Jaspal Singh Sahney as Executor of late Devinder Singh Sahney Vs ITO (ITAT Mumbai)
16-Year Reopening Period for Foreign Assets Applies Even to Non-Residents, but Foreign Bank Balance Cannot Be Taxed Without Indian Income Nexus: ITAT Special Bench
Summary: In a significant ruling concerning reassessment of foreign assets, the Special Bench of the Mumbai Income Tax Appellate Tribunal has held that the extended limitation period of 16 years under the erstwhile section 149(1)(c) was applicable to residents as well as non-residents.
The fact that a non-resident was not required to disclose foreign assets in Schedule FA did not prevent the Assessing Officer from invoking the extended limitation period. However, the Revenue must establish, at least prima facie, that income chargeable to tax in India in relation to the foreign asset had escaped assessment.
A foreign bank balance cannot itself be presumed to represent income sourced from India. Applying this principle, the Special Bench deleted an addition of ₹7.64 crore because there was no material showing that the balance in the alleged HSBC Geneva account arose from income received, accrued or deemed to accrue in India.
The decision was rendered in Jaspal Singh Sahney, Executor of Late Devinder Singh Sahney v. ITO (International Taxation) for Assessment Year 2007-08.
Facts of the Case
The assessee left India in June 1992 and thereafter consistently filed his income-tax returns in the status of a non-resident. His taxable income in India comprised income from house property, capital gains and income from other sources.
For AY 2007-08, he filed his return declaring total income of ₹36,12,944.
The Government of India subsequently received information from the French authorities under Article 28 of the India-France DTAA. Based on a “base note,” the Department alleged that the assessee was connected with an account maintained with HSBC Bank, Geneva.
A notice under section 148 was initially issued on 06.02.2014 and later withdrawn. A fresh notice was issued on 12.03.2014. Since the normal reassessment period had expired, the Department relied upon section 149(1)(c), which then permitted reopening up to 16 years where income relating to an asset located outside India had escaped assessment.
The Assessing Officer added ₹7,64,27,145 under section 69A, representing the peak balance in the alleged foreign bank account.
Assessee’s Contentions
The assessee argued that the extended period under section 149(1)(c) applied only to residents because only residents were required to disclose foreign assets in Schedule FA.
It was further submitted that the base note was unsigned and did not establish that the assessee was the holder of the HSBC account. The document referred to entities called “Gensor SA” and “First Enterprises Limited,” whereas the assessee claimed only to be a beneficiary of a Liechtenstein trust.
More importantly, there was no allegation or evidence that the money in the foreign account represented income received or accrued in India. The Assessing Officer had merely taxed the foreign asset or peak balance itself, whereas section 149(1)(c) referred to income in relation to a foreign asset escaping assessment.
Revenue’s Contentions
The Revenue argued that sections 147 and 149 did not distinguish between residents and non-residents. The expression used in the statute was “person,” which included both.
It was submitted that a non-resident could acquire a foreign asset from income sourced from India. In such a case, the mere absence of an obligation to disclose the asset in Schedule FA could not prevent reopening.
The Revenue also contended that the information received from the French Government constituted credible material and that, at the stage of reopening, only a prima facie belief was necessary.
Special Bench on Applicability to Non-Residents
The Special Bench accepted the Revenue’s legal contention that section 149(1)(c) was not restricted to residents.
The section did not contain any express exclusion of non-residents. The requirement under the fourth proviso to section 139(1), under which only specified residents were required to disclose foreign assets, operated in a different field. The obligation to file Schedule FA had no bearing on the limitation available for reopening an assessment.
The Tribunal explained that a non-resident might acquire a foreign asset from income accruing or arising in India. Where the Assessing Officer possesses objective material indicating that income chargeable to tax in India connected with such foreign asset had escaped assessment, the 16-year limitation could be invoked.
Accordingly, the Special Bench answered that:
- section 149(1)(c) applied to non-residents also;
- the absence of an express exclusion meant that the extended period could not be confined only to residents; and
- non-applicability of Schedule FA to non-residents was not an impediment to reopening.
Addition Deleted on Merits
Although the legal question was answered against the assessee, the appeal succeeded on facts.
The Tribunal found that the reasons recorded by the Assessing Officer merely referred to the foreign bank balance and stated that it had not been disclosed to the Indian Income-tax Department. There was no prima facie allegation or material showing that the balance was sourced from India.
For a non-resident, only income received or deemed to be received in India, or income accruing, arising or deemed to accrue or arise in India, is ordinarily chargeable under section 5(2). The mere existence of money in a foreign bank account does not establish its taxability in India.
The Tribunal held that section 68 or section 69A could not be applied merely on the basis of an alleged foreign account balance. The Department was required first to establish a nexus between the amount and income chargeable to tax in India.
The base note also did not furnish sufficient material to show that the peak balance was income belonging to the assessee. Refusal to provide a consent waiver form could not, in the absence of foundational evidence, shift the primary burden onto the assessee.
Accordingly, the addition of ₹7.64 crore was deleted and the appeal was allowed.
Author’s Comments
The ruling draws an important distinction between jurisdictional limitation and substantive taxability. A non-resident is not automatically protected from the extended reopening period merely because Schedule FA is inapplicable. At the same time, the extended period does not authorise taxation of every foreign asset connected with a non-resident.
