Case Law Details

Case Name : Mr. Hasmukh I. Gandhi Vs. Dy. CIT (ITAT Mumbai)
Appeal Number : ITA No. 2795 & 2796/M/2011
Date of Judgement/Order : 15/11/2017
Related Assessment Year : 2002- 03
Courts : All ITAT (4534) ITAT Mumbai (1485)

Mr. Hasmukh I. Gandhi Vs. Dy. CIT (ITAT Mumbai)

In this case Information was received by CBDT from German Authorities about bank account held by a trust named as Manichi Trust where economically beneficial ownership of the assets is of the appellant and his family members. Specific details such as date of birth, residential address, nationality, domicile etc., were available with the bank authorities. The summary of account as on 31.12.2001 also showed that the interest income had accrued on the deposits made in the said bank account. All these information was duly provided to the assessee during the course of assessment proceedings for assessment year 2002-03 by the Assessing Officer.

On these facts, the assessment was reopened and the Assessing Officer made addition for the interest accrued on those bank deposits.

ITAT held that Once it is settled that the assessee is having sums deposited in the foreign bank account, it was incumbent upon the assessee to disclose the same in the subsequent years, unless the assessee produces necessary evidence that the afore-said deposit has been liquidated. Thus, once the Assessing Officer has come to the possession of the information that the assessee is beneficiary of deposits in foreign bank accounts and from the return of income filed by the assessee, the Assessing Officer notices that the interest from the said deposit in accounts has not been disclosed in the return of income, the reopening of the case is duly justified. The computation and assessment of interest is reasonable and justified.

Full Text of the ITAT Order is as follows:-

These are appeals by four assessee’s against the orders by the Commissioner of Income Tax (Appeals), Mumbai (‘CIT(A)’ for short) for the concerned assessment years. Since the issues are common, the appeals were heard together. These have been consolidated and disposed of together for the sake of convenience.

ITA Nos. 2795 to 2798/Mum/2011 (Assessment Year 2002-03)

2. These appeals by the four assessee’s are against the respective orders of the ld. CIT(A), pertaining to assessment year 2002-03, wherein reopening as well as merits of the addition regarding deposits in the foreign bank account have been challenged. The grounds are common except for the change in amounts involved. For the sake of reference, the grounds of appeal from ITA No. 2795/Mum/2011 are being referred as under:

1. The learned CIT (Appeal) has erred in law and on sustaining the order of the A. O. reopening the assessment u/s. 147 of the Income Tax Act.

2. The learned CIT (Appeal) has erred in law and on the facts or sustaining the addition of Rs. 37,67,807/- without appreciating the fact that the A. O. had no authentic material before him relating to the trust, trustee, settlor, beneficiaries, whether the trust is specific or discretionary and dates of deposit in the bank account.

3. Without prejudice to Ground No. 2,

(a) The learned CIT (Appeal) has erred in law and on the facts of the case in sustaining the addition of Rs. 37,67,807/- as income of the assessee without appreciating the fact that having relied on unauthenticated documents, the trust was not created during the year and that there were no deposits or withdrawals in the bank account during the year.

(b) The learned CIT(Appeal) has erred in law and on the facts of the case in sustaining the addition of Rs. 37,67,807/- as income of the assessee and resorting to provisions of section 166 of the Act without appreciating the fact that no income has been distributed to and received by the assessee during the year.

(c) The learned CIT(A) has erred in law and on the facts of the case in holding that the trust was created on 30th May, 2001 although as per the unauthenticated documents furnished by the assessing officer the trust was formed on 10th December, 1993 as mentioned in Para 9 of the CIT(A)’s order.

ITA Nos.5000/M/2016, 4997/M/2014, 5003 & 5006/M/2014 (Assessment Year  2005-06)

3. These appeals by the four assessee’s are against the respective orders of the ld. CIT(A), pertaining to assessment year 2005-06, wherein reopening as well as merits of the addition on account of interest on deposits in foreign bank account have been challenged. The grounds are common except for the change in amounts involved. For the sake of reference, the grounds of appeal from ITA No. 5000/Mum/2016 are being referred as under:

1. The learned CIT (Appeals) has erred in law and on the facts of the case in sustaining the order of the Assessing Officer reopening the assessment u/s. 147 of the Income Tax Act.

2. The learned CIT(Appeals) has erred in law and on the facts of the case in sustaining the order of the Assessing Officer in making an addition of Rs. 1,29,224/- on account of unaccounted interest income.

ITA Nos. 5001, 5002/M/2014,/M/2016, 4998 & 4999/Mum/2014 and 5004, 5005, 5007, 5008 & 4689/M/2014 (Assessment Years 2010-11 to 2012-13)

4. All other appeals for the concerned years are against the respective orders of the ld. CIT(A), pertaining to the merits of the addition on account of interest in foreign bank accounts. The grounds are common except for the change in amounts involved. For the sake of reference, the grounds of appeal from ITA No. 5001/Mum/2016 are being referred as under:

1. The learned CIT (Appeals) has erred in law and on the facts of the case in sustaining the order of the Assessing Officer in making an addition of Rs 48,552/- on account of unaccounted interest income.

ITA Nos. 2795 to 2798/Mum/2011 (Assessment Year 2002-03)

5. These appeals relate to foreign bank account found in LGT Bank, Liechtenstein in the name of Manichi Trust. Brief facts of the case are that the Assessing Officer received information that the assessee was beneficiary of Marnichi Trust, having account in LGT Bank, Liechestien. The information received also gave summary of the Bank statement of the said Trust as on 31.12.2001 in which the opening balance was US $ 309,154.74 and the accrued interest thereon was US $ 83.82. Since this information was not disclosed by the assessee in his Income-tax Return, the assessment was re-opened by issue of notice u/s. 148 on 3 0.03.2009 and was served on the assessee on 31.03.2009.

6. The assessee in response denied knowledge of any such trust. Subsequently, the Assessing Officer issued following show cause notice:

“The Income Tax Department had received information that you are a beneficiary of the bank account opened in the name of Marnichi Trust Vaduz in LTG Bank, Liechtenstien. The amount deposited in the bank or the benefits derived out of the interest accrued or otherwise on such deposit was no where reflected in your returns of income .Accordingly, this case was reopened u/s. 148 of the I.T. Act, 1961. This case was centralized in this circle vide order dated 8.9.2009 issued by CIT,(1 6), Mumbai. In response to this office notice dt30-03-2009 you had strongly denied any knowledge of any such trust and had categorically denied of receiving any benefit from such trust. The undersigned has information in my possession that you had deposited $ 3,09,154.74 in the name of Marnichi Trust Vaduz in LTG Bank, Liechtenstien during the period relevant to the assessment year 2002 – 03, I have further reason to believe that this amount is taxable in India due to the following reasons:

(a) The address given to the LTG Bank, Liechtenstien is 802, Citadel 18B, L. D. Ruparel Marg, Bombay 400006.

(b) The Nationality given to the LTG Bank, Liechtenstien is of India.

(c) The Country of domicile given to the LTG Bank, Liechtenstien is of India.

(d) No proof of this amount having been declared to any of the Revenue Authorities abroad has been furnished.

The above facts make it clear that you have no explanation to offer regarding the amount of $ 3,09,154.74 deposited in the name of Marnichi Trust Vaduz, in LTG Bank Liechtenstien for which you along with your other brother, and your parents were the sole beneficiary.

The LTG Bank, Liechtenstien is a bank which has been put under ,”Grey List” by Paris based Organization for Economic Cooperation and Development since 2007. The activities of LTG Bank, Liechtenstien are under the scanner of almost all the countries as this is considered as one of the safe uncooperative tax heavens along with Andorra and Monaco. The activities of LTG Bank, Liechtenstien which are downloaded from the website, are summarized as under:-

Background

Millions of Euros belonging to hundreds of citizens living in Germany were channeled into the LGT Bank and other banks in Liechtenstin, taking advantage of Liechtenstein-based trusts to evade paying taxes in Germany. According to the prosecutor’s office these trusts “have been created apparently only to evade paying taxes. According to the law in Liechtenstein, such trusts allow the separation of monetary assets from their owners and are kept anonymously. In contrast to trusts of most other countries, Liechtenstein trusts can be revoked at any time and the assets will be returned to the owner. Furthermore, such trusts as well as their maintaining shell entities are only charged 0.1% (minimum 1,000 Swiss francs) annually. Liechtenstein thus is known to be a tax haven.

Investigations

Germany

According to the lead prosecuting office responsible for economic crime in Bochum, which is supported by prosecuting offices in other towns as well as the criminal police, currently about 600 to 700 individual are suspected in the investigations. In addition, search warrants have been issued. An official confirmation about the total number of suspects and amount of money involved has not yet been issued. According to the prosecutors, current investigations provide a “very high level of evidence.”

The affair became known on February 14, 2008, when a raid was conducted against Klaus Zumwinkel, the chief executive of Deutsche Post AG, under the suspicion that he evaded about 1 million ($1.46 million) in taxes. Pressured by the government, Zumwinkel resigned from his position. Similarly a number of other individuals have been under investigation for months, and the appearance that the well to do have ways and means to evade the German tax laws has caused complaints about inequality.

