VAZHOOR SUDARSANAN THAMPI,THRISSUR V. INCOME TAX OFFICER, (INTERNATIONAL TAXATION), WARD-2(1), BENGALURU

ITA 893/BANG/2025

AI Insights

The case involves Vazhoor Sudarshanan Thampi, a non-resident Indian residing in the UAE, who appealed against the assessment order for the assessment year 2015-16. The Income Tax Officer had assessed Thampi's income at \\u20b922,000,000, based on information that he had made investments in time deposits. The Tribunal examined various legal and factual issues, including the procedural validity of notices issued under sections 148 and 148A of the Income Tax Act, the merits of additions made under section 69, and the entitlement of the assessee to a refund of TDS on interest income.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 772135 (ITAT-BANGALORE)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-08-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Assessment Year: 2015-2016
• Other Referred Cases: Hexaware Technologies Ltd. vs. Assistant Commissioner of Income-tax, Union of India v. Rajeev Bansal, Union of India v. Ashish Agarwal, CIT v. Sun Engineering Works (P) Ltd, The Yanam Co-operative Stores Limited, Yanam
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DIVYA K
• Assessee Lawyers: SIDHESH N GADI; PRODUCING RELEVANT EVIDENCE; WAY OF TAX DEDUCTION
• Keywords: Business income; Reassessment proceedings; Fair market value; Cost of acquisition; TDS; Valuation report
• Section: 147; 148; 144; 56; 69; 139

Judgement Text

"Page 1 of 14 INOME TAX APPELLATE TRIBUNAL “C” BENCH, Bengaluru BEFORE SHRI PRASHANT MAHARISHI, Vice President AND SHRI SOUNDARARAJAN K, Judicial Member ITA No 893/Bang/2025 A. Y. 2015-16 Appellant Respondent Vazhoor Sudarshanan Thampi Vazhoor House, T C 5/1892valappad vallapad beach Thrissur Kerala 680567 The Income tax officer International taxation Ward 2 (1) Bangalore PAN AFXPT6193D For Appellant Shri Sidhesh N Gadi, CA For Respondent Dr. Divya K J CIT DR Date of Hearing 19-08-2025 Date of pronouncement 28-08-2025 O R D E R PER PRASHANT MAHARISHI, Vice President 1. This appeal is filed by Vazhoor Sudarshanan Thampi (assessee/appellant) against the assessment order passed by The Income Tax Officer, International Taxation, Ward 2 (1), Bangalore (The Learned AO) for assessment year 2015 – 16 dated 12/12/2024 under section 147 read with section 144 of The Income -Tax Act, 1961 (The Act) determining the total income at ₹ 2,20,00,000/-in pursuance of direction of The Dispute Resolution Panel – 2, Bangalore (The Learned DRP) Printed from counselvise.com Page 2 of 14 dated 27/11/2024 in draft assessment order passed by the AO under section 144C (1) of the Act dated 13/2/2024. 2. The assessee is aggrieved with the same and has preferred this appeal raising following grounds of appeal. i. that the notice issued under section 148A (b) dated 26/3/2022 and subsequent initiation of proceedings under section 148 by the notice dated 19/4/2022 by the jurisdictional income tax Officer , international taxation Ward 2 (1), Bangalore is bad in law as in terms of amendment that was brought to The Income Tax Act by way of Finance Act, 2021 with effect from 1/4/2021 onwards, proceedings under section 148A of the act as also under section 148 of the act ought to have also been issued and proceeded in a faceless manner. ii. Without prejudice to the above, if the notice deemed to have been issued under section 148 of the act is prior to substitution of The Finance Act 2021 then the impugned reopening notice itself is bad in law as it is time barred. iii. That the learned AO erred in passing order under section 147 read with section 144 is bad in law and on notice under section 143 (2) was issued to the assessee or to the notice under section 142 (1) of the act as assessee has no access to the email id and has not received any message on registered mobile number. More so, the assessee’s registered mobile number is 9446542185 through which assessee got PAN registration in India and the AO failed to give any notice in physical form to the known address in India. Printed from counselvise.com Page 3 of 14 iv. The learned lower authorities erred in sustaining the addition of ₹ 2,29,00,000/- under section 69 though the sources have been duly explained by the assessee by producing relevant evidence. v. The learned lower authorities erred in not considering the long-term capital loss of ₹ 6,396,857/– though it was duly explained before the lower authorities. 