NRI Women ordered to pay tax on Rs 196 crore Black Money stashed in Swiss bank account Landmark Judgement by ITAT
The Income Tax Appellate Tribunal (ITAT) Mumbai, in a crucial ruling, directed that over Rs 196 crores lying in an individual’s Swiss foreign account be brought to the tax. Dismissing an appeal filed by assessee Renu T Tharani, ITAT Mumbai concluded the hearing of the case was on 18th January, 2020 but the order was pronounced on 16th July, 2020 in view of Covid-19 lockdown in Mumbai.
Facts of the Case:-
- The assessee is an elderly lady, now in her late eighties.
- On 29th July 2006, she had filed her income tax return, disclosing income of Rs 1,70,800, in Bangalore.
- The ITR filed by the assessee, was not subjected to any scrutiny at any stage.
- On 31st October 2014, however, this assessment was reopened by issuance of notice under section 148.
Reasons for re-opening the assessment:-
- Information was from the office of Director General of Income Tax (Investigations) pertaining to assessee having a bank account with HSBC Bank, Geneva.
- From the said bank statement, it is seen that she is having a peak balance of USD 3,97,38,122 in the said account during the period 2005-06.
- The records of this office show that this amount has not been considered by her in her ITR and this income therefore has escaped assessment.
- Therefore, there was reason to believe that the income to the extent of at least USD 3,97,38,122 had escaped assessment within the meaning of section 147.
- In light of this, notice u/s 148 of the Income Tax Act, 1961 was issued.
Proceedings by AO and CIT(A)
- Assessing Officer (AO) rejected the objections taken by the assessee and proceeded to frame the assessment under section 143(3) read with Section 147.
- Aggrieved, assessee carried the matter in appeal before the CIT(A), on the ground that the reassessment proceedings were bad in law.
- CIT(A) also upheld the validity of reassessment proceedings and declined to interfere in the matter.
- The assessee was not satisfied and therefore appealed before Income Tax Appellate Tribunal (ITAT).
Observations of ITAT – On validity of reassessment proceedings:
- The present case is not a case which some general and vague information is received about the assessee, which may or may not lead to an income escaping assessment in the hands of the assessee, and which is thus required to be examined on merits.
- It is a case of very specific information regarding a bank account, with complete details that is good enough for holding at least the prima facie view that income has escaped in the assessment in the hands of the assessee.
- The peak balance in the account, which has subsequently come to the knowledge of the AO and on the basis of which reopening is done, is tens of thousand times more than annual income of the assessee.
- Assessee had shifted to the United States just 7 days before the beginning of the relevant previous year and it will be too unrealistic an assumption that within these 7 days plus the relevant financial year that the assessee could have earned the huge amount of around Rs 200 crores.
- The correctness of reopening of assessment, on the facts of this case cannot be faulted with.
Observations of ITAT – Whether amounts deposited in account maintained in HSBC, Geneva are sourced from India and therefore taxable in India?
- Issue was whether or not CIT(A) was justified in upholding the addition in the hands of the assessee for Rs 196,46,79,146, being an amount equivalent to US $ 3,97,38,122, held by HSBC Private Bank, Geneva, Switzerland, in the name of Tharani Family Trust, of which the assessee was a beneficiary.
- Assessee has not brought on record any material evidence about the Tharani family trust apart from the letter of HSBC that she is a discretionary beneficiary.
- On the other hand, it must be seen that underlying company of the Tharani family trust, i.e. GWU Investments Ltd is a company having address in the Cayman islands which is a tax haven and the account is maintained in HSBC, Geneva which is known for its banking secrecy laws and in recent times has faced investigation from various authorities in its role in facilitating tax evasion of its clients.
- Considering the facts of the case it can be concluded that the bank account of the trust represents unaccounted money of the assessee.
- 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.
Observations of ITAT – On addition of Rs 196 crores in respect of assessee’s account with HSBC Private Bank (Suisse) SA, Geneva
- The assessee is not a public personality like Mother Terresa that some unknown person, with complete anonymity, will settle a trust to give her US $ 4 million.
- Also, Cayman Island is not known for philanthropists operating from there.
- If Cayman Island is known for anything relevant, it is known for an atmosphere conducive to hiding unaccounted wealth and money laundering, and that does not advance the case of the assessee.
- Cayman Island is one of the few jurisdictions in the world where public records of the beneficiaries of firms and companies, like GWU Investments Ltd, are not maintained.
- That is an ideal situation, for holding unaccounted monies through a web of proxy corporate entities.
- The only persons who are privy to vital information about these transactions are the persons who are privy to these transactions may be as owner, as settlor, as beneficiaries or as facilitators or even as accomplices in these manoeuvrings, and when they decline to share the correct information, and thwart further probe in the matter, investigations reach a dead end.
- The assessee is closely involved with the transaction and it is unconceivable that the assessee had no direct knowledge of the owners of the underlying company.
- ITAT noted the claim of the assessee that she is a discretionary beneficiary of Tharani Family Trust. The base note shows that the assessee was beneficial owner of GWU Investments Ltd.
- It is evident that the assessee is beneficial owner of GWU Investments Ltd, Cayman Islands.
- There is nothing to controvert this fact, and since the assessee has declined consent waiver in this case, the assessee cannot decline correctness of the details obtained from the HSBC Private Bank (Suisse) SA.
- The mere fact of an account in HSBC Private Bank (Suisse) SA Geneva, by itself, cannot mean that the monies in the account are unaccounted, illegitimate or illegal.
- The conduct of the assessee, actual facts of each case and the surrounding circumstances are to be examined, on merits, and then a call is to be taken about as to whether the explanation of the assessee merits acceptance or not.
- There cannot be a short cut and one size fits all approach to this exercise.
The appellate tribunal said the undisclosed balance in the Swiss bank account was tens of thousands of times the annual income of the assessee, which would have otherwise taken her 11,500 years to earn. Tharani is among the 628 individuals whose names appeared in the HSBC Swiss leaks.
In view of the above discussions, ITAT approved the conclusions arrived at by the learned CIT(A) and declined to interfere in the matter. The impugned addition of Rs 196,46,79,146, in respect of assessee’s account with HSBC Private Bank (Suisse) SA, Geneva, was thus confirmed. Thus, the appeal was dismissed.