Case Law Details
Ravina & Associates Pvt. Ltd. Vs Addl. (ITAT Delhi)
1. The undisputed facts are that in the original return of income filed by the assessee for the instant years, the income representing the deposits in the bank account with Natwest Bank, London was not declared by the assessee. It is also undisputed that the said income was subsequently declared in the returns of income furnished during the reassessment proceedings and also assessed in the impugned orders of assessment. There is no dispute as to taxability of income. The claim of the assessee is that the said income was duly disclosed voluntarily by letter dated 1.4.2006 addressed to DCIT, Company Circle-15(1), New Delhi. In the said letter, it was stated as under:
“1. We are a company engaged in providing technical and support services to all sorts of business enterprises in global market and are assessed to income tax within your jurisdiction, our PAN is AAACR4696N.
2. We entered into an understanding with M/ s. TPE Moscaw for providing them technical services preparatory to their bid for the UPRVUNI, OBRA, R & M, TPS and BARH, NTPC projects and support both thermal power plants projects and support services during implementation of their contracts in India in culmination thereto.
3. All the services at the preparatory stages, which are since over, were rendered by us out of India. We have received on account payments from our clients namely TPE, Moscow, which comprises apart from our dues for our involvement at the preparatory stage, advances towards services to be rendered during implementation stage of the above said projects. We have received all these payments by bank transactions in foreign exchange outside India in our accounts with Nat West Bank at London in Account Nos. 140-00-21000697, Sort Code 60-18-20 and Current account 18009336, Sort Code No. 60-18-20. We had opened this account only to facilitate and ensure speedy collection of remittances from our clients and remittances of payment to our suppliers.
4. We had always in the past carried an impression that income arising from providing technical and support services to the foreign enterprises in foreign exchange is not liable to be included in our income for taxation in India. We had, therefore, never in the past included the still unascertained profits accruing to us from such operations in our income returned for taxation in India. These profits have not yet been distributed either. We nevertheless have regularly maintained accounts of these transactions separately.
5. However, while we were discussing our Russian business with a well-wisher Mr. Ram Jethmalani at the fag end of February, 2006, we were shocked to learn that income arising from providing technical and support services in foreign exchange was liable to be included in our income for taxation in India. We have been advised that as a resident of India, we are liable to tax in India on our global income subject to exceptions and concessions provided by the various Double Taxation Avoidance Agreements India has various countries/ States. We have also been advised to take immediate steps to inform the RBI.
6. Immediately on being advised of the correct position of law in this regard, we have instructed Nat West Bank, London to close down our accounts with them and remit the money held in balance with them to our accounts in India. We have already initiated steps to ascertain our true profits from these foreign operations. We are firmly resolved to discharge our liability to tax in full in respect of our income in all the years we have been operating outside India, which, although inadvertently, has remained undischarged due to our unfortunate ignorance of correct position of law in these regards.
7. We have been waiting all these days for the money to be credited in our account in India to enable us to pay advance tax in respect of our income for the fiscal year 200506 and also to pay up our tax liability in respect of the earlier years together with interest due for the delayed payment of Even after waiting for all these days since 6th March, 06 when instructions were first issue to Nat West Bank, London to remit our monies held in balance with them to our account in India we have not received any intimation of remittance from them (copies enclosed)
8. Accordingly, we have to request you to intercede in the matter and arrange for the collection of taxes, which may be determined as due from us, from Nat West Bank, London in satisfaction of our tax liability provisionally. We are ready and willing to execute the requisite authority in any form advised by you as may serve all desired end.
9. I hereby declare that all the monies in the said bank stand assigned to the Government of India in trust for paying away my tax liabilities when precisely determined.
10. To discuss our tax liability and work out the modalities for its prompt, effective and full discharge, we will be obliged to have an audience with you, which may kindly be granted and intimated to me at my address indicated above at your earliest.
We will also appreciate if a lenient view may be taken of the incidental inadvertent lapse on our part in the matter.”
2. Furthermore, in another letter dated 11.4.2006, it was submitted as under:
“Kindly refer to our letter dated 1st April, 2006 on the above subject and the audience our authorized representative had with you on 5.4.2006.