According to a report by the Suddeutsche Zeitung, Heinrich Kieber, a bank computer technician, sold a CD with incriminating bank information to the Bundesnachrichtendiens (BND, English; Federal Intelligence Service), which handed the material over to the tax investigation office in Wuppertal. Kieber was paid $4.2 million by the Federal Ministry of Finance for the data on which the investigation is based. Facing death threats, the informant is currently in hiding and has asked for police protection. Kieber is wanted by Interpol. The Wall Street Journal indicated on February 19, 2008, the name of the informant who apparently lives now in Australia and had sold the data to tax ministries of a number of countries, including the USA.

Since February 18 a number of raids have been conducted in Hamburg, Munich, Frankfurt and other cities. Several banks were searched including Bankhaus Metzler, the Hauck & Aufhauser bank, Dresdner Bank, UBS in Munich and the Berenberg Bank in Hamburg. In the meantime revenue offices also noted a higher number of voluntary self incriminations this will avoid or reduce punitive damages – for possible tax evasions by people with financial assets in Liechtenstein.

While the BND received the data in 2006, the LGT group indicated that in 2002 secret information had been stolen but the informant had been caught and tried in 2003, and all material had been returned.

United States of America

The informant also had sold data to the government of the United States. After the affair broke open, Senator Carl Levin, chairman of a senate investigations committed, indicated his intention to probe to what degree American citizens have used the LGT Bank to evade his intention to probe to what degree American citizens have used the LGT bank to evade taxes. In July 2008 the U.S. Subcommittee determined that offshore tax haven supported tax cheats to the cost of about $100 billion per year for the U.S. taxpayer. Specifically mentioned were Switzerland UBS AG and Liechtenstein LGT Group. The report indicates that the LGT group contributed to a “culture of secrecy and deception” According to the report DBS holds 1,000 declared accounts versus 19,000 that are not declared to the IRS, The report recommended a number of steps including tighter regulations for financial institutions.

Other Countries

On February 24, 2008, it became apparent that secret bank information had also been sold to the British tax authorities and that about 100 individuals in the UK are at risk for investigations for tax evasion. The information also provided the governments of Australia, Canada and France with data. On February 26 it became known that the German Government was willing to share relevant data of the about 4,500 accounts with other governments; two third of these accounts belong to accounts of non-German individuals or entities, Fiscal authorities in Ireland, Finland, Italy, the Netherlands, Norway, Greece and Sweden indicated interest, and while the Danish government initially declined – it considered the material to have been stolen – it appears to have reversed its position. The governments of the Czech Republic and Spain have also announced investigations derived from Germany’s list. India, however, has thus far not considered Germany’s offer despite reports that many wealthy Indian citizens might have accounts in the bank.

The above activities of the LTG Bank, your heavy deposit in that bank goes to prove it beyond doubt that the Trust under the name and style of Marnichi Trust Vaduz has been incorporated in Liechtenstein only to stash your and your family members income from undisclosed sources in a safe uncooperative tax heaven outside India.

You are, therefore, requested to please explain as to why your share in the amount .3,09,154.74 deposited in LTG bank, Liechtenstein, in the name Marnichi Trust Vaduz a Trust of Vaduz during the period relevant to the assessment year 2002-03 may not be treated as investment out of undisclosed sources and added back to your income.

You are requested to personally appear on the next date of hearing as your statement is required to be recorded. Notice u/s. 142(1) and summons u/s. 131 of the I.T, Act, 1961 are enclosed for compliance . Copies of relevant documents are enclosed for your perusal.

7. In response, the assessee again denied any knowledge of the said trust and further wanted details of the trust from the Assessing Officer. The Assessing Officer was not convinced, he concluded as under:

The explanation offered by the assessee is considered carefully and is rejected. The assessee has not furnished any documentary evidence in support of statements made by him but has went on merely saying that he is not aware of any such Trust. The origin of the information and the various documents received by this office were duly given to the assessee and instead of commenting on the same he has went on merely denying the facts brought on record. In absence of any documentary evidence against the allegations made by the Department, I hold that the assessee along with his family members had made the deposit in the LGT Bank out of his Undisclosed Income in the name of the Marnichi Trust which he has deliberately not disclosed to the Indian Tax Authorities. In the circumstances, the amount of Rs. 1,50,71,294/- (being US $ 309,154.74 converted at Rs.48.75) was deposited by the assessee and his family members out of their Undisclosed Income. The assessee’s share is at 25% (in absence of any share allocation of the Trust available in this office) work out to Rs.37,67,807/- which is added to his total income.

8. Against the above order, the assessee is an appeal before the ld. CIT(A) challenging both the reopening as well as the merits of the case. As regards the reopening, the ld. CIT(A) confirmed the reopening by holding as under:

The first ground of appeal is against the reopening of the assessment by invoking the provisions of section 147 of the Income Tax Act, 1961. The appellant had not made any specific submissions on this issue except of relying on the decision of the Hon’ble Supreme Court of India in the case of Coca-Cola Export Corporation vs. ITO reported in 231 ITR 200 wherein it has been held that letters issued by Government of India limiting dollars remittances under provisions of Foreign Exchange Regulation Act, Income Tax Act and Foreign Exchange Regulation Act operates in different fields. And letters are not information in possession of ITO” for purposes of reopening income tax assessments.

The AO had reopened assessment for AY 2002-03 on March 30, 2009. This means that the assessment has been reopened within the time limit of 6 years from the end of the assessment year. The AO was in possession of fresh information which was very specific and hence the reopening of the assessment is upheld. The appellant has relied on the case of Coca-Cola Export (supra) to canvas the argument that simple letters cannot be information in the hands of the AO. In the case of Coca-Cola, the Government departments had written to the assessee imposing a bar on the foreign remittances. The Hon’ble Apex Court held that the bar is under FERA and not under the Income Tax Act and the excess remittances cannot be a ground for the AO to assume jurisdiction and hence that letter cannot be treated as information. The purport of that decision is that excess remittance is not affecting the income of the appellant and therefore the information should not be taken cognizance of by the AO. The AO has reopened the assessment u/s 147 of the Act on the basis of specific information received regarding the appellant. It was informed to the AO that the appellant is a beneficiary of Manichi Trust and the trust had deposits worth about Rs. 1,50,71,294/-. Apart from the appellant there are three other beneficiaries who are the family members of the appellant. The address of all the beneficiaries is same as that of the appellant in India. Hence, it was information that was specific and affecting the income of the appellant and the AO was correct in reopening the assessment of the appellant. The AO has reopened the assessment within six years from the AY and on the basis of specific information and therefore there is nothing wrong in it. Further, the original assessment was completed in summary disposal and there is no order u/s 143(3) of the Income Tax Act, 1961.

7. The appellant has relied on the case of Coca-Cola Export (supra). In that case, the Government authorities had written to the assessee itself debarring it from further remittances. This letter was in connection with the FERA. On the basis of this letter, the AO reopened the assessment. The Hon’ble Apex Court held in this regards that the letter was regarding the violation of FERA and not related to the Income Tax Act and neither affecting the income of the assessee and hence the AO was not correct in assuming jurisdiction on the basis of the said letter to reopen the assessment of the assessee. The present case is having altogether different facts. The department has received information which was specific to the appellant and related to the income that may not have been disclosed. Further, the original order was u/s 143(1) and the information pertaining to the appellant were specific and therefore, the AO was correct in reopening the assessment u/s 147.

9. As regards the merits of the addition, the ld. CIT(A) confirmed the same also. The ld. CIT(A) wherein observed as under:

The AO had received specific information regarding the undisclosed income of the appellant in the form of the summary of the bank statement of the Trust in which the appellant is the beneficiary. The bank summary stated that the name of the trust is Manichi Trust. The beneficiaries are four individuals viz.,

  • Hasmukh Gandhi
  • Madhu Gandhi
  • Nirav Gandhi
  • Chintan Gandhi

All the above four individuals are residing at 802, Citadel, 18-B, L D Ruparel Marg, Malabar Hill, Mumbai – 400 006. This information received by the AO matches completely with that of the appellant. The date of forming the trust was 10/12/93. The status of the account is ‘active’. The bank account no of the Trust is 0145733. The entire information available with the AO was provided to the appellant.

The AO made the addition since the appellant has not produced any documentary evidence to the contrary. There is no doubt that the information pertained to the appellant and his family members about they being beneficiaries of Manichi Trust.

The summary of the bank statement of the said Trust as on 31.12.2001 indicates that the opening balance was US$ 309,154.74 and the accrued interest thereon was US$ 83.82. There is no mention of any debits or credits during the year except for the interest portion. This shows that the account is still active and since the names of the appellant have been mentioned therein, there is no doubt that the amount credited is appellant’s income.

