The ITO(Inte.Taxa)-1, Ahmedabad V. Madhav Vasant Dalvi, Ahmedabad

ITA 995/AHD/2019

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 2663 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 1 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-07-2022
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2016-2017
• Appeal Filed On: 06-06-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Unexplained cash credit; Unexplained investment; Salary income; Principle of natural justice; Additional evidence
• Section: 6; 143(3); 142(1); 5(2); 201; 69A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “B” BENCH Before: Shri Waseem Ahmed, Accountant Member And Shri T.R. Senthil Kumar, Judicial Member The Income Tax Officer, (International Taxation)-1, Ahmedabad (Appellant) Vs Madhav Vasant Dalvi 1, Parth Bunglows, Opp. Karnavati Club, S.G. Highways, Ahmedabad-380015 PAN: AAOPD3617J (Respondent) Appellant by : Shri Sudhendu Das, Sr. D.R. Respondent by : Shri S.N. Soparkar, Sr.Adv. & Shri Bandish Soparkar and Shri Parin Shah, A.R Date of hearing : 21-07-2022 Date of pronouncement : 27-07-2022 आदेश/ORDER PER : T.R. SENTHIL KUMAR, JUDICIAL MEMBER:- The present appeal has been filed by the Assessee against the order dated 18.03.2019 passed by the Commissioner of Income Tax (Appeals)-13, Ahmedabad, as against the Assessment order passed under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) relating to the Assessment Year (A.Y) 2016- 17. ITA No. 995/Ahd/2019 Assessment Year 2016-17 I.T.A No. 995/Ahd/2019 A.Y. 2016-17 Page No ITO vs. Madhav Vasant Dalvi 2 2. The brief facts of the case is that the assessee is a Non Resident Indian and residing at Maseru, Lesotho. For the Assessment Year 2016-17, the assessee filed its Return of Income on 20.07.2016 declaring total income of Rs. 4,40,160/-. The case was selected for scrutiny assessment. The assessee purchased immovable property for a consideration of Rs. 5,93,00,000/-. On verifying, it is found the source payment for purchase of the property is from the NRE bank account No. 27370100004782 with Bank of Baroda, Satellite Branch, Ahmedabad. The assessee was asked to furnish the source of credit appearing in the NRE bank account with documentary evidences. The assessee has furnished bank book showing narration of the transactions appearing in the NRE account. However, the assessee has not submitted the documentary evidence of source of credit in respect of debit/credit as per bank account statement in respect of following transactions. Date Narration Amount 04/04/2015 Inward Remit From BOB Mau-MVD 6222500 28/04/2015 Inward Remit From BOB Mau-MVD 6334500 14/08/2015 Inward Remit From BOB Mau-MVD 6457500 01/09/2015 Inward Remit From BOB Mau-MVD 121664420 2.1 A notice u/s. 142(1) was issued requesting the assessee to submit the details of debit and credit entries. The assessee replied vide letter dated 03.12.2018 that an application was made by him to Bank of Baroda, Mauritius branch for getting details of transfer of funds to Bank of Baroda Satellite Branch, Ahmedabad. Not satisfied with the reply, the A.O. issued one more notice u/s. 142(1) requesting as to show cause why Transfer of Funds shown in NRE I.T.A No. 995/Ahd/2019 A.Y. 2016-17 Page No ITO vs. Madhav Vasant Dalvi 3 account during the year under consideration should not be considered as unexplained credit appearing in the bank account as undisclosed source of income accrued or arise in India and why not the same be added to assessee’s total income. The assessee made a reply on 17.12.2018 explaining that the funds from Bank of Baroda Branch in NRE account were transferred to Satellite Branch, Ahmedabad as assessee is not staying in Mauritius, he could not able to get statement from Mauritius Branch. However as submitted from the Bank of Baroda NRE account, the relevant entries were being explained and source of income were also explained. NRE account is an account maintained in Indian rupees for overseas income, one can repatriate all the funds kept in NRE account. NRE Account to refers to foreign funds deposited with a financial institution which allows for the efficient conversion and transfer of Indian and foreign currency both within and outside India. One cannot deposit Indian rupees into NRE account. Thus the only way to fund an NRE account is through foreign currency