Kamal Galani vs. ACIT (ITAT Mumbai)

COURT:
CORAM: ,
SECTION(S): ,
GENRE:
CATCH WORDS: ,
COUNSEL:
DATE: September 10, 2020 (Date of pronouncement)
DATE: October 31, 2020 (Date of publication)
AY: 1999-2000 to 2002-03
FILE: Click here to download the file in pdf format
CITATION:
S. 69/69A HSBC Bank Black Money: The AO has to prove that the money belongs to the assessee. If the assessee files necessary evidences to prove that the unexplained money does not belongs to him, the onus shift to the revenue to prove that the unexplained money in fact belongs to the assessee. Unless the AO proves that unexplained money is belongs to the person, he cannot make any addition in the hands of the assessee. The fact that the assessee is a joint holder of the bank account does not mean that the money belongs to him if the evidence suggests that the money belongs to the other holder

IN THE INCOME TAX APPELLATE TRIBUNAL “I”, BENCH MUMBAI
BEFORE SHRI MAHAVIR SINGH, VICE PRESIDENT
&
SHRI G. MANJUNATHA, ACCOUNTANT MEMBER
ITA Nos.138/Mum/2019 to 142/Mum/2019
(Assessment Years: 2003-04 to 2007-08)
Mr. Kamal Galani
801, Gym View
16th Road, Khar West
Mumbai-400 052
Vs. ACIT-23(3)
Room No.104,1st Floor,
Matru Mandir, J.D.Road
Tardeo
Mumbai -400 007
PAN/GIRNo.AFZPG4292G
(Appellant) .. (Respondent)
&
ITA Nos.266 & 267/Mum/2019
(Assessment Years: 2006-07 & 2007-08)
ACIT-23(3)
Room No.104,1st Floor,
Matru Mandir, J.D.Road
Tardeo
Mumbai -400 007
Vs. Mr. Kamal Galani
801, Gym View
16th Road, Khar West
Mumbai-400 052
PAN/GIRNo.AFZPG4292G
(Appellant) .. (Respondent)
&
ITA Nos.286/Mum/2019 to 289/Mum/2019
(Assessment Years: 1999-2000 to 2002-03)
ACIT-23(3)
Room No.104,1st Floor,
Matru Mandir, J.D.Road
Tardeo
Mumbai -400 007
Vs. Mr. Kamal Galani
801, Gym View
16th Road, Khar West
Mumbai-400 052
PAN/GIRNo.AFZPG4292G
(Appellant) .. (Respondent)
&
2 Shri Kamal Galani
Cross Objection Nos.273/Mum/2019 to 276/Mum/2019
(Arising out of ITA Nos.286/Mum/2019 to 289/Mum/2019)
(Assessment Years: 1999-2000 to 2002-03)
Mr. Kamal Galani
801, Gym View
16th Road, Khar West
Mumbai-400 052
Vs. ACIT-23(3)
Room No.104,1st Floor,
Matru Mandir, J.D.Road
Tardeo
Mumbai -400 007
PAN/GIRNo.AFZPG4292G
(Appellant) .. (Respondent)
Assessee by Shri. Madhur Agarwal, AR
Revenue by Shri. Avaneesh Tiwari, JCITSr.
DR
Date of Hearing 04/08/2020
Date of Pronouncement 10/09/2020
आदेशेश / O R D E R
PER BENCH:
This bunch of cross appeals filed by the assessee, as well
as the revenue and cross objections filed by the assessee for the
Asst.Years 1999-2000 to 2002-2003 are directed against
separate, but identical orders of the Ld. Commissioner of
Income Tax (Appeals)–34, Mumbai, dated 25/10/2018 and
pertains to Assessment Years 1999-2000 to 2007-08. Since, the
facts are identical and issues are common, for the sake of
convenience, these appeals were heard together and are being
disposed-off by this consolidated order.
3 Shri Kamal Galani
2. The assessee has more or less filed common grounds of
appeal for all Asst.Years. Therefore, for the sake of brevity,
grounds of appeals filed for Asst.Year 2004-05 in ITA
No.139/Mum/2009 are reproduced as under:-
1) On the facts and circumstances of the case and in law, the
assessment order date 25/03/2015, passed under section 147 read with
section 144of the Act is invalid and bad in law as the following
jurisdictional conditions required to assume jurisdiction under section 147
were not fulfilled by the AO:
Existence of reason to believe;
Sanction of appropriate authority; and
Notice issued beyond the expiry of period of limitation.
2) On the facts and circumstances of the case, the order passed by
the AO and as confirmed by CIT(A), is bad in law and contrary to the
principals of natural justice, as adequate opportunity of being heard was
not provided to the Appellant. The AO further erred in invoking the
provisions of section 144 of the Act.
3) On the facts and circumstances of the case, the learned AO as
well as the Commissioner of Income Tax (Appeals) has erred in
Confirming the following factual assumptions:
a)The AO has incorrectly assumed that the Appellant is the owner
of the bank account;
b) The AO has erred in assuming that an investment of USD 3
million was made in order to open the account;
c) The alleged investment of USD 3 million was made out of
income which originated from income chargeable to tax, but not
disclosed in India; and
d)That the bank had paid interest of 17 per cent per annum.
The Appellant submits that additions of Rs. 2,34,35,316/- made
based on such incorrect factual assumptions must be deleted.
4) The AO as well as CIT(A) has erred in relying on the base notes,
without bring any cogent material on record to establish the authenticity
or the veracity of the base notes. The AO has further erred in placing
reliance on incomplete information extracted from the HSBC Private Bank
website to justify the authenticity of the base note.
5) Without prejudice to the above, the AO as well as the CIT(A) erred in
confirming the additions contrary to the transactions referred to in the
base note, which reflects that transactions had been entered into only
between November 2005 and February 2007.
4 Shri Kamal Galani
3. The revenue, has more or less filed common grounds of
appeal for all Asst.Years. Therefore, for the sake of brevity
grounds of appeals filed for Asst.Year 1999-2000 in ITA
No.286/Mum/2009 is reproduced as under:-
1) “On the facts and in the circumstances of the case and in law, the
Id. CIT(A) has erred in deleting the addition made by the AO of the
unaccounted income, on the ground that the assessee is an Non –
resident Indian during the relevant, previous year without appreciating the
fact that income accruing or arising or deemed to accrue or arise to him
in India during the relevant previous year is assessable in India as per
provisions of section 5(2)(b) of the income tax Act.”
2) “The appellant prays that the order of the CIT(A) on the above
grounds be set aside and that of the Assessing Officer be restored.”
3) “The appellant craves leave to add, delete, alter, amend and modify
any or all grounds of appeal.”
4. The brief facts of the case extracted from ITA
No.139/Mum/2018 for Asst.Year 2004-05 are that the assessee
is a Indian Citizen and was resident of United Arab Emirates
(UAE) from the year 1979-1991 and thereafter working at
Vienna, Australia. The assessee was a non resident in India up
to Asst.Year 1999-2000 under the provisions of the I.T.Act,
1961. In the year 2001, the assessee came back to India for
settling in India. Since, then the assessee has been filing his
return of income in India from Asst.Year 2002-03 onwards. The
assessment has been reopened u/s 147 of the I.T.Act, 1961 by
issue of notice u/s 148 of the Act, dated 30/04/2013 for the
reasons recorded, as per which information received from the
Government of France under the convention of avoidance of
5 Shri Kamal Galani
double taxation and the prevention of Fiscal Evasion with respect
to taxes on Income and on capital dated 28/09/1992. The said
information received was regarding bank accounts in HSBC
Private Bank (Suisse), SA, Geneva, Switzerland held by certain
persons in India. The information received from the French
Government in the form of summary sheets (hereinafter
referred to as the Base Document) reveals that the assessee is
opened a bank account in HSBC Bank, Geneva. The information
further revealed that the assesse was a beneficiary of an
account opened under code BUP 5090171854 with HSBC Bank.
The account had been opened under client name “Dipak
Varandmal Galani and/or Kamal Varandmal Galani bearing
Account Number 509-4077262. The said account was opened on
17/04/1998 and was active. As per the Base Document, the
account had a maximum credit balance of USD 9,40,191/- in
November 2015, a balance of USD 4,97,198 as on December,
2005 and USD 3,17,080 in September, 2006. Based on said
information, the Ld. AO has recorded reasons for reopening of
the assessment, on the ground that income chargeable to tax
had been escaped assessment within the meaning of section 147
of the I.T.Act, 1961 due to non disclosure of existence of bank
account in HSBC bank, Geneva. Accordingly, issued notice u/s
148 and called upon the assessee to file return of income. In
6 Shri Kamal Galani
response, the assesse vide letter dated 20/01/2014 stated that
the return of income filed on 01/11/2004 may be treated as
return filed in response to notice u/s 148 of the I.T.Act, 1961.
Simultaneously, the assessee has requested for reasons for
reopening of the assessment and the same was supplied to the
assessee. The assessee has filed its objections for reopening of
the assessment and the same has been disposed-off by the Ld.
AO.
5. The case has been selected for scrutiny and during the
course of assessment proceedings the Ld. AO has examined the
assessee personally in the statement recorded u/s 131 on
22/06/2013. During the course of assessment proceedings, the
assessee was specifically asked to produce complete statement
of bank accounts with HSBC bank and was also asked to explain
as to why, the amount invested of USD 3 Million for opening the
bank accounts and income from the invested amount should not
treated as undisclosed income and taxed accordingly in the
relevant assessment years. Further, the assesee was provided
with a copy of the Base Document/information sheets received
from the French Government and snapshots of the relevant web
pages of the HSBC bank. The assessee was once again issued
final notice u/s 142(1), dated 12/02/2015 and asked to furnish
7 Shri Kamal Galani
complete statement of accounts duly certified by the HSBC
Pvt.Bank, Geneva and other relevant details for opening
account. In response to the above notice, the assessee furnished
copy of his passport and that of his brother, Mr. Dipak Galani
and a copy of letter, dated 09/03/2015 of Dipak V. Galani
addressed to the Ld. AO and submitted that bank account was
opened by his brother Mr.Dipak V. Galani with the British Bank
of the Middle East in the year 1998, which was subsequently
taken over by HSBC Pvt. Bank (Suisse). The assessee, further
stated that bank account was opened by his brother and all
rights, interest in the said bank account is completely belongs to
his brother and his name was included as a second account
holder as a respect to his elder brother. The assessee further
stated that his brother Mr.Dipak V.Galani has owned up the
account and stated that account is opened by him in the year
1998 and his brother name was included as a mark of respect
and further, his brother do not have any right in bank account.
