NIRMAL JETHALAL MODI,MUMBAI V. DDIT/ ADIT (INV)-2(1), MUMBAI

BMA 8/MUM/2024

AI Insights

The case revolves around an appeal by Nirmal Jethalal Modi against the order of the Ld.CIT(A)-51, Mumbai, which confirmed the assessment of Rs.1.56 crores as the value of undisclosed foreign income and assets under section 10(3) of the BMA Act for the Assessment Year 2019-20. The assessee, a tax resident in India, was found to have undisclosed foreign assets in Jersey, linked to his family since 2008. The AO initially assessed these assets based on information from the Intelligence Wing and subsequent non-compliance by the assessee in disclosing these assets in his tax returns. The Tribunal, after considering the explanations and evidence provided by the assessee, including the inheritance of the assets from his parents who managed the accounts abroad, concluded that the assets were not undisclosed foreign income but inherited wealth, thus not liable under the BMA Act.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 32192 (ITAT-MUMBAI)
• Appeal Type: Black Money Appeal
• Pronouncement Date: 05-02-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2019-2020
• Laws Referred To: Black Money (UFIA) and Imposition of Tax Act, 2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: HEMANSHU JOSHI
• Assessee Lawyers: SATYAPRAKASH SINGH
• Keywords: Set aside; Source of fund
• Section: 131; 22; 13; 133A

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI “E” BENCH : MUMBAI BEFORE SHRI B.R. BASKARAN, ACCOUNTANT MEMBER AND SHRI RAJ KUMAR CHAUHAN, JUDICIAL MEMBER BMA No. 8/Mum/2024 Assessment Year : 2019-20 Nirmal Jethalal Modi, 3rd Floor, Vishramalaya, 152, Sion Road, Sion (E), Mumbai PAN : AACPM5648L vs. DDIT/ADIT (INV.)-2(1), Ground Floor, Scindia House, Ballard Estate, Mumbai (Appellant) (Respondent) Assessee by : Shri Satyaprakash Singh, Revenue by : Shri Hemanshu Joshi, Sr.DR Date of Hearing : 09-01-2025 Date of Pronouncement : 05-02-2025 PER B.R. BASKARAN, A.M : The assessee has filed this appeal challenging the order dated 14-02-2024 passed by the Ld.CIT(A)-51, Mumbai [„Ld.CIT(A)‟] u/s.17 of Black Money (UFIA) and Imposition of Tax Act, 2015 (hereinafter referred to as “BMA Act”.) and it relates to the Assessment Year (AY.) 2019-20. The assessee is aggrieved by the decision of the Ld.CIT(A) in confirming the assessment of Rs.1.56 crores as the value of undisclosed foreign income and asset u/s.10(3) of the BMA Act. 2. The assessee is a tax resident in India. The AO received information from Intelligence Wing that the assessee and his family members are 2 BMA No. 8/Mum/2024 having relationship with Jersey based Financial Institution since 2008 and the total value of assets held in Jersey is GBP 17200 equivalent to 200000 USD approximately. The AO noticed that the assessee has not disclosed the above said foreign assets in Schedule FA of the returns of income filed for AY 2012-13 to 2018-19. The declaration of foreign assets and income is made mandatory under the Income Tax Act. Hence, the AO issued summons u/s 131 of the Act to make enquiries, but the assessee did not furnish any reply. Hence, a survey action u/s 133A of the Act was carried out in the business premises of the assessee. A statement u/s 131 of the Act was also taken at that time, wherein he admitted that he is having a bank account with Standard Chartered Bank in Jersey which is jointly held by him, his wife and his son. He also admitted that the balance lying in that account is approximately 200000 USD. However, he said that the relevant details are not readily available with him. 3. With regard to the sources, he submitted that his father was doing business in Sudan and he opened a bank account in UK in which his father had deposited his earnings from the business. Upon his death in 1984, the bank account was transferred to his mother‟s name and later his name was also included by his mother. Later on, the above said bank account was shifted to Standard Chartered Bank, Jersey. Subsequently, the name of his wife and son were included in the year 2008. After the death of his mother in the year 2017, he became the beneficial owner of the bank. He admitted that the interest income arising from the above said bank account was also not offered in his return of income and agreed to offer the same. It is pertinent to note that the assessee was allowed to contact the bank during the course of survey operation. However, the bank official informed that the bank account has been closed. No further detail was given. The assessee also was surprised by this reply, but agreed to co-operate with the department. Thereafter, he also gave a letter to the 3 BMA No. 8/Mum/2024 bank authorizing it to furnish details that were called for by the Income tax authorities. 4. Since the assessee has failed to disclose the details of foreign bank accounts in his Income tax return, the assessing officer issued notice u/s. 10(1) of the BMA Act calling for various details relating to the foreign bank account and other foreign assets held by him abroad. The AO also furnished the details of information available with him with regard to various bank accounts. In the bank Account No.1010787089, deposits have been made in the years 2008 to 2010 aggregating to 241085.33 USD. In another bank Account No.1010787488, there was a balance of 10.51 USD. Accordingly, the AO asked the assessee to furnish explanations with regard to both the bank accounts mentioned above, which had total deposits amount of 241095.84 USD. The AO also noticed that there were deposits in some other bank accounts also. Ultimately, the AO accepted the explanations of the assessee that there were transfers from one bank account to another. Hence, the actual deposits were finally determined at 241085.33 USD available with bank Account No. 1010787089. Adopting the exchange rate of Rs.65.07 per USD, the AO arrived at the undisclosed foreign asset at Rs.1,56,87,422.42. He further noticed that the above said deposits have been transferred to Hong Kong based bank by the assessee. 