The Assessing Officer must demonstrate that income chargeable to tax in India, in relation to the foreign asset, had escaped assessment. The foreign asset is not itself the taxable income.
Information received from a foreign authority may justify investigation, but it must contain or lead to material establishing ownership, the relevant income element and its nexus with India. A foreign bank balance, without proof of Indian source or accrual, cannot be mechanically taxed under section 69A.
Cases Discussed
- Amrita Jhaveri Vs DCIT (ITAT Mumbai)
- Hindustan Lever Ltd. Vs R.B. Wadkar (Bombay High Court)
- ITO Vs Lakhmani Mewal Das (Supreme Court)
- Dhakeshwari Cotton Mills Ltd. Vs CIT (Supreme Court)
- Hersch Chadha Vs Dy. Director of Income Tax (ITAT Delhi)
- Soignee R Kothari Vs DCIT (Bombay High Court)
- Manish Vijay Mehta (ITA Nos. 494 & 493/Mum/2021)
- Macrotech Developers Ltd. (Bombay High Court)
FULL TEXT OF THE JUDGMENT/ORDER OF ITAT, MUMBAI
This Special Bench is constituted to decide the following issues:
“a. Whether the provisions of Sec 149(1)(c) of the Act, which prescribes the time limit for issuance of notice u/s. 148 of the Act with regard to assets located outside India would be applicable only to a ‘Resident’ and not for ‘Non-Resident’?
b. Whether in the absence of an express bar in the provision to invoke the extended time period of 16 years for issuance of notice u/s. 148 to a ‘Non-Resident’ as per Section 149(1)(c) of the Act, can it be said that Section 149(1)(c) applies only to Residents?
c. Whether the 4th proviso to Section 139(1) for declaration of foreign assets by a Resident only, would be an impediment for the ld. AO to reopen a Non-Resident’s case in accordance with Section 149(1)(c) of the Act, even if it is found that income which has accrued/arisen in India has escaped assessment?”
Brief facts:
2. The appellant Shri Jaspal Singh Sahney is the Executor of late Shri Devinder Singh Sahney, who expired on 16.10.2023. Late Shri Devinder Singh Sahney (hereinafter referred to as the assessee) left India in June 1992 and since then has been filing his Return of Income (RoI) in the status of non-resident. He was maintaining non-resident (External)(NRE account) and Non-Resident (Ordinary)(NRO account) with banks in India. Shri Devinder Singh Sahney continued to file his RoI in respect of income chargeable to tax in India in accordance with the provisions of Income Tax Act, 1961 (‘Act’ for short). The income basically comprised of income from house property, capital gains and income from other sources.
3. The present reference to the Special Bench arises out of ITA No.1586/Mum/2017 for A.Y. 2007-08. The appellant filed his RoI for relevant year on 26.07.2007 as a non-resident declaring net taxable income of Rs.36,12,944/- which comprised of income from house property of Rs.8,98,800/- and income from other sources of Rs.27,14,144/-. Although the RoI must have been processed the assessee claimed that he did not receive any intimation u/s.139(1) of the Act.
4. On 06.02.2014, the appellant received notice u/s. 148 of the Act, which was subsequently withdrawn vide letter dated 06.03.2014.
5. A fresh notice came to be issued u/s. 148 of the Act on 12.03.2014 proposing to re-open the case, which was objected to by the appellant. It appears that a copy of the reasons recorded in support of the re-opening were supplied to the appellant by the Joint Commissioner of Income Tax on 12.09.2014. In terms of the reasons recorded, it was alleged that information was received by the Government of India under Article 28 of the Double Taxation Avoidance Agreement (DTAA) from the French Authorities on the basis of which it was disclosed that the appellant was holding bank account with HSBC Bank Geneva and the amount lying therein represented his income chargeable to tax in India, which had allegedly escaped assessment. The appellant sought the material on the basis of which such satisfaction was recorded. However, the material was not supplied and the objections were disposed of by order of the AO dated 11.03.2015.
6. A notice u/s. 142(1) was issued on 12.03.2015 enclosing a copy of the base note [Pg.35(20) and 35(27) of the Paper-book] received from the French authorities. The appellant disputed the allegations made therein. The appellant contended that the alleged base note was an unsigned document and not on any letter head. He contended that the base note refers to “Gensor SA” & “First Enterprises Ltd.” and did not refer to the appellant as the holder of any account with the HSBC Bank. The appellant claims that “The Fina Trust” registered in Liechtenstein is the major shareholder of “Gensor SA” and “First Enterprise Limited” is no longer in existence. It was contended that the appellant is merely a beneficiary of The Fina Trust.
7. According to the appellant, similar re-assessment proceedings were initiated for A.Y. 2006-07 and the matter had reached this Tribunal in ITA No. 1586/Mum/2017, which was allowed both on the issue of validity of re-assessment/reopening and the merits of the additions made by the Assessing Officer. The Division Bench of this Tribunal, inter alia, held that the extended period of 16 years u/s. 149(1)(c) of the Act is applicable when the allegation is that the income in relation to any asset (including financial interest in any entity) located outside India, chargeable to tax, has escaped assessment. The Division Bench in the matter related to A.Y. 2006-07 had further found that the AO had taxed the peak balance and, thus, had taxed the asset itself and not the income in relation to such asset, which is the mandate of section 149(1)(c) of the Act. It was also held that the extended period of 16 years for re-opening would not be available in case of a non-resident.