The bank documents bear the signature of the trustees and hence the same are genuine. These documents bear the correct name, address and date of birth of the appellant. The document shows that the trust was created on May 30, 2001 which indicates that the same was in Financial Year April, 2001 to March 31, 2002 which pertains to Assessment Year 2002-03 which is incidentally, the correct year for which the assessment has been framed by the AO. Even if the appellant has denied any knowledge of the trust or has not traveled to that area, the appellant cannot explain how a trust was created wherein he and his family members were made the beneficiaries. The misspelling in the name of the son could be a typographical error and has no particular relevance as the address has been correctly mentioned for the person.

The argument that the beneficiaries cannot be assessed directly is incorrect and it is necessary to quote section 166 here which reads as under:

“DIRECT ASSESSMENT OR RECOVERY NOT BARRED

Nothing in the foregoing sections in this Chapter shall prevent either the direct assessment of the person on whose behalf or for whose benefit income therein referred to is receivable, or the recovery from such person of the tax payable in respect of such income.”

The section does not debar the department from making direct assessment of the appellant and hence even on this account the argument of the appellant fails.

In view of the above, the stand of the AO is upheld and the grounds of appeal of the appellant are dismissed.

10. Against the above order, assessee’s are in appeal before us.

11. We have heard both the ld. Counsel and perused the material on record. The ld. Counsel of the assessee submitted that the information received in this case is as on 31.12.2001 which falls prior to the previous year involved. The only information Assessing Officer has is that the assessee is a beneficiary of a Trust which has a bank account in LGT Bank, Liechtenstein. Merely on this information, the Assessing Officer has jumped and concluded that the beneficiary has contributed in the said bank account. The ld. Counsel of the assessee submitted that the time limit of section 149(1)(b) for reopening where only addition for interest is involved, is violated. The Counsel referred to the case laws for the proposition that the reopening should be based upon the reason to believe and not reason to suspect. The ld. Counsel of the assessee further submitted that it is the discretionary trust and not a specified trust. In this regard, he referred to the Hon’ble Supreme Court decision in the case of ITO vs. Lakhmani Mewal Das (1976) 103 ITR 437 (SC). The ld. Counsel of the assessee submitted that any liability in this regard should be fastened on the settler and not the assessee. The ld. Counsel referred to the Hon’ble Bombay High Court decision in the case of Joshi & Dattaram Shridhar Bhosale Vs. ITO & Anr. 324 ITR 154 (Bom). He submitted that this decision was rendered after considering the decision of CIT(A) Vs. Rajesh Jhaveri Stock Brokers P. Ltd, 291 ITR 500 (SC). He further referred to the decision of Hon’ble Bombay High Court in the case of Khubchandani Healthparks Pvt. Ltd. vs Income Tax Officer (2016) 384 ITR 322 (Bom.).

12. On merits, the ld. Counsel of the assessee further submitted that this is not a case of any whistle blower, but a case where certain data were stolen and on the basis of this stolen data, the assessee has been held to be liable for the deposit in the bank account. The ld. Counsel further referred that the Assessing Officer is not sure about the currency, sometimes he mentions Euro, and sometimes he mentions US Dollars. He further submitted that the information about the balance was as on 31.12.2001. Whether this amount was subsequently lying in the bank account is a matter of doubt. The ld. Counsel of the assessee further submitted the case laws from India regarding taxation of trust’s income. He referred to specified trust and discretionary trust and submitted that only trustees can be taxed. In this regard, he placed reliance upon the decision of Hon’ble Apex Court in the case of Estate of Late HMM Vikramsinhji of Gondal reported in (2014) 363 ITR 679 (SC). The ld. Counsel submitted that section 166 of Income Tax Act, 1961 has no impact. For this, he refers to Hon’ble Supreme Court decision in the case of Vimal Chandra Golecha vs. ITO [1982] 134 ITR 119 (Raj). The ld. Counsel of the assessee further sought to distinguish the decisions of this Tribunal in the case of Shri Ambrish Manoj Dhupelia and others (in ITA Nos. 5720 to 5729/Mum/2016 and 5751 & 5752/Mum/2016 vide order dated 23.10.2017). He submitted that in this case detail of settler and Trust deed are there, but this is not the present case. The ld. Counsel of the assessee submitted that on similar issue in the case of such deposits in foreign bank account, the ITAT Delhi Bench and ITAT Kolkata Bench had remitted the matter back to the file of the Assessing Officer with certain directions. Hence, the ld. Counsel of the assessee submitted that the addition in this case be either deleted or set aside to the file of the Assessing Officer for further investigation.

13. The ld. Counsel for the Department, on the other hand, submitted that at the stage of reopening, the Assessing Officer need not conclusively prove that there has been concealment on the part of the assessee. He submitted that the Assessing Officer only needs to have a reason to believe. In this case, data were obtained from the sovereign government of Germany from the employee of the LGT Bank, Leichtenstein. This information was passed on to the sovereign government of India. Thereafter, the said information comes into the possession of Central Board of Direct Taxes and, thereafter, to the assessing officer. In this regard, the ld. Counsel of the department submitted that the confidential report containing confidential documents are available. He produced the same for the verification of the Bench. We have gone through these documents. The ld. Counsel of the assessee took objection that the Bench cannot rely on any document which is not confronted to the assessee. However, on going through the records, we find that the copy of the relevant documents have already been provided to the assessee. Hence, this objection of the assessee is not sustainable. The ld. Counsel for the Department submitted that identical issue was considered in the case of Shri Ambrish Manoj Dhupelia and others (supra). This tribunal has upheld the action of the Revenue. The ld. Counsel of the assessee further submitted that the decision referred by the ld. Counsel of the assessee from the ITAT Delhi Bench and ITAT Kolkata Bench were rendered without considering this order of the ITAT, Mumbai in the case of Shri Ambrish Manoj Dhupelia and others (supra), which was available at that time. The ld. Counsel of the department further submitted that the decision from Hon’ble Apex Court relied upon by the ld. Counsel of the assessee regarding taxation of Trust are not applicable in the present case. The decisions of the Hon’ble Apex Court were rendered in the case of Trust, operating under Indian Tax Laws. He submitted that the Trust of Leichtenstein are different, being different governing rules and laws distinct from that in India.

14. We have carefully considered the submissions of the ld. counsels and perused the records. We find that the identical issues were considered by this Tribunal (Mumbai bench) in the case of Shri Ambrish Manoj Dhupelia and others (supra). We further note that the ITAT Kolkata and ITAT Delhi Bench have also passed the orders on foreign bank accounts. However, we note that the above said decision of Mumbai Tribunal in the case of Shri Ambrish Manoj Dhupelia and others (supra) was available at the time of passing the order by the ITAT Kolkata and ITAT Delhi Benches. This is not disputed by the ld. Counsel of the assessee. The same were not considered in those tribunal decisions. The Hon’ble Apex Court in the case of Honda Siel Power Products Ltd. vs. CIT [2007] 295 ITR 466 (SC) has held that non consideration of the Co-ordinate Bench decision can render an order of the ITAT liable to mistake apparent from the record. Moreover, we note that appeal against tribunal decision in Dhupelia group case (supra) is lying before the Hon’ble Jurisdictional High Court. The Hon’ble Jurisdictional High Court has not yet reversed the said decision.

15. In light of the above, in our considered opinion, the doctrine of stare decisis mandates us to follow ITAT Mumbai Bench decision in the case of Shri Ambrish Manoj Dhupelia and others (supra). We find that the facts and circumstances as mentioned in the case of Shri Ambrish Manoj Dhupelia and others (supra) are identical to the present case. The confidential folder provided to us by the ld. Counsel for the Department also contained in the documents assessee’s names as well assessee’s in the case of Shri Ambrish Manoj Dhupelia and (supra). The distinction sought by ld. Counsel of the assessee being in the present case and the case of Dhupelia group is not sustainable as documents are similar. In the said decision of the tribunal in ITA Nos.3544, 3545 & 3546/Mum/201 1 for assessment year 2002-03 vide order dated 3 1.10.2014, the tribunal had upheld the reopening as well as the addition of the amount of deposit in the bank account in the hands of the assessee’s. The relevant portion of the order may be gainfully referred as under:

