Addl. CIT Vs Jatinder Mehra (ITAT Delhi)
It is apparent that assessee does not own any share capital in case of Watergate advisors Limited as well as it also does not controls the above company as he does not have any shareholding or management rights in that
With respect to the mention of the name of the assessee in the account opening form as beneficial owner, assessee has relied upon the decision of the coordinate bench in case of Kamal Galani V ACIT in ITA number 138/Mum/2019 dated 10 September 2020 wherein in para number 13 onwards the coordinate bench has held that merely mentioning the name of the assessee in the account opening form which is rebutted by the assessee by filing an affidavit and complete details of the ownership of the bank account, the assessee cannot be held the beneficial owner of such sum. Therefore, such solitary fact cannot lead to addition in the hence of the assessee where there is no other evidence available with respect to the ownership or beneficial ownership over such bank account. In view of this it is apparent that the mere account opening form where the assessee is mentioned as the beneficial owner of the account mentioning is details of his passport as an identification document, does not necessarily, in absence of any other corroborative evidence of the beneficial ownership of the assessee over that for an asset cannot lead to taxability in the hands of the assessee Under the Black Money Act.
In view of above facts, we hold that assessee does not have beneficial ownership of the amount deposited in Watergate advisors Limited, assessee also do not held that asset. The learned CIT – A has also held so giving the detailed reasons as reproduced above. The learned departmental representative could not show us any evidence that assessee is the owner or beneficial owner of the sum lying in the bank account of Watergate advisors Limited. The assessee has given an overwhelming evidence of the fact that money belong to the son of the assessee which were not at all controverted by the learned assessing officer. In view of this we hold that the learned CIT – A is correct in deleting the addition of ₹ 56,647,000/– in the hands of the assessee. Accordingly, we confirm the order of the learned CIT appeal and all the 4 grounds stated in the appeal of the learned assessing officer are dismissed.
FULL TEXT OF THE ORDER OF ITAT DELHI
1. This appeal is filed by The Additional Commissioner Of Income Tax, Range – 70, New Delhi (the learned AO) against the order dated 16.09.2020 passed by the Commissioner Of Income Tax (Appeals)–20, New Delhi, [The Ld CIT (A)] for assessment year 2016-17 wherein the appeal filed by the assessee against the assessment order dated 29th of March 2019 passed u/s 10 (3) of under Black Money (Undisclosed Foreign Income And Assets) And Imposition Of Tax Act, 2015. (In short ‘The Black Money Act’) passed by the learned AO is allowed in favour of the assessee.
2. The learned assessing officer has made an addition of ₹ 5,66,47,000/– which is deleted by the learned CIT – A. Therefore the learned AO is aggrieved and has raised following grounds of appeal:-
BMA No. 01/Del/2020 :
“1. CIT(A) has ignored the findings of the AO formed on the basis of information received under the provisions of ‘exchange of information Article’ of India Singapore Double Taxation avoidance agreement (DTAA), wherein as per the account opening form assessee was the beneficial owner of the account. Details of his passport are mentioned as the identification document in the account.
2. During the assessment proceedings, assessee was categorically asked to submit unequivocal evidence in the form of money belonged to the assessee’s son, Rajneesh Mehra. However, assessee has failed to make compliance in this regard. It is worthwhile to mention that as the account opening form contained the name of the assessee as beneficiary owner, onus lies on the assessee to provide evidence to support his claim that he was not the beneficial owner, thus he was not the beneficial owner, thus assessee failed to discharge his onus.
3. CIT(A) has failed to appreciate that if the intention was to confer all the benefits to Rajneesh Mehra, why was the name of Sh. Rajneesh Mehra not added as beneficial owner rather than that of the assessee. CIT(A) has erred in not considering human probability and circumstantial evidences in the matter while deciding the issue.