6. The Ld. AO after considering relevant submissions of the
assessee and also by taken note of base documents observed
that although, the assessee claims that account is belongs to his
brother, but failed to file any evidences to prove that he was not
the owner of funds/assets held in bank account. The Ld. AO,
8 Shri Kamal Galani
further noted that instead of furnishing complete details of bank
accounts, the assessee merely filed a letter from his brother to
support his claim. Therefore, he opined that in absence of any
corroborative evidences to prove his claim that account is
belongs to his brother, an adverse inference could be drawn
against the assessee, if he had suppressed the documents and
evidence, which was exclusively within his knowledge. Therefore
by taking note of various facts and also, by taking support from
certain judicial precedents held that by virtue of a second holder
in the bank account, the assessee is vested with
rights/obligations connected with the accounts and therefore, it
is incorrect on the part of the assessee to claim that he is not
owner of the bank account. Accordingly, he was of the opinion
that the assessee is beneficial owner of the bank account
opened a HSBC Bank account, Geneva. The Ld. AO, further
noted that by taking note of requirement of opening a bank
account and minimum deposits needs to be kept, which is as per
the Ld. AO is at USD 3 Million, he has made additions of USD 3
Million for Asst.Year 1999-2000 and thereafter, estimated return
of investments @ 17% P.A, year on year for subsequent
Asst.Years and added to the total income. The relevant findings
of the Ld. AO are as under:-
9 Shri Kamal Galani
15. In sum, the information received contained address/nationality,
country of domicile as that of the assessee as mentioned in his Indian
Passport. The assessee was duty provided with the copy of the document
received containing the above information. As per the information
contained in the said document the assessee was the account holder of
the numbered account with HSBC Private (Suise) Bank, Geneva. In the
return of income the assessee had neither offered any income with
reference to the bank account nor disclosed any details to the effect that
the he was a beneficiary of the said account. Under the General
Conditions of the Bank when two or more persons are holders of an
account, each of the account holders is vested with the totality of the
rights and obligations connected with the account; that each of the
account holders is authorized to accomplish alone or jointly in
accordance with relevant power of signature all transactions without any
limitation whatsoever; that the other account holder is jointly and
severally bound thereby and designated attorney legally binds all the
account holders; and that if the Account several accounts at one or more
branches of the Bank these accounts are deemed to constitute one
entity and whatever the currency and the heading of the accounts may be
the Bank may combine the balances in these accounts individually or set
them off wholly or in part after effecting the necessary conversions into
the currency of its choice
15.2 Thus in terms of the above condition of the Bank as the account
holder the assessee is vested with the totality of the rights and obligations
connected with the Numbered account number 509-4077262; is
authorized to accomplish alone or jointly in accordance with relevant
power of signature all transactions through the a;,-;*^mentioned
numbered account without any limitation whatsoever; and all the current
accounts connected with that account are deemed to constitute one entity
and whatever the currency and the name or the heading of the accounts
might be the Bank combined the balances in these accounts individually
or set them off wholly or in part after effecting the necessary conversions
into the currency of its choice and so reflected as maximum balance
between November 2005 to February 2007 in the Base Document.
15.3 I am, therefore, constrained to observe that despite the rights and
obligations cast on him as the owner of the Numbered Client Account
4077262 the assessee has not co-operated and remained evasive so far.
The assessee has chosen to defy the request to produce statements of
accounts to buttress his case. His claim of having no connection with the
above account carries no weight without corroborative materials. The
assessee has been consistently defiant in complying with the legal
requirement, The assessee has failed to comply with full terms of the
notices issued u/s 142(1) from time to time. I am left with no option but to
exercise powers u/s 144 income tax Act of resorting to best judgment and
complete the assessment based on the materials available on record.
QUNTIFICATION OF INCOME
16. In view of the discussions made above, I hold that that the assessee
could open the bank account with HSBC Bank on 17-04-1998 only after
making deposit of not less than USD 3 Million. It is seen that the Base
10 Shri Kamal Galani
Document shows balance in the “bank account from 2005-06 to 2006-07
relevant to A.Yrs.2006-07 to 2007-08. Therefore, I hold that the assessee
has maintained the initial deposit of USD 3 million throughout 1998-99 to
2004-05 relevant to A.Yrs 1999-00 to 2005-06. I observe that the there
has been accretion to value of investments made in various classes of
assets as revealed from the details of such investments found in the
Annexure to the Base Document scanned supra. The funds were
deployed in various assets like loans & advances, bonds and fiduciary
deposits. They show the return on investment in 5 months is almost
7.1%. If the same is annualized the annual return comes to 17%. In the
absence of any details forthcoming in this regard in me assessment year
under consideration, a return is estimated @ 17% annually on investment
made by the assessee on USD 3 Million. This works out to USD Rs.
45.31per USD] for 2003-04 relevant to assessment year under
consideration. Therefore, Rs.2,31,08,100/- is added in the income of the
assesee for the year under consideration being income earned on his
investment of USD 3 Million with the HSBC Bank Geneva.
(Addition:Rs.2,31,08,100)
7. Being aggrieved by the assessment order, the assesee
preferred an appeal before the Ld.CIT(A). Before the Ld.CIT(A),
the assesee has challenged reopening of assessment on various
grounds, including validity of reasons recorded for reopening of
assessment. The assessee has also, challenged additions made
by the Ld. AO towards bank account in the name of assessee
and is brother and estimation of annual returns on said
investments @17%. During the course of appellate proceedings,
the assessee has filed various additional evidences to justify his
stands that account is not belongs to him, nor does he have any
interest in the bank account. During the course of appellate
proceedings, the Ld.CIT (A) has called for remand report from
the Ld. AO on various averments made by the assessee. In
response, the Ld. AO vide remand report, dated 13/03/2018 and
11 Shri Kamal Galani
17/08/2018 has commented upon various averments made by
the assessee on ownership of bank account, as well as return on
investments estimated @17% on total initial deposits stated to
be made by the assessee. The Ld.CIT(A) after considering
relevant submissions of the assessee and also taken note of
remand report of the Ld. AO rejected legal grounds taken by the
assessee challenging validity of reassessment proceedings, on
the ground that the Ld. AO has initiated and completed
reassessment proceedings as per law. The relevant findings of
the Ld.CIT(A) are as under:-
v. Conclusion on the grounds related to re-opening of assessment:
i I have considered the submission of the Appellant and do not find merit in the
same. The appellant has stated that the reasons to form the belief about income
escaping assessment had not been recorded by the AO, who had issued notice
u/s 148, but instead the reasons were furnished to the Appellant under the seal
and signature of the new incumbent. On perusal of all the facts available on
record, it appears that this issue is without basis, and the reasons have been
duly recorded by the concerned assessing officer, and there appears to be no
flaw in the same. Further the objection of Appellant that the copy of snapshot of
web page, which is part of reasons have not been furnished to him, is also
incorrect as the same has been furnished and forms part of the assessment
orders for AY 2004-05 to 2006-07. There is no merit in the appellant’s
submissions and the same are therefore rejected.
ii The appellant’s challenge to the authenticity of the Base Note is baseless
since the same has been received from the Government of France under the
convention for Avoidance of Double Taxation and Prevention of Fiscal Evasion
dated’ 28th September, 1992. The authenticity and veracity stand established. In
any case the appellant has himself admitted to holding the account with his
brother, which establishes the credibility of the information available with the
AO. Further the argument of the appellant that data in summary sheets are for
the period November 2005 to February 2007 and therefore reasons recorded for
income escaping assessment for years other than the period November 2005 to
February 2007 is also not acceptable. The Base Note clearly mentions the date
of opening account with HSBC Bank as 17-04-1998 and the appellant also
admits the same. Consequently all the years beginning 17/04/1998 fall within
the purview of jurisdiction for the purpose of forming reason to believe for
income escaping assessment.
12 Shri Kamal Galani
iii. The appellant has further urged that the reliance placed by the assessing
officer1 on .the information contained in the web site of HSBC Private Bank,
regarding minimum opening balance of USD 3 Million, is incorrect. However,
this information has been used only to form a belief that income beyond the
thresh hold level has escaped assessment. Similarly the rate of return at 17% is
also an estimate to ascertain the likely quantum of income escaping
escapement above the threshold and not the determination of actual income,
which is the subject matter of the assessment proceedings to be undertaken
subsequently.
iv. The arguments of the appellant regarding incorrect residential status being
mentioned for AYrs. 1999-2000, 2000-01, 2001-02, 2002-03 and non obtaining
of sanction from the appropriate authority i.e. the Principal CIT, are also delving
upon mere technicalities to take the attention off, the main issue on hand. The
same are liable to be rejected. The contention that notice u/s 148 is issued
beyond period of limitation also fails. The provisions of section 149 clearly states
that no notice under section 148 of the act shall be issued for an assessment
year if:
a) four years have elapsed from the end of the assessment year; or
b) if four years but not more than six years have elapsed from the
end of
the relevant assessment year unless the income chargeable to .tax which
has escaped assessment amounts to or is likely to amount to Rs. 1 lakh
or more for that year; or
c) if four years, but not more than 16 years, have elapsed from the end of
relevant assessment your unless the income in relation to any asset
(including financial interest in any entity) located outside India,
chargeable to tax, has escaped assessment.”
v) In the instant case the appellant is found to be owner of a Bank account /
asset outside India and hence the extended time limit of 16 years would apply.