2.2. We have considered the rival submissions and perused the material available on record. Since identical facts/issues are involved and all the assessees are relatives, therefore, these appeals are being disposed of by this common and consolidated order. In the case of Shri Mohan Manoj Dhupelia the facts in brief are that the assessee filed return of income u/s 139(1) of the Act on 1st August 2002 showing total income of Rs. 1,97,650/-. Subsequently, information was received that the assessee is a beneficiary of Ambrunova Trust, having an account in Liechtenstein Bank. The said information contained summary of bank statement as on 31 / 12/2001 of the said trust in which there was a balance of US $ 24,06,604.90/-. This information was not disclosed by the assessee in the original return thus notice u/s 148 of the Act was issued on 26/03/2009. The assessee requested the revenue to treat the return already filed as having being filed in response to the notice issued and served u/s 148 of the Act. The assessee was also supplied with a copy of reasons recorded for reopening of assessment including English translation of the documents. The assessee also denied of any knowledge of trust by further claiming that he/she has not received any money. The AO found that the address/nationality, country of domicile was the same as of the assessee as mentioned in India in the return. However, the assessee did not provide any document in support of his statement that he is not connected with this trust. The AO added Rs.2,34,64,398 being 25% if his share out of Rs.1 1,73,31,988/-(i.e. US $ 24,06,604.90/- converted at 48.75%). We note that the assessment was reopened by the AO on the information received from LGT Bank regarding Ambrunova Trust in which the name of the assessee was appearing as a beneficiary. Before the ld. AO, it was contended by the assessee that the documents so received by the Department regarding the Trust (LGT Bank) are unauthenticated and unverified and thus reopening is incorrect. We have perused the documents. A permanent sub-committee on investigation (committee on homeland security and government affairs) was constituted by the United States Senate of which Mr. Caral Levin was the Chairman. We have also perused the documents provided by the ld Senior special Counsel (Tax Haven Bank Secrecy Tricks). As per Article 14 of the Banking Act (Liechtenstein Secrecy laws) the members of the organ of the Bank and their employees as well as other persons, acting on behalf of such banks, shall be obliged to maintain secrecy of facts that they have been interested too or have been made available to them pursuant to their business relations with clients. The obligation to maintain secrecy shall not be limited in time. These documents are available at pages from 1 to 15 of the paper book filed by the ld. Special Counsel. We are reproducing hereunder the exhibit list (Hearing) on Taxhaven Bank and US tax Compliance (July 17 and 25, 2008) for ready reference and proper conclusion.

United States Senate

PERMANENT SUB COMMITTEE ON INVESTIGATIONS

Committee on Homeland Security and Governmental Affairs

Carl Levin, Chairman

Norm Coleman,

Ranking Minority

Member

EXHIBIT LIST

Hearing On

TAX HAVEN BANKS

AND U. S. TAX COMPLIANCE

July 17 and 25, 2008

1. Marsh Foundations, chart prepared by the U. S. Senate Permanent Subcommittee on Investigations.

2. Wu Foundation, chart prepared by the U. S. Senate Permanent Subcommittee on Investigations.

3. Greenfield Foundation, chart prepared by the U. S. Senate Permanent Subcommittee on Investigations.

4. Laity Foundation, chart prepared by the U. S. Senate Permanent Subcommittee on Investigations.

5. Statement of former LGT Treuhand employee, formerly known as Henrich Kieber.

6. Liechtenstein warrant for the arrest of Henrich Richer.

DOCUMENT RELATING TO MARSH ACCOUNTS:

6. Letter of wishes, Lincol Foundation, October 15, 1985.

7. LGT receipt for US $3,310,700 cash from Lincol Fondation, dated October 15, 1985.

8. Handwritten letter signed by Shannon N. Marsh to Mr. Alvate, to give Kerry M. Marsh permission to review all documents and receipts pertaining to Lincol Foundation and Chateau Foundation, dated May 23, 1992.

9. Instructions signed by Shannon Neal Marsh, empowering Marsh family members to act as principals for Lineal Foundation, dated November 17, 1993.

10. Correspondence from James A. Marsh, Jr. to Peter Meier, LGT, dated October 4, 1994, re: Lincol and Chateau.

11. Letter of wishes, Lincol Foundation and Foundation Chateau, October 11, 2000

12. LGT Memorandum to File about Lincol and Chateau Foundations, dated February 7,2002.

13. Deed of Signature accepting appointment as Protector of the Chateau Foundation, signed by Kerry Michael Marsh, Shannon Neal Marsh, and James Aibright Marsh, Jr. and Deed of Appointment of Successors.

14. Resolution, The Foundation Board of Foundation CHATEAU, indicating the inventory of assets and liabilities at 31. December 2000 showing a total of USD 10’O15’623,50, dated September 12, 2001

15. Letter from James A. Marsh to LGT, dated November 10, 2004, granting LGT all administrational and management activities for Foundation

16. Correspondence from Shannon Neal Marsh to Members of the Foundation Council of Chateau Foundation, dated November 4, 2004, re: appointment of members of the Foundation Council of Chateau Foundation.

17. Excerpt from 2006 Income Tax Returns, Estate of James A. Marsh.

18. Three letters from Baker & McKenzie LLP (Marsh Family attorney) to the Internal Revenue Service, dated May 12,2008, forwarding amended returns for foreign income and foreign bank and financial accounts for calendar years 2002-2006.

DOCUMENTS RELATING TO WU ACCOUNTS:

19. WT report on JCMA Foundation, dated June 27, 2002.

20. Declaration of Trust between Cobyrne Limited and JCMA Foundation, dated October 1, 1996.

21. New York City property records, recording sale of Forest Hills, NY home of William S. Wu to TM Lung Worldwide, Ltd, dated January 21, 1997.

22. LGT Memorandum by Kim Choy regarding JCMA Foundation, dated June 26, 2002.

23. Documents regarding withdrawal of$1 00,000 by JCMA Foundation/william Wu from LGT through HSBC Hong Kong and Shanghai Banking Corp. Hong Kong, June 2002.

24. Excerpt from Resolution, The Foundation Board of JCMA Foundation, indicating statement of assets asper3l December2001 in the total amount of USD 283,4 73 .49. dated February 7, 2002.

25. Excerpt from Resolution, The Foundation Board of JCMA Foundation, indicating inventory of assets and liabilities at 31 December 2003 showing a total of USD 2.1 7Z145.9 7, dated March 10, 2004.

26. Excerpt from Resolution of the Foundation Board of JCMA Foundation, showing assets as per 31 December 2004 amount to USD 1,202,636.25, dated February 13, 2006.

27. Excerpt from Resolution of the Foundation Board of JCMA Foundation, showing assets as per 31 December 2005 amount to USD 1,188,957.64, dated March 30, 2006.

28. Excerpt from Resolution of the Foundation Board of JCMA Foundation, showing assets as per 31 December2006 amount to USD 422,249.10, dated April 18, 2007.

29. WI report on Veline Foundation after a March 27, 2000, client visit.

30. Statement of asset as per 31.12.2000, Veline Foundation, dated February 5, 2001.

31. Bearer Share Certificate, Manta Company Limited, dated September 3,1997.

32. Handwritten organizational chart showing Veline Foundation ownership of corporations and property, undated

DOCUMENTS RELATED TO LOWY ACCOUNTS:

33. LGT Memorandum for the Record, dated November26, 1996, memorializing a November 21, 1996, Meeting in Sydney regarding Westflelds, Adelphi, Crofton between LGT and Frank Lowy, David Lowy, David Gronski and Joshua Gelbard.

34. LGT Memorandum for the Record, dated November 27, 1996, regarding New Establishment Westfield/Lowy.

35. LGI Note for File, dated December 17, 1996, regarding telephone conversation with Frank Lowy and Joshua Gelbard regarding Westfields, Adelphi, Crofton.

36. LGT Memorandum for the Record, dated January 23, 1997, regarding January 20, 1997 meeting in Los Angeles between LGT and Frank Lowy, David Lowy, and Peer Lowy regarding Westfield/Lowy Family.

37. LGT Memorandum for the Record, dated March 4, 1997, regarding March 3, 1997, phone call with Peter Widmer regarding March 12, 1997 meeting in London with F.L. and J. Gelbert, the definitive structure as well as the asset transfer is to be discussed.

38. Correspondence from J.H. Gelbard to WI, dated March 12, 1997, regarding formation of a Foundation by the name of Luperla Foundation.

39. WI Memorandum for the file, dated March 13, 1997, regarding March 12, 1997, meeting in London between LGT and Frank Lowy and Josua Gelbard.

40. LGT Memorandum for the Record, dated March 16, 1997, regarding March 12, 1997 meeting in London with F.L. regarding Luperla Foundation,

41. Regulations, Luperla Foundation, Vaduz, dated April 30, 1997.

42. LGT Memorandum for the Record, dated May 2, 1997, regarding April 30, 1997, meeting in the Hotel Savoy, Zurich between LGT and Frank Lowy and J.H. Gelbard.

43. LGT Memorandum for the File, dated May 14, 1997, regarding Luperla Foundation, Valuz.

44. LGT Memorandum for the File, dated October 23,1997, regarding Luperla Foundation/Swell Service Ltd. B. V.I.

45. LGT Memorandum for the file, dated January 29, 1998, regarding January 28,1998, meeting in Bendern with Peter Widmer regarding Luperla Foundation, Vaduz (“Luperla ”).

46. Memorandum for the File, dated June 26, 2001, regarding Luperla

47. Memorandum for the File, dated July 16, 2001, regarding Luperla Foundation, Valuz.

48. Memorandum for the File, dated December 17, 2001, regarding Luperla Foundation, Valuz.

49. Memorandum for the File, dated December 18, 2001, regarding Luperla Foundation, Valuz.

50. Memorandum for the File, dated December 20,2001, regarding Luperla Foundation, Valuz.

51. Documents regarding Beverly Park Corporation.

52. IRS Information Document Requests (IDR) regarding Beverly Park Corporation.

53. State of Delaware, Division of Corporations, Entity Details for Beverly Park Corp., listing Incorporation Dates of December 17, 1991, and January 3,

DOCUMENTS RELATING TO GREENFIELD ACCOUNTS:

54. LGT Memorandum for the Record, dated March 27, 2001, memorializing a March 23, 2001 meeting regarding Maverick Foundation between LGT and Harvey and Steven David Greenfield.

