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July 28, 2022

Addition of income not arising/accruing from Indian business connection is unsustainable

by CA Shivam Jaiswal in Income Tax

Addition of income not arising/accruing from Indian business connection is unsustainable

Facts and Issues of the case

The assessee is a Non Resident Indian (NRI), filed his return of income for the A.Y. 2006-07 declaring income of Rs.60, 243/-. The case was not selected for scrutiny and no scrutiny assessment order was
passed.  The Assessing Officer(AO)received information that assessee is maintaining   foreign   bank   account   with   HSBC   Bank,   Geneva, Switzerland, with data sheet containing monthly balance in his account, received  by  Indian  Government  from  French  Authority. The AO recorded that assessee did not furnish the account details maintained by him outside India. 

The assessee pleaded that he was a non-resident, only income accrued or arising in India was taxable in India, has not substantiate the plea, that he had not earned in income in India, it was necessary for assessee to demonstrate that source of income earned by him outside India. The AO recorded that no such attempt was made by assessee or the details as furnished.

Observations by the Court

The status of non-resident is not disputed by the AO. The assessee is cannot be asked to prove negative. The A.O. has not brought any evidence on record to go through that income in India has been diverted and remitted in abroad. From the bank account by assessee it is clear that assessee has not diverted any income of remittance abroad from India. Therefore the assessee has discharged his primary onus. Moreover, the non-resident, the assessee is working abroad. The assessee is not a partner, a proprietor, director of any company doing business in India and he does not have any business in India. As he is non-resident, he is under obligation to declare his Indian asset and Indian accounts and he is not required to explain his foreign income or asset. The assessee already declared income arising or accruing in India by filing return of income in India. 

The assessee is non-resident, and that status of the assessee is not in dispute. A bare reading of the Act makes it clear that that in case of a non-resident assessee, the total income that is liable to be taxed shall comprise of income, which is received or deemed to be received by or on behalf of such person or the same accrues or arises or is deemed to accrue or arise in India to such person. No such evidence to prove the fact that the remittance made by the assessee in his NRE Account or the credit allegedly appearing in HSBC has any source from income in India or routed from any business connection in India.
The moot question is whether it can be said that the credits appearing the HSBC bank accounts in question lead to the situation where the amount is includible in the income of the assessee, a non-resident Indian.

Further on perusal of the Grounds of appeal raised by the revenue before us, we find that none of the findings recorded by the CIT (A) have been assailed on the basis of any material or evidence rather based on assumption. Therefore, we do not find any merit in the grounds of appeal raised by the revenue. Hence, we do not find any infirmity, illegality or perversity in the order passed by CIT (A), which we affirm.


The income not arising or accruing from business connection to India is not allowed as addition to income for tax calculation purposes.


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