The notice u/s 148 are clearly within the time limit of 16 years. Further, it is also
to be kept in mind that the AO is not required to make a foolproof case for
reopening of the assessment. Once, there are prima-facie reasons to believe
that the income has escaped assessment, it is sufficient to invoke the provisions
for reopening the assessment. In the present case, all these criteria have been
fulfilled.
vi. After due application of rind, jurisdictional Addl. CIT and the AO had reasons
to believe that income of more than Rs, 1 lakh has escaped assessment during
the year due to failure on the part of the appellant to furnish fully and truly all
facts in the return of income for respective years.
vii It is pertinent to mention here that nothing could be construed from the
perusal of return of Income that full disclosure of material fact has been
furnished. The appellant has not disclosed the foreign Bank account nor
disclosed the income earned from holding such bank account.
viii. It is worth noting that the Full Bench of Hon’ble High Court of Delhi in the
case of CIT- VI, New Delhi Vs. Usha International Ltd. (2O12) 25
taxmann.com 200 ((Delhi) (FB) has held that the reasons must be relevant to
subjective opinion and not conclusive findings. The relevant extract is
reproduced hereunder :
13 Shri Kamal Galani
“As recorded above, the reasons recorded or the documents available must
show nexus that in fact they are germane and relevant to the subjective opinion
formed by the Assessing Officer regarding escapement of income. At the same
time, it is not the requirement that the Assessing Officer should have finally
ascertained escapement of income by recording conclusive findings. The final
ascertainment takes place when the final or reassessment order is passed. It is
enough if the Assessing Officer can show tentatively or prima facie on the basis
of the reasons recorded and with reference to the documents available on
record that income has escaped assessment.”
ix. The above decision of the Hon’ble High Court of Delhi has been authoritative
in saying that there should be nexus in the material available, which should be
germane and relevant to form a subjective opinion. Besides, it also clearly
states, that it is enough to show tentatively or prima facie that income has
escaped assessment. A plain reading of the reasons recorded by the assessing
officer, shows that there was enough material before him, to form a prima facie
belief that income beyond the threshold level had escaped assessment. He was
not required to arrive at a conclusive finding of fact regarding escapement of
income. ‘
x The Hon’ble Supreme Court in ACIT V/s Rajesh Jhaveri Stock Brokers
Put. Ltd. (291 ITR 500 at 511) while dealing with the question regarding the
validity of issue of notice under section 148 of the Act has held as under:
“The word ‘reason.’ in the phrase ‘reason to believe’ would mean cause or
justification, if the A.O. has cause or justification to know or suppose that income
had escaped assessment, it can be said to have reason to believe that an
income had escaped assessment. The expression cannot be read to mean that
the A.O. should have finally ascertained the fact by legal evidence or
conclusion. The function of the A.O. is to administer the statute with, solicitude
for the public exchequer with an inbuilt idea of fairness to taxpayers. As
observed by the Supreme Court in Central Provinces Manganese Ore Co. Ltd.
Vs. ITO [1991] 191 ITR 662 (59 Taxman 17), for initiation of action under section
, 147(a) (as the provision stood at the relevant time) fulfillment of the two
requisite conditions in that regard is essential. At that stage, the final outcome of
the proceeding is not relevant. In other words, at the initiation stage, what is
required is ‘reason to believe’, but not the established fact of escapement of
income. At the stage of issue of notice the question is whether there was
relevant material on which a reasonable person could have formed a requsiite
belief whether the materials would conclusively prove the escapement is not the
concern at that stage. This is so because the formation of belief by the A.O. is
within the realm of subjective satisfaction (see ITO v. selected Dalurhand
Coal Co. (P) Ltd. (1996) 217 ITR 597 (SC) Raymond Woollen Mills Ltd.v.
ITO (1999) 236 ITR 34 (SC)”
*
xi. As can be seen from the above, the settled legal position, at the
stage of issue of notice under section 148 of the Act is that, what is
required on the part of assessing officer is the existence of ‘reasonable
belief and not conclusive evidence to support escapement of income.
Notwithstanding anything stated above, it is the prerogative of the
AO/Revenue to reopen the assessment if the AO has found in the course of
time that certain amounts which should have been brought to tax have ,
14 Shri Kamal Galani
escaped assessment. These powers have been clearly provided u/s. 149
r.w.s, 151 of the ‘Act. As per these provisions, what the AO’ is supposed to
see is whether there is enough material to form a prima facie belief that
income has escaped assessment, and whether it is within four years or
beyond four years of the relevant assessment year, and further, whether
the original assessment had been carried out u/s 143(1) or 143(3} so as to -of*1*
take approval from the appropriate senior officer as required. Once the AO tote*
fulfills these requirements he can then reopen the assessment by recording
his reasons for forming a belief regarding escapement of income. The
AO will be acting within the powers conferred on him, to reopen any
assessment, and his action in such situation cannot be subject to
challenge.
. ,
xii. Reliance is further placed on the decision in the case of Mohan Manoj
Dhupelia vs. Dy.CIT, Central Circle (52 tajcrnctnn.com 146) and the decision
in the case of Ambrish Manoj Dhupelia (87 taxmaim.com 195) wherein it is
held that the assessee being the beneficial owner of deposits in foreign bank
accounts failed to disclose interest from said deposits in its. return of income,
reopening of assessment in case of assessee was justified.
xiii. In view of the above, the grounds of appeal challenging the invoking of
jurisdiction u/s 147, are rejected.
8. As regards, additions made by the Ld. AO towards balance
in bank account and return on investments for subsequent
years, the Ld.CIT(A) observed that as per the facts brought on
record by the Ld. AO, the assessee was an account holder along
with his brother Mr. Dipak V.Galani. Although, the assessee
claims that account belongs to his brother, but evidences
brought on record by the Ld. AO clearly proves that the
assessee is a joint holder of bank account and he is having a
beneficial interest in said account. Once, the fact of having
account jointly with his brother is established, the onus clearly
shifts on the assessee that he was not the actual owner. Since,
the assesee has not brought on record any evidences to prove
his claim, there is no error in the findings recorded by the Ld.
15 Shri Kamal Galani
AO to conclude that the assessee is the beneficial owner of the
bank account and accordingly, the additions made in the hands
of the assessee is in accordance with law. As regards, taxability
of initial deposits of 3 US Million Dollars, the Ld.CIT(A) observed
that since appellant is NRI and NOR, there is no question of
taxability of income, which was accrued or arisen outside India
and thus additions made by the Ld. AO for the Asst.Year 1999-
2000 on account of initial deposits of USD 3 Million and return
on investments @17% for Asst.Year 2001-02 & 2002-03 are
incorrect and hence deleted. As regards additions made for
Asst.Year 2003-04 to 2007-08 towards return on investments
@17% PA, the Ld.CIT(A) observed that estimating return on
investments @17% PA is reasonable, because the assessee has
not filed any evidences despite various opportunities are given in
making the Ld. AO to ascertain the correct rate of return.
Therefore, he opined that the assessee has clearly failed to
discharge onus cast upon by brining on record to substantiate its
claims that he had not earned 17% return of income on
investments. Therefore, he opined that there is no reason to
deviate from the findings of the Ld. AO and hold that the
additions made on return on investments for Asst.Year 2003-04
to Asst.Year 2007-08 is in accordance with law. As regards,
additions towards peak credit balance lying in bank account for
16 Shri Kamal Galani
Asst.Year 2006-07 and 2007-08, the Ld.CIT(A) noted that the
Ld. AO has not brought on record, which would even remotely
suggest that the entire balance of USD 3 millions and interest
earned there on was appropriated on a date prior to November,
2005, thus a balance of USD 9,40,191 being less than USD 3
Million cannot be separately added as peak credit in the hands of
the assessee. Therefore, he opined that an addition made
towards peak balance is uncalled for and un-sustainable. The
relevant findings of the Ld.CIT(A) are as under;-
iv. Conclusion on the initial deposit
I have considered the submissions made by the appellant. The assessment
carried out and the contentions raised by the appellant raise two issues for
adjudication.
a. What was the initial amount deposited at the time of opening of account
on 17.04.1998.
b. Whether such amount should be taxed in the hands of the appellant for
the assessment year 1999-2000.
a. Initial amount deposited at the time of opening of account
i. The first issue is regarding the validity of the evidence available with the
assessing officer to arrive at the view that the initial deposit must have been
USD 3 Million. The assessing officer has relied on the information contained in
the web site of HSBC Private Bank in the year 2013, to arrive at the finding
about initial deposit of USD 3 Million. He has also referred to the balances
maintained by two other assessees, namely Ms Janki Mukhi, and Mr Kanu Bhai
Patel which exceed the figure of USD 3 Million.
ii. On the other hand the appellant has questioned the same on the grounds that
the said information about USD 3 Million contained in the web site of the bank
pertains to the year 2013, and that it has since been raised to USD 5 Million.
The account was opened on 17.04.1998, and that it was opened with the British
Bank of Middle East. The HSBC Private bank came into existence in the Year
1999, i.e subsequent to the opening of the impugned account. The appellant
has also questioned the evidentiary value of the bank account details of other
similar account holders, in his case.
iii. The Appellant has stated that it is not clear how the balances maintained by
Ms Janki Mukhi and Mr Kanu Bhai Patel, are relevant in arriving at the finding
that the appellant had made an initial deposit of USD 3 Million. The bank
balances and other investments maintained by any person are a factor of his net
worth, his investment profile and his personal preference. Further, the balances
in the case of these two individuals also do not throw light on the fact, whether
these were initial deposits or accretion over the years. In any case, the balances
17 Shri Kamal Galani
maintained by the two individuals are no evidence of mandatory initial deposit
amounts and the balances in these accounts cannot be the basis to affix liability
on the appellant. The appellant also stated that the assessing officer has been
unable to counter the valid objections raised by him regarding the gap of over 15
years between the opening of the account and the web site information relied
upon, the fact that the account was opened with an entirely different bank which
later merged with the HSBC Bank, and that the requirement of mandatory
minimum balance has been increasing from year to year.
iv. I have perused the assessment order, the remand reports, as well as
submissions made by the appellant. It is not denied that account was opened on
17-04-1998, Secondly, the base document, relied upon gives monthly balances
for a period commencing from November 2005 and hence does not throw light
on the initial deposit or the balance in the account up to November 2005. The
Assessing Officer has been able to bring on record, evidence in the form of
information contained in the HSBC website, which mentions a figure of USD 3
Million as a minimum requirement to open a bank account with the HSBC
Private Bank, As has been discussed earlier, the appellant is an account holder
with HSBC Bank, and the burden of proof rest upon him to counter the claim of
the assessing officer, regarding the initial deposit of USD 3 Million. This
contention of the Assessing officer could have been easily countered by bringing
on record, the statement of the impugned bank account which would have
clarified not only the initial amount deposited, but also the balance in the
account up to 2005. The Appellant being the account holder, is the person of
this information, and the rules of evidence clearly casts a burden upon him to
lead evidence in his support. I am of the view that the appellant for reasons best
known to him, has failed to discharge this liability cast upon him, and hence I am
upholding the action of the assessing officer in computing the amount of initial
deposit at the time of opening of account on 17-04-1998 at USD 3 Million.