5. The AO asked the assessee to substantiate the claim of the assessee that deposits were initially made by his father during his life time. We noticed that the bank account was held in joint names of assessee, his wife and son. Hence, the AO proposed to assess 1/3rd of the deposit amount in the hands of the assessee. On a representation from the assessee, the AO agreed to consider the entire deposits in the hands of the assessee only. Accordingly, he proposed to assess the entire deposits in the hands of the assessee. 4 BMA No. 8/Mum/2024 6. The assessee reiterated his submission that the deposits were made by his father only. He further submitted that the said bank accounts were earlier managed by his mother only. Only after her death in 2017, the assessee was having control over those bank accounts. Accordingly, the assessee contended that the BMA proceedings should not be taken against him and further the sources of deposits have been duly explained, i.e., it was inherited by him from his father/mother. The assessee also furnished copies of passport entries of his mother to show that she has travelled to Sudan, Australia, USA, UK, Singapore, Mauritius etc. He submitted that her mother had visited Sudan and stayed there for 22 days in order to settle all the pending matters. He also submitted that his elder brother was born in Sudan in 1950, which fact proves that his parents have resided in Sudan during that point of time. The assessee also furnished copies of KYC documents given to the bank, wherein the address in Sudan was found mentioned. The assessee also relied upon a copy of internal information (a note prepared by one of the bank staffs) of the bank, which was furnished by the AO to him. In that note, the conversation between the assessee and a official has been communicated by that official to another official. It reads as under:- “…He was wondering why I was asking him details on his family background. He felt that he has had the account for the past 40 years and why does the bank need this information now. He confirmed that the money with us was inheritance and he feels this should be sufficient information. I said that we can no longer accept this statement and need more details of where his father made his money. The name of the company he traded. After some time he said his father trader under “BABU”. He will however consult his family members and get back to me…” The assessee relied upon above information to substantiate his contentions that the deposits were made by his father only and he has only inherited the same. He submitted that the bank accounts were 5 BMA No. 8/Mum/2024 opened when he was 13 years old. The assessee also furnished his explanations to various queries raised by the AO. However, the AO was not satisfied with the above said explanations of the assessee. He took the view that the assessee has failed to substantiate the above said explanations. With regard to the reliance placed on the forms/documents collected from the banks, the AO took the view that they are self-serving documents, since the said forms are furnished by the assessee only to the banks. Accordingly, the AO took the view that the deposits standing in the bank account amounting to 241085.33 USD equivalent to Rs.1,56,75,368/- is liable to be assessed as the income of the assessee under the BMA Act. Accordingly, he assessed the above said amount in the hands of the assessee. 7. The Ld.CIT(A) also took the view that the assessee could not furnish any documentary evidence to support his claim that the deposits were initially made by his father only and the same has been inherited by him. The Ld.CIT(A) also rejected the reliance placed by the assessee on the documents given to the bank, as he also concurred with the AO that they are self-serving documents. Accordingly, he confirmed the addition made by the AO. The assessee is aggrieved. 8. We heard the parties and perused the record. We notice that the AO has assessed the sum of 241085.33 USD equivalent to Rs.1,56,75,368/- under the BMA Act. The above said amount was available with the bank Account No. 1010787089 maintained with Standard Chartered Bank. However, as per the information received by the AO, there were many bank accounts in the name of the family members of the assessee with Standard Chartered Bank. The AO has discussed about them in the assessment order. As per the discussions so made, the family members of the assessee were having following bank accounts:- 6 BMA No. 8/Mum/2024 (a) In the name of Assessee and his mother Smt Manjula Jethalal Modi:-1010730702 and 1010145656; (b) In the name of Assessee, his wife (Dipti N Modi) and Son (Aditya N Modi):-1010787488 and 1010787089 The assessee explained that funds have been transferred between the bank accounts and the actual amount of deposits found to have been made was only 241085.33 USD