4. CIT(A) has ignored the fact that as per return of income for Y. 2010-11 to 2016- 17, the assessee has not declared any foreign asset or account thereon despite the fact that assessee is holding account no. 806694 as beneficiary owner. As per the account opening form and passport details mentioned therein, assessee is holding foreign account in the capacity of beneficial owner and credit entries are reflected in the said bank account. However, assessee has failed to disclose such income in Schedule A & B of FA in his income tax Return. In view of the same, assessee’s undisclosed foreign income attracts the Black Money Act and gets covered in this section 3 & 4 of the Black Money Act. ―
3. Assessee has also filed cross objections in O. No. 26/Del/2021 raising following grounds
“1. That the Assessment Order dated 29/03/2019 passed by the Ld. Addl. CIT, Range-70, New Delhi Delhi (A.O.) u/s 10(3) of The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (The Black Money Act, 2015) is illegal, invalid and void ab intio and thus it is liable to be quashed at source.
2. That the A.O. has erred in law in computing u/s 5 r.w.s. 4(3) of the Black Money Act, 2015, the “total undisclosed foreign income and asset” at Rs. 12,23,77,070/- in spite of his clear admission that Rs.6,57,30,070/- is the Returned Income u/s 139(1) of the Income Tax Act for the A.Y. 2016-17 which could have never formed part of the total undisclosed foreign income and asset under The Black Money Act, 2015.
3. That the A.O. thus erred in law in assessing u/s 10(3) of The Black Money Act, 2015 the “undisclosed foreign income and asset” at Rs.12,23,77,070/- as against the alleged Rs.5,66,47,000/- being the alleged total undisclosed foreign income and asset found out by him as per his information.
4. That the A.O. further erred in law in determining the total amount payable by the assessee at Rs.2,66,61,977/- by imposing Surcharge, Cess and also Interest u/s 234B of the Income-tax Act, all of which are not applicable to charge of tax u/s 3 of The Black Money Act, 2015.
5. That the A.O. erred in not serving upon the assessee the required Notice of Demand u/s 13 of The Black Money Act, 2015, in the prescribed “Form 1” (as per Rule 5).
6. That without any prejudice to the above, it is further objected that the A.O. has filed invalid appeal u/s 18(1) of The Black Money Act, 2015 before the Appellate Tribunal inasmuch as the same was required to be filed in prescribed “Form 3” [see Rule 7(2)] as against the “Form 36” under Rule 47(1) of the I.T. Rules so filed by the Ld. A.O. being the Appellant.
7. That the entire proceedings in the case of the assessee carried out under The Black Money Act, 2015, being from the assessment to the appeal before the Tribunal, are all flawed and illegal and being all beyond the provisions of the said Act, the entire proceedings may thus be quashed ab intio.”
4. Brief facts of the case shows that assessee is an individual and is earning salary from Essar Services India Ltd. A search was conducted in case of “Rakesh Agarwal Group” Baroda. Posts such inquiries and information obtained from foreign tax authorities under Double Taxation Avoidance Agreement, six trust companies were found involved in the transaction. One trust “Rajvin Ltd” is settled by the assessee is a revocable trust on 15th of April 2005 with Merrill Lynch bank and trust company (Cayman) Ltd as a settler /trustee. The ultimate beneficiaries of the trust include Shri Rajneesh Mehra, Mr. Vineet Mehra (Sons) and Hans Mehra (Grandson). The trust deed was revoked on 16/12/2011 and on revocation of the trust funds were sought to be transferred to the bank account of Clariden Leu Ltd, Singapore, account number 806694 held in the name of Watergate advisors Ltd, a company incorporated in British Virgin Island.
5. For assessment year 2016 – 17 assessee has filed his return of income declaring income of ₹ 6,57,30,070/– on 30 July 2016. On receipt of above information from The Additional Director Of Income Tax, Investigation, unit 6 (2), New Delhi on 22/7/2016, an interim report was submitted to the AO for further investigation and to take necessary action Under Black Money (Undisclosed Foreign Income And Assets) And Imposition Of Tax Act, 2015. Consequently notice u/s 10 (1) of the act was issued on 21/11/2016. The assessee submitted on 7/12/2016 that assessee did not have any foreign assets and no foreign sourced income from financial year 2009 – 10 till date. The assessee was asked to submit the trust deed and bank details. In response to that assessee submitted that he does not have the copy of the trust deed and Mr. Rajneesh Mehra, son of assessee, in order to show regard and respect towards the assessee wanted him to be a nominal settler of the trust. It was in deference to his business and Under his instructions and as per his request, assessee has agreed to become the nominal settler without having to invest, contribute or settle any amount as the settlement amount of the trust. Further his Sons and grandson are beneficiaries of the trust, did not have any bank account.