3. Brief facts of the case shows that assessee is a resident of UAE, did not file his return of income for assessment year 2015 – 16. The ld AO had a credible information that during the year under consideration the assessee has made investment in time deposit amounting to ₹ 220 lakhs. Therefore, show cause notice under section 148A (b) of the act was issued on 26/3/2022 providing an opportunity that why it should not be held that there is an income chargeable to tax has escaped assessment and why notice under section 148 of The Income Tax Act, 1961 should not be issued. The assessee did not respond to the same. As assessee failed to respond, order under section 148A (d) of the act was passed on 19/4/2022 and accordingly notice under section 148 of the act was issued on 19/4/2022. Assessee failed to respond. Further ld AO issued notice under section 142 (1) through the ITBA portal on various dates but same was not responded to. Accordingly, the learned assessing officer proceeded to pass a draft assessment order under section 144C (1) of the act on 13/2/2024 determining the total income of assessee at Rs 2,20,00,000/- by making addition u/s 69 of The Act. 4. Assessee aggrieved with the draft assessment order, filed an objection before the learned DRP on 11/3/2024 which came to be disposed of on 27/11/2024. The assessee raised objection that the learned assessing officer has incorrectly made an Printed from counselvise.com Page 4 of 14 addition of ₹ 220 lakhs under section 69 of the income tax act. The learned DRP asked for the remand report from the assessing officer and to conduct inquiries under section 144C (7) of the act. The learned assessing officer submitting the remand report on 25/10/2024. In the remand proceedings, assessee submitted the computation of income for the assessment year 2015 – 16, passport, financial statements such as balance sheet, profit, and loss account. The assessee claimed that he is holding since long shares in three private limited companies and has provided loan to these companies long back. Shares of these companies were sold to One Dr v S Gopalan by entering a memorandum of Understanding. Assessee received consideration on sale of shares of Rs 1,81,03,143/- and loan repayments of Rs 77,11,696/-. This sum was credited through cheque in the bank account of the assessee and from that assessee has obtained time deposit receipts of Rs 2,20,00,000/-. 5. To substantiate the same Assessee produced details of holding of share capital and reconciliation of shareholding of Ahalia money exchange and financial services private limited for the financial year 2013 – 14, Ahalia exchange and travel private limited and Ahalia builders and developers private limited. The assessee also submitted his bank account with federal bank and Axis bank, Sources of the time deposit with Federal bank along. Assessee evidences the same with the transfer certificates of shares dated 26/9/2014, letter of confirmation of said transfer issued by the three companies on 27/9/2014. The assessee also submitted email communication of the respective company along with board resolution evidencing above transaction. Regarding unsecured loan of the assessee in those companies, which were repaid by those companies through cheques, he produced the details of unsecured loan from the companies from 2010 onwards. Printed from counselvise.com Page 5 of 14 6. The learned assessing Officer examined the details and noted that the assessee is a resident of Dubai, a non-resident Indian for taxation purpose for the impugned assessment year. Thus, the status of assessee as non-resident Indian was accepted. The explanation of the assessee was considered that for the making of the time deposit of Rs. 220 lakhs assessee has deposited ₹ 160 lakhs out of the funds acquired from the sale of equity shares held in three different companies as stated above. The AO noted that assessee has earned Rs. 1,81,03,143 on sale of the shares received from one buyer Dr V S Gopalan, deposited in the bank account of the assessee maintained with the federal bank. Out of That Rs. 160 lakhs were withdrawn from that account and transferred to the non-resident external deposit account of the assessee. But ld AO did not believe the claim of the assessee stating that assessee did not submit the fair valuation report of the equity shares at the time of the sale of those shares, hence, it difficult to ascertain the genuineness of the working of the capital gain generated out of the sale of equity shares. Further cost of acquisition of shares remains Rs 10/- only, assessee did not submit any explanation of how the loss was incurred on sale of shares. Therefore, he held that the payment trail for the relevant investment made in time deposit was explained duly supported with the documents and bank statements but the genuineness of the sources of funds invested in time deposits are not explained by the assessee. On repayment of loan by the companies, the ld agreed that sources of funds are repayment of loan, but it was not shown when the loan was given. The ld AO further held that at the time of filing of the return of income, assessee has claimed refund of ₹ 108,880 in the reassessment proceedings, as reassessment proceedings are for the benefit of the revenue and not for the benefit of the assessee and as there Printed from counselvise.com Page 6 of 14 is no claim by filing an original return of income, such claim of refund cannot be granted. 