55. WI Summary of Maverick Foundation as of December 31, 2001, dated January 1, 2002.,

56. LGT report on Maverick Foundation, undated.

57. LGT report on TSF Company Limited, undated.

58. LGT report on Chiu Fu (Far East) Limited, undated.

59. LGT Background Information/Profile for Maverick Foundation, dated October 12, 2001.

60. LGT Background Information/Profile for TSF Company Ltd., BVI, dated December 20, 2001.

DOCUMENTS RELATING TO GONZALEZ ACCOUNTS:

61. Foundation Tragique flow chart, undated.

62. LGT report for Tragunda Foundation, dated December 3, 2001.

63. LGT Background Information/Profile for Auto and Moteren [Motors] dated October 3, 2001.

64. LGT report on Asmeral Investment Anstalt.

65. LGT Memorandum for the File, dated September 11,2001, regarding Foundation Tragique.

66. Stiftung flow chart, undated.

67. LGT Background Information/Profile for Foundation Tragique, Vaduz, dated December 18, 2001.

68. LGT Background Information/Profile for FIWA AG, Vaduz, dated December 10, 2001.

DOCUMENTS RELATING TO CHONG ACCOUNTS:

69. LGT Background Information/Profile on Yue Shing Tong Foundation.

70. Documents related to Apex.

71. Communication between Chong and Chalet [Silvan Golanti at LGT], February – March 2008, regarding disclosure of LGT accounts.

DOCUMENTS RELATING TO MISKIN ACCOUNTS:

72. Declarations of Michael Miskin, dated 2003.

73. Declarations and court pledings of Stephanie Miskin, dated 2003.

74. LGT Memorandum for the Record, dated, June 30,1 998~ regarding New Establishment Michel Misken.

75. Michael Misken Letter of Wishes with respect to the assets of Micronesia Foundation, dated July 28, 2000.

76. LGT report on Micronesia Foundation.

77. LGT/ Michael Misken receipt for wire transfer of GBP 3,650,314.00, dated October 21,1998.

78. Fax from Thoams Lungkofler/LGT to Michael Misken, dated February 2 7,2002, regarding tax situation in the US-area.

ADDITIONAL DOCUMENTS RELATING TO LGT:

79. Documents related to Sera Financial Corporation.

80. Documents related to Jaffra Development Inc.

81. Documents related to Sewell.

82. Excerpt from presentation related to LGT and the Qualified Intermediary (QI) Program.

83. Documents related to LRAB Foundation.

DOCUMENTS RELATED TO UBS:

84. Wealth Management and Business Banking, Client Advisor’s Guidelines For Implementation and Management Of Discretionary Asset Management Relationship With U.S. Clients (2002).

85. Cross-Border Ban king Activities into the United States (version November 2004)

86. Restrictions on Cross-Border Banking and Financial Services Activities. Country Paper USA (Effective Date June 1, 2007), prepared by UBS.

87. Excerpt of Key Clients in NAM, Business Case 2003-2005.

88. Correspondence of UBS to Clients dated November 4,2002, We are writing to reassure you that your fear is unjustified and wish to outline only some of the reason why the protect ion of client data cannot possibly be compromised …. UBS’s entire compliance with its QI obligations does not create the risk that his/ her identity be shared with U.S. authorities.

89. Martin Liechti (Head of UBS Wealth Management Americas) email, January 2007, regarding net new money goal and Year of the Pig.

90. Referral Campaign BU Americas, June 2002 (Swiss watch await!).

91. Overview Figures North America, prepared by UBS.

92. Case Studies Cross-Border Workshop NAM.

93. UBS Memorandum, dated November 15, 2007, re: Changes in business model for U.S. private clients.

94. Talking Points for Informing U.S. Private Clients With Securities Holdings About The Realignment Of Our Business Model Plus Q&.A.

DOCUMENTS RELATED TO OLENICOFF:

95. Statement of Facts, United States of America vs. Bradley Birkenfelc4 dated 2008.

96. Plea Agreement For Defendant Igor hi Olenicoff, dated 2007.

97. Emails between Birkenfeld/Olenicoff, dated July2001, re: Meeting in California.

98. Correspondence of Igor Olenicoff, dated October2001, re: Guardian Guarantee Co. Ltd.

99. Email between Staggl/Olenicoff, dated January2002, re: Structure.

100. UBS documents related to opening of account for Guardian Guarantee Company, Ltd.

101. Emails related to Liechtenstein trust and a Danish Corporation.

102. Fax from Olenicoff to Birkenfeld, dated December 2001, re: Structure.

103. Emails dated April 2002, re: transferring U.S. securities to a Liechtenstein account.

OTHER DOCUMENTS:

104. Tax Haven Bank Secrecy Tricks, chart prepared by the U. S. Senate Permanent Subcommittee on Investigations.

105. Liechtenstein Secrecy Laws, chart prepared by the U. S. Senate Permanent Sub-committee on Investigations.

106. Letter from Baker & McKenzie LLP (Marsh Family attorney) to the Permanent Subcommittee on Investigations, dated July 15,2 008, with clarification.

107. Statement for the Record of the Australian Taxation Office.

ADDITIONAL DOCUMENTS RELATED TO LOWY ACCOUNTS:

108. LGT report on Luperla Foundation.

109. LGT Background Information/Profile for Luperla Foundation, dated December 7, 2002.

110. LGT Statement of Account for Luperla Foundation, dated December 29, 2001.

111. LGT Memorandum for the Record, dated April 10, 2002, regarding retroactive dissolution of Luperla Foundation.

112. Letter to Peter Lowy from Leon C. Janks, dated December 13, 2001, enclosing four original documents related to Beverly Park Corporation.

113. a. Contract For The Purchase And Sale of Real Estate, sale by West Park Avenue Corporation to Beverly Park Corporation, March 1997.

b. Beverly Park Corporation Guest Log, Beverly Hills House and New York Condo, July 1999-May 2000.

114. Hidden Money Trail, chart prepared by the U. S. Senate Permanent Subcommittee on Investigations.

Tax Haven Bank Secrecy Tricks

  • Code Names for Clients
  • Pay Phones, not Business Phones
  • . Foreign Area Codes
  • Undeclared Accounts
  • Encrypted Computers
  • Transfer Companies to Cover Tracks
  • Foreign Shell Companies
  • Fake Charitable Trusts
  • Straw Man Settlors
  • Captive Trustees
  • Anonymous Wire Transfers
  • Disguised Business Trips
  • Counter-Surveillance Training
  • Foreign Credit Cards
  • Hold Mail
  • Shred Files

Liechtenstein Secrecy Laws

Article 14 of the Banking Act: “The members of the organs of banks and their employees as well as other persons acting on behalf of such banks shall be obliged to maintain the secrecy of facts that they have been entrusted to or have been made available to them pursuant to their business relationships with clients. The obligation to maintain secrecy shall not be limited in time.”

Article 11 of the Trustee Act “Trustees are obliged to secrecy on the matters entrusted to them and on the facts which they have learned in the course of their professional capacity and whose confidentiality Is in the best interest of their client. They shall have the right to such secrecy subject to the applicable rules of procedure in court proceedings and other proceedings before Government authorities.”

Article 10- Data Confidentiality: ‘Whoever processes data or has data processed must keep data from applications entrusted to him or made accessible to him based on his professional activities secret, notwithstanding other legal confidentiality obligations, unless lawful grounds exist for the transmission of the data entrusted or made accessible to him,

Processing of Personal Data – § 1173., Art. The AB~ (General CMI Code): “The employer may not process data relating to the employee unless such data concern his or her qualification for the employment or are indispensable for the performance of the employment contract. In addition, the provisions of the Data Protection Act shall apply.”

Article 8-Transhorder Data Flows: “No personal data may be transferred abroad If the personal privacy of the persons affected could be seriously endangered, in particular where there is a failure to provide protection equivalent to that provided under Liechtenstein law. This shall not apply to states which are party to the EM Agreement.; whoever wishes to transmit data abroad must notify the Data Protection Commissioner beforehand in cases where: a) there Is no legal obligation-to disclose the data and b) the persons affected have no knowledge of the transmission.”

Prohibited Acts of a Foreign State –Art. 2 of the Liechtenstein State Security Law: “prohibited Acts for a Foreign State: Whoever, without being authorized, performs acts for a foreign state on Liechtenstein territory that are reserved to an authority or -an official, whoever aids and abets such acts, shall be punished by the Liechtenstein court (Landgericht) with imprisonment up to three years.”

Prohibited Acts for a Foreign State — Art. 271 of the Swiss Penal Code:

“Whoever, without being authorized, performs acts for a foreign state on Swiss territory that are reserved to an authority or an official, whoever performs such acts for a foreign party or another foreign organization, whoever aids and abets such acts, shall be punished with Imprisonment up to three years or a fine, in serious cases with imprisonment of no less than one year.”