6. The learned assessing officer noted that he has received information under provisions of Exchange Of Information article of India- Singapore Double Taxation Avoidance Agreement that this assessee is the beneficial owner of account number 806694 Clariden Lie Ltd (credit Suisse), Singapore. The bank account shows that on 21 December 2011 credit of US$ 826,161.51, on 30 March 2012 credit of US$ 7712.50 and on 15/10/ 2012 credit of US$ 151.25 amounting in all to US$ 834,025.32 were made.
7. The learned assessing officer issued a show cause notice on 14 June 2018 that why the above sum of US$ 834,025.32 amounting to ₹ 56,647,000 should not be considered as Undisclosed Foreign Income and Assets under the Black Money (Undisclosed Foreign Income and Assets) Act 2015.
8. On 22nd November, 2018, assessee submitted a reply stating that AO has supplied page number 1 to 19 on 14 June 2016 being the account opening form of Watergate advisors Ltd for opening of the bank account in Clariden Lieu Ltd Singapore and stated that
a. None of the above documents bear any of the signature of the assessee and assessee has neither signed the above documents and nor gone to that bank anytime.
b. Watergate advisors Ltd belongs to the son of the assessee Mr. Rajneesh Mehra, who is a non-resident Indian since 1998.
c. He is neither a shareholder nor a director of Watergate advisors Ltd at any point of time.
d. Certificate of incumbency issued by the registered agents M/s Vista BVI Ltd on 12 March 2018 according to that certificate it confirms that Watergate advisors Ltd was incorporated in BVI on 18 March 2011 and his son Shri Rajneesh Mehra is the director and sole shareholder of it.
e. Affidavit dated 17 August 2018 of Mr. Rajneesh Mehra confirming that assessee has not signed any documents relating to the company and nor did assessee received any money on any account from Watergate advisors Mr. Rajneesh Mehra also confirmed that he was the beneficial owner of Watergate advisors Ltd.
In short, assessee raised several contentions and submitted that he is not the owner of the above money but his son is i.e. Mr. Rajneesh Mehra is the owner of the sum. Therefore, assessee contested that he was not required to submit/disclose these assets in schedule FA in the return of income.
9. The learned assessing officer rejected the contentions of the assessee and noted that in assessee‘s return of income for assessment year 2010 – 11 to 2016 – 17, he has not declared foreign assets/income and has not declared any foreign bank account. However, as per the information available with learned AO, assessee is holding foreign account number 806694 and the beneficiary of account is the The account opening form also shows that the beneficiary of account is the assessee. The details of the passport of the assessee are mentioned in the account opening form as identity proof. Thus, AO held that it is evident that the assessee is holding foreign account and the credit entries are reflected in the account statement. Further the assessee has not disclosed income in schedule A and B of FA in his income tax return and therefore the assessee has not disclosed the foreign income/assets and therefore the provisions of the undisclosed foreign income attracts The Black Money Act. He rejected the argument of assessee that assessee is the only nominal settler of the trust without having to invest, contribute, or settle any amount as the settlement amount of the trust and his son Shri Rajneesh Mehra is the beneficiary of the trust. Ld AO was of the view that If the intention is to confer all the benefits to Sri Rajneesh Mehra, the name of the beneficial owner in the bank account should have been of Shri Rajneesh Mehra and not of assessee. He held that documents show that the beneficial owner of the account is only the assessee. He therefore referred to the provisions of Section 3 and 4 of The Black Money Act and satisfied that the assessee has not declared foreign assets/income/accounts of ₹ 56,647,000 Under The Black Money Act and made an addition. He passed an order u/s 10 (3) of the act on 29th of March 2019 determining the total income of the assessee at ₹ 122,377,070/– against the returned income of ₹ 65,730,070/– wherein addition of ₹ 56,647,000/– was made on account of credit appearing in the account of Watergate advisors Ltd in bank account number 806694 with Clariden Leu Ltd Singapore.