7. In response to the above remand report the assessee was directed to furnish the rejoinder. In rejoinder assessee submitted that a. sources of funds for acquisition of Time deposit receipt are the proceeds from sale of shares and receipt of repayment of loan from those companies, which is not at all doubted. b. Shares were acquired long back and therefore as there is no increase in cost, shares were acquired at the cost of Rs 10/- each per shares, there is no reason to doubt it. This is also confirmed by the companies. c. Regarding genuineness, MOU with the buyer was produced it was accepted as it is and therefore the transaction of sale of shares is not at all doubted. For computation of capital gain, neither sale consideration and nor acquisition cost is doubted, the capital loss cannot deny. d. Confirmation of the Indian companies is submitted to shows repayment of loan, loans are depicted in the annual accounts of those companies, which is repaid, therefore noting more could have been produced. 8. Learned DRP held that that the transaction of sale of shares is itself not genuine which is clear from the observation of the ld AO because of uniform cost of acquisition of shares over the years and the lack of evidence to show that the sale value of the shares was determined based on market condition and independent valuation. With respect to the repayment of loan from the above three companies to the assessee which is also the source of deposit made with the federal bank, the Finding of the ld AO that assessee was unable to demonstrate with any proof that loan amount to the said company is repaid to Printed from counselvise.com Page 7 of 14 assessee. It agreed with the observation of the learned assessing officer and held that there is no reason to interfere with the order of the assessing officer. 9. On the direction of the learned dispute resolution panel, the learned assessing officer passed an assessment order under section 147 read with section 144 of the act on 12/12/2024 determining the total income of the assessee at Rs 2,20,00,000/. 10. Aggrieved with the assessment order, assessee is in appeal raising grounds stated here in above. 11. The first ground of appeal is with respect to the issue of notice under section 148 of the act by the jurisdictional assessing officer and not by the faceless assessing officer. It was submitted by the authorised representative that this issue is covered in favour of the assessee by the decision of the several high courts including Hexaware Technologies Ltd. vs. Assistant Commissioner of Income-tax [2024] 162 taxmann.com 225 (Bombay)/ [2024] 464 ITR 430 (Bombay) [03-05-2024]. 12. With respect to the second ground of appeal regarding the time barring of the assessment order, it was submitted that issue is squarely covered in favour of the assessee by the decision of the Supreme Court in Union of India v. Rajeev Bansal [2024] 167 taxmann.com 70/301 Taxman 238/469 ITR 46 and Union of India v. Ashish Agarwal [2022] 138 taxmann.com 64/286 Taxman 183/444 ITR 1. 13. On the merits of the addition of ₹ 229 lakhs under section 69 of the act, the learned authorised representative reiterated the submission made that assessee has given the complete proof of the sum of ₹ 229 lakhs received out of the sale of the shares of various companies and repayment of loan by these companies , which was deposited in the bank account of the assessee and subsequently transferred to the non-resident external account of the assessee. He submitted that it is not the case of the Printed from counselvise.com Page 8 of 14 assessing officer that there is no sale of shares, and the sale of shares is not proper, and the sources of the sale consideration received is the source of deposit with the federal bank. It was submitted that only reason the sale consideration of ₹ 1.81 crores is not considered as the source of time deposit because assessee has failed to provide the fair market valuation of the shares at the time of sale. He submits that the enquiry was respect to the sources of the funds of time deposits is not with respect to the capital gain earned. He submits that the sum of Rs. 1,81,03,143/– is the undisputed sale consideration received by the assessee which was deposited in the non-resident external account with the federal bank received from the buyer Dr Gopalan. Out of that sum the sum of Rs 1,60,00,000/- was deposited for opening non-resident external fixed deposit account. Further the assessee had an outstanding loan available from Ahalia exchange and travels private limited of ₹ 172,961 and from Ahalia money exchange & financial services private limited of ₹ 75,38,735 aggregate to ₹ 7,711,696 which was also received from these companies. For these companies, the assessee has produced the Ledger account of the assessee as well as also the annual accounts of those company where the loans are shown as outstanding. These outstanding loans were repaid by these companies in view of the memorandum of understanding entered between the assessee and Dr Gopalan along with others. These amounts were repaid along with the interest by these companies and the respective tax deduction at source are made. The audited annual financial statements of these companies prove the sources of loan repayment from these company to the assessee. The amount of deposit made by the assessee is out of the sale of the shares and receipt of repayment of loan by the assessee to these companies. Therefore, it was submitted that the learned assessing officer has Printed from counselvise.com Page 9 of 14 incorrectly made the addition under section 69 of the act. He submitted that Assessee explained source of the funds for which the issue of 148 was made. Therefore, the addition should have been deleted by the learned dispute resolution panel. 