8. Coming back to assessment year 2007-08, the AO vide order dated 31.03.2015 made the impugned addition of Rs.7,64,27,145/- u/s. 69A of the Act on the basis of peak credit balance standing in the HSBC account.
9. The appellant challenged the assessment, inter alia, on the ground of validity of the re-opening specifically contending that the extended period of limitation of 16 years for re-opening the assessment u/s. 147 of the Act was applicable in case of a resident and not a non-resident. It was contended that the limitation as provided in section 149(1)(c) of the Act would not apply to a non-resident.
10. The learned CIT(A) vide order dated 30.11.2016 has refused to accept the contention both on the ground of maintainability and on the merits of the addition. The appeal came to be dismissed vide order dated 30.11.2016, which is subject matter of challenge herein.
11. When the appeal came up before the Division Bench, reliance was sought to be placed on behalf of the appellant-assessee in its own case for A.Y. 2006-07. The Division Bench found itself unable to concur with the same and proposed the reference vide order dated 18.03.2025. This is how the appeal is before the present Special Bench.
12. It is necessary to state that during the course of hearing, it was noticed that the issue is closely connected with the merits of the impugned addition in as much as, it is only where the income which is taxable in India which has escaped assessment that a re-opening is justified. The Special Bench vide order sheet dated 26.03.2026 found that the entire appeal needs to be heard by the Special Bench and the matter was placed before the President.
13. The President vide order dated 02.04.2026 has transferred the entire appeal for adjudication before the Special Bench.
Rival Submissions:
14. We have heard parties.
15. It is submitted by the learned senior counsel for the appellant that the extended period of 16 years under section 149(1)(c) of the Act is applicable when it is shown that the income in relation to any asset located outside India, which is chargeable to tax in India has escaped assessment. It is submitted that this extended period of 16 years is not applicable to the case of a non resident particularly when, in the present case, it is also not established that the amount lying in the account with the HSBC bank has any relation to the income which is received, accrued or arisen or deemed to be received, accrued or arisen in India. It is submitted that the AO has proceeded to tax the asset itself, namely the peak balance lying in the HSBC account and not “income in relation to such asset” which is the mandate of section 149(1)(c) of the Act. For this reason also, extended period of limitation provided in section 149(1)(c) will not be available. It is submitted that this reassessment proceeding being based on a notice which was barred by limitation would itself be bad in law.
16. It is contended that clause (d) of Explanation 2 to section 147 of the Act provides that where a person is ‘found’, to have any asset located outside India, it is deemed to be a case where income chargeable to tax has escaped assessment. The learned senior counsel was at pains to point out that an asset can be said to be ‘found’ only when there is an obligation to disclose the said asset. It is submitted that a non resident is not obliged in law to disclose such asset while filing Schedule FA as part of the return. Reliance in this regard is placed on Circular 3 of 2015 which explains the object behind the amendments made by Finance Act, 2012 which are relevant for the purpose. It is submitted that if the extended period in section 149(1)(c) of the Act is made applicable to a non-resident, it will lead to absurd result where the Revenue can require any person in the world to file RoI in India. It is submitted that the appellant was not required to give any details of any foreign account/asset and, therefore, the failure to sign the consent waiver form, if any, would be inconsequential. Reliance in this regard is placed on the decision of this Tribunal in Ms. Amrita Jhaveri in ITA 6095 & 6096/Mum/2016 decided on 09.05.2023. It is submitted that although section 149(1)(c) of the Act, in terms does not exclude the case of a non-resident, a literal interpretation has to be avoided as the same would lead to unintended results. It is submitted that instead, purposive interpretation need to be adopted which would exclude the case of a non-resident being covered by the extended period of limitation under section 149(1)(c) of the Act, by necessary implication. It is submitted that the Division Bench while making the reference has held that the intention of the legislature in inserting Section 149(1)(c) of the Act permitted reopening of the assessment of a non-resident who holds foreign assets out of the income accruing or arising in India. It is submitted that the said finding in the reference order dated 18.03.2025 is not correct. It is submitted that the intention of the legislature was in fact to the contrary, to restrict the application of section 149(1)(c) to the residents alone, inasmuch as, it is only in respect of the residents that the global income is taxable in India.