remittance, foreign currency deposit, when one visit India or via foreign currency traveler’s cheque. Thus, it is clear the source of credit entries in NRE account must be of foreign currency only which is naturally earned from outside India and not taxable in India under the Income Tax Act. Therefore the proposed addition u/s. 68 of the Act does not arise and the assessee also produced the various e-mail correspondence with Bank of Baroda, Satellite Branch above the credit entries in the NRE account. I.T.A No. 995/Ahd/2019 A.Y. 2016-17 Page No ITO vs. Madhav Vasant Dalvi 4 2.2. However not satisfied with the reply, the Assessing Officer held that the assessee has not furnished copy of bank account statement from Mauritius Branch NRE account and the assessee has not furnished details of foreign source of income with documentary evidence in the absence of above details, the assessee officer made an addition of Rs. 3,11,80,920/- as undisclosed source of income accrued to the assessee in India and added u/s. 69A r.w.s. 115BBE of the Act. Thus the assessing officer determined the assessed income as Rs. 3,16,21,080/- and demanded taxes thereon and also initiated penalty proceedings for concealment of particulars of income. 3. Aggrieved against the same, the assessee filed an appeal before the Ld. CIT(A). The assessee submitted before the Ld. CIT(A) that he is a NRI since more than a decade and having no business income of India. The assessee submitted copy of passport to prove the status as assessee as Non Resident Indian. The assessee and his wife both resident of Lesotho, wherein Lesotho is a part of SACU union which consists of Botswana, Namibia, Swaziland, South Africa and Lesotho. The assessee and his wife used to live and work in Mauritius from 1998 to 2000 and said Bank of Baroda NRE account was operated during that period. The assesse further submitted that Lesotho is a least developed country with severe political instability and as per the Reserve Bank rules in Lesotho, an individual cannot maintain a foreign currency account within that country. Even if exceptions are made and granted after taking special permission, the foreign currency has to be converted to I.T.A No. 995/Ahd/2019 A.Y. 2016-17 Page No ITO vs. Madhav Vasant Dalvi 5 local currency within 180 days of receipt. Accordingly, the income earned outside India was deposited in the Joint USD account Mauritius. 3.1. In order to establish the source of commission Income from Highlife Trading Company in Mauritius , the assessee submitted copy of commercial invoice for purchase of goods by Highlife Trading Company from Manama Textile Mills WLL and sale of goods to Enzo Clothing CC with all relevant documents like packing list, Bill of Lading, Certificate of Origin, Custom declaration etc. to establish Highlife Trading Company is a company in Mauritius from which the assessee has earned commission Income. Further the assessee submitted that the following documents: "(1) Bank Account Statement of NRE No.4782 for the P.Y.2015-16 (2) Bank Book explaining entry for the F. Y.2015-16 (3) Application made to Bank of Baroda, Mauritius Branch for telegraphic Transfer of Funds to Bank of Baroda, Satellite Branch, (4) Certificate from Bank of Baroda certifying that the funds had been transferred from Mauritius Branch. (5) Bank Account Statement of Bank of Baroda, Mauritius Branch for the F. Y.2014- 15 & F. Y.2015-16 (6) Swift Copies (MT-103) of each of the above entries from Bank of Baroda, Mauritius. (7) Return of Income for the Assessment year 201 7-18 showing the salary income earned from foreign country." 3.2. The Ld. CIT(A) after examining the above documents satisfied that the assessee earning income outside India and the investment of Rs. 3,11,80,920/- from NRE account which was transferred from Mauritius Branch of Bank of Baroda. This amount has been I.T.A No. 995/Ahd/2019 A.Y. 2016-17 Page No ITO vs. Madhav Vasant Dalvi 6 subsequently used by the assessee to invest in buying immovable property is found to be correct. This fact is supported from bank certificate of the funds transferred from Mauritius Branch of Bank of Baroda. Thus, assessee has clearly explained the sources of investments. Therefore the addition made by the A.O. cannot sustained. In support of its view, the Ld. CIT(A) relied by the judgment of the Hon’ble Kolkata Tribunal in the case of Shri Tarun Kumar Sarkar vs. DDIT vide ITA NO. 69/Kol/2016 dated 02.06.2017 and also relied by the judgment of Hon’ble Delhi High Court in the case of CIT vs. Suresh Nanda [2013] 35 taxmann.com 199 (Delhi) vide IT Appeal Nos. 85, 87 & 100 OF 2013 dated 25/02/2013. 