Facts

(culled out from High Court order CIT v. Purshottam Khatri (2007) 290 ITR 260(MP))

The assessee left India in 1968 and was employed in Muscat and Dubai till the previous year relevant to  the  assessment year 1992-93 and  thereafter returned to India. A search was carried out under Section 132 of the Income Tax Act (‘Act’) in the premises of the assessee at Bhopal for a period of 13 days from 18.10.1996 to 30.10.1996. Thereafter, an assessment was made under section 158BC read with section 143(3) of the Act by the AO on 29.10.1997 determining  the total undisclosed income for the block period 01.04.1986 to  18.10.1996    at Rs. 2,10,48,043. In the present case, the ‘AO’ has found that the assessee during the previous years relevant to the assessment years 1992-93 to 1997-98 was not an ordinarily resident in India and the AO has further found that the assessee had made number of deposits in foreign currency in his NRE accounts     in different banks in India. After having excluded the various items of foreign currency deposits in the NRE accounts of the assessee, the ‘AO’ found that foreign currencies representing Rs.1,03,50,020 ($3,14,534) were unexplained deposits and treated the same to be undisclosed income of the respondent. Aggrieved, the respondent filed an appeal before the Tribunal and by order dated 07.06.2000    the Tribunal deleted some of the additions made by the AO to the undisclosed income of the respondent and allowed the appeal in part. Before the Tribunal, the assessee also made a grievance that for the remaining foreign currency deposited  by him in the NRE accounts in India, although he could not produce declarations  to show that such foreign currency was brought by him to India, he produced other materials such as exchange vouchers issued by the exchange centres abroad and certificates issued by the banks in India in support of his claim that such foreign currency deposited by him accrued or arose to him as income outside India. The Tribunal found in para 13 of the its order that the foreign currency exchange vouchers produced by the assessee were issued a few days prior to the date of visit of  the assessee in  India and hence the claim of  the assessee that  the foreign currency shown in the foreign currency exchange vouchers was  in  fact brought into India by him in hisvisits to India also appears to be plausible,

but the AO while working out the unexplained deposits of foreign currency in     the NRE accounts has totally ignored these foreign currency exchange vouchers. The Tribunal has further held that a visitor to India is required to surrender the declaration form at the time of his departure from India, if he wishes to carry any foreign currency with himself and in these circumstances, it is possible that the assessee might have brought some foreign currency with himself while leaving India and the possibility of his surrendering the declaration forms to the Customs authorities at the time of leaving India is not ruled out. The Tribunal has further held that a common man may not anticipate that in the years to come, he would   be searched by the Income tax authorities and would be required to produce all   the evidence through which he has brought the foreign currency which is not chargeable to tax in India and since the assessee had earned foreign currency outside India, which is not chargeable to tax in India the same should not have been viewed with an evil eye when it is brought to India through lawful means. Notably, this paragraph 13 of Tribunal order is reproduced verbatim in apex court decision to which apex court has given its imprimatur.

On appeal by revenue under section 260A, following substantial question of law was formulated by High court:

“..Whether, on the facts and circumstances of the case, the learned Tribunal was justified in deleting the addition of Rs. 1,03,50,020 made on account of unexplained deposits in the NRE bank accounts of the assessee even when the assessee had failed to discharge his onus  of establishing the genuineness of the source of credits in his NRE bank accounts ?”

The question of law was answered by High court in favour of revenue/appellant, overruling ITAT decision on this aspect, holding inter-alia that “…Since the respondent (assessee) had not been able to produce such evidence nor any other material before the Tribunal  to clearly establish that the deposits made by him in   his NRE accounts represent his income which had accrued or arose to him outside India, the finding of the Tribunal that the deposits made by the respondent in the NRE accounts in India is his income which he had earned as foreign currency outside India is without any evidence…..”.

This led to filing of extant civil appeal at apex court by assessee.

Issue

Whether High court rightly interfered under section 260A of the Act to upset ITAT order in present facts?

Held

In short order, allowing civil appeal of assessee, the court held that “The impugned judgment has added as unexplained income a sum of Rs.1.03 crores,

as aforesaid, basically on the ground that the assessee has been unable to present declaration forms that had been filled in by him at the time of his visits to India   from abroad. Keeping in mind the fact that these declaration forms were asked for long after such expenditure had, in fact, been incurred, it cannot possibly be said  that the Appellate Tribunal’s  judgment and  findings therein are  perverse, whichis the only entry on facts for the High Court exercising its appellate jurisdiction under section 260-A of the Income Tax Act, 1961. Having heard learned counsel for both the parties, we are clearly of the view that the High Court ought not to have interfered with the Appellate Tribunal’s Judgment as no substantial question of law arose therefrom. Accordingly, we allow the appeal and set aside thejudgment of the High Court and reinstate that of the Appellate Tribunal” (AY. 1992-93 to 1997-98) (CA No. 1161 of 2007 dt. 9-7-2019)

Editorial : Decision in CIT v.  Purshottam Khatri (2006) 203 CTR 1/(2007) 290  ITR 260 (MP) (HC) is reversed. In CIT v.  P.  K. Noorjahan (Smt) (1999) 237  ITR 570 (SC) the court held that the word ‘may’ in section 69 gives discretion        to the Assessing Officer to accept the explanation of the assessee if it is found satisfactory. Issues relating to “undisclosed income” for purposes of block assessment under section 158BC of the Act as detected out of search operation within meaning of section 158BB of the Act, is something which seems not agitated before High court and Apex court in above matter

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