2. In furtherance thereto we are submitting herewith, as annexure `A-1 & A-II*, summaries of transactions in our two bank accounts maintained by us with Nat West Bank, London, separately indicating the total amounts received therein from our clients and the interest accruing in the bank account, total outgoings there from on account of various expenditure incurred in connection with our business, including bank charges and the resultant surplus in respect of all the fiscal years from 2003-04 to 2005-06, indicated in the currency in which these accounts are maintained. Annexure “A-III” being submitted is a consolidated summary of annexures “A-I & A-II” indicating the aggregate surplus in Indian rupees. ( Copies enclosed at Pages 137 to 139 of ATR)
3. Annexure “A-1 & A-II” have been prepared by us based on the entries in the Journal maintained by us for our foreign ventures and the figures reported are subject to correction with reference to the bank account statements we are trying to arrange from the bank. In the meanwhile, relevant extracts from the said Journal are being submitted herewith in its entirety.
4. The surpluses so indicated indicate the maximum quantum of our income in the relevant years from our hitherto unreported foreign ventures that can be assessed to tax.
5. Needless to mention here that the receipts in our bank accounts largely comprise advances on our clients account provided to us for meeting expenditure necessary to be incurred by us in future in several years during which the implementation and execution of our clients’ contract in India may continue and we are in law and equity entitled to provide for these.
3. We hope that the information provided herein will enable you to proceed with the determination of our tax liability in respect of our income from hitherto unreported foreign ventures.
7. Accordingly, we have to request you to kindly assess our income from these foreign ventures on some just and reasonable basis and determine the tax we are liable to ay in respect thereof.
In you need further details, the same will be provided on hearing from you”
3. Subsequently, in letters dated 19.4.2006, 21.4.2006, 22.4.2006, 27.4.2006 and 23.5.2006, further information was filed to support the claim of the assessee. It has been contended that initially the income was offered on the advice of Shri Girish Shukla that on interpretation of the agreement dated 23.7.2003 and decision of the ITAT in the case of Otis Elevators vs. DCIT reported in 99 ITD 132, he was of the opinion that entire sum could not be said to have accrued in the instant years but would accrue from AY 2004-05 to 2008-09. However, later the entire sum was offered for tax.
4. In the reasons recorded, the Assessing Officer, while assuming jurisdiction, for issue of notice under section 148 of the Act, stated as under:
“22/ 5/ 06-Return showing total income of Rs. 31,77,400 has been filed on 31/ 12/ 04 which has been processed u/s 143(1) on 31/ 3/ 05. Total income is computed as under:‑
1. Income from Business & Profession . – Rs. 22,17,179
2. Short term capital gain – Rs. 9,60,218
Dividend income of Rs. 1,97,361 has been claimed exempt u/s 10 of the Act.
Perusal of Form 3CD filed with the return of income shows that the assessee carried on business & profession of ‘travel agent’ only. Details of receipts shown as assessable under business head are as under:-
1. Interest income – Rs. 14,40,204 – on deposits with Syndicate Bank, F-40, Connaught Place, New Delhi.
2. Professional tax – Rs. 12,50,000 – Received from Sohail Khan (Services – ticket ) Production 1/2 Coral Reaf, Bandra, Mumbai
3. Commission – From Aeroflot – New Delhi
– From Aeroflot – Mumbai
– From Bandhu Travels (P) Ltd.
– From ISI Travel Services Private Ltd.
– New Airways Travels (Delhi) DUF Ltd.
Perusal of letter dated 11/ 4/ 06 filed in this office on 13/ 4/ 06 shows that these are credit entries (deposits) of Rs. 10,49,03,405/ – in A/c No. 140-00-21000697 with Nat West Bank London (Currency US $) and in A/c No. 18009336 with Nat West Bank London (Currency GB Pounds)
Perusal of extracts from journal register from 1.4.03 to 31.3.04 filed with the shows that the sum of Rs. 10,49,03,405/ – has been received from TPE, Russia. This receipt has not been included in its receipts as shown in return of income and thus not offered for tax.
On the facts and in the circumstances of this case as discussed above, I have reason to believe that income of Rs. 10,49,03,405/ – chargeable to tax preceding Assessment Year 2004-05 has escaped assessment within the meaning of section 147 of I.T. Act 1961.