3.3. Thus, the Ld. CIT(A) held that the assessee has earned income in Mauritius and having Non-Resident status u/s. 6 of the Act. The assessee has transferred such funds to India during the year. Thus the income earned by the assessee accrues or arises or is deemed to accrue or arise outside India is not covered under the charging Section 5 of the Income Tax Act. Therefore, the addition made in the Assessing officer towards unexplained investment u/s. 69 A on the ground that the assessee failed to explain the source of credit entries in NRE account is not justified. Therefore the addition of Rs.3,11,80,920/- made by the Assessing Officer is thereby deleted and allowed the assessee’s appeal. I.T.A No. 995/Ahd/2019 A.Y. 2016-17 Page No ITO vs. Madhav Vasant Dalvi 7 4. As against the same, the Revenue is in appeal before us and raising the following Grounds of Appeal: 1. That the Ld. CIT(A) has erred in facts and in law in deleting the addition of Rs. 3,11,80,920/-on account of unexplained credit entries from undisclosed source of income u/s 69A r.w.s. 115BBE of the Act. 2. That the Ld. CIT(A) has erred in law and in facts in deleting the above addition without appreciating the fact that the assessee has failed to substantiate his source of income in India and abroad with documentary evidence, though multiple opportunities were provided by the AO during the course of assessment proceedings. 3. The Ld. CIT(A) has erred in law and on facts in considering the additional evidence submitted by the assessee, without giving opportunity to the AO for comments or verification under Rule 46A of the IT Rules, 1962. 4. That the Ld. CIT(A) has erred in violating the principles of natural justice in so far as no opportunity was provided to the AO to verify whether the source in outside India despite admission of additional evidence by the CIT(A). 5. The Ld. D.R. appearing for the Revenue supported the order passed by the Assessing Officer and held that the additions made by the A.O. is to be restored. 5.1. Per contra, the Ld. Senior Counsel Shri S.N. Soparkar appearing on behalf of the assessee reiterated the arguments made before the ld. CIT(A) and filed detailed Paper Book consisting of Bank Statement of NRE A/c. No. 4782 with Bank of Baroda, Bank Statement of NRO A/c. No. 4847 with Bank of Baroda, Bank book for F.Y. 2015-16 and other details more particularly Bank of Baroda Certificate certifying that funds have been transferred from I.T.A No. 995/Ahd/2019 A.Y. 2016-17 Page No ITO vs. Madhav Vasant Dalvi 8 Mauritius Branch which is available at page no. 17 & 18 of the Paper Book. Bank Statement from Bank of Baroda, Mauritius Branch for F.Y. 2015-16 & 2014-15 at page no. 19 to 21 of the Paper Book. The ld. Senior counsel also taken us through Page No. 43 to 63 of Paper Book which contain the copies of invoices from Highlife Trading Company with packing list, Bill of Lading etc. to establish the commission income earned by the assessee. Thus, Ld. Counsel pleaded that the addition made by the Assessing Officer u/s. 69A as unexplained investment is baseless and Ld. CIT(A) correctly deleted the addition made by the Assessing Officer, which does not require any interference and appeal filed by the Revenue is liable to be dismissed. 6. We have given our thoughtful consideration and perused materials available on record including the Paper Book and documents filed by the assessee. It is clear from the NRE account that the sum of Rs. 3,11,80,920/- was deposited Inward Remittances from Bank of Baroda, Mauritius Branch. NRE account refers to foreign funds deposited with a financial institution that allows for the efficient conversion and transfer of Indian and foreign currency both within and outside India. One can deposit Indian rupees into NRE account. The only way to deposit in NRE account is by way of foreign currency remittance. Thus entries in NRE account of Bank of Baroda, Satellite Branch, the Assessing Officer is not correct in invoking Section 69A as unexplained investment by the assessee. Furthermore, Sections 