10. Assessee aggrieved with the order of the learned AO preferred an appeal before the learned CIT – A. Assessee challenged applicability of the black money act as per ground number 2 –5, these grounds were dismissed. As per ground number 6 – 15 assessee challenged the additions on the merits of the case. On the merits The learned CIT – A decided as Under:-
“4.3 Ground no 6 to 15 related to the merits of the case stating that the said account does not belong to him and that he did not provide any money or received any money from the said account. It is seen from the order of the AO that during the assessment proceedings, the assessing officer had relied upon a bank account ‘opening form’ to observe that the appellant‘s name was mentioned as the beneficial owner of such account and was thus liable to tax for all credits in the said account. It is not disputed that the said account belonged to and was owned by Watergate advisors Ltd i.e. a company incorporated in the British Virgin Islands. It is not disputed that the sole director and shareholder of Watergate advisors Ltd was Sri Rajneesh Mehra, who has been a non-resident since 1996. It is also not disputed that Section 2 (2) of The Black Money Act restricts its application only to a ‘resident’ assessee as defined under sections 6 of The Income Tax Act.
The contention of the appellant has been considered and the order of the AO has been perused. At the outset, it is apparent and undisputed that the said bank account number 806994 was owned and belonged to Watergate advisors Ltd, which was a company, incorporated in the British Virgin Islands. In order to charge the credits appearing in the accounts of such company, it must satisfy the condition for becoming a ‘resident’ as per Section 6 of The Income Tax Act.
The provisions of Section 6 (3) as applicable for assessment year 2016 – 17 state that
(3) A company is said to be resident in India and in the previous year, if –
(i) It is an Indian company, or
(ii) During that year, the control and management of its affairs is situated wholly in
As per the certificate of incumbency available on record, the company is incorporated in British Virgin Islands and thus does not satisfy the provisions of Section 6 (3) (ii) as applicable for assessment year 2016 – 17 mandated the entire management and control of such company to be present in India for it to be considered as an Indian resident. As per the certificate of incumbency available on record, Shri Rajneesh Mehra is the sole director and sole shareholder of the said company. The certificate of incumbency as noted above has not been disputed by the appellant or by the assessing officer. Thus, the management and control of the said company appears to be wholly outside India. The findings of the assessing officer do not indicate that the appellant was wholly and exclusively engaged in the management and control of Watergate advisors Ltd and that Sri Rajneesh Mehra was nowhere involved in the management and control of Watergate advisors Ltd.
It is further noticed that the AO‘s only claim in this regard is the mention of the appellant‘s name as the beneficial owner in the account opening form. Even if, to some extent, the AO‘s claim is to be considered to the extent of the appellant‘s involvement in the management and control of Watergate advisors Ltd, the involvement of Shri Rajneesh Mehra in the management and control of the said company has not been denied. Thus, even if management and control was partly in India and partly outside India, the said company does not qualify as an Indian resident as per provisions of Section 6 (3) of the Income Tax Act. Thus, Watergate advisors Ltd being a foreign company is not liable to tax in India or under the Black Money Act.
Having examined the above, it is necessary to examine the purported beneficial ownership of Said bank account by the appellant. As The Black Money Act does not define ‘beneficial ownership’, reference is drawn from explanation 4 to Section 139 (1) of The Income Tax Act, 1961 which defines a beneficial owner as follows:-
“Explanation 4 – for the purposes of this Section, beneficial owner in respect of an asset means an individual who has provided, directly or indirectly, consideration for the assets for the immediate or future benefit, direct or indirect, of himself or any other person.”
Thus, the underlying nexus for a person to be defined as a ‘beneficial owner’ is the infusion of funds into the said asset. In the given case, it is observed that the only external credit arising in the said account was from Rajvin Ltd. The appellant has placed reliance on a Memorandum of Family Arrangement that was submitted before the AO and has not been denied or rejected by the AO. In fact, vide remand report dated 19/11/2019, the AO has confirmed the submission of the said document during the assessment proceedings. The brief constituents of the said Memorandum of Family Arrangement are reproduced below-