14. He submitted that assessee has incurred a long-term capital loss of ₹ 6,396,857 on sale of the above shares. He referred to the computation of the long-term capital loss. He stated that the cost of acquisition of the shares would remain same year to year because these shares were acquired along back. Therefore, disallowance of capital loss on transfer of the shares is also not proper. 15. With respect to the non-granting of the refund of ₹ 108 lakhs, it was submitted that assessee has not claimed any deduction but is claiming refund of income tax out of the income shown in the return of income filed under section 148 of the act. It was further stated that tax could not have been collected by the revenue if it is not in accordance with the law. He submits that the decision of the honourable Supreme Court in case of Sun engineering Ltd does not speak about not granting of the refund of taxes which is already deposited by the assessee by way of tax deduction source. In view of the above facts, it was submitted that there cannot be any addition under section 69 of the act with respect to the source of the funds for the non-resident external fixed deposit account of ₹ 22,000,000/- with federal bank of India. 16. The learned CIT DR vehemently supported the order of the learned assessing officer and the direction of the learned dispute resolution panel. She extensively read remand report and findings of the ld AO which were upheld by the ld DRP. 17. We have carefully considered the rival contentions and perused the orders of the ld AO and directions of the ld DRP. Facts put in narrow compass shows that Assessee is an individual, non- resident assessee Residing in UAE was a director in three group Printed from counselvise.com Page 10 of 14 companies holding its shares and the unsecured loan in those companies. It entered a MOU for sale of shares of Those companies with one MR Dr V S Gopalan. In terms of MOU, Assessee sold shares of those companies as under: - Name of the Company Number of shares Cost of Acquisition of shares Date of sale Sales consideration Capital loss Ahalia Money Exchange Financial Services Private Limited 4500 2,25,00,000 26/09/2024 1,66,83,112 58,16,888 Ahalia Exchange and Travels private Limited 100000 10,00,000 26/09/2014 9,86,831 13169 Ahalia Builders & developers private Limited 1000 10,00,000 26/09/2014 4,33,200 5,66,800 Total 245,00,000 1,81,03,143/- 63,96,857 18. To substantiate receipt of the consideration on sale of shares, assessee submitted MOU, bank statements, Confirmation of companies about transfer of shares and the bank statements. This sales consideration was deposited in Federal bank account and out of total sales consideration of Rs 1,83,03,143/- assessee transferred in NRE External account Deposit of Rs 1,60,00,000/-. 19. Assessee has also given loan to the above companies which was also repaid by those companies in terms of MOU with DR. V S Gopala as under: - Name of the companies Amount of deposit O/s Amount repaid Evidence shown Ahalia Money Exchange & Financial Services Pvt Ltd 75,38,735 7538735 Balance sheet of the companies where the amount is shown as loan liability in Ahalia Exchange 172961 172961 Printed from counselvise.com Page 11 of 14 and Travels Private Limited the name of the assessee Total 7751696 7751696 Out of the above sum credited in the bank account of the assessee on 27-09-2014, assessee transferred on 1-10-2014 Rs 60,00,000/- in NRO Deposit Account. This was substantiated by producing the annual accounts of the companies where loan was shown as unsecured loan liability in the name of assessee, confirmation of the companies and bank statement of assessee with Federal bank. 20. Thus, assessee explained source of the deposit of Rs 2,20,00,000/- being Rs 1,60,00,000/- from sales of shares of Rs 1,81,03,143/- and Rs 60,00,000/- from repayments of loan advances to the companies of Rs 77,51,696/-. These facts are also accepted by the ld AO and Ld DRP both. Thus, sources of Deposit were accepted. But they doubted the genuineness of the transaction and made addition u/s 69 of the Act. 21. According to section 69 of the Act, Where in the financial year immediately preceding the assessment year the assessee has made investments which are not recorded 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 the explanation offered by him is not, in the opinion of the 49[Assessing] Officer, satisfactory, the value of the investments may be deemed to be the income of the assessee of such financial year. 22. In this case the investments are recorded in the books of accounts of