17. Coming to the merits, it is submitted that there is no allegation in the reasons for reopening that income from foreign assets had escaped assessment. It is submitted that the reasons also do not indicate that the amount lying in the bank account with HSBC bank, Geneva represents income which has accrued or arisen or is deemed to accrue or arise to the appellant in India so as to come within the scope of total income under Section 5(2) of the Act. It is thus submitted that the impugned addition made invoking Section 69A of the Act is misplaced. It is submitted that the reasons recorded are sacrosanct and the impugned addition cannot be sustained by travelling beyond the recorded reasons for which reliance is placed on the decision of Bombay High Court in Hindustan Lever Ltd. vs. ACIT 268 ITR 332(Bom). The learned senior counsel has also taken exception to the reopening done on the basis of a ‘base note’ which is unsigned and does not give any particulars. It is pointed out that the note itself alleges that the accounts were standing in the name of two companies and not the appellant. There is no other material collected by the AO to show nexus of the appellant with the amount lying in the said accounts. Reliance is placed on the decision of Supreme Court in Lakhmani Mewal Das 103 ITR 437 (SC) wherein it has been held that the reasons forming a belief, that income escaped assessment, must have a rational connection or relevant bearing in that belief. It is submitted that the primary burden to establish the character of income or an asset (in the present case income relatable to asset) has escaped assessment is on the Revenue. It is submitted that the impugned addition also cannot be sustained by invoking section 68 of the Act as there is no sum which is found to be credited in the books of account of the assessee maintained for the relevant year. It is submitted that the reliance placed by the Revenue on the decision of Soignee Kothari (supra) is misplaced as that was essentially a case in which the reopening was challenged in a writ petition. It is submitted that the High Court in its discretion had refused to interfere in the exercise of the extraordinary jurisdiction.
18. Apart from the aforesaid contentions, the impugned addition is also challenged on the following grounds :
i) That the reassessment proceedings were initiated vide notice dated 12.03.2014 by the Commissioner of Income Tax (OSD) (in-charge, Addl. CIT, Range 16(2) and not by the AO, which is invalid.
ii) The assessment order is not signed by the AO and, therefore, it is invalid and bad in law.
iii) The assessment order is not made within the time limit prescribed under Section 153(2) of the Act.
It is submitted that although these grounds were not raised during the oral arguments, they go to the root of the matter.
19. Shri Subir Kumar, learned counsel appearing for the Revenue submitted that a conjoint reading of Sections 5 to 9, 139 and 147 of the Act would show that the requirement of the income escaping assessment, as the basis for reopening, is not limited to a resident. The AO can invoke Section 147 of the Act against a non-resident during the extended period in the event the AO has reason to believe that a non-resident has an account/asset outside India, which on the credible information has been made from income sourced from India. It is submitted that the ‘base note’ can form credible information as the information is shared by the French government under Article 28 of the DTAA between India and France. It is submitted that the appellant-assessee was obliged to file return and, in fact, had filed return for the relevant year. It is submitted that this aspect has not been considered by the Division Bench while deciding assessee’s own case for assessment year 2006-07. In the instant case, the ‘base note’ and reply dt.20.12.2014 of the appellant, clearly shows that the appellant is the beneficial owner of the companies referred in the base note. It is submitted that the AO by placing reliance on the second proviso read with Explanation 2(d) to section 147 of the Act has rightly come to the conclusion that income which is chargeable to tax in India has escaped assessment. It is submitted that the reasoning and the findings by the Division Bench in the assessee’s own case for assessment year 2006-07 are flawed.
20. It is submitted that at the stage of recording the reasons for the reopening, the AO is required to take a prima facie view of the matter and the material produced. It is submitted that the ‘base note’ having been received from the French government, its credibility cannot be tested or challenged at the stage of reopening. It is submitted that the requirement of the AO “having reason to believe” itself suggests that it is only a prima facie view of the matter. It is pointed out that section 149(1)(c) of the Act and for that matter section 147 and 148 do not make any distinction between a resident and a non-resident tax payer. It is submitted that sine qua non for invoking the powers to reopen is a prima facie finding of the income having escaped assessment and the status of the assessee as a resident or a non-resident would not be material at this stage. It is submitted that thus the extended period of 16 years would apply to a case of a non-resident as well. It is submitted that the purposive interpretation is required to be adopted which would lead to the conclusion that provisions of Section 149(1)(c) of the Act are equally applicable to a non-resident as to a resident. It is submitted that the provisions of Section 147, 148 to 151 are part of the machinery provisions which are to be interpreted liberally.
It is submitted that the appellant has not given consent waiver form which requires adverse inference to be drawn. Reliance in this regard is placed on the decision of Supreme Court in Dakeshwari Cotton Mills Ltd. Dhakeswari Cotton Mills Ltd. vs. Commissioner of Income-tax, 26 ITR 775 (SC), which has been referred to by this Tribunal in Hersh W. Chadha vs Dy. Director of Income Tax [2011] 43 SOT 544 (Delhi). Further reliance is placed on the decision of the Bombay High Court in Soignee Kothari (supra) wherein the Bombay High Court has found that if a person has nothing to hide, he has to cooperate in either furnishing necessary information or to give consent waiver form, so as to facilitate obtaining of such information. He, therefore, submitted that in the first instance the appellant would be covered by the extended period of limitation, the fact of the assessee being a non-resident notwithstanding and secondly, the impugned addition is justified on merits also.
Consideration
21. We have given our anxious consideration to the rival circumstances and the submissions made. Notwithstanding the nature of the questions framed and the extensive reproduction of facts and rival submissions, the dispute essentially falls in a narrow compass, viz.
i) Whether the extended period of sixteen years as provided for in section 149(1)(c) of the Act is applicable to a non-resident as well and, if yes,
ii) Whether the impugned addition can be sustained on the facts and circumstances of the present case.
