRI, SOURCE O F PAINTING PURCHASED CANNOT BE TREATED AS THAT THE ASSESSEE HA S EXPLAINED THE SOURCE OF THE PAINTING PURCHASED. EVEN THE SOURCE O F PURCHASES OF THE PAINTING IS OUT OF FOREIGN INCOME THE AO IS EMPOWER TO ASK THE SOURCE OF THE PAINTING PURCHASED AND THE ASSESSEE HAS TO EXPLAIN THE SOURCE WHETHER IT IS OUT OF INCOME FROM INDIA OR FROM OUTS IDE INDIA. THE ASSESSEE HAS FAILED TO EXPLAIN THE SOURCE OF PAINTI NG PURCHASED, WHICH WAS ACCOUNTED FOR IN BOOKS OF ACCOUNT BY CREDITING IN CAPITAL ACCOUNT AND SHOWING IN THE BALANCE SHEET. IT IS A MATTER OF SURPRISE TO NOTE THAT THE SAID PAINTING STATED TO BE PURCHASED IN US D $ THAT MEANS THAT COUNTRY MUST BE A DEVELOPED COUNTRY THAN INDIA AND THERE MUST BE PERFECT SYSTEM OF TAX LAWS. IN INDIA IF THE ASS ESSEE CREDITED SUCH CREDIT ENTRY IN CAPITAL ACCOUNT AND SHOWING ASSET I N THE BALANCE SHEET, THE ASSESSEE HAS TO PROVE THE SOURCE OF THAT CREDIT ENTRY BY FILING RELEVANT ACCOUNT CONFIRMATION, RELEVANT BANK ENTRIES AND BALANCE SHEET ETC. PREPARED UNDER THE FOREIGN LAWS. IN THOSE FOREIGN COUNTRIES THERE MUST BE ALSO SYSTEM OF FILING RETUR N OF INCOME. THE ASSESSEE DID NOT SUBMIT ANY SUCH DETAILS NOR THE SA ME IS AVAILABLE ON RECORD. IT IS SETTLED LAW THAT IF THE BEST EVIDENCE IS NOT PRODUCED BEFORE THE COURT, ADVERSE INFERENCE CAN BE TAKEN. W E ARE, THEREFORE, OF THE CONSIDERED VIEW THAT THE CIT(A) HAS WRONGLY DEL ETED THE ADDITION, THEREFORE, WE SET ASIDE THE ORDER OF CIT(A) AND RES TORE THE ORDER OF AO AS THE AO HAS RIGHTLY MADE THE ADDITION U/S 68/69 O F THE ACT. ACCORDINGLY WE RESTORE THE ORDER OF THE AO BY SETTI NG ASIDE THE ORDER OF THE CIT(A) ON THIS COUNT. 16. IN THE RESULT, THE APPEAL OF THE REVENUE IS ALL OWED. PRONOUNCED IN OPEN COURT ON THIS 7 TH DAY OF MAY, 2010. SD/- SD/- (D. MANMOHAN) (A.L. GEHLOT ) JUDICIAL MEMBER ACCOUNTANT M EMBER DATED: 7 TH MAY, 2010 ITA NO. 816/M/09 NAMITA KHANNA 11 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A) CONCERNED. 4) THE CIT CONCERNED. 5) THE DEPARTMENTAL REPRESENTATIVE, D BENCH, I.T .A.T., MUMBAI. BY ORDER //TRUE COPY// ASST. REGISTRAR, I.T.A.T., MUMBAI. KV S.NO. DESCRIPTION DATE INITLS 1. DRAFT DICTATED ON 22.04.10 SR.P.S./P.S 2. DRAFT PLACED BEFORE AUTHOR 27.4.10 SR.P.S/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR.P.S./PS SR.P.S./P.S 6. KEPT FOR PRONOUNCEMENT ON SR. P.S./P.S. 7. FILE SENT TO THE BENCH CLERK SR.P.S./P.S 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER