Since no interest credit appears on the bank statement, the notional interest is not taxable
Fact and issue of the case
The revenue and assessee are in appeal for AY 2007-08 and 2008-09, against order dated 30.06.2016 by which appeal no. 150 & 151/15-16 were disposed off by Ld. CIT(A)-23, New Delhi the same arising out of assessment order u/s 153A r.w.s. 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘The Act’) dated 05.03.2015 passed by ACIT, Central Circle-7 (hereinafter referred to as the ‘Ld. AO’)
The Revenue is also in appeal for A.Y. 2009-10 to 2012-13, against order dated 30.06.2016 of Ld. CIT(A)-23, New Delhi by which appeal no. 152 & 155/ 15-16 for A.Y. 2009-10 to 2012-13 against order dated 05.03.2015 u/s 153A r.w.s. 143(3) of the Act passed by Ld. ACIT, Central circle -7, New Delhi were disposed off
The facts of the case are that the assessee is individual and main source of income comprising was from salary, house property and capital gains. A search took place on M/s. Dhirani group of cases on 28th July, 2011. A search was also conducted upon a warrant of authorization in the name of assessee at D-1039, New Friends Colony, New Delhi. Notice u/s 153A of the Act was issued on 21.05.2012 requiring assessee to file the return for the relevant assessment years. Assessee filed the returns. Thereafter notice u/s 142(1) along with questionnaires were issued and accordingly assessment was completed
In regard to assessment year 2007-08, assessee has found to have not disclosed HSBC Bank account at Dubai. Thereafter based on statement of the assessee u/s 132(4) of the Act dated 28.07.2011 and 04.08.2011, the Ld. AO observed that the said account had balanced of 19,15,148 Euros in April, 2006 and applying a conversion rate of Rs. 62 it was treated as undisclosed income of the assessee for the F.Y. 2006-07 relevant to A.Y. 2007-08. Ld. AO also added to the income, interest income on the credit balance up to 31st March, 2007 @ Rs. 4% per annum at Rs. 43,53,770/-
Thereafter as a consequence to addition made in assessment year 2007-08 as above, addition of interest income on the credit balance was made in the subsequent assessment years 2008-09, 2009-10, 2010-11, 2011-12 and 2012-13
In appeal Ld. CIT(A) had sustained the substantial addition on account of balance with foreign bank account remaining unexplained however, directing that recomputation be done of the undisclosed income by adopting currency in the relevant bank account as Dollars, instead of Euro, however, the additions on account of interest income in the said account on notional basis was deleted
In regard to assessment year 2009-10 additions were made by Ld. AO in the hands of assessee with regard to cash deposits appearing in the account of Aditya Dhirani (son of assessee) in the account of Bank of America. Ld. CIT(A) had deleted the same
In regard to A.Y. 2009-10 an addition of Rs. 1,65,900/- was made in the hands of assessee on the basis of purchase of 2 split air conditioners for cash which was also deleted by Ld. CIT(A)
In regard to assessment year 2010-11, Ld. AO had made additions in the hands of assessee for un-explained cash deposits in the bank account of Aditya Dhirani, son of the assessee which were deleted by the ld. CIT(A)
In regard to A.Y. 2011-12, Ld. AO had made additions in the hands of Assessee on account of cash deposits appearing on account of Ms. Natalia Dhirani, daughter of the assessee in bank account with Bank of America. Addition was also made on account of unexplained source of expenditure of reimbursement expenses which assessee had incurred on account of sale of a flat. These two additions were also deleted by the Ld. CIT(A). An addition was also made on account of cash deposits in the account of son, the same was also deleted by Ld. CIT(A)
In assessment year 2012-13, Ld. AO had made addition in hands of assessee’s own account of cash deposits in the foreign bank accounts of son Aditya Dhirani and Daughter Netalia Dhirani. Further an addition of Rs. 10,80,000/- was made on account of unexplained transfer of 24,000 US dollars to the children Aditya Dhirani and Natalia Dhirani by one Ravinder Bahal, relative of the assessee with help of a friend Mr. Raj Kapoor. These additions were also deleted by Ld. CIT(A)
The Revenue is in appeal for AY 2008-09 to 2012-13 challenging the various deletions by Ld. CIT(A) and the assessee is in appeal against order of ld. CIT(A) for quantum addition for the base year 2007-08
The arguments were heard and records have been perused. The grounds raised in the respective appeals are being taken up for discussion and adjudication in the form of issues for determination as follows
Ld. Counsel for the assessee has focused on the arguments that the source of information is not established and referring to the fact that it was pen drive which was received allegedly from the French Govt., in the absence of link evidence, the same is not admissible. It is submitted that print out from this Pen Drive is not a bank account statement and in similar circumstances the Tribunal in the case of Parminder Singh Kalra, ITA No. 5330/Del/2016 dated 15.06.2021 has held that the so-called bank statements retrieved from the pen drive are not statement at all and that the same are not admissible for proving any fact. He specifically pointed out there is no stamp, letter head, signatures upon these so called statements and in the revenue documents they has been referred as base sheets
He submitted that apart from this there was no recovery of any incriminating material during the search as reflected from panchnama made available at page no. 3 to 17 of the paper book. Relying judgment of Hon’ble Delhi High Court in Kabul Chawla (2016) 380 ITR 573 (Del), Kurele Paper Mills P. Ltd. [2016] 380 ITR 571 (Del) & Sighad Education 397 ITR 344 (SC) it was submitted that as the return was filed for A.Y. 2007-08 on 30.07.2007 and time limit to issue notice u/s 143(2) expired on 30.07.2008 as per the provisions of Act applicable at the relevant time, the case of assessee is of the case of non-abated assessment and in the absence of any incriminating material being found in the search, no addition could have been made
He submitted that Ld. Tax Authorities below have fallen in error in considering the statement recorded u/s 132(4) of the Act to be admissible in evidence. He cited certain circumstances like recording of evidence at odd hours to contend that there was pressure upon the assessee and the statement cannot be considered to be voluntary in nature. It was submitted that the statement recorded on 28.07.2011 and 04.08.2011 were retracted by the assessee by a letter citing reasons
As with regard to the limitation period for framing the statement being time barred it was submitted that for the assessment year 2007-08 the assessment period expired on 31.03.2014 however, the assessment order was passed on 27.02.2015. It was submitted that without any basis and foundation provisions of Explanation-VII to section 153B were invoked by the Ld. AO for extending the time period for assessment by making a pretentious reference on 25.10.2012 to the French Authorities. Referring to the order of ld. CIT(A) he submitted that on repeated directions by way of remand report Ld. AO was unable to justify if any further information was received
Arguing on the additional ground it was submitted that there was mechanical approval given in the case
Observation of the court
Keeping in view the discussion made above, we hold that the additions as finally made to the total income of the assessee on account of transactions reflected in the alleged Bank account of the assessee with HSBC Bank account at Dubai and income relating thereto for relevant AY under consideration are beyond the scope of section 153A as the assessments for the said years had become final prior to the date of search and there was no incriminating material found during the course of search to support and substantiate the said addition. The disputed addition therefore, deserves to be deleted allowing the relevant grounds of the assessee’s appeals
Fourth issue arises with regard to grounds raised by revenue relating to deletion of additions made on account of deposits found in the Bank accounts of the children, Aditya and Natalia, the impugned order of Ld. CIT(A) in Para 4.4 has no error in findings or conclusion. The matter of fact is that no incriminating material was found during the course of search so as to suggest that any part of undisclosed money or investment in Banks were transferred to the accounts of children. More so once the explanation of source of such money was explained by the children in their assessment and same was accepted, then Ld. AO had no reason to make additions in the hands of assessee and Ld. CIT(A) has rightly deleted the same
Fifth issue is in context to the additions of the alleged payment made by Sh. Rajkapur to the Children of assessee, the Bench is of considered opinion that Ld. AO has erred in making additions based on conclusion that money was not transferred by legitimate manner while Ld. CIT(A) has examined the evidence which establish that it was a loan arrangement from Sh. Raj Kapur at the instance of Sh. Behl who is related to the wife of assessee. Ld. CIT(A) is also justified to observe that as the two children are non-resident Indians so without there being any connection of this disputed loan amount with any income earned by them in India, the same cannot not be added in the hands of Assessee
Sixth issue is with regard to deletion by Ld.CIT(A) of the addition of Rs. 1,65,900/- in AY 2009-10 on account of air conditioner allegedly purchased by the assessee it can be observed that Ld. CIT(A) has taken in due consideration the fact that the name of the assessee no where figures in the retail cash invoices and the evidence that during the relevant period of time, the premises was in occupation of a tenant who was leased out the said premises being 2nd Floor, D-107, Defence Colony, New Delhi-110024 to M/s Fuji Photo Film Co. Ltd. vide lease deed dt. 24.07.2006 from 20.07.2006 to 19.07.2008 and tenant may have installed these air conditioners for his own use, as such the expenses have not been incurred by the assessee