22. We now proceed to deal with the issues ad seriatim.
23. Whether the extended period of sixteen years as provided for in Section 149(1)(c) of the Act is applicable to non-residents :-
In the present case, following aspects are either undisputed or clearly borne out of record :-
a) That during the relevant year, the assessee was a non-resident.
b) The assessee had filed its Return of Income for the relevant assessment year declaring a total income of Rs.36,12,944/- which comprised of income from house property of Rs.8,98,800/- and income from other sources of Rs.27,14,144/-.
c) That the notice under Section 148 on the basis of which reopening is done was issued beyond the period of four years from the end of the relevant assessment year.
d) That as per the base note received from the French authorities, it was intimated that two entities, viz. “Gensor SA” & “First Enterprises Ltd.” were the holders of bank account with HSBC Bank, Geneva.
e) That the assessee is said to be the beneficiary of the FINA Trust, which was the major shareholder of “Gensor SA” & “First Enterprises Ltd.”
24. In order to appreciate the issues involved, it would be appropriate to reproduce section 149 of the Act which provides for time limit of notice under section 148 (as it stood at the relevant time) as introduced by Finance Act, 2012 w.e.f. 01.07.2012.
“149. [(1) No notice under section 148 shall be issued for the relevant assessment year,—
[(a) if four years have elapsed from the end of the relevant assessment year, unless the case falls under clause (b) [or clause (c)];
(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 one lakh rupees or more for that year;]
[(c) if four years, but not more than sixteen years, have elapsed from the end of the relevant assessment year unless the income in relation to any asset (including financial interest in any entity) located outside India, chargeable to tax, has escaped assessment.]
Explanation.—In determining income chargeable to tax which has escaped assessment for the purposes of this sub-section, the provisions of Explanation 2 of section 147 shall apply as they apply for the purposes of that section.]
(2) The provisions of sub-section (1) as to the issue of notice shall be subject to the provisions of section 151.
(3) If the person on whom a notice under section 148 is to be served is a person treated as the agent of a non-resident under section 163 and the assessment, reassessment or recomputation to be made in pursuance of the notice is to be made on him as the agent of such non-resident, the notice shall not be issued after the expiry of a period of [six] years from the end of the relevant assessment year.
[Explanation.—For the removal of doubts, it is hereby clarified that the provisions of sub-sections (1) and (3), as amended by the Finance Act, 2012, shall also be applicable for any assessment year beginning on or before the 1st day of April, 2012.]”
It can be seen that by virtue of Explanation, the provisions of sub-sections (1) and (3) (as amended) have been made retrospectively applicable for any assessment year on or before 1st April, 2012.
25. The question is whether the extended period of sixteen years would only apply to a resident and not to a non-resident. We are unable to accept that the extended period would not apply to a non-resident as claimed on behalf of the assessee. It can be seen from the plain reading of the section that it does not make any distinction between a resident and a non-resident tax payer. It is trite that insofar as the income which is sourced from India, a resident and a non-resident are at par. While in respect of a resident individual, the global income is subject to tax, for a non-resident only the income which is sourced from India, i.e. income, which is received, accrued or arisen or deemed to be received, accrued or arise would be subject matter of taxation in India. It is well settled that any provision has to be given its plain and natural meaning, unless and until the context requires otherwise, explicitly or by necessary implication. We find none, so as to read section 149(1)(c) as excluding the case of a non-resident.
26. There are other indications if we read the section as a whole to suggest that no exception can be made insofar as the extended period is concerned in the case of a non-resident. The explanation annexed to Section 149(1) provides that in determining the income chargeable to tax, which has escaped assessment, for the purposes of this subsection, the provisions of Explanation 2 to section 147 shall apply as they apply for the purposes of that section. Clause (d) of Explanation 2 to section 147 states that income chargeable to tax shall be deemed to have escaped assessment where a person is found to have any asset (including any financial interest in any entity) located outside India. Here also, Explanation 2 to clause (d) does not make any distinction between a resident and a non-resident. It is significant to note that clause (d) of the 2nd Explanation to Section 147 refers to a “person”. A “person” is defined under Section 2(31) of the Act which includes an individual without making any distinction between a resident and a non-resident. Had the legislature intended to exclude a non-resident from the purview of the extended period as provided in Section 149(1)(c) of the Act, nothing prevented it from making a provision to that effect. Thus, the intention is clear. In the absence of any legislative intent to exclude the case of a non-resident, it is not possible to read it in the section by way of interpretative process.
27. We now propose to briefly deal with the reasoning articulated by the Division Bench in the assessee’s own case for assessment year 2006-07. The reasoning can be found from para 7 onwards. The broad reasons given by the division bench can be culled out as under :-
i) The AO has made addition of the amount in respect of the peak credit balance and not the ‘income’ in relation to any asset located outside India. Thus, the AO has taxed the ‘asset’ itself and not the ‘income in relation to said asset’ as is mandated in section 149(1)(c) of the Act.
ii) Therefore, the condition necessary for invoking the provisions of section 149(1)(c) of the Act are not satisfied. As a ‘corollary’, time period available for reopening under clause (c) would not be available to the AO.
iii) That as per the CBDT circular no. 3 of 2012 dated 12.06.2012 it is only the resident having assets located outside India is required to disclose such assets in schedule FA of RoI. In other words, such requirement is not applicable to a non-resident.
iv) In Amrita Jhaveri (supra), a Division Bench of this Tribunal has held that the extended time limit provided under Section 149(1)(c) of the Act would not be applicable to a non-resident.
v) That the provisions of Section 149(1)(c) of the Act are not ‘triggered’ in the instant case and, hence, the extended time of sixteen years is not available to the AO for issuing notice under Section 148 of the Act.
vi) In para 10 the Bench has concluded that there is a flaw in the reasons for reopening the assessment.