5 & 6 of the Income Tax Act are read as follows: I.T.A No. 995/Ahd/2019 A.Y. 2016-17 Page No ITO vs. Madhav Vasant Dalvi 9 "5. Scope of total income. (1) Subject to the provisions of this Act the total income of any previous year of a person who is a resident includes all income from whatever source derived which (a) is received or is deemed to be received in India in such year by or on behalf of such person; or (b) accrues or arises or is deemed to accrue or arise to him in India during such year; or (c) accrues or arises to him outside India during such year: Provided that, in the case of a person not ordinarily resident in India within the meaning of sub-section (6) of section 6, the income which accrues or arises to him outside India shall not be so included unless it is derived from a business controlled in or a profession set up in India. (2) Subject to the provisions of this Act, the total income of any previous year of a person who is a non-resident includes all income from whatever source derived which (a) is received or is deemed to be received in India in such year by or on behalf of such person; or (b) accrues or arises or is deemed to accrue or arise to him in India during such year. Explanation 1: Income accruing or arising outside India shall not be deemed to be received in India within the meaning of this section by reason only of the fact that it is taken into account in a balance sheet prepared in India. Explanation 2: For the removal of doubts, it is hereby declared that income which has been included in the total income of a person on the basis that it has accrued or arisen or is deemed to have accrued or arisen to him shall not again be so included on the basis that it is received or deemed to be received by him in India." Section 6:- For the purposes of this Act,- (1) An individual is said to be resident in India in any previous year, if he- (a) is in India in that year for a period or periods amounting in all to one hundred and eighty-two days or more; or ..................................” I.T.A No. 995/Ahd/2019 A.Y. 2016-17 Page No ITO vs. Madhav Vasant Dalvi 10 6.3. The assessee has earned the commission income from Mauritius and having Non-Resident status under section 6 of the Income Tax Act. The assessee has transferred such funds to India through NRE account at Bank of Baroda, Satellite Branch. Thus the income earned by the assessee accrues or arises or is deemed to accrue or arise into India is not covered under the charging Section 5 of the Income Tax Act. What is not charged u/s. 5 of the Act cannot be taxed u/s. 68 or 69A of the Act. In our considered view, the income of the non-resident is not chargeable under Section 5(2) and the provisions of Section 69A cannot override the provisions of Section 5(2). 6.4. This view of ours is being supported by the judgment rendered by the Hon’ble Delhi High Court in the case of DCIT vs. Finlay Corp, Ltd. [2003] 86 ITD 626 held as follows: "Section 68, read with section 6, of the Income-tax Act, 1961 - Cash credits [Non- residents] - Assessment years 2001-02 to 2003-04 - During assessment proceedings, Assessing Officer taking a view that assessee was a resident of India, made certain addition to his taxable income under section 68 - Tribunal having determined thai assessee was a non-resident, deleted impugned addition - Whether since in none of relevant assessment years assessee stayed in India for 182 days or more, he was to be regarded as non-resident and, therefore, amount transferred from his foreign account to domestic account could not be brought to tax by invoking provisions of section 68 - Held, yes 6.5. Respectfully following the above decisions, we have no hesitation in confirming the order passed by the Ld. CIT(A) and delete the addition of Rs. 3,11,80,920/- being addition made u/s. 69A of the Act. I.T.A No. 995/Ahd/2019 A.Y. 2016-17 Page No ITO vs. Madhav Vasant Dalvi 11 7. In the result, the Grounds of Appeal raised by the Revenue is rejected and the appeal filed by the Revenue is hereby dismissed. Order pronounced in the open court on 27 -07-2022 Sd/- Sd/- (WASEEM AHMED) (T.R. SENTHIL KUMAR) ACCOUNTANT MEMBER True Copy JUDICIAL MEMBER Ahmedabad : Dated 27/07/2022 आदेश कȧ ĤǓतͧलͪप अĒेͪषत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order/आदेश से, उप/सहायक पंजीकार आयकर अपीलȣय अͬधकरण, अहमदाबाद