Issue notice u/ s 148 for Assessment Year 2004-05 immediately.”
5. The above reasons recorded establish that the Assessing Officer did not have any other information except disclosure made by the assessee in communication dated 1.4.2006 and 11.4.2006. In fact, in the reasons recorded as extracted above, it is the admitted position that action under section 148 of the Act was taken on the basis of letter dated 11.4.2006 furnished by the assessee which also refers to the earlier letter dated 1.4.2006 furnished by the assessee. In such circumstances, once the Assessing Officer himself admits that the initiation of proceedings was based on the letter furnished by the assessee, it cannot be validly suggested that the declaration of income by the assessee vis-a-vis the Income Tax Department was not voluntary. The case made out by the revenue against the assessee was that a criminal case was registered, vide FIR No. FIR RC-DAI/2006-A-0006 dated 6.3.2006, under the Indian Penal Code and the Prevention of Corruption Act against unknown officials of NTPC of India and others. It is seen that FIR filed on 6.03.2006 has absolutely no connection with receipts received by the assessee company in the year under consideration but to receipts for the Assessment Year 2006-07 which were duly declared in the original return for Assessment Year 2006-07. This aspect has not been disputed by the revenue in these appeals. Para 2.7 and 2.8 of the aforesaid FIR state as under:
“2.7 That it is further alleged that there were technical objections in respect of the bid of M/ s. FGUP WO’ TPE but the contract was still awarded to M/ s FGUP WO’ TPE. It is also reliably learnt that in consideration of the award of contract to M/ s FGUP WO’ TPE, certain officials of NTPC by abusing their official position received illegal gratification/ kickbacks in excess of US$ 20 million from M/ S FGUP WO’ TPE’ which have been paid into the bank account of Ravina Associates in United Kingdom in 2005. Reliable information exists that the said bank account is being maintained and operated in United Kingdom directly/ indirectly by certain persons for the benefit of accused public servants in India/ others.
2.8 That Interpol-London vide their message dated 1-2-05 informed Interpol-New Delhi that in May, 2005 on account held by Ravina Associates received a deposit in excess of US$ 20 million from a Russian Entity TPE. The deposit was payment for assisting TPE in obtaining a contract with Indian National Thermal Power Corporation for a Super Thermal Power Project in Barh region and that the details could be made available subject to a formal request. It was further informed that the funds were available for restraint if sought and the account details would be provided to the relevant United Kingdom Authority upon receipt of a formal request.”
6. A perusal of the above shows that this FIR was in respect of a contract between M/s National Thermal Power Corporation (hereinafter referred to as `NTPC1 and M/s TPE, Moscow and had nothing to do with the receipts received by the assessee and declared as income in the returns of income for the instant year.
7. It has been submitted by the Ld. AR that though the FIR was filed on 6.3.2006, the assessee became aware of the same only on 2.5.2006, on receipt of a fax from Central Confiscation Branch, Crown Prosecution Service, London. It has also been submitted that, prior thereto, the assessee had only received on 29.04.2006, a letter from the Natwest bank dated 25.04.06 in the case of M/s Ravina 86 Associates P. Ltd., wherein they had intimated that operations in the bank accounts of the assessee and M/s Ravina 86 Associates P. Ltd. had been temporarily `suspended’ on account of restraint order served on the bank on 20.04.2006. It has been further contended that it was only after discussion with Sh. Ram Jethmalani, Senior Advocate in February 2006, that the assessee came to know of its obligation under the statutory provisions of the Act and, tax liability on such income. The learned counsel of the appellant has also vehemently submitted that, once the assessee came to know of its liability to tax, it voluntarily approached the revenue authorities. Letters dated 27.02.2006 and 6.03.2006 written by assessee to Shri Girish Shukla, Advocate, were also highlighted. In the letter dated 27.2.2006, it has been stated as under:
“Dear Mr. Shukla,
As explained to you on the phone I am sending all the relevant papers relating to my company’s tax assessment. When I discussed my Russian business with our family friend Mr. Ram Jethmalani I was quite shocked to learn that my foreign exchange earnings are also liable to taxation in India.