Further, there is nothing on record which would lead to formation of belief, that
the balance in such account was less than USD 3 Million up to 33/10/2005, and
hence in the absence of any evidence provided by the appellant, I am of the
view that from the date of opening of account till 31-10-2005 the balance in the
impugned account shall have to be considered as USD 3 Million. From
November 2005 onwards, the Base document itself provides complete details of
the balances maintained in this account, and hence no further presumptions are
called for.
b. Whether such amount should be taxed in the hands of the appellant
for the A.Y.I999-2000
The second issue is regarding taxability of this initial deposit of USD 3 Million in
the assessment year 1999-2000 in the hands of the appellant. It is an
undisputed fact that the appellant was a non resident in India, for tax purposes,
in the assessment year 1999-2000 and the years prior to it. There is nothing on
record to suggest that the balances in the impugned account reflect income
which was earned in India or accrued or arose in India. In fact there is not even
a whiff of such suggestion in the assessment order or any report furnished by
the assessing officer. In view of the same no addition on account of initial
deposit in the bank account can be made in the hands of the appellant for the
assessment year 1999-2000.
III. Determination of return on investment @ 17% per annum, year on
year.
i. The appellant has contested the additions made in all the Assessment
Years i.e from A.Yrs. 1999-2000 to 2007-2008, based on an
18 Shri Kamal Galani
estimated return of 17% per annum on the balance in the account. For
this purpose, the balance has been assumed at USD 3 Million as
discussed earlier. The appellant has argued that the rate of return @
17% annually in bank account with HSBC Bank is arbitrary and based
on assumption without any basis or evidence against the appellant.
ii. The appellant has contended that in the assessment year 1999-2000, his
residential status was that of a NRI. Consequently, the Scope of income
chargeable to tax for Non-Resident is governed by section 5(2) of the Income
Tax Act and income of a Non resident is only that income which is received or is
deemed to be received in India or accrues or arises or is deemed to accrue or
arise in India. The alleged initial deposit of USD 3 Million and interest earned at
17% on same in AY 1999-2000 therefore clearly is outside the purview of
charging section for a Non resident assessee.
ii. Similarly the Appellant is a Resident but not Ordinarily Resident for the
AY 2000-01, 2001-02 and 2002-03. The scope of income chargeable
to tax for a resident but not ordinary resident (NOR) is governed by
proviso to section 5(1) of the Income Tax Act which reads as under :
“Provided that, in. the case of a person not ordinarily resident in India within the
meaning of subsection (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 profession set up in India”
The Appellant therefore submits that the interest income as assessed at 17% for
the AYrs. 2000-01, 2001-02 and 2002-03 are also income which have accrued
or have arisen to him outside India. Hence there cannot be any assessment of
income from bank account held in HSBC for these years as well.
As regards the residential status of the appellant for the A.Yrs.2003-04 to 2007-
08, the AO has enclosed a factual report in his remand report dated 13.08.2018
regarding the stay of appellant in India on the basis of passport and immigration
details. It is evident from the chart enclosed that the appellant is Ordinary
Resident from the A.Yrs.2003-04 to 2007-08.
iv.. Further, with respect to the years in which the appellant is ordinary
resident, it has been contended as follows:
“the assumed rate of return is applied on assumed amount of Investment of
USD
3 Million,. There is no evidence brought on record by AO. Further, in western
developed economies the yield / return of 17% is unheard of in the past 15-20
years and is an impossibility. We enclose herewith the copy of Yield chart of US
dollar denominated bonds and Swiss Government Bond Yields. The same are in
range of 3 to 4 %. In fact in Switzerland the yields are negative. We therefore
plead that assumed addition of 17% return on USD 3 Million amounting to USD
5,10,000/- in each of the years may be deleted*’.
v. A remand report was called for from the A.O. vide letter No. CIT(A)-
34/Remand report/2018-19 dated 12/07/2018 regarding the above submissions
of the appellant. The AO in his remand report has stated as follows :
19 Shri Kamal Galani
I further hold that the deposit resulted in accretion by way of interest income
chargeable to tax in all the years. In this regard the details of deployment of fund
by HSBC Bank out of the funds invested by Ms. Janki N Mukhi show that the
funds were deployed in various assets such as fiduciary deposits, shares, liquid
assets, mutual funds, stock, structured products etc on month to month basis.
As illustration I scan below the Table giving details of investment in her
individual active account which is annexed to her Base Document:
The above document is enough evidence to rate the growth of the funds of the
assessee being deployed in various assets like loans & advances, bonds and
fiduciary deposits. From the chart mentioned above it is clear that the amount of
$ 10,92,629.39 In the month of November 2005 increases to $11,70,268.31 by
the month of March 2006. Thus, there is a growth of $ 77568,92 in the period of
5 months. This growth comes to 7. 1 % for 5 Months, and when annualized this
rate . . comes to effectively 17% annualized returns. Thus, in the absence of any
details forthcoming in this regard In the assessment year under consideration, a
return was correctly estimated @ 77% annually on investment made by the
assessee on USD 3 Million. In view of the facts and circumstances as
enumerated above by the AO In his assessment order for the A.Y.2004-05 to
2007-08, you ere requested to uphold the action of the AO”.
vi The appellant was furnished with the copy of Remand Report of the AO
in response to which the A.R. of the appellant submitted as under:
“Return on Investment computed @17% :-
Your Honour, again the A. 0. has annexed / scanned the Investment details of
some other account holder ‘Ms. Janki Mukhi’ to calculate that return of 17% p.a.
is earned uniformly on investment made on USD 3 Million. Your Honour, we
reiterate that such statement lacks evidentiary value for reasons stated in
aforesaid paragraph. Further, this assumption also suffers from a lot of
Infirmities as stated below;-
a) The asset of so called Janki Mukhi comprises of various classes such es
Fiduciary Deposits, shares, Liquid Assets, Mutual Funds, Stocks and Structured
products, etc. which cannot have uniform returns for obvious reasons due to
difference in the asset class per-se,
b) The asset class alleged to have been owned by Appellant are different than
that of Ms. Janki Mukhi.
c) The accretion to assets need cannot be solely attributed to any interest
income but also can be due to new investments or withdrawals also, which is
totally ignored. Any increase need not be only due to income.
d) The Risk profile of persons are different and cannot be same.
e) The Return cannot be uniform 17% for a period of a years altogether(9
years to be specific).
We, therefore, submit that reliance of A. 0. to estimate return @17% for purpose
of reopening the assessment U/s. 147 is absolutely on incorrect basis and same
needs to be quashed.
vii. Conclusion on determination of return on investment @ 17% per
annum
I have considered the submission of the Appellant, and the report submitted by
the assessing officer. The issues that arise for adjudication are as follows;
a) what is the amount of balance investment in the account of the appellant,
for the period covered by A.Yrs 1999-2000 to 2007-08, on which income has
been earned by the appellant
20 Shri Kamal Galani
b) whether such income is taxable for all the assessment years under
appeal.
c) what is the rate of return on the investments / balances held by the
appellant, which shall form income of the year
d) whether the entire amount of return should be taxed in the hands of the
appellant
a. The first issue, has been decided in preceding para wherein it has been
held that on the basis of evidence brought on record, the only view
sustainable is that the initial deposit on 17-04-1998 was USD 3 Million.
b.
c. The second issue is with regard to taxability of such return on investment
in each assessment year between 1999-2000 to 2007-08. As has been
discussed and decide in preceding para, the residential status of the
appellant was Non Resident in the assessment year 1999-2000. This fact
is undisputed. Hence, in view of the provisions of section 5(2) of the Act,
such income is outside the scope of the Indian Taxing Statute. Similarly,
the residential status of the appellant for the AYrs 2000-01, 2001-02 and
2002-03, is Resident but Not Ordinarily Resident (NOR). The return on
balances in the account cannot be subjected to tax in the hands of the
appellant for these assessment years in view of the provisions of section
5(1) of the Act.
c. The third issue is rate of return on the investments / balances reflected in the
impugned account. The assessing officer has adopted a rate of 17% per annum
based on data contained in the base document received in the case of Ms Janki
Mukhi, where the facts of the case are reasonably similar. As far as the
argument of similarity with the case of Janki Mukhi is concerned, the appeal has
not been decided on this issue. Rather, the appeal has been decided on the
basis of residential status being NRI/NOR. I am willing to agree to the view that
the return on investment in any case shall depend on the nature of investments
made, which itself shall depend on the bouquet of investments made by any
person. However, the onus of furnishing evidence regarding return received and
income earned from the impugned account rests on the appellant. He is the
account holder and hence the responsibility lies on him to lead evidence which
shall help in the exact determination of income from such account. He has
provided no assistance in making such evidence available, and hence he cannot
be given the benefit of such stone walling. On the other hand the assessing
officer has been able to bring on record evidence which gives rise to a
reasonable belief that returns on investments held in and managed by HSBC
Bank during the relevant period, were yielding high returns in the region of 17%.