28. In our considered view, the reasoning at clause (i), (ii), (v) and (vi) above are on the facts of the said case. The bench found that as there was an attempt to tax the asset and not any income in relation to a foreign asset, Section 149(1)(c) of the Act is not triggered at all. The reasoning that because a non-resident is not required to disclose his assets located outside India in Schedule FA along with the RoI and therefore the extended time limit would not apply does not commend to us. The requirement of filing the RoI and to furnish the details of the assets located outside India in Schedule FA, in our considered view, has no bearing on the extended period as provided in Section 149(1)(c) of the Act. There may be a case where a non-resident may have acquired an asset from income which is sourced from India. In such a case, notwithstanding the fact that he is not required to disclose such assets, in Schedule FA, if the AO has reason to believe, on the basis of objective circumstances and material, that income chargeable to tax in India, has escaped assessment, we find that the extended period of sixteen years, would apply.
29. We now propose to deal with the decision in the case of Amrita Jhaveri (supra) in some details. That was also a case where on the basis of a similar base note received from the French Authorities u/s. 28 of the DTAA, the AO had reopened the case claiming that income chargeable to tax has escaped assessment. We have carefully gone through the said decision and the relevant reasoning can be found in para 13, 14 and 15 of the order, which are reproduced as under:
13. We have heard both the parties at length, carefully considered the findings given in the impugned orders as incorporated above and also various materials referred to before us at the time of hearing. The entire edifice for reopening is based on some “Base Note” received by Government of India under Article 28 of DTAA from the French authorities, on the basis of which, belief has been entertained that assessee holds a bank account with HSBC Bank, Geneva and thus, the balance lying in the said bank accounts is taxable in India and therefore, income chargeable to tax has escaped assessment. As noted above, prior to the recording of the reasons, the investigation wing had issued notices u/s. 131 and asked for all the requisite details of the bank statements, accounts and the relevant information which was placed before the Investigation wing, as well as before the Assessing Officer also prior to the issuance of notice u/s.148. From the bare perusal of the „reasons‟ recorded, it is seen that nowhere these documents have been mentioned nor the bank statements as was supplied by the assessee to the Income Tax department. These bank accounts have been provided to the ADIT way back in the year 2011, then again to ACIT in the year 2013 and at no point of time they asked any clarification with regard to various entries appearing in the said bank statement. The reasons recorded are so general in nature which only mentioned about information received by the Government of India and how Investigation wing of the Income Tax department after conducting enquiries, found large number of assessee have admitted of holding accounts in HSBC bank and certain assessees have denied. Whether the balance shown in the bank account of the assessee with HSBC Geneva, leads to reason to believe that income is chargeable to tax in India and how it is income taxable in India or not has not even mentioned.
14. One very important fact which is relevant here in this case is that, assessee is a non-resident and from last several years she has been staying in London and earning income from various activities carried outside India. Whatever income, which has been accrued in India in the form of capital gain or interest or dividend has always been disclosed in the return of income filed in India. Fourth proviso to Section 139(1) of the Act requires that a person who is resident of India to disclose the details of foreign assets in the return of income and is not applicable to the assessees who are not ordinarily resident or non-resident. Before us, ld. Counsel has filed a copy of return and had drew our attention to Schedule FA forming part of the return of income which requires assessee to give information with respect to assets held outside India, but the same is applicable for residents and not for the non-resident. The notes forming part of Schedule FA of the Return mentions as under:-
Schedule FA:- This schedule needs to be filled up by a resident assessee. Mention the details of foreign bank accounts, financial interest in any entity, details of immovable property or other assets located outside India. This should also include details of any account located outside India in which the assessee has signing authority.
Even the Schedule FA of 2015 explains object behind various amendments made by the Finance Act 2012 in Section 139(1) which only refers to the cases of resident assessees. Thus, the assessee being a non-resident was not required to disclose any asset held outside India in the return of income to be filed in India. This basic tenet has been missed by the Assessing Officer while recording the reasons as well as in the assessment order.
15. The department before us seeks to rely upon Section 149(1)(c) to justify the availability of extended time period of 16 years within which the notice can be issued would be available, provided the income in relation to any asset is located outside India which is chargeable to tax has escaped assessment. However, section 149(1)(c) and the period of 16 years is only applicable for reopening the assessment of the persons who are residents and are required to disclose the assets outside India. The asset can be said to be “found” when an assessee who is resident is required to disclose the said asset in the return of income within the provisions of the Income Tax Act. For a non resident there is no obligation to disclose any foreign asset / account in its return of income in India as per section 139 itself, nor there is any column in the return of income as noted above in the foregoing para. It is reiterated that, even the ld. CIT (A) has not disputed that assessee was non-resident and more so the assessment passed by the ld. AO is in the status of nonresident. The ld. CIT(A) had also not denied this fact that assessee in terms of Section 6 of the Income Tax Act was never a resident India. Thus, extended time limit provided u/s. 149(1)(c) will not be applicable in the case of the present assessee.”
