Atanu Banerjee Vs DDIT (Investigation)-1 (ITAT Delhi)
Foreign property: Disclosure in Schedule FA and claim of capital loss do not dispense with explaining investment sources; ITAT orders fresh adjudication
Summary: The Delhi Bench of the Income Tax Appellate Tribunal restored an assessment under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 to the Commissioner (Appeals) for fresh adjudication. The dispute concerned ₹2,69,91,144, representing the gross sale consideration of a residential property in the United States. The Tribunal granted the assessee another opportunity to establish the sources of investment, sources of mortgage repayments and residential status during the relevant years, while expressly keeping all legal and factual contentions open.
The assessee, an individual aged over 70, claimed that he had worked in the United States during 1996–2004 and remained non-resident during 1996–2008. He subsequently returned to India and admitted that he was resident in India for the assessment year under appeal. Information concerning his account with PNC Bank, New Jersey, came to the Assessing Officer’s notice on 31 March 2021.
The bank account reflected monthly US Social Security receipts of USD 1,232 during FYs 2015–16 and 2016–17, besides credits relating to the sale of property. The assessee explained that the Social Security benefits had been disclosed in his US returns and were taxable in the United States under Article 20 of the India–USA DTAA. The Assessing Officer accepted this explanation. Accordingly, no addition concerning Social Security benefits remained in dispute.
The substantive dispute related to a house in Edison, New Jersey. The assessee stated that he purchased it on 3 September 1999 for USD 253,000, using overseas employment earnings, savings and a mortgage loan. The property was sold in 2016 for USD 405,000, with net proceeds of USD 382,502.91 credited to his bank account after deductions.
According to the assessee, the sale had been disclosed in his US tax return. He further contended that computation under the Indian Income-tax Act, after allowing indexation, resulted in a long-term capital loss. Consequently, he argued that no Indian tax was payable on the transaction.
The Assessing Officer, however, considered the documentary evidence inadequate. The sale deed had not been furnished during assessment, and the bank statements did not satisfactorily establish the nature of the credits. He therefore assessed the gross consideration of ₹2,69,91,144 as undisclosed foreign income under the 2015 Act.
The Commissioner (Appeals) sustained the addition. Among the concerns recorded were the absence of satisfactory evidence explaining the original acquisition funding, inadequate disclosure before the Indian authorities, and the lack of substantiation of the claimed capital loss. Disclosure in the United States was not accepted as sufficient compliance with the Indian requirements.
Before the Tribunal, the assessee also challenged the assessment year and procedural validity of the proceedings. He argued that foreign income arising in FY 2016–17 should be examined in AY 2017–18, rather than AY 2021–22. Alternatively, he submitted that jurisdiction was assigned to the Assessing Officer only on 31 March 2022, making AY 2022–23 relevant under his interpretation of the departmental guidelines. Additional objections concerned the timing of notices, opportunity of hearing and compliance with internal instructions.
While discussing the statutory framework, the Tribunal distinguished the requirements applicable to undisclosed foreign assets. It referred to Section 2(11), under which the explanation concerning the source of investment is material, and to the proviso to section 3, concerning taxation of an undisclosed foreign asset in the year it comes to the Assessing Officer’s notice.
The Tribunal observed that disclosure in Schedule FA, by itself, was insufficient to establish the explanation concerning acquisition funding. The assessee needed to substantiate that the funds were not chargeable to Indian tax at the relevant time or, where chargeable, had been duly offered to tax. Similar verification was necessary for repayment of the mortgage loan.
It also observed that a claim of indexed capital loss on sale did not answer the separate question concerning the source of acquisition and loan repayments. However, these observations were followed by an express reservation of the merits when directing fresh adjudication.
The Tribunal noted the assessee’s advanced age, illness and difficulty in obtaining decades-old records. Certain mortgage and passport documents were claimed to have been submitted after the remand proceedings, without consideration by the Commissioner (Appeals). In these circumstances, one further opportunity was warranted in the interests of justice.
Accordingly, the matter was restored to the Commissioner (Appeals) for de novo adjudication, including consideration of the procedural objections requiring factual investigation. The appeal was allowed for statistical purposes. Crucially, the Tribunal neither finally deleted nor finally confirmed the disputed addition; it directed an independent reconsideration, unhindered by its observations, with all contentions remaining open.