Economic Intelligence Service (Art. 273 SPC): ‘Whoever seeks out a manufacturing or business secret in order to make it accessible to a foreign official agency, a foreign organization, a private enterprise, or their agents, whoever makes a manufacturing or business secret accessible to a foreign official agency, a foreign organization, a private enterprise, or their agents, shall be punished with imprisonment upto three years or a fine, in serious cases with imprisonment of no less than one year. Imprisonment and fine can be combined.”

6. The scope and impact of the LGT tax Investigation and any lessons learned

Tax Office Strategy

The ATO is investigating the use of Liechtenstein entities and bank accounts in collaboration with other revenue agencies. In Australia, we are conducting 20 tax audits which are likely to raise tax liabilities In excess of $100 million. Anecdotal information suggests that relatively few Australians are involved in Liechtenstein arrangements relative to citizens from other countries.

Liechtenstein -The ATO is currently reviewing the taxation affairs of Australian taxpayers who appear to have concealed income in offshore entities located hi banking secrecy jurisdictions and tax havens. ~M have a particular focus on taxpayers who have used the services of the LGT Group and Its trustee entity, LGT Treuhand Aktiengesellschaft in Vaduz. Liechtenstein (LGT.)

  • LGT Treuhand A. O. operates a fiduciary or trustee service and establishes and administers legal entitles such as anstalts, stiftungs (foundations) and trusts for its clients. –
  • LGT Bank in Liechtenstein A.G. Is the banking division of the LGT Group. It has responsibility for banking services related to the investment functions of the LGT Group.

The services provided by LGT include administration and Investment of offshore assets which appear to be beneficially owned by the client LGT acts on Instructions from a client to establish or create a Liechtenstein entity and subsidiary entitles In other tax haven jurisdictions. In the Australian examples, the parent entity Is usually a foundation or trust. In some instances, LGT appears to have been retained as an agent of the client, and ban established and administered a Liechtenstein entity acting in that capacity.

The beneficial owners of the Liechtenstein entity are commonly a natural person and their family members, however their identity and control appear to be concealed on public and bank records by the interposition of a foundation board comprising LGT officials, who exercise control of that entity on behalf of the beneficial owners. -Documents relating to a private family foundation are not recorded on the Liechtenstein pubic registry. Th. foundation Is a separate legal entity and the board members have discretion to nominate beneficiaries, so that secrecy is maintained.

The ATO- understands that In practice the foundation board members act on the wishes or instructions of the settlor or beneficial owners of the entity. In other cases the client has used a foreign attorney to give instructions to the foundation board members or has replaced the by-laws or regulations of the foundation to appoint new beneficiaries.

LGT allegedly designs client structures so that the client or beneficial owner, is unable to be connected to the Liechtenstein entity, whether that entity te a foundation, trust or anstalt. The services provided by LGT — on the banking and secrecy laws operating hi Liechtenstein to prevent disclosure of the client’s identity or information.

LGT will also arrange to open and operate a bank account for the foundation or trust It has established for its client The bank accounts are typically held hi the name of the entity, to avoid any connection with the instructing chant, and to meet the bank’s anti-money laundering obligations.

Assets administered by LGT may be invested In a diverse range of managed funds and currencies. Further, safety deposit facilities can be arranged for clients to secure other valuable items such as art and jewellery which may also form part of the Investment portfolio.

Funds owned by entities that are establish d by LGT for its clients are commonly Invested with its own bank or funds management entities:

  • LGT Bank in Liechtenstein;
  • LGT Capital Invest Limited Grand Cayman; and
  • LGT Portfolio Management (Cayman) Limited.

At the clients direction, funds may be invested with a third party bank, usually operated In a banking secrecy jurisdiction.

The ATO understands that for a trust or foundation to be established by LGT, substantial funds must be settled In the trust or foundation for it to be economically viable for LGT. LGT clients are wealthy investors who typically Invest a small portion of their total wealth in a LGT structure and who do not need access to these funds to supped their domestic lifestyle.

LGT plays an active role in servicing and administering the clients Liechtenstein entity. For example the bawd members of a foundation will be LGT employees. They are responsible for administration of the entity and are the approved signatories.

The use of LGT employees as board members or trustees and in-house or ‘omnibus’ entities as nominee directors of Interposed entities is considered to be another means by which the beneficial owner is distanced from being connected to their Liechtenstein entity. This may facilitate the avoidance or evasion of tax on any offshore Income derived by the Liechtenstein entity by an Australian taxpayer, who is the beneficial owner.

LGT also arranges for shell entities Incorporated hi other tax haven jurisdictions (such as B VI or Panama) to be set up as Interposed entitles of the Liechtenstein entity for its clients. The ATO considers that these special purpose vehicles are used to layer the transactions and the flow of funds, and (nay be designed to prevent regulators and tax administrators from deter mining the underlying ownership and control of the entity established by LGT and Its assets and Income.

LGT allegedly recommends to clients that fund transfers be conducted through interposed entities In countries outside the client’s domestic jurisdiction. The Australian experience Is-that clients have adopted this recommendation and that few International fund transfers are remitted directly between Australian residents and Liechtenstein or Switzerland as detected by our FIU.

Communication, between the ultimate beneficial owner of the foundation and LGT appears to be limited to either face to face or telephone contact LGT Instructs the ultimate beneficial owner of the foundation to avoid written correspondence with It and clients are provided with codes and passwords to maintain confidentiality and secrecy.

Intelligence held by the ATO Indicates that at July 2006 there were 14 banks operating hi Liechtenstein with funds under control-of approximately 255 billion Swiss francs. Also operating in Liechtenstein was numerous Treuhand (Trust Service Companies). Further intelligence indicates that as at November 2006 approximately 127,000 entities were registered with the public company registry (the population of Liechtenstein Is approximately 35,000).

The ATO has employed several compliance strategies – audits, Issuing Information production notices (both domestically and off-shore), conducting formal and informal interviews, accessing premises (with or without notice) to copy documents, and exchanging information with our Tax Treaty partners.

More importantly, the sharing of intelligence between International tax agencies has provided a unique understanding of Liechtenstein financial services and entitles end will provide an opportunity to engage with Liechtenstein to achieve greater transparency and exchange of Information.

The ATO welcomes news that new laws In Liechtenstein will enhance regulation and transparency in relation to some legal entities. However, we are concerned to see the detailed law and Its proposed implementation in 2009 to determine whether there are practical changes to trustee/banking practices.

Lessons learned

  • Project management strategies are essential to successful audit outcomes.
  • Sharing of information with other revenue agencies expedites the progress of
  • Our compliance activities have resulted in disclosures or settlements.

2.3. We are reproducing here under the salient features of the Host Trust reg.

Home -The trust Reg. can be structured like a company limited by shares or foundations as an instrument for commercial activities or for the administration of assets.
Company overview -The trust reg. qualifying as private asset structure pays an annual tax of CHF 1,200 only
Executive Sum Company norms many Liechtenstein -Distribution to the beneficiaries as well as profits earned are not subject to any further tax
Trust. Reg. -The Supreme Authority is vested in the settlor and is transferable.
Foundation Trust -The beneficial interests may be assigned to persons other than the settler
Establishing a Company in Liechtenstein Fees and costs -The administration is taken care by the board of trustees.
Conclusion -If commercial activities are perused or the articles make provision for such activities an auditor must be appointed. In this case the annual accounts approved by the auditor must be submitted to the Liechtenstein tax administration.
Contact Details -In case of losses or liabilities only the asset of the trust reg. have to be used to cover them
Disclaimer -The minimum capital to constitute a trust reg. is CHF 30,000

HOST Trust reg. ’s mission is to advise foreign investors and to establish It 11· them – based on legal expertise – companies or trusts in Liechtenstein to enhance profits.

The Liechtenstein jurisdiction qualifies as an offshore financial centre.

Foreign investors have the opportunity to establish companies or trusts ill the Principality of Liechtenstein to enjoy the advantages of our offshore financial centre due to:

A very modest tax regime with special advantages for private asset structures i.e. legal entities and trusts which do not pursue any economic activity; A company law which offers next to the ordinary kind of companies like I he company limited by shares ( Aktiengesellschaf/AG) those specifically designed to serve the needs coming along with holding of assets, namely the foundation (Stiftung) and the establishment (Anstalt); The institute of trusts shaped according to the English law trust;

A high standard of secrecy laws.

Key Figures

– Foundation: 1719 AD

– Government: constitutional hereditary monarchy

– Economy (GNP): CHF 5.2 Billion (2009)

– Currency: Swiss Franc (CHF)

– (Possible to invest in any currency)

– Size: 160 sq meters (62 sq miles)

– Population: 36′ 150 (2010)

– Member of UNO, EFTA, EEA and WTO

The Principality of Liechtenstein is a politically, economically and socially very stable country for investors.

Company

The company limited by shares is suitable for all economic objectives, in particular for:

. international commercial transactions or

. as a holding structure for subsidiary companies.