equivalent to Rs.1,56,75,368/-. The AO has also accepted the same. Thus, the fact that the deposits were initially available in the bank accounts held in the joint name of the assessee and his mother was accepted. Further, the fact that those deposits were transferred to the bank account held jointly by assessee, his wife and his son was also accepted. The said bank accounts included the Account No.1010787089, wherein the deposit of 241085.33 USD equivalent to Rs.1,56,75,368/- was found. i.e., the above said amount included the deposits transferred from other bank accounts also. The details of deposits are as given below:- 12-11-2008 - 1,15,000.00 30-07-2010 - 1,21,517.58 03-08-2010 - 4,567.75 Interest credit - 1,831.10 ---------------- Total 2,41,085.33 ============ The assessee has explained that the bank accounts standing in the joint name of himself and his mother were operated by her mother only till the time she was alive. It is stated that her mother died in the year 2017. 7 BMA No. 8/Mum/2024 It does mean that the above said deposits including the transfer of funds have been done by his mother only. 9. It is the case of the tax authorities that the assessee could not furnish any document to prove that the deposits were initially made by his father and later managed by his mother. It is stated that his father had died in the year 1984 and his mother died in the year 2017. Further, we notice that the tax authorities have asked the assessee to explain the sources of deposits, which are claimed to have been made by the parents of the assessee, when they were alive. Hence, it is seen that the assessee was not involved in the banking transactions when her mother was alive. We also notice that the assessee‟s mother was active and was travelling to various countries, which shows that she was independently managing the affairs herself. In this kind of situation, it is quite natural that the assessee may not be having all details relating to sources of deposits and hence, it would be difficult for anyone to furnish the complete details to the satisfaction of the tax authorities, since the banking affairs were managed by the parents of the assessee. Hence, the assessee could furnish only the information, which were available with him. 10. Hence the explanations of the assessee, in our view, have to be appreciated duly keeping in mind the constraints that would be faced by the assessee in this kind of situation. Accordingly, this issue requires to be examined on the basis of best possible/available evidences. Following explanations given by the assessee before the AO are worth noting:- “1.2 In the given case, as already mentioned in my detailed reply dated 6th December 2018 and 5th February 2019, I reiterate that in the late 1940s, my father, Late Shri. Jethalal Modi was employed in Sudan. During his stay in Sudan, he was seconded to Japan for a period of two to three years and thereafter he returned to Sudan. His stay outside India was for almost 15 years. This can be substantiated from the fact that my elder brother was born in Sudan in 1950. During his stay in 8 BMA No. 8/Mum/2024 Sudan, he had his savings in two bank accounts in London, one with Natwest bank and other with Standard Chartered bank, which were in the joint name of my father and my mother. This was given to understand to me by my mother. During this period, my father and mother were non-resident Indians. They have not kept any documents with us. In the early 1960s, my father returned back to India after winding up his business and the bank accounts in London were still operational being his savings out of his eamings abroad. After the death of my father in the year 1984, at the instance of my mother, I was added as the joint holder of the bank accounts along with my mother, by way of inheritance. Later in the years, the management of the Natwest bank and Standard Chartered bank in London declared these accounts as dormant accounts since there were no activities/fransactions of withdrawals and deposits in the said bank accounts for last several years. Hence, on the Instructions of the banks, the bank accounts were transferred to Jersey branch of Standard Chartered bank and in the said new account my name was added. The funds from the two bank accounts in London were remitted to Standard Chartered bank account in Jersey and thereafter the bank accounts in London were closed. In the year around 2006-07, my mother had health issues and she was not keeping well. Therefore, she decided to include the name of my wife and my son as the joint account holder in place of her name. In view of this, a new mandate form was executed with the Standard Chartered bank in Jersey for change in the name of the joint holder of the bank account. My mother was the senior most family member and head of the family after my father's demise. I, my wife and my son, were not informed about any activity outside India by my mother and we executed all the instructions as told to us by my mother. Such money, even though were legally earned and held in the bank account in my father's name- jointly with mother and subsequently transferred to my mother's name, always were known to my mother only and our names in such accounts were substituted only for the purpose of succession and never belonged to us. My mother passed away on 29th October 2017. Hence, it is submitted that the funds in bank account in Jersey were inherited from my father and my mother which were earned outside India in the 1950s by my father. Further, no income has been received by me, my wife and my son from the said bank account. 