I am hence of the view that estimating return on investment / balance @ 17%
per annum is reasonable keeping in view the facts of the case. Thus, the
addition of Rs.2,31,08,100/- for the A.Y.2004-05, Rs.2,24,91,000/- for the
A.Y.2005-06, Rs.2,31,03,000/- for the A.Y.2006-07 and Rs.2,10,83,400/- for the
A.Y.2007-08 are confirmed.
d. Finally, the issue to be considered is whether the entire amount of return on
investments / balances reflected in the impugned account should be taxed in the
hands of the appellant. It is an undisputed that the account is jointly held by the
appellant and his brother Deepak Galani. The onus was on the appellant to
explain the beneficial ownership, actual depositor and ultimately the share of the
appellant in the joint account. Had the appellant submitted complete set of bank
statement, probably many of the dispute would have been settled. The appellant
21 Shri Kamal Galani
has chosen not to respond and submit relevant specific evidences. The
appellant has, therefore, clearly failed to discharge the onus cast upon him. The
AO has elaborated and analysed as to how the appellant had enjoyed the right
being a joint account holder. Hence, I do not find any .reason to deviate from the
findings of the AO and hold that the addition of Rs.2,31,08,100/- for the
A.Y.2004-05, Rs.2,24,91,000/- for the A.Y.2005-06, Rs.2,31,03,000/- for the
A.Y.2006-07 and Rs.2,10,83,400/- for the A.Y.2007-08 made by the AO on
account of return of 17% per annum on investment are confirmed.
IV) Challenging the Assessment of Peak credit in the AY 2006-07 (USD
9,40,191 and USD 3,17,080 for AY 2007-08
I t
I. The appellant has argued that the addition on account of peak balance in
A.Y. 2006-07 (USD 9,40,191) and in A.Y.2007-08 (USD 3,17,080) is
contradictory in as itself is USD 3 Million. Hence there cannot be a
peak figure lesser than the higher figure of initial deposit. Further, the
appellant has also contended that the assessing officer has added
substantial amounts as income from year to year on account of
interest allegedly received, and such income in aggregate exceeds
the so called peak available in November 2005. Hence, in all manner
the addition on account of peak deposit is without any basis in fact
and in logic and amounts to double taxation.
ii. This issue is consequential to the decisions taken by me, in respect of initial
deposit and income earned on balances lying in the account. As discussed
earlier, the initial deposit has been held to be a figure of USD 3 Million. Further,
to such initial deposit, a return of 17% per annum has been estimated from year
to year which has been held as taxable in the hands of the appellant for the
years when he was Resident in India. Further, nothing is on record which would
even remotely suggest that the entire balance of USD 3 Million, and interest
earned thereon was dissipated on a date prior to November 2005. Thus, a
balance of USD 940,191/- being less than USD 3 Million cannot be separately
added as peak credit in the hands of the Appellant. In light of the above facts,
further addition on account of peak balance in November 2005, and less than
peak balance in September 2006 is uncalled for and unsustainable. Thus, the
addition on account of peak credit for A.Yrs. 2006-07 and 2007-08 is
unsustainable.
9. The Ld. AR for the assessee submitted that the Ld.CIT(A)
was erred in confirming additions made by the Ld. AO towards
return on investments on purported initial deposits made by the
assessee to open account at HSBC bank, Geneva, even though,
the assesee has clearly established with fact that account is
neither belongs to him, nor he is having any interest in money
lying with bank account. The Ld. AR, further submitted that the
22 Shri Kamal Galani
assessee has right from the day one made it very clear that
account was opened by his brother in the year 1998 with the
British Bank of the Middle East, UAE and said bank has been
subsequently taken over by HSBC bank, Geneva and account
opened in British Bank of the Middle East by his brother is solely
owned by him, for which brother has filed letter before the Ld.
AO along with affidavit and owned up account. But, the Ld. AO
has discarded all evidences filed by the assessee and made
additions in the hands of the assessee only on the ground the
base note received from French Government contains name and
address of the assessee. He, further submitted that the assessee
never disputed fact that bank account is not opened by his
brother with joint name, however he made it very clear that the
bank account was completely operated by his brother Mr. Dipak.
V. Galani and whatever money lying in bank account is belong to
him. The Ld. AR for the assessee, further referring to various
documents submitted that unless, the Ld. AO brought on record
necessary evidences to prove ownership of bank account in the
name of assessee, he cannot make additions only on the basis
of base note, when the assessee has categorically denied of
having any link to bank account. Further, the Ld. AO has
disregarded all the evidences filed by the assessee and made
additions, only on the basis of base note on pure assumptions
23 Shri Kamal Galani
that since, the assessee is second holder of bank account and he
is vested with rights and obligations connected with the account
and a signatory, either jointly / allow without any limitations and
has designated by all the account holders. Therefore, he finally
concluded that the assessee is a beneficial owner of the account,
despite fact that assessee has denied all allegations. In this
regard, he relied upon certain judicial precedents, including the
decision of Hon’ble Delhi High court, in the case of CIT vs
Shivaprakash Aggarwal (2008) 306 ITR 324.
10. The Ld. DR, on the other hand submitted that the Ld. AO, as
well as the Ld.CIT(A) has brought out clear facts to the effect
that the assessee is a beneficial owner of bank account held in
joint name with his brother Mr. Dipak.v.Galani in HSBC Bank
account, Geneva and also brought various evidences to prove
that the assessee has earned 17% rate of return on investments
along with certain comparables cases. Therefore, there is no
merit in the arguments of the assessee that the account is
belongs to his brother and he is not having right or interest in
said bank account. The Ld. DR has filed detailed written
submissions on the issue, which has been reproduced as under:-
24 Shri Kamal Galani
I. Issue of Jurisdiction:
Your honours in these cases common issue raised by the appellant are issue of
jurisdiction whereby validity of Re-assessment proceedings are challenged. The
appellant challenged the jurisdiction primarily on the grounds that there was
non-recording of reason to believe; there is absence of reasons to believe about
income escaping assessment; there is absence of valid sanction u/s 151 of the
Income Tax Act, 1961 (hereinafter, the Act) for issuance of notice u/s 148 of the
Act and the notice for reopening u/s 148 of the Act are issued beyond the period
of limitation.
Your honours may appreciate that as far as issue of non-recording of
reason to believe is concerned it is abundantly clear from the Assessment
Orders which clearly states that reasons for reopening was recorded and
were supplied to the appellant. Further the Ld. CIT (A) has disposed off the
same in the order and held that reasons were duly recorded. Further your
honours on perusal of the case records and the paper book of appellant, it is
seen that for the AY 2004-05 to AY 2007-08 the AO has recorded reasons
and sought approval from the JCIT which was granted by the JCIT after
recording satisfaction, subsequently, the AO issued the notice u/s 148 of
the Act on 30/04/2013. Likewise for AY 1999-00 AY 2003-04 the AO
recorded the reason and sought approval from the JCIT and after
receiving the approval issued the notices on 30/3/2015. Furthermore,
important aspect requiring kind attention of your good selves is that during the
AYs 1999-2000 to 2003-04 the appellant has also filed the objections to the
reasons recorded and these were disposed off by speaking order. Therefore
your honour in my humble opinion it is not correct to argue that no reasons were
recorded when the appellant objected to the reasons recorded during the
assessment proceedings and which were duly disposed by the AO.
Overall it may be kindly appreciated your honours that considering the various
facts discussed previously it appears to have no infirmity in the reopening
proceedings so far as reasons were recorded by the AO and approval was
granted by the JCIT after recording satisfaction and this was prior to the
issuance of the notice u/s 148 of the Act.
The kind attention of your honours is invited to the landmark judgement of
Hon’ble Supreme Court in GKN Driveshafts (India) Ltd vs ITO (2003) 259 ITR
19 Hon’ble Court has held thathowever,
we clarify that when a notice under Section 148 of the Income tax Act
is issued, the proper course of action for the notice is to file return and if he so
desires, to seek reasons for issuing notices (emphasis supplied). The assessing
officer is bound to furnish reasons within a reasonable time. On receipt of
reasons, the notice is entitled to file objections to issuance of notice and the
assessing officer is bound to dispose of the same by passing a speaking order.
In the instant case, as the reasons have been disclosed in these proceedings,
the assessing officer has to dispose of the objections, if filed, (emphasis
supplied) by passing a speaking Order before proceeding with the assessment.
25 Shri Kamal Galani
Therefore your honours may appreciate that from the ratio laid down in
the Judgement supra it follows that AO is required to dispose of the objections if
such objection is raised by the assessee. The AO can not presuppose that the
assessee is having any objections. Hence your honours may consider the fact
that in the instant cases as discussed the AO disposed of the objections during
AYs 1999-2000 to 2003-04 whereas for AY 2004-05 to AY 2007-08 it
emerges that no such objection is raised by the appellant this fact is also
mentioned in the remand report dated 12/3/2018 which forms part of the
order of Ld. CIT (A). Your honours are humbly requested to consider these
facts.
On issue of valid sanction u/s!51 of the Act the kind attention of your
honours is invited to the order of the Ld C1T(A) in AYs it is held by Ld. CIT (A) in
his order of Ays 1999-2000 to 2002-03 held that- After due application of mind;
the jurisdictional Addl. CIT and the AO had reasons to believe that income of
more than Rs 1 lakh has escaped assessment during the year due to failure on
the part of appellant to furnish fully and truly all facts in the return of income for
respective years. The facts are clearly mentioned in the remand report dated
12/03/2018 the provision u/s 151 of the Act as applicable is reproduced for the
ready reference;
Sanction for issue of notice.
151. (1) In a case where an assessment under sub-section (3) of section 143 or
section 147has been made for the relevant assessment year, no notice shall be
issued under section 148 [by an Assessing Officer, who is below the rank of
Assistant Commissioner [or Deputy Commissioner], unless the [Joint]
Commissioner is satisfied on the reasons recorded by such Assessing Officer
that it is a fit case for the issue of such notice] :
Provided that, after the expiry of four years from the end of the relevant
assessment year, no such notice shall he issued unless the [Principal Chief
Commissioner or] Chief Commissioner or [Principal Commissioner or]
Commissioner is satisfied, on the reasons recorded by the Assessing Officer
aforesaid, that it is a fit case for the issue of such notice.
(2) In a case other than a case falling under sub-section (I), no notice shall
be issued under section 148 by an Assessing Officer, who is below the
rank of [Joint] Commissioner, after the expiry of four years from the end of
the relevant assessment year, unless the /Joint/ Commissioner is
satisfied, on the reasons recorded by such Assessing Officer, that it is a fit
case for the issue of such notice.]