The Delhi Bench of the Income Tax Appellate Tribunal restored an assessment under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 to the Commissioner (Appeals) for fresh adjudication. The dispute concerned ₹2,69,91,144, representing the gross sale consideration of a residential property in the United States. The Tribunal granted the assessee another opportunity to establish the sources of investment, sources of mortgage repayments and residential status during the relevant years, while expressly keeping all legal and factual contentions open.
The assessee, an individual aged over 70, claimed that he had worked in the United States during 1996–2004 and remained non-resident during 1996–2008. He subsequently returned to India and admitted that he was resident in India for the assessment year under appeal. Information concerning his account with PNC Bank, New Jersey, came to the Assessing Officer’s notice on 31 March 2021.
The bank account reflected monthly US Social Security receipts of USD 1,232 during FYs 2015–16 and 2016–17, besides credits relating to the sale of property. The assessee explained that the Social Security benefits had been disclosed in his US returns and were taxable in the United States under Article 20 of the India–USA DTAA. The Assessing Officer accepted this explanation. Accordingly, no addition concerning Social Security benefits remained in dispute.
The substantive dispute related to a house in Edison, New Jersey. The assessee stated that he purchased it on 3 September 1999 for USD 253,000, using overseas employment earnings, savings and a mortgage loan. The property was sold in 2016 for USD 405,000, with net proceeds of USD 382,502.91 credited to his bank account after deductions.
According to the assessee, the sale had been disclosed in his US tax return. He further contended that computation under the Indian Income-tax Act, after allowing indexation, resulted in a long-term capital loss. Consequently, he argued that no Indian tax was payable on the transaction.
The Assessing Officer, however, considered the documentary evidence inadequate. The sale deed had not been furnished during assessment, and the bank statements did not satisfactorily establish the nature of the credits. He therefore assessed the gross consideration of ₹2,69,91,144 as undisclosed foreign income under the 2015 Act.
The Commissioner (Appeals) sustained the addition. Among the concerns recorded were the absence of satisfactory evidence explaining the original acquisition funding, inadequate disclosure before the Indian authorities, and the lack of substantiation of the claimed capital loss. Disclosure in the United States was not accepted as sufficient compliance with the Indian requirements.
Before the Tribunal, the assessee also challenged the assessment year and procedural validity of the proceedings. He argued that foreign income arising in FY 2016–17 should be examined in AY 2017–18, rather than AY 2021–22. Alternatively, he submitted that jurisdiction was assigned to the Assessing Officer only on 31 March 2022, making AY 2022–23 relevant under his interpretation of the departmental guidelines. Additional objections concerned the timing of notices, opportunity of hearing and compliance with internal instructions.
While discussing the statutory framework, the Tribunal distinguished the requirements applicable to undisclosed foreign assets. It referred to section 2(11), under which the explanation concerning the source of investment is material, and to the proviso to section 3, concerning taxation of an undisclosed foreign asset in the year it comes to the Assessing Officer’s notice.
The Tribunal observed that disclosure in Schedule FA, by itself, was insufficient to establish the explanation concerning acquisition funding. The assessee needed to substantiate that the funds were not chargeable to Indian tax at the relevant time or, where chargeable, had been duly offered to tax. Similar verification was necessary for repayment of the mortgage loan.
It also observed that a claim of indexed capital loss on sale did not answer the separate question concerning the source of acquisition and loan repayments. However, these observations were followed by an express reservation of the merits when directing fresh adjudication.
The Tribunal noted the assessee’s advanced age, illness and difficulty in obtaining decades-old records. Certain mortgage and passport documents were claimed to have been submitted after the remand proceedings, without consideration by the Commissioner (Appeals). In these circumstances, one further opportunity was warranted in the interests of justice.
Accordingly, the matter was restored to the Commissioner (Appeals) for de novo adjudication, including consideration of the procedural objections requiring factual investigation. The appeal was allowed for statistical purposes. Crucially, the Tribunal neither finally deleted nor finally confirmed the disputed addition; it directed an independent reconsideration, unhindered by its observations, with all contentions remaining open.
Cases Discussed
1. Chitturi Subanna Vs Kudapa Subbanna & Ors. (Supreme Court); AIR 1965 SC 1325. Cited by the assessee in support of admission of additional legal grounds. An exact TaxGuru judgment page could not be verified.
2. National Thermal Power Company Limited Vs CIT (Supreme Court); (1998) 229 ITR 383. Relied upon for admission of additional legal grounds before the Tribunal.