1.3. In view of the above, your goodselves will appreciate that my above explanation clearly establishes the source of funds in the bank account in Jersey and the genuineness of the inheritance of funds received from my father. Further, my above explanation, also establishes that the funds in bank accounts in Jersey were known to my mother only and I do not have any details / documents /evidences whatsoever of this account. Whatever facts were known to me about the bank account in Jersey were 9 BMA No. 8/Mum/2024 already disclosed before your goodselves in my first reply dated 6th December 2018 and the fact that there is a bank account in Jersey was also accepted by me. Further, it can also be observed that the facts, as disclosed or explained by me above and in my earlier replies, clearly matches with the details of bank accounts provided by you in the captioned show cause notice. Hence adequate explanation of the source of funds has been offered to you. It is presumed that these also meet your satisfaction as in the captioned notice your goodselves have not doubted the genuineness of my above explanation provided earlier to you. 1.4 In light of the above, I submit before your goodselves that the basic requirement of section 2(11) to consider an asset as foreign asset located outside India is not met. Hence, the bank accounts in Jersey are not undisclosed foreign asset located outside India as per the provisions of section 2(11) of the BMA. Therefore, at the foremost, I vehemently submit that the provisions of section 3 of the BMA are not applicable since there is no undisclosed foreign income and/or asset outside India as I have clearly explained the source of investment in these bank accounts. In view of this, the proceeding, initiated u/s 10(1) of the BMA are void ab initio and need to be dropped.” 11. We noticed that the assessee has stated that his father has opened the bank account in UK, when he was doing business in Sudan. (a) The fact that the parents were residing in Sudan is proved by the fact that his elder brother was born in Sudan. (b) Further, the copy of passport of her mother would show that she travelled to Sudan after the death of her husband and stayed there for 22 days. According to the assessee, she had gone there to settle all the pending issues. Further, the fact that she has travelled various countries would show that she was managing her affairs independently. (c) The internal communication between the bank officials, which has been extracted earlier, would show that the assessee has explained the sources of deposits as inheritance from his parents. 10 BMA No. 8/Mum/2024 (d) In the KYC forms also, the assessee has stated the sources as inheritance only. (e) These documents/explanations were given to the bank much prior to the enactment of BMA Act itself. (f) The fact that the funds were transferred from other bank accounts has also been accepted by the tax authorities. (g) The assessee has stated that he was only 13 years old when the bank accounts were initially opened by his father. At that age, the assessee may not be in a position to earn income. 12. The object of BMA Act was to assess the income that was not subjected to tax in India and which has been stashed away abroad. If an assessee is holding any asset abroad out of the income already subjected to tax in India, then the BMA would not be applicable. Similarly, if the asset held abroad has been acquired out of the income earned there, which is not liable to taxed in India, then also the BMA Act will not apply. In the instant case, the sequence of events that have been narrated by the assessee would show that the bank accounts have been opened by the parents of the assessee and they were only operating the bank accounts during their life time. Further, the deposits, which is sought to be taxed in the hands of the assessee have been made earlier to the year 2010. It included transfers from other bank accounts and in those bank accounts, the deposits would have been made even earlier. The assessee has stated that his father was doing business in Sudan and before bank authorities also, the assessee has stated that the trade name of business was „BABU‟. The fact the parents of the assessee had resided in Sudan is proved by the passport of the mother and also by the fact that his brother has born in Sudan. The entries in the passport of the mother also show that she was 11 BMA No. 8/Mum/2024 managing her affairs independently including the bank accounts. Hence, in our view, these facts and the surrounding circumstances would show that the impugned deposits have been made by the parents of the assessee out of their income earned abroad. Accordingly, we are of the view that the AO was not right in assessing the impugned deposits in the hands of the assessee. Accordingly, we set aside the order passed by the Ld.CIT(A) and direct the AO to delete the additions made by him. 13. In the result, the appeal filed by the assessee is allowed. Order pronounced in the open court on 05-02-2025 Sd/- Sd/- [RAJ KUMAR CHAUHAN] [B.R. BASKARAN] JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai, Dated: 05-02-2025 TNMM Copy to : 1) The Appellant 2) The Respondent 3) The CIT concerned 4) The D.R, ITAT, Mumbai 5) Guard file By Order Dy./Asst. Registrar I.T.A.T, Mumbai "