[Explanation.—For the removal of doubts, it is hereby declared that the
Joint Commissioner, the [Principal Commissioner or/ Commissioner or the
[Principal Chief Commissioner or] Chief Commissioner, as the case may
be, being satisfied on the reasons recorded by the Assessing Officer
about fitness of a case for the issue of notice under section 148, need not
issue such notice himself.](emphasis supplied)
Your honours will appreciate that clearly the provision of subsection 2 of
section 151 of the Act is applicable in the instant case where the Assessing
Officer who recorded the reason to believe to reopen the case is Assistant
Commissioner of Income Tax and Deputy Commissioner of Income Tax, further
the case was reopened beyond four years therefore the provision is squarely
applicable in the instant case.
26 Shri Kamal Galani
The kind attention of your honours is also invited to the fact that the
Writ Petition was filed by the appellant before Hon’ble Bombay High Court.
This petition was withdrawn by the appellant. Your honours kind attention
is warranted on this fact that the withdrawal of Writ Petition was without
any liberty. The kind attention of your honours is invited to the order of the
CIT(A) on this issue.
Your Honours without prejudice to the foregoing paragraphs Hon’ble High
Court of Madras in Home Finders Housing Ltd. V ITO [2018] 303 CTR 269 has
held that ‘we therefore make the position clear that non compliance of the
procedure indicated in the GKN Driveshafts (India) Ltd., would not make the
order void or non est. Such a violation in the matter of procedure is only an
irregularity which could be cured by remitting the matter to the authority. The
first issue is accordingly answered against the appellant’. Hon’ble High Court in
para 19 of the judgement supra has mentioned that ‘the core question is as to
whether non compliance of a procedural provision would ipso facto make the
assessment order bad in law and non-est. The further question is whether it
would be permissible to comply with the procedural requirement later and pass
afresh order on merits’. This order of Hon’ble High Court of Madras was
challenged before Hon’ble Supreme Court in Special Leave Petition, Hon’ble
Supreme Court dismissed the SLP vide Petition(s) for Special Leave to Appeal
(C) No(s). 12721/2018 on 18/05/2018.
In the light of the discussion in previous paragraph it is prayed from
your good selves to consider the submission that the defect if any is a
curable defect and would not make the Assessment Order bad-in-law and
non est.
On the question of issuance of notice u/s 148 of the Act beyond limitation
is concerned Ld. CIT (A) has mentioned in his order that the provisions of
section 149 of the Act has extended the time limit for reopening of the case as
the appellant was found to be owner of bank account/asset located outside India
and income has escaped assessment. As has been mentioned previously that in
case of bank account/asset located outside and the income has escaped
assessment then the deeming provision gets attracted. Hence your honors it is
humbly submitted there is no merit in the contention that the notices were issued
beyond limitation.
II. Issues of invoking provision under section 144, Reliance on the Base
documents and Ownership of Bank Account: Your honours another common
issue raised by the appellant is that the AO erred in invoking provision of section
144 of the Act. The appellant claimed that he has filed submission on numerous
occasion and also stated that account was opened by the brother of appellant
Deepak Galani with the British Bank of Middle East in 1998 (the bank was
subsequently taken over by HSBC further that the name of appellant is named
as a second account holder for the purpose of nomination and for the sake of
convenience moreover all the money along with the transactions belonged to
the appellants brother only. The appellant also contented your honours that in
order to cooperate with the Income Tax Department the appellant also furnished
the consent waiver letter as required by the department. Further that the brother
of the appellant also furnished a letter claiming the beneficial ownership of the
account held with the HSBC Bank Geneva. The appellant also argued to have
fully discharged the onus during the assessment proceedings it self. Moreover
the appellant argued that the reliance of the AO on the base document which is
27 Shri Kamal Galani
compiled out of stolen data and modified by the ex-cmploycc is itself an
inadmissible evidence for the purpose of of any tax proceedings in India. The
appellant also argued that he is not the owner of the bank account, he claimed
that he is the second holder of the bank account for the purpose of nomination
only and for the sake of convenience and ownership of the account lies with his
brother Dccpak Galani.
On the issues mentioned above your honours it is humbly submitted that
it is evident from the case records that the AO consistently queried the appellant
to furnish details relating to the bank account such as bank account statements,
transactions in the bank accounts, name and address of the account holders,
beneficial owners, correspondence between account holders and bank and
other similar documents. Your honours will appreciate that the existence of
account is not in dispute also it is not in dispute that the bank account jointly
held by appellant and his brother. However, your honours despite of the fact that
appellant is one of the account holder along with his brother the appellant
completely failed to discharge the onus cast upon him to provide bank account
statements and other details which were called from him vide various notices u/s
142(1) issued during the assessment proceedings in all the years. Only
requirement your honours was to furnish the documents as required by the AO.\
Your honours the appellant claimed to have signed the consent waiver
form and thus he has discharged the onus. In this regard it is humbly submitted
that it is correct that the appellant has provided the consent waiver form.
However it is not appropriate to argue that onus was discharged because
onus is not discharged by signing the consent waiver form rather that
could have been discharged only by the production of those documents
and evidences which were called for from the appellant in the notices u/s
142(1).
Your honours will appreciate that the consent waiver form is neither
a statutory requirement nor a procedural one. It was only a facilitation
mechanism for the benefit of the assessee vis-a-vis HSBC Switzerland.
Further, the format of consent waiver form was prescribed by HSBC
Switzerland and not by Income Tax Department. In fact it raises further a
doubt on the appellant that despite signing the consent waiver from the
appellant has not produced the various details which were required during
the assessment proceedings. This is so because in as many as three
cases of the different assessees the AO received the bank account
statements and other details from them after they signed consent waiver
form. Your honours are requested to grant kind attention on the issues in
foregoing paragraph.
Furthermore your honours kind attention is invited to the contents and
features of Consent Waiver Form. Some of the important feature of the Form
are as undera)
Consent Waiver form is a form where the person (account
holder/beneficial owner/ authorized signatory/trustee) request the HSBC
Bank to provide the bank account statement and other documents. It is
between account holder (or other person referred before) and the Bank.
28 Shri Kamal Galani
The Consent Waiver Form is addressed to the officials of the HSBC Bank
and is signed by the account holder etc. Therefore your honour is is humbly
submitted that there is no question of discharging onus before Income Tax
authorities in India under the Act.
b) The account holder declares that he/she is cooperating with the
Income Tax Department and is providing a copy of the waiver to Income Tax
Department Government of India.
Only the copy of the form is provided it is not the case that the Income
Tax Department is to procure the account statements and other details on the
basis of this form your honours.
c) Account holder waives all protections provided under the data
protection, privacy and/or bank secrecy laws of Switzerland.
Your honours may consider the fact that the Swiss laws and banks were
rather infamous for their secrecy laws this waiver from protection is important to
enable the bank to provide requested details at the address of the account
holder. Hence it is between bank and the account holder by no means the
appellant can claim to have discharged the onus by signing the form and not
providing the required details like account statements etc.
d) Account holder instructs the HSBC Private Bank (Suisse) SA to follow
these instructions until revoked by the account holder.
e) Further the account holder instructs the HSBC Bank that
documentation is to be provided in both paper and electronic to the above
mentioned address (at the address mentioned by him) and also mentions
again that he/she expressly waives the protections offered by the Swiss
banking secrecy and data protection rules accordingly.
The kind attention of your honours is drawn to the fact that
from the consent waiver form it is clear that it is addressed to the HSBC Bank
authorities to provide the bank account statement and other documents to the
account holder waiving the secrecy laws at the address of the account holder
and subject to the revocation of consent so waived. Overall consent waiver form
waives the right of account holders on account of banking secrecy and privacy
laws of Switzerland and gives the authority to Bank to provide the bank account
statements of the account holder. Even this is also subject to the subsequent
revocation.
Your honours are requested to pay attention to the very fact that the
Assessing Officer vide notice u/s 142(1) of the Act dated 12/01/2015 again
raised specific query that despite of the appellant filing the consent waiver
no bank account statements were provided by the appellant before him. In
the notice supra the AO also mentioned that the of similarly placed
assessees who gave consent waiver have produced the desired bank
account statements and other documents from HSBC Bank. In response to
the specific query raised the appellant has not filed the detailed response or the
details which were required. Therefore your honours humble submission is that
the appellant during the proceedings was largely evasive in so far as production
of bank accounts and other documents are concerned.
29 Shri Kamal Galani
Another important aspect warranting attention of your good selves is that
it is undisputed fact that the appellant is joint account holder of the HSBC
Bank account. This fact is mentioned in the base note, in submission of
his brother and also appellant never denied of it. Therefore there is no
reason why the bank account must not have been provided to the
appellant by the HSBC Bank. In such a scenario your honours would
appreciate that three possibilities emerge which are that the appellant has
not given the consent waiver to the HSBC Bank or the appellant received
the bank accounts and other documents from the HSBC Bank but has
decided to not to share them with the Income Tax authorities in India or
the appellant has revoked the conditions laid down in consent waiver form
dated 23/07/2013. In any case your honours the appellant has not discharged
the onus to produce the details relating to bank account asked from him vide
statutory notices.
As far as base note is concerned it was officially received by Government
of India from government of France as a part of the Tax Information Exchange
Treaty (TIET) under the DTAA between France and India so your honours there
is hardly any dispute about the veracity and authenticity of the Base note.
Further in the instant case the name of the appellant is found on the base note
and both the appellant and his brother has accepted to be the joint holder of the
bank account mentioned in the note.
Another issue raised by the appellant your honours is that the appellants
brother Shri Deepak Galani is the owner/beneficial owner of funds/investments
in the bank account. In this regard a letter has also been filed by Shri Deepak
Galani some important aspects of the letter is that in this letter brother of
appellant states that he had opened an account with HSBC Bank Geneva with
client account number 4077262 in 1998 for the purpose of investments in bonds
and securities out of my own funds. He also states that he had opened the
account with his brother Kamal Galani as a joint second name out of
convenience and also has a mark of respect for his elder brother. The brother of
appellant further states that he is the sole beneficial owner of the funds and
Kamal Galani (appellant) does not own any funds/investments/ asset accretion
out of this account also that the appellant does not have any right title and
interest in the funds etc.