– The company limited by shares qualifying as private asset structure pays an annual tax of CHF 1 ‘200 only.

– The coupon tax of 4% is not any longer levied on dividends distributed from income accrued after January 1, 2011.

– The profits earned are not subject to any further tax.

– Bearer or registered shares are admissible. The minimum nominal value is not It is also possible to issue voting shares. The Liechtenstein law does not ask for any qualifying shares to be held by the directors.

– The general meeting of the shareholders is the supreme authority.

– The board of directors conducts and manages the company business.

– The auditor has to examine the annual accounts and reports to the general

– The annual accounts approved have to be submitted to the Liechtenstein tax administration.

– The minimum capital to constitute a company limited by shares is CHF 50’000. The organization of an individual establishment may be adopted to its specific needs: like a company limited by shares or a foundation, as an instrument for commercial objectives or for the administration of assets.

Establishment

– The establishment qualifying as private asset structure pays an annual tax of CHF 1 ‘200 only.

– Distributions to the beneficiaries as well as profits earned are not subject to any further tax.

– The supreme authority is vested in the founder (holder of the founder’s rights) and is transferable.

– The beneficial interests may be assigned to persons other than the holder (s) of the founder’s rights

– The administration is taken care by the board of directors.

– If commercial activities are pursued or the articles make provision for such activities an auditor must be appointed. In this case the annual accounts approved by the auditor must be submitted to the Liechtenstein tax administration.

– In case of losses or liabilities only the assets of the establishment have to be used to cover them.

– The minimum capital to constitute an establishment is CHF 30’000.

Trust Reg (Trust Enterprise)

– The trust-reg. can be structured like a company limited by shares or foundation as an instrument for commercial activities or for the administration of assets.

– The trust reg. qualifying as private asset structure pays an annual tax of CHF 1 ‘200 only.

– Distribution to the beneficiaries as well as profits earned are not subject to any further tax.

– The supreme authority is vested in the settlor and is transferable.

– The beneficial interests may be assigned to persons other than the settlor.

– The administration is taken care by the board of trustees.

– If commercial activities are pursued or the articles make provision for such activities an auditor must be appointed. In this case the annual accounts approved by the auditor must be submitted to the Liechtenstein tax administration.

– In case of losses or liabilities only the assets of the trust reg. have to be used to cover them.

– The minimum capital to constitute a trust reg. is CHF 30’000.

Foundation

The foundation may be constituted as:

. one for private use, especially as family foundation;

. charitable foundation.

– The founder endows assets for a specific purpose and regulates the beneficial interest.

– The foundation qualifying as private asset structure pays an annual tax of CHF 1 ‘200 only.

– Neither the endowment to the foundation nor the distributions to the beneficiaries or the profits earned are subject to any further tax,

– The supreme authority is vested in the members of board who also take care of the administration

– The founder may designate other bodies as e.g. protectors, collators and

– An individual as founder may by creating retained founder’s rights preserve for himself the authority to revoke the foundation and to amend the foundation documents.

– Only if the foundation pursues commercial activities the annual accounts approved by the auditor must be submitted to the Liechtenstein tax

– The minimum capital to constitute a foundation is CHF 30’000.

– The Liechtenstein trust settlement is shaped according to the English law trust. Trust

(Trust Settlement)

– Trusts are used in a similar manner as the foundation.

– However, the trust is not a legal entity itself, but a kind of contractual

– The settlor transfers movable or immovable assets or rights to the trustee with the obligation to hold and make use of this trust property against third parties in his own name as independent legal owner for the benefit of one or more beneficiaries.

– The trust comes into existence with the stipulation of the trust settlement (trust deed) between the settlor and the trustee or by means of a trust letter accepted.

– The trustee must keep his personal assets strictly separate from the trust

– To ensure the observance of the provisions in the trust deed an auditor, a protector, a curator or a collator can be appointed.

– The keeping of annual accounts is not obligatory.

– Trusts according to foreign law can be formed in Liechtenstein.

– The assets held by the trust qualifying as private asset structure are subject to an annual tax of CHF 1 ‘200 only.

– The distributions to the beneficiaries as well as the profits earned are not subject to any further tax.

Reasons for establishing Liechtenstein Companies

The holding of assets

Assets of holding companies can be invested in any kind of property; e. g. bank accounts, publicly traded or not traded shares, participations in other companies, real estate property, art and so on.

The earnings stemming from the assets held by a holding company, be it interest on bank accounts, dividend payments from shares, earnings from participations in other companies, proceeds of sales or royalties qualify as income of the holding company which are in case of a private asset structure subject to an annual tax of CHF 1 ‘200 only.

– The pursuit of business

Profits stemming from business transactions of companies constituted after January 1, 2011, are subject to ordinary corporate tax with a tax rate of 12.5% on the taxable net income.

Companies pursuing business transactions and having been constituted prior to January 1, 2011, are until December 31, 2013 subject to a specific annual capital tax of 0.1 % of the assets held only, at least CHF 1 ‘200 per year. It is not necessary that such an offshore company sets up an office in Liechtenstein or employs people. The management of such an offshore company can be provided on a contractual basis by the Liechtenstein trustee.

– Regulation of succession/avoidance of inheritance tax

Especially foundations are qualified for all purposes of estate planning as well as to avoid inheritance tax. The succession in the assets is regulated by the so-called by-laws. These are regulations setting forth who the first beneficiary of the assets is and who qualifies as second beneficiary once the first has died. As no formal change of ownership takes place in case of succession, no inheritance tax becomes payable.

– Asset protection by means of a holding company

If assets – earmarked for the personal benefit only – are held by a holding company (normally a foundation) not all assets are endangered in case of losses or liabilities incurred during the course of business activities pursued by the beneficiary.

Fees and Costs in General

The fees and costs involved with the constitution and administration of a Liechtenstein company or trust are approximately the following:

. For the constitution of a company/trust between CHF 5’000 and 6’000;

The court fees (costs) coming along with the constitution depend on the kind of company, normally approx. CHF 600 – I ‘300;

For the local director/trustee of the company/trust an annual lump sum between CHF 5’000 and 6’000;

For the legal representative in charge to accept services on behalf of the company an annual lump sum between CHF 500 and 600;

Petty expenses.

– While the fees for the director and legal representative are payable in advance and cover the acceptance of the respective position by the person or company retained, further services provided by the local director and his staff are charged by the time spent according to an hourly fee rate. The fee rate normally varies between CHF 100 for administrative work to CHF 500 for management and legal work and depends on the level of sophistication involved, the assets concerned as well as on what the parties have agreed.

– All fees are subject to 8 % V A T and are charged against the company/trust and may be deducted from the assets held by the same.

Conclusions

The Liechtenstein jurisdiction qualifies as an offshore financial centre due to:

A very modest tax regime;

– A company law which offers next to the ordinary kind of companies like the company limited by shares (AG) those specifically designed to serve the needs coming along with holding of assets, namely the foundation (Stiftung), the establishment (Anstalt) and the trust reg;

– The institute of trusts;

-A high standard of secrecy laws.

Foreign investors have the opportunity to establish companies or trusts with HOST trust reg. in the Principality of Liechtenstein to enjoy the advantages of our offshore financial centre.

Contact Details

Gerhard R. Holzhacker

Dr.iur. M.B.L.-HSG

Attorney at Law

Law firm Holzhacker

Josef Rheinberger Strasse 11

P.O.Box 656

FL-9490 Vaduz

Principality of Liechtenstein

1m Duxer 4

P.O.Box 240

FL-9494 Schaan

Principality of Liechtenstein

Tel.: +423 239 66 33

Fax: +423 239 66 44

office@holzhacker-lawfirm.com

www.holzhacker-lawfirm.com

Tel.: +423 392 42 45

Fax: +423 3924246

host -trust -reg@supra.net

www.host-trust.com

Black money: Liechtenstein joins India in stash funds fight Press Trust Of India: Jakartal New Delhi, Thu  Nov 21 2013, 19:53 hrs.

Liechtenstein, one of India’s important partner nations in fighting overseas tax abuse and black money, on Thursday shed its secrecy cloak and joined the league of a host of other countries for automatic exchange of information and mutual assistance in tax matters.

TThe country, a landlocked jurisdiction in Central Europe, became the 62nd signatory to a worldwide convention, accepted by almost all economic superpowers and formulated by the Paris-based Organisation for Economic Cooperation and Development (OECD), an international policy-advisory body that formulates global tax standards to fight tax evasion and concealment of illicit funds.

Switzerland, in October, had joined the same convention.

“Liechtenstein and San Marino became the 62nd and 63rd signatories of the multilateral convention on mutual administrative assistance in tax matters at a ceremony marking the first day of the November 2 1-22 meeting of the Global Forum on Transparency and Exchange of Information for Tax Purposes,” the OECD said in a statement.

A senior Finance Ministry official in Delhi said the step, announced by Liechtenstein last week, is a “boost to India’s efforts to combat black money instances overseas.”

Indian investigating agencies have come across a number of cases where individuals or entities from India have been detected using banking channels of Liechtenstein to hide their illegal incomes or stash funds.