the assessee as investments in Time deposit in Non- Resident External account with federal bank of Rs. 2,20,00,000/- which was explained by the assessee that sources of such deposit are sale of shares of three private limited companies and repayment of loan by those companies through account payee cheques supported by annual accounts of the companies and Printed from counselvise.com Page 12 of 14 memorandum of understanding with Buyers of the shares and bank accounts of assessee and confirmation of those companies. For verification of sources of deposit even other wise fair market value of shares is immaterial in absence of any other evidence with the ld AO. The Ld AO has not made any addition u/s 56 of the Act. It is also not the case of section 50 D of the act but addition u/s 69 of the Act. Further the cost of acquisition of the shares are also shown in the annual of those Indian private limited companies. The cost of acquisition of the shares is allotted price by those companies. Naturally in absence of any increase in the price of the shares or any cost of improvements claimed by the assessee, cost is bound to remain same till those shares are sold. Thus, addition u/s 69 of the act of FDR in Non- Resident External account of the assessee of Rs 2,20,00,000/- deserves to be deleted. Accordingly Ground no 4 of the appeal is allowed. 23. Similarly, as the ld AO has neither invoked provision of section 56, 50 D or section 55A, in absence of any further inquiry, as the annual accounts of those companies were available before him, without inquiring with the buyer when MOU was produced before him. The determination of capital loss could not have been denied to the assessee. Accordingly Ground no 5 of the appeal is also allowed. 24. Now the issue is that Assessee is entitled to the amount of TDS on interest income which assessee has claimed as refund, but the AO denied the same stating that as assessee has not filed the return of income u/s 139, assessee is not entitled to refund in revisionary proceedings u/s 148 of the act. The Reasoning given is that reopening is for the benefit of revenue.so relying on decision of honourable supreme court in case of CIT v. Sun Engineering Works (P) Ltd. (1992) 198 ITR 297 (SC) , such refund was denied. Printed from counselvise.com Page 13 of 14 25. On careful perusal of the arguments of revenue as well as the decision of honourable supreme court, hon. Supreme court held that. “38. Although, section 147 is part of a taxing statute, it imposes no charge on the subject but deals merely with the machinery of assessment and in interpreting a provision of that kind, the rule is that construction should be preferred which makes the machinery workable. Since the proceedings under section 147 are for the benefit of the revenue and not an assessee and are aimed at garnering the 'escaped income' of an assessee, the same cannot be allowed to be converted as 'revisional' or 'review' proceedings at the instance of the assessee, thereby making the machinery unworkable.” 26. Thus, it is apparent that the decision of Honourable supreme court was with respect to escapement of income and not about issuing refund which is legally due to the assessee. 27. Provision of section 237 of the Act provides that If any person satisfies the Assessing Officer that the amount of tax paid by him or on his behalf or treated as paid by him or on his behalf for any assessment year exceeds the amount with which he is properly chargeable under this Act for that year, he shall be entitled to a refund of the excess. Thus, the ld AO has not denied that assessee has more TDS than his liability to pay the tax and there is an excess tax. 28. Even otherwise in this case the income of TDS is on interest income received from the companies. This interest income is chargeable to tax in the hands of the company for the yeartides is thus linked to the income assessable u/s 148 of the Act. Therefore, the refund of TDS over tax due cannot be denied to the assessee. The issue is squarely covered in favour of the assessee in The Yanam Co-operative Stores Limited, Yanam. ITA No.45/Viz/2025 dated 15/4/2025 where in Printed from counselvise.com Page 14 of 14 it was on identical facts allowed the claim of the assessee of refund in reassessment proceedings even when the assessee di not file original return u/s 139 of the act. Thus, respectfully following the decision of the coordinate bench, we direct the ld AO to issue the refund of TDS collected over the tax due. 29. In view of the decision on the merits of the case, all other grounds of appeal are not adjudicated and left open. 30. Accordingly, appeal is partly allowed. Order pronounced in the open court on 28/08/2025. Sd/- Sd/- (SOUNDARARAJAN K) (PRASHANT MAHARISHI) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) Bangalore, Dated: 28.08.2025 Dragon Copy of the Order forwarded to: The Appellant, The Respondent, The CIT, The DR ITAT & Guard File BY ORDER, True Copy// Sr. Private Secretary/ Asst. Registrar Income Tax Appellate Tribunal, Bangalore Printed from counselvise.com "