On the issue of the ownership of funds it is to be mentioned here your
honours and attention is invited to the fact that the AO vide notice u/s 142(1)
dated 1/10/14 clearly stated that since the name of appellant is appearing as
second owner hence clearly the appellant is also the second owner. More
importantly the AO in the notice u/s 142(1) dated 12/01/2015 also gave the
General Conditions of the bank which was finally named HSBC Private Bank
(Suisse) SA these General conditions has various clauses which define relations
between bank and the customers. On going through these general conditions
it is clear that the customers keep on receiving bank account statements
from bank from time to time therefore in order to discharge the onus the
appellant ought to have furnished the bank account statements and other
documents. Another important clause of General Conditions is clause 4
this clause is regarding the Several holders and joint account. The clause
4 of General Conditions clearly grants equal rights to the two or more joint
account holders, it states that When two or more persons are holders of
an account, each of (he account holders shall be vested with the totality of
rights and obligations connected with the account. Further that Each of the
30 Shri Kamal Galani
account holders is authorized to accomplish, alone or jointly, in
accordance with his relevant powers of signature, all transactions without
any limitation whatsoever. In light of these clause your honours it is amply
clear in my humble submission that in case of joint account holder both the
account holder have equal rights and privileges hence the letter of Deepak
Galani brother of appellant is of not much value. The rights and
obligations of both the account holders arc same and both the account
holders are jointly and severally bound. The letter by brother of appellant
is not material to the case as even in this letter the brother of the appellant
has not attached the bank account statements and other documents which
could establish the preposition forwarded in his letter. It is the appellant
who is the assesee and hence the assessment was made on the available
information so there is no infirmity in the order of the AO.
Your honours humble attention is invited to the order of the AO who in
his Assessment order the has also mentioned various details such as ‘The
Identification of the Beneficial Owner’ this is also in the case of similarly
placed facts in two different cases. In the instant case neither the
appellant nor his brother has furnished the identification of beneficial
owner form.
In light of the above facts and other facts mentioned in the Assessment
Order and the Order of the CIT (A) it is prayed from your honours to kindly treat
the letter filed by the brother of the appellant as a self serving document.
Ill Issue of quantification of Investment and interest/return on investment
and the residential status and taxing rights:
During the proceedings before your honours the appellant also raised objection
on the issue of quantification of investment and the rate of interest earned,
whereas revenue challenged the order of the Ld. CIT (A) on the relief granted by
him in the appellate order on the ground of the residential status.
On the issue of quantification it is important to mention your goodselves
that no evidence pertaining to bank account statements and other documents
were provided by the appellant to the AO. The appellant and even his brother
accepted that the appellant is a joint holder of the account. The appellant has
failed even to submit the basic form which is ‘The Identification of the Beneficial
Owner’ to prove that he is not the beneficial owner of the account. This despite
of the fact that two different assessees have provided such form, these
assessees whose names were also mentioned in the information received from
the French Government and also their respective base notes were received and
they also have accounts in the HSBC Bank Geneva during the period in which
the appellant was having the bank account.
Your honours kind attention is also invited to the fact that on basis of
enquiries conducted by the AO from the internet and also analyzing the bank
accounts statements and other facts of similarly placed assessees, the AO
arrived at the fact that initial investment of 3 Million USD was made. The AO
raised specific query in this regard long before passing the assessment orders.
Finally in Assessment order AO relied upon the contents in the website of the
HSBC Pvt Bank and also on the information received by him in the cases of
other assessees. Hence on the entire factual matrix AO has made the best
31 Shri Kamal Galani
quantification of investment possible. Likewise the computation of interest is
made on the rational basis mentioned in the assessment order. The appellant is
making a claim without producing the bank account statements and other
documents to prove otherwise.
Finally on the issue of the residential status during AY 1999-
2000 to AY 2002-2003 and the issue of taxing right the reliance is placed
upon the cases of Renu Tharani vs DCIT IT A No. 2333/Mum/2018
dated 16(h July 2020 the operative part of the decision is reproduced as
under:
Considering the facts of this case, the decision of the Hon “ble IT AT, Mumbai in
the case of Mohan Manoj Dhupelia and other in ITA no. 3544/Mum/ 2011 etc, is
directly applicable to this case. In this case, the assessee is a beneficiary of
Ambrunova Trust having an account in Liechtenstein Bank which is another tax
jurisdiction known for its secrecy law and modest tax regime. In fact, in the order
of the IT AT, it has been concluded that Liechtenstein jurisdiction qualifies as an
off shore financial centre due to a very modest tax regime, high standard of
secrecy laws and further foreign investors had the opportunity to establish
companies or trust in the principality of Liechtenstein to the enjoy the
advantages of off-shore financial centre The ground of appeal before the
Hon’ble IT AT in this case was as follows: “The Id. Commissioner of Income tax
(Appeals), erred in confirming the order of the Assessing Officer making an
addition of Rs.2,34,64,398/- on account of alleged undisclosed income, without
appreciating the fact that the alleged trust was discretionary trust as neither the
amount was accrued nor credited to the Appellant’s name, hence addition
cannot be made in the hands of the Appellant”. ITA No. 2333/Mum/2018
Assessment year: 2006-07 Page 14 of 55 The Hon’ble Mumbai ITAT dismissed
this ground of appeal raised by the assesse and held that discretionary trusts
are created for the benefit of particular persons and those persons need not
necessarily control the affairs of the trust. The bank account of the trust
represents unaccounted money of the beneficiaries even though no benefit were
transferred to them. 13.1 Considering the facts of the case and the decision of
the Hon’ble Mumbai IT AT as cited above it can be concluded that the bank
account of the trust represents unaccounted money of the assesse. Considering
the fact that the assessee is an Indian having interests and assets in India that
no details were given to show the source of money deposited in the HSBC
account leads to the circumstances that this unaccounted money is sourced
from India. In absence of anything contrary, the only logical conclusion that can
be inferred is that that the amounts deposited are unaccounted deposits
sourced from India and therefore taxable in India. This presumption is as per the
provisions of section 114 of The Indian Evidence Act, 1872 which reads as
follows: “Section 114. Court may presume existence of certain facts. The Court
may presume the existence of any fact which it thinks likely to have happened,
regard being had to the common course of natural events, human conduct and
public and private business, in their relation to the facts of the particulars case.
The Court may presume- …… (g) That evidence which could be and is not
produced would, if produced be unfavrorable to the person who withhold it…. ”
Section 114(g) of The Indian Evidence Act, 1872, thus clearly says that the
Courts can presume existence of certain facts if the person liable to produce
evidence which could be and is not produced, which if produced would have
been unfavorable to the person who withhold it. 13.2 Further, the provision of
Section 5(2) of the Act is reproduced as under:-” Subject to the provisions of this
32 Shri Kamal Galani
Act, the total income of any previous year of a person who is a non-resident
included 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. ” During the assessment proceedings and as can be seen from the facts of
the case that the assesse has not made out a case that the deposits in the
above mentioned accounts in HSBC, Geneva do not all within the ambit of this
provision of law. ] 3.3 As the assesse has chosen not to produce the details of
his HSBC bank accounts and the source of deposits thereof, even though he
could have been obtained all the details/evidences for the same, the only
corollary that could be drawn is that the assesse has decided to withhold the
information as if producing ITA No. 2333/Mum/2018 Assessment year: 2006-07
Page 15 of 55 it would have gone against him. Thus, as per the provisions of
Section 114 of The Indian Evidence Act, 1872 also, it need to be held at this
stage that the information/details not furnished were unfavorable to the assesse
and that the source of the money deposited in the IISBC account is undisclosed
and sourcedfrom India. Nova Promoters and Fin/ease (P) Ltd. 342 ITR 169
(Del), highlighting the legal effect of section 68 of the Act, the Division Bench
has observed in para 32 that The tribunal also erred in law in holding Assessing
Officer ought to have proved that the monies emanated from the coffers of the
assesse company and came back as share capital. Section 68 permits the
Assessing Officer to add the credit appearing in the books of account of the
assesse if the latter offers and explanation regarding the nature and source of
the creditor the explanation offered is not satisfactory. It placed no duty upon
him to point to the source from ‘which the money was received by the assessee.
In the light of the facts and judicial precedents discussed above it is
requested to kindly consider the written submission uphold the order of the AO
dismiss the grounds of appeals of the appellant and allow the appeals of
revenue.
11. We have heard both the parties, perused the material
available on record and gone through orders of the authorities
below along with case laws relied upon by Ld. Counsel for the
assessee. The Ld. AO has made additions towards money lying
in HSBC bank account, Geneva, on the basis of base note
received from French Government by Government of India in
accordance with double taxation avoidance Agreement and
opined that the assessee is a beneficial owner of joint account
held in the name of his brother. The Ld. AO has also made
33 Shri Kamal Galani
additions towards return on investments on initial deposits
claimed to have made by the assesee to open bank account
@17% on the basis of some comparable cases of similar nature.
The Ld. AO has analyzed the facts of the case in light of base
note and concluded that the assessee is the owner of bank
account and whatever money lying in bank account is
undisclosed income of the assessee for income tax purpose. It
was contention of the assessee before the Ld. AO, as well as the
Ld.CIT(A) that bank account was opened by his brother Mr.
Dipak Galani in the year 1998 and his name was included in the
bank account for convenience and as a mark of respect to his
elder brother, but he is neither owner of the bank account, nor
had any interest or right in money lying in bank account. To
justify his arguments, and prove his claim filed passport and
other details, including bank account details and argued that the
account was opened by giving address of his brother situated at
outside India and also, a letter from his brother addressed to the
Ld. AO and claimed that he is the owner of the bank account
lying in HSBC Bank, Geneva.