30. We find that the said decision also turned on its own facts, except a passing observation in para 15 that Section 149(1)(c) and the period of sixteen years is only applicable for reopening the assessment of the persons who are residents who are required to disclose the assets outside India. We are unable to agree with this part of the reasoning as already noticed.
31. In para 13, the Division Bench found that the base note received from the French Authorities and the reasons recorded, nowhere suggest that the balance lying in the HSBC bank account in the concerned account was out of the receipts which are taxable in India and, therefore, the Division Bench found that the learned AO was not justified in holding that income chargeable to tax has escaped assessment. In para 14, the Division Bench has adverted to the 4th proviso to section 149(1)(c), which mandates a resident individual to file the details of the foreign assets in Schedule FA. The Division Bench has noticed the object behind the amendment made by the Finance Act, 2012 in section 139(1). We have already found that the requirement of filing the details in schedule FA has no bearing on the extended period as provided in section 149(1)(c) of the Act.
32. With respect, we find that the observations of the Division Bench in the very next para 16 would indicate that if the AO can show that the balance lying in the foreign bank account represents income which is received, accrued or arisen or deemed to be received, accrued or arise in India u/s. 5 then the extended period of 16 years would apply. The following observations in para 16, to the extent relevant, are to the point :-
“At least, the ld. AO should have mentioned it in the reasons recorded before acquiring jurisdiction to reopen an assessment for an extended period of 16 years that, firstly, assessee is a resident in terms of Section 6; and if not then secondly, the balance lying in the foreign bank account represents income which has accrued or arisen or deemed to accrue or arise in India u/s. 5. Once that fact has not been brought on record, ostensibly there cannot be any reason to believe that the income in relation to such an asset has escaped assessment for the A.Y.s 2006-07 and 2007-08 and extended time limit of 16 years is available.”
(Emphasis supplied)
Thus, we find that in the first-place decision in the case of Amrita Jhaveri turned on facts as the Bench found that the entries in the three bank accounts were all entries by clearance and it cannot be inferred that any amount deposited in these accounts was out of income earned from India. In that view of the matter, the Division Bench found that the reasons recorded by the AO do not confer any jurisdiction on the AO to reopen the case. Secondly, in our view, the observations in para 16 will clearly indicate that the Division Bench was not oblivious of the fact that if the balance lying in the foreign bank account represents income which has accrued or arisen or deemed to accrue or arise in India u/s. 5, the extended period would apply.
33. The decision in the case of Manish Vijay Mehta (ITA No. 494 & 493/Mum/2021 for A.Ys. 2006-07 and 2007-08 order dated 31.10.2022) also turned on its own facts. In that case on the basis of a similar base note addition was made in the case of Manish Vijay Mehta and his wife Urvi Manish Mehta, which addition was deleted by the learned CIT(A) and the Revenue was in appeal. This Tribunal found that the learned AO taxed the same income both in the hands of Mr Manish Mehta and his wife Mrs Urvi Manish Mehta. It was also found on facts that there was no evidence available with the AO that any amount was deposited in the HSBC Bank during the relevant year. In that view of the matter, the challenge at the instance of the Revenue was negatived.
34. In the result, in so far as the issues referred to are concerned, we answer them as under:
| a. | Whether the provisions of Sec 149(1)(c) of the Act, which prescribes the time limit for issuance of notice u/s. 148 of the Act with regard to assets located outside India would be applicable only to a ‘Resident’ and not for ‘Non-Resident’? | No. They would apply to a non-resident also. |
| b. | Whether in the absence of an express bar in the provision to invoke the extended time period of 16 years for issuance of notice u/s. 148 to a ‘Non-Resident’ as per Section 149(1)(c) of the Act, can it be said that Section 149(1)(c) applies only to Residents? | No. They would apply to a non-resident also. |
| c. | Whether the 4th proviso to Section 139(1) for declaration of foreign assets by a Resident only, would be an impediment for the ld. AO to reopen a Non-Resident’s case in accordance with Section 149(1)(c) of the Act, even if it is found that income which has accrued/arisen in India has escaped assessment?” | No. |
35. We would now take up the appeal on merits. Here we do find that the appeal has to succeed on facts.
The reasoning recorded by the learned AO for reopening reads as under :-
“Information was received by the Government of India under Article 28 of Double taxation Avoidance agreement from the French Authorities in exercise of its sovereign powers that certain persons in India held back accounts in HSBC Bank, Geneva. The information is received in the form of a document wherein various details of account holders such as Name, Date of Birth, Place of Birth, Residential Address, Sex, Nationality etc. are mentioned. In the case of the assessee also such information is received. The details of the assessee’s bank account in HSBC, Geneva are as under:
| Name: Devendra Singh Sahney | BUP SIFIC PER ID: 9070145709 |
| Date of opening of account: | 03.02.1999 |
| Balance shown for A.Y. 2007-08 | USD 1272785 |
The Investigation Wing of the Income Tax Department has conducted enquiries and a large number of assessees have admitted to holding accounts inn HSBC Bank, Geneva and have disclosed the balances in these bank accounts to tax.
Further, certain assessees who had denied having such account in HSBC Bank, Geneva later on submitted their Bank Account statements which were forwarded to them by the HSBC Bank, Geneva in response to Consent Waiver Form submitted by them.