He has advised me to see you and advice a proper return and discuss my tax liabilities. Most of the income is derived in the current year that should present no problem as far as I understand.
The much smaller amount is earlier and kindly do whatsoever is required to be done under the law to regularize the income.
8. It has also been submitted that the assessee had approached the bank several times since March 2006 i.e. on 6.03.2006 28.03.2006, 30.03.2006 12.04.2006, 13.04.2006, 19.04.2006, 22.04.2006 and 25.04.2006 for the closure of the bank accounts, obtaining the bank statements and remitting the funds to India. The submission was that letters addressed to the bank in March 2006 were only as a result of the discussions held by the assessee with the Advocate in February 2006 who apprised them of the liability to pay tax in respect of the sums credited in the Natwest Bank account at London. In light of the aforesaid, it has been argued that the income was voluntarily offered firstly vide letters dated 01.04.2006 and 11.04.2006 and thereafter in the returns of income. The Ld. counsel for the assessee has further submitted that the belief of the assessee was bona fide is evident from the fact that sums received outside India from the foreign entities were not disclosed in preceding assessment years and such receipts have not been disclosed as income in the instant year. It has, thus, been claimed that it is a case of ignorance of law till 1.4.2006 and, once the assessee came to know of its liability to tax, the assessee voluntarily and, on its own provided the particulars of income.
9. It has also been argued that during the assessment proceedings, the assessee, vide reply dated 12.07.2007, had specifically requested the Assessing Officer that voluntary disclosure was not in consequence of action taken by the CBI but on account of legal opinion obtained from Shri Girish Shukla and Sh. Ram Jethmalani which fact was also stated in the letter dated 1.4.2006 and it was contended that no material rebutting the above explanation has been placed on record by the revenue. The revenue, in the appellate proceedings either before the Ld. CIT (A) or before us, has not placed on record any material to rebut the aforesaid specific evidences placed on record to support the claim that the disclosure was voluntary in as much as it was on account of the letters dated 1.4.2006 and 11.4.2006 that the action had been taken against the assessee to assess the income disclosed in the said letters by the Assessing Officer. The fact of the FIR filed on 6.3.2006 has not been shown in any manner to be in the knowledge of the assessee by any evidences placed on record. It is our considered opinion that a mere hypothetical assumption, that since the date of FIR is 6.3.2006 and letters were furnished by the assessee on 1.4.2006 and 11.4.2006, cannot be a ground to assume to the contrary. It is well settled position of law that suspicion, howsoever strong, cannot partake the character of evidence. The Hon’ble Supreme Court in the case of Uma Charan Shaw 86 Bros. Co. v. CIT reported in 37 ITR 271 (SC) has held as under:
“Taking into consideration the entire circumstances of the case, we are satisfied that there was no material on which the Income-tax Officer could come to the conclusion that the firm was not genuine. There are many surmises and conjectures, and the conclusion is the result of suspicion which cannot take the place of proof in these matters. It was contended that there were three orders, viz., the order of assessment, the order under section 25A and the one under section 26A, and merely reversing the order under section 26A cannot be of any consequence particularly as the order under section 25A stands. We are not concerned in these appeals in deciding what advantage will accrue to the appellant firm. That is its look-out, and we do not, therefore, accept the argument.
The result is that the order of the Appellate Tribunal is reversed. The firm shall be registered under section 26A of the Act for the assessment year 1948-49. The appeal against the order of the High Court need not be considered, since it is not necessary to pass any orders thereon. There will be no order in that appeal.
10. Moreover, it is also pertinent to note that once there is no dispute as to the taxability of income, the issue becomes academic. However, since the same has been raised, the issue has been examined and is found as a matter of fact that the edifice of the present proceedings was communicated by the assessee and not by any other authority. In absence of any other communication having been placed on record, the reasons recorded clearly point out that action under section 148 of the Act was based on the communication by the assessee and claim of the assessee is tenable and has merit and, therefore, accepted as such. Having regard to the above, the grounds raised by the assessee are allowed.
11. Accordingly grounds nos. 1 to 1.4 raised in ITA No. 1004/Del/2011 for Assessment Year 2004-05 and ITA No. 1005/De1/2011 for Assessment Year 2005-06 are allowed.