12. The Ld. AO has made additions towards amount lying in
HSBC bank account, on the sole ground that the assessee is
owner of the bank account and he is having beneficial interest in
34 Shri Kamal Galani
money lying in said bank account. Although, the Ld. AO has not
specifically referred provisions of section 69/69A of the Act, but
he has invoked section 69/69A to bring amount lying in HSBC
bank account as unexplained money of the assessee. Therefore,
in order to examine, whether money lying in HSBC bank account
in the name of the assesee and his brother is a unexplained
money, which can be taxed u/s 69A of the I.T.Act, 1961 needs
to be examined. As per section 69A, where in any financial year
the assesee is found to be the owner of any money, bullion,
jewellery or other valuable articles and such money, bullion,
jewellery or valuable articles is not recorded in the books of
accounts, if any maintained by him for any source of income
and assessee offers no explanation about the nature and source
of acquisition of money, bullion, jewellery and other valuable
articles or the explanation offered by him is not, in the opinion
of the ld. AO, satisfactory, the money and the value of the
bullion, jewellery and other valuable articles may be deemed to
be the income of the assessee of such financial year. A close
look at the provisions of section 69A of the I.T.Act, 1961, it is
abundantly clear that in order to bring any money or other
valuable articles within the ambit of said section, the Ld. AO has
to prove that the money is belong to the assessee. Of course,
the initial burden is on the assessee to prove that the money or
35 Shri Kamal Galani
other valuable articles found in his position is not belongs to
him. But, once, the assessee filed necessary evidences to prove
that said unexplained money is not belongs to him, then, onus
shift to the revenue to prove that unexplained money is in fact
belongs to the assessee. Unless, the Ld. AO proves that
unexplained money is belongs to the person, he cannot make
any addition in the hands of the assessee.
13. In the light of above factual and legal background, if you
see the facts of the present case, one has to see, whether the
money found in HSBC bank account is belongs to the assessee
or his brother. In this case, the assessee right from beginning
has made it very clear that the bank account belongs to his
brother and he was named only as a second holder for the
purpose of nomination and for the sake of convenience. To
justify his claim, the assessee has filed a letter and affidavit
from his brother stating that his brother Mr.Dipak V. Galani is
the owner of the bank account and he was opened a bank
account in his capacity as a non resident in the year 1998. From
the above, it is very clear that the bank account was opened by
his brother as a first account holder and the assessee was
included in the bank account as a second account holder, which
is very clear from the base documents relied upon by the Ld.
36 Shri Kamal Galani
AO, where the assessee name appears as a second account
holder. Further, as stated above, the bank account was opened
in the year 1998 and at the time of opening bank account, the
assessee, as well as his brother both are NRI residing outside
India. Further, the base documents itself clearly states the
creation of identity of the assessee as date of 19/06/2003, and
it is clearly stated therein that assessee account holder No.2.
The passport detail of assessee as per base documents clearly
shows him to be residing at Vienna (as place of having
establishment) with place of birth as Baroda. The copy of same
passport has been filed on record and considered by the Ld. AO
in assessment year, clearly shows that passport is issued in
Vienna and renewed through the Embassy of India since, 1993.
The legal address in base documents is taken from the birth
place mentioned in the passport as permanent address,
otherwise the address of the assessee in Vienna is also
mentioned in passport as taken is present address. From the
above, it is very clear that the bank account in the name of
assessee and is brother and his brother as account holder No.1
is clearly established the fact that bank account is belongs to his
brother, but not to the assessee and this fact has been further
strengthened by the letter of the assessee’s brother, dated
09/03/2015, where he has categorically accepted the ownership
37 Shri Kamal Galani
of bank account and money lying in said bank account. These
facts have been disregarded by the Ld. AO without providing any
basis for the same. The Ld. AO has also not disputed that Mr.
Dipak Galani is account holder and the principle holder of the
bank account , but went on to make additions in the hands of
the assessee on pure suspicious and surmises by invoking
provisions of general clause Act, and further being a second
account holder, the assessee is vested with rights and
obligations connected with the account and therefore, he is a
beneficial owner of the bank account. However, at the same
time, the Ld. AO has failed to appreciate that Mr. Dipak Galani
by virtue of being a first account holder is also vested with some
rights and therefore, the same principle / logic even applies to
him. Therefore, we are of the considered view that the
conclusion drawn by the Ld. AO that assessee is a beneficial
owner and Mr.Dipak Galani is not the beneficial owner on the
basis of above arguments is highly incorrect.
14. Further, it is the case of the Ld. AO that account with HSBC
bank , Geneva is opened by resident Indian and black money
earned by such resident Indian has been stashed abroad without
paying taxes/disclosing income in India. But, fact remains that
in the instant case, the account was opened in 1998, when the
38 Shri Kamal Galani
assessee himself and Mr. Dipak Galani permanently resided in
outside India for 30 years and had no intention to come to India
at that time. Further, both of them have no source of income in
India, during the course of their residence abroad. Therefore, we
are of the view that entire motive as presented by the Ld. AO
defines all logic of opening of a secret bank account in Geneva,
by NRI to stash unaccounted income taxable in India fails. The
ld. AO mechanically disregarding all explanations furnished by
the assessee as to the ownership of the account along with the
corroborative materials is contrary to the settled position of law,
because, once assessee has provided a reasonable explanation
about ownership, then the onus was on the Ld. AO to establish
that account belongs to the assessee. This legal principle is
fortified by the decision of Hon’ble Delhi High court in the case
of CIT vs Shivaprakash Agarwal (supra), where the Hon’ble High
court after observed that the assessee had time and again
submitted before the revenue authorities that the documents
belongs to his father and whatever additions have to be made in
the hands of the father. The father of the assessee had owned
up to the documents seized during the course of search and had
also filed affidavit to this effect. In these circumstances, the
court held that the additions could not be sustained in the hands
of the assessee on the base of seized documents. This principle
39 Shri Kamal Galani
is further supported by the decision of Hon’ble Calcutta High
court in the case of CIT vs United Commercial and Industrial
Company Limited (1991) 187 ITR 596, where it was held that
where prima-facie inference on facts is that the assessee
explanation is probable, the onus will shift to the revenue.
15. In this case, on perusal of details available on record, it is
very clear that the assesse right from day one has disowned the
bank account. Further, the brother of the assesee has filed a
letter to the Ld. AO along with affidavit and claimed that the
bank account is opened by him in his capacity as NRI and
whatever money lying in bank account is belongs to him.
Therefore, we are of the considered view that under these
circumstances, the Ld. AO was erred in making additions
towards amount lying in bank account as unexplained money of
the assessee.
16. Insofar as, additions made towards return on investments
@17% PA on year basis, once, it was established that bank
account was not belongs to assessee and he was not a
beneficial owner, then further additions towards estimated
return of income on said unexplained money is arbitrary. As
stated above, the account was opened by the Appellant’s
40 Shri Kamal Galani
brother with the British Bank of Middle East. Therefore, the
reliance placed by the AO on the account opening information
appearing on the website of HSBC Bank cannot be relied upon.
Further, the account was opened by the Appellant’s brother in
1998, whereas the website information sought to be relied upon
by the AO pertains to accounts sought to be opened at about the
time of the assessment proceedings, i.e. around 2013. Such
reliance on website information is impermissible as the same is
merely based on fanciful presumptions. The AO has not brought
any material on record to justify the use of account opening
information as at time of assessments to presume and arrive at
the conclusion that the same would be applicable to an account
alleged to have been opened by the Appellant 15 years earlier.
It may be pertinent to point out that since the assessment was
made, the account opening requirements have been revised to
require an investment or borrowing to be made amounting to an
equivalent of USD 5 million. This goes to show that the account
opening requirement undergo changes from time to time and
the presumption that the account opening requirements stated
at the time of the assessment would have been the same as
those prevailing when the account was opened 15 years earlier,
in 1998, is fallacious and cannot be sustained. The AO failed to
appreciate that account was opened in The British Bank of
41 Shri Kamal Galani
Middle East, UAE. The same was subsequently merged /
acquired by HSBC Private Bank. Hence assumption of USD 3
million is unjustified. Further, the AO has failed to appreciate
that the appellant is nonresident in the year 1998 i.e. in the year
of opening the account, residing out of India for past more than
20 years. Further, owning the bank account and the investment
by Non Resident out of sources of funds available abroad is still
not taxable in India. The AO has failed to point out any iota of
evidence to prove that the funds of USD 3 million invested in
opening bank account represent income from undisclosed
sources earned/ accrued to appellant in 1998. The Appellant
has no sources of income in India up to 2002 and the same has
already been assessed on record in assessment proceedings
earlier. The statement of Assets and liabilities and Income has
been filed on record. Refer Page 66 to 66 We therefore are of
the considred view that, having established that Appellant is
NON-RESIDENT in AY 1999-2000 and complete absence of any
source of taxable income in India, the addition u/s 69 made by
AO in AY 1999-2000 on account of investment of USD 3 million
in opening the bank account with HSBC and consequent
estimation of return of investment @ 17% PA as Unexplained
Investment is highly unjustified.
42 Shri Kamal Galani
17. Considering the facts and circumstances of this case, we are
of the considered view that the Ld. AO, as well as the Ld.CIT(A)
were erred in not appreciating the fact in right perspective, even
though the assessee has filed necessary evidences to prove that
the bank account was not belongs to him. Therefore, we are of
the considered view that an addition made towards bank
account in the name of the assessee is incorrect. Accordingly,
we direct the Ld. AO to delete additions made towards amount
lying in bank account. Similarly addition made towards
estimated return of investments @17% on said additions is also
incorrect. Accordingly, we direct the Ld. AO to delete additions
made towards estimated return of investments for all
assessment years.
18. In the result appeal filed by the assesee for Asst.Years
2003-04 to 2007-08 are allowed and appeals filed by the
revenue for Asst.Years 2006-07 & 2007-08 and 1999-2000
to 2002-03 are dismissed. Similarly cross objections filed by
the assessee for assessment years 1999-2000 to 2002-03
are also dismissed.
Order pronounced in the open court on this: 10/09/2020
Sd/-
(MAHAVIR SINGH)
Sd/-
(G. MANJUNATHA)
VICE PRESIDENT ACCOUNTANT MEMBER
Mumbai; Dated: 10/09/2020
43 Shri Kamal Galani
Self Typed
Copy of the Order forwarded to :
BY ORDER,
(Asstt. Registrar)
ITAT, Mumbai
1. The Appellant
2. The Respondent.
3. The CIT(A), Mumbai.
4. CIT
5. DR, ITAT, Mumbai
6. Guard file.  //True Copy//

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