The fact that a large number of assessees have confirmed the existence of the bank accounts in HSBC Bank. Geneva mentioned in the information received under DTAA shows that the information received is credible.
The information regarding the assessee with the department shows a balance of in F.Y. 2006-07 relevant to the A.Y. 2007-08. The balance shown of USD 1272785 in Assessment Year 2007-08 is not disclosed to Income-Tax Department.
In view of the above, I have reason to believe that the assessee holds the above mentioned bank account in HSBC, Geneva which is an asset located outside India and that the income in relation to such asset has escaped assessment for the assessment year 2007-08, for which as per Section 149(c), sixteen years time limit is available.”
36. There is nothing brought on record to indicate that the amount of peak balance lying in the foreign bank account has been sourced from India. We therefore find that the appellant is justified in claiming that section 68 or 69A of the Act cannot apply in the present case. There cannot be any manner of dispute that at the stage of issuing notice u/s. 148 and recording reasons for reopening, the AO is required to see only prima facie case. However, a bare reading of the reasons recorded indicate that there is not even a prima facie finding that the amount lying in the foreign account has been sourced from India, not even an allegation to that effect. The Supreme Court in Lakhmani Mewal Das (supra) has held that the reasons for formation of the belief must have a rational connection or a relevant bearing on the formation of the belief. There has to be a direct nexus or live link between the material and the belief, which is albeit a prima facie belief.
37. At this stage it is necessary to deal with the contention on behalf of the Revenue that the assessee had neither produced relevant details nor furnished consent waiver form. This according to the Revenue is sufficient to draw an adverse inference which can itself form a basis for reopening. We are unable to agree. We find that whether or not an adverse inference could be drawn would depend upon facts and circumstances of each case. It is necessary to note that there is a clear distinction between burden of proof and the onus to prove a particular fact. While the burden continues to be on a particular party throughout the proceedings the onus may keep shifting. In the present case the primary burden lay on the Revenue. It is trite that the party cannot be expected to prove a negative fact. It is only when the Revenue brings on record some prima facie material sufficient to shift the onus on the assessee, the failure to produce any documents and/or to furnish the consent waiver form can be of any consequence. In the present case, in our considered view, there is no material brought on record even prima facie so as to shift the onus on the assessee.
38. The learned special counsel for Revenue has relied upon the following observations of this Tribunal in Hersch Chadha (supra) :-
“In the case of Dhakeshwari Cotton Mills Ltd. (supra), the Supreme Court has observed that assessment proceedings are purely administrative. After the receipt of the return also the Assessing Officer is entitled to make private enquiries to find out as to whether there is reason to suspect that the return is incorrect or incomplete. No objection can be taken to such enquiries made behind the back of the assessee at that stage, as they are all administrative inquiries. They assume a quasi-judicial character only after the issuance of notices for assessment. This is so, because the Assessing Officer is not a Court. Similar findings have been given in the S.V. Kondaskar, Official liquidator & Liquidator of Colaba Land & Mills Co. Ltd. (In liquidation) v. V.M. Deshpande [1972] 83 ITR 685 (SC).”
It is difficult to see as to how the said observations can come to the aid of the Revenue.
39. Reliance placed by the Revenue in this regard on the decision of the Bombay High Court in Soignee R Kothari (supra) is misplaced. That was a case where the assessee had challenged the notice issued u/s. 148 of the Act in a petition under Article 226 of the Constitution of India. In that case it was contended on behalf of the petitioner-assessee that Mr. Dilip Mehta was not authorized to instruct the bank but was only authorized to instruct M/s. White Cedar, which entity was the account holder. It was claimed that the authority to operate the account were the Directors of White Cedar. The High Court on facts found on the basis of a letter dated 14.08.2014 addressed by HSBC Geneva to M/s. Red Oak Operation Ltd. [earlier known as White Cedar], that if petitioner and/or her uncle so deemed it fit, they could have asked M/s. White Cedar to obtain the bank statement. It can thus be seen that in that case there was some semblance of material to indicate that the petitioner or her uncle was in a position to ask M/s. White Cedar to obtain bank statement, which was not done. A perusal of para 15 indicates that the High Court on facts declined to interfere in exercise of the extra ordinary jurisdiction. Thus, the decision in the case of Soignee R Kothari (supra), cannot come to the aid of the Revenue.
40. The learned special Counsel also placed reliance on the decision of Bombay High Court in the case of Macrotech Developers Ltd. (174 taxmann.com 56). That was a case where on facts it was found that the money received by Suryakrupa Farms & Construction Pvt. Ltd. during the relevant year was through various layering offshore entities located in tax havens having intimate nexus with the assessee company through its Director (para 12). We find that the said case also turned on facts involving circuitous movement of funds through various companies located in tax havens and which was not disclosed in the assessment proceedings. In the facts of the present appeal, the department is not even in a position to establish on record through cogent evidence that the peak balance added at the hands of the assessee is essentially in the nature of income.
41. We thus find that the appeal has to succeed. In the circumstances, we do not find it necessary to dwell on the additional grounds, as set out in para 18 above, which were not even raised in the oral arguments.
42. In the result, the appeal is allowed. The impugned addition stands deleted.
Order pronounced in the open court on 02.06.2026.