Seventh Issue is the ground specific to AY 2011-12 relating to the addition of Rs.4,24,040/- on account of payment made to Sh. Jindal towards excess money received on account of JMD flats sold during the year. The AO has observed that the assessee sold JMD flats for Rs. 1,23,85,440/- which were purchased on 24.03.2007 for Rs. 1,20,48,000/- and that the assessee paid Rs.4,24,040/- to one Mr. Jindal for reimbursement of excess amount received against JMD flat sales, and observing that the assess could not justify the payment made nor did he file any confirmation or reconciliation he added the amount to the income of the appellant. Ld. CIT(A) has taken into account the evidence before it and observed
The appellant’s AR has submitted that the assessee sold the flats for Rs. 1,23,85,440/- to two persons, Mr. Saurav Jindal and Mr. Gaurav Jindal (flat no. 301-902 and 301-903 for Rs.40,15,385/- each, total Rs.80,30,770/- against which Rs.55,44,020/- was received) the details of which filed have been at page-70 of the paper book from which it is seen that the payment received against the sale of flats sold to Sh. Saurav Jindal was Rs.68,41,420/- (flat No.301-904 and 301-905 for Rs.34,20,710/- each, total Rs.68,41,420/-) while he paid the assessee an amount of Rs. 72,65,460/- as against this. Thus, an excess amount of Rs.4,24,040/-was received from Sh. Saurav Jindal. A copy of receipt for this transaction has been filed at page-69 of PB from which it is seen that the amount paid by Saurav Jindal was Rs.42,00,000/- and Rs.30,65,460/- vide cheque nos. 226993 and 013041 dt. 27.11.2010 and 15.01.2011 drawn on HDFC Bank and the appellant and his wife who have signed on the receipt refunded the amount of Rs.4,24,040/- vide RTGS UTR No. CNRDH 11019638122 which is shown as receipted by Sh. Saurav Jindal. The assessee’s request to his banker, Canara Bank, to transfer the said amount to the account of Sh. Saurrav Jindal through RTGS as is seen from page-68 of PB which also indicates the receipted copy of the pay-in-slip of Canara Bank dt. 18.01.2011 and the confirmation from Sh. Saurav Jindal has also been submitted at page-67 of PB copy whereby he has acknowledged having received the said amount. From the notices u/s 142(1) of the Act dt. 11.07.2013, 18.07.2013, 01.10.2013, 28.10.2014, 10.11.2014, 12.12.2014 and 13.01.2015 it is observed that except for calling for details related to foreign bank account and other routine issues no question was ever raised by the AO during the assessment proceedings and addition has been made without giving the assessee any opportunity to clarify or rebut the allegation. On consideration of the facts it is apparent that all the transactions are through banking channels and there is no case for unaccounted payment. The addition is therefore deleted
Since the findings are based on facts which remain uncontroverted here before Tribunal, there is no error in findings
Eighth Issue is on the basis of the grounds raised by Revenue in appeals with regard to deletion of alleged undisclosed interest income on deposit made in foreign bank account. The first and foremost thing is that as the Bench has concluded that addition on account of any undisclosed balance in a foreign Bank account is itself not established so any addition made on account of notional interest earned in that Bank account is not sustainable. Then the Revenue cannot dispute the fact that so called bank statement of foreign bank account does not show any interest has been credited in the said. There is no evidence brought on record by the Ld. AO that interest was also paid on the deposits/balance in the account peak balance of which has already been added in AYs 2007-08 and 2008-09. Particularly in the subsequent years after the years relevant to AYs 2007-08 and 2008-09 for which there is no statement of the said bank account or any information, as part of the information received under exchange of information or otherwise, in respect of these subsequent years. There is also no error in Ld. CIT(A) holding that it is settled law that notional interest cannot be taxed as income
Concluding on the basis of aforesaid determination of issues, the grounds raised by the assessee in appeal ITA no. 4100/Del/2016 deserve to be allowed so the appeal of assessee is allowed and grounds raised by Revenue in Appeals
ITA no.4647 to 4652 /Del/2016 are not sustained and the appeals of Revenue are dismissed
ITA No.4475/Del/2016 & ITA No.1092/Del/2017 ( Penalty appeals of Assessee) ITA No.1849/Del/2017; ITA No.6031/Del/2016; ITA No.6028/Del/2016; ITA No.6029/Del/2016, ; ITA No.6030/Del/2016, ;ITA No.6032/Del/2016, A.Y. 2012-13 ( Penalty appeals of Revenue)
Further, the Ld. AO had also initiated penalty proceedings. Ld. CIT(A) had sustained the levy of penalty against the assessee u/s 271(1)(b) and 271(1)(c) of the Act for AY2007-08 for which assessee is in appeal and had deleted penalty u/s 271(1)(c) of the Act for AY 2008-09 to 2012-13, for which the Revenue is in appeal
As the Bench has reached a conclusion deleting the additions in income made by Ld. Tax Authorities in regard to A.Y. 2007-08 and allowing the assessee’s appeal, substratum of the penalty, appeals falls down. Consequently, the penalty appeals filed by the assessee stand allowed and those filed by the revenue are dismissed
Order pronounced in the open court on 17th April, 2023
Conclusion
In the result, appeal of the assessee is allowed and ruled in favour of the assessee
Read the full order from here
Sh.-Vikram-Dhirani-Vs-ACIT-ITAT-Delhi-3