By joining the comity of nations, the Central European nation, Liechtenstein has virtually pulled down the wall of secrecy and will allow partner nations like India to seek information about suspect individuals and entities and provide for obtaining banking information about such people.

The multilateral convention of the 0 ECD provides for all forms of mutual assistance like exchange on request, spontaneous exchange, tax examinations abroad, simultaneous tax examinations and assistance in tax collection while protecting taxpayers’ rights.

It also provides the option to undertake automatic exchange, requiring an agreement between the parties interested in adopting this form of assistance.

2.4. So far as, the contention of the ld. Counsel for the assessee that there is violation of principal of natural justice and reasonable opportunity was not provided to the assessee by the Assessing Officer, are concerned, we are not in agreement with this assertion of the ld. Counsel because the assessee was duly provided with the reasons of reopening of assessment and English translated copy of the documents.

2.4.1 In view of the above, we find no substance in the assertion of the assessee that the reopening of assessment was bad, without following the due process of law or violation of principle of natural justice, more specifically when sanction was granted by the Additional Commissioner after considering the facts and due application of process of law. The Assessing Officer vide letter dated 13/5/2009 provided the reasons for reopening of the assessment wherein it was specified that a tax-evasion petition (TEP) has been received from CBDT. As per the information contained in the said TEP the assessee is a beneficiary of Ambrunova Trust and Merlyn Management SA. In the return of income the assessee neither offered any income with reference to the trust nor disclosed any details to the effect that the appellant was a beneficiary of the said trust. The Assessing Officer, from the, summary of the trust account in LTG Bank, found credit balance of US $ 24,06,604 as on 31/12/2001 (Rs. 11,60,99,390/- @ 48.242 per USD) interest accrued of USD 13500 (equivalent to Rs.6,5 1,267/-) was credited to the said account. As the same was not reflected in the return of income thus, the Assessing Officer correctly presumed that income has escaped assessment. Even vide letter dated 23/9/2009 the Assessing Officer showed details (a) information of trust, (b) details of settler of the trust, (c) purpose of creating trust, (d) copy of trust deed, (e) asset and bank accounts held by the trust in India and abroad and (f) benefit received by the appellant during the financial years relevant to Assessment Year 2002-03 to 2007-08 (page 21 ). The assessee vide letter dated 14/10/2009 denied the allegation of the Assessing Officer (page-22). The assessee also informed that she/they had not received any benefit from the trust or for that matter in any other Assessment Years. Vide letter dated 26/10/2009 the Assessing Officer furnished the copies of documents (pages 24 to 28) which formed the basis for initiating proceedings u/s. 148/147 of the Act. The Assessing Officer vide letter dated 8/12/2009 informed that he has information that the assessee deposited USD 24,06 604.90 in the name of Ambrusova trust in LTG Bank (pg-3 1). The assessee was asked to explain as to why it may not be treated as investment out of undisclosed sources and added to the income (pg-34). The assessee vide letter date 18/12/2009 informed the Assessing Officer that the evidences furnished by him in no way showed that the assessee deposited the said amount in the name of the said trust during the year (pg-35 para-1). The Assessing Officer was again requested to furnish the evidence of such deposit by the assessee and the person who deposited the amount (pg-36). Vide para-13 of the said letter it was claimed that she had not received any benefit from the said trust (pg-39). Identical plea was raised before the ld. CIT(A) also regarding non-supply of material or opportunity to the assessee which has been dealt with by the ld. CIT(A) as under which is worth quoting (page-15) which reads as under :-

“The appellant has wrongly alleged that complete material was neither given nor opportunity to cross examine was given. The Assessing Officer has handed over complete set of documents received by him to the appellant during the course of assessment proceedings. Further, as a part of the remand report, the Assessing Officer had called the appellant and opportunity to cross examine the Assessing Officer himself was available to the appellant, however, the appellant chose not to appear and hence cannot raise the bogey of cross examination here. Further, the right to cross examine is available when the department has already recorded the statement and is being used against the appellant. In the instant case, no such thing was done by the department or the AO. It is pertinent to note that the information passed to the Assessing Officer had been received as a part of the tax information exchange treaty and therefore, there could not have been any cross examination.”

2.4.2 So far as the contention of the assessee that enough opportunity was not provided to the assessee is concerned we find no merit in this assertion as is evident from para-28 (pg-14) of the order of the ld. CIT(A) (ITA No.3546/M/11) wherein un-controverted finding is that the assessee chose not to use the same when it was provided . Therefore, from this angle also the assessee is having no case. The totality of the facts clearly indicates that the Assessing Officer rightly assumed jurisdiction to reopen the assessment. Thus, this ground of the assessee in the respective appeal is dismissed.

3. The next ground pertains to confirming the addition of Rs. 2,34,64,398/- on account of alleged undisclosed income. The crux of argument advanced on behalf of the assessee is that the addition was made by the AO without appreciating the fact that the alleged trust was discretionary trust and neither the amount was accrued/credited nor the name of the assessee appeared as beneficiary of Ambrunova Trust. On the other hand, the ld. Special Counsel brought to our notice certain documents evidencing that the names of all the assessees were appearing, who are beneficiaries of the said trust.

3.1 We note that (Pg-14 of the document filed by the ld. Spl. Counsel) the trust was established on 2 1/3/1997 and the status of the account is “active”. On 21st Nov. 2013, Liechtenstein joined India as important partner in fighting overseas tax abuse and black money and shed its secrecy cloak and joined the league of a host of other countries for automatic exchange of information and mutual assistance in tax matters. Thus, became 62nd signatory to a world- wide convention, accepted by almost by all economic super powers and formulated by Paris based Organization for Economic Co-operation and Development (OECD), an international policy advisory body which formulates global tax standard to fight tax evasion and concealment of illicit funds. Switzerland joined the same convention in October, 2013. The ld. Spl. Counsel showed the bench a confidential list containing the names of the present assessee as trustee/beneficiaries of the trust. It was requested that since the investigation is in progress, therefore, at this stage it will hamper the investigation if the document is made public as the same list is containing the names of other beneficiaries also. On going through the bank summary in respect of Ambrunova’s trust account in LTG Bank Liechtenstein, we find that there is a credit balance of USD 24,06,605 (equivalent to Rs.11,60,99,390/-).It is worth mentioning the observation/conclusion made/ drawn by Hon’ble Justice Krishna Iyer, (the Hon’ble Apex Court) in the case of Chairman Board of Mining Examination & Ors. Vs Ramjee (1977 AIR 1965) (SC) order dated 3rd February 1977.

HELD (1) Law is meant to serve the living and does no beat its abstract wings in the jural void. Its functional fulfillment as ‘social engineering’ depends on its scrutinized response to situation, subject-matter and the complex of realities which require ordered control. A holistic understanding is simple justice to the meaning of all legislations. Fragmentary grasp of rules can, n misfire or even backfire, as in this case. [906 H, 907 A]

(2) The judicial key to construction is the composite perception of the daha and the dahi of the provision. To be literal in meaning is to see the skin and miss the soul of the Regulation. [909 A-B].

(3) Over-judicialisation can be subversive of the justice of the law. To invalidate the Board’s order because the Regional Inspector did not suspend the certificate is fallacy. The Board’s power is independent and is ignited by 905 the report, which exists in this case, of the Regional Inspector. There is an overall duty of oversight vested in the board to enforce observance of rules of safety. [909 D]

(4) To set aside the order on the ground that the Regional Inspector had no power to recommend but only to suspend and report that his recommendation influenced the Board’s order is to enthrone a processual nicety do dethrone plain justice. Suspension, on an enquiry, predicates a prior prima-facie finding of guilt and to make that known to the Board implicitly conveys a recommendation. The difference between suspension plus report and recommendatory report is little more than between Tweedledum and Tweedledee Recommendations are not binding but are merely raw materials for consideration. Where there is no surrender of judgment by the Board to the recommending Regional Inspector, there is no contravention of the cannons of natural justice.

(5) Natural justice is no unruly horse, no lurking landmine, nor a judicial cure-all. If fairness is shown by the decision-maker to the man proceeded against, the form features and the fundamentals of such essential processual propriety being conditioned by the facts and circumstances of each situation. no breach of natural justice can be complained of. Unnatural expansion of natural justice. without reference to the administrative realities and other factors of a given case, can be exasperating.

Courts cannot look at law in the abstract or natural justice as a mere artifact. Nor can the), fit into a rigid mould the concept of reasonable opportunity. If the totality of circumstances satisfies the Court that the party visited with gelverse order has not suffered from denial of reasonable opportunity the Court will decline to be punctilious or fanatical as if the rules of natural justice were sacred scriptures. In the instant case, the Board cannot be anath-ematised as condemning the man without being heard. The respondent has, in the form of an appeal against the report of the Regional Inspector, sent his explanation to the Chairman of the Board. He has thus been heard dad compliance with Regulation 26 in the circumstances is complete. [909G-H, 910A-G]

Tereaesai’s case [1970] 1 S.C.R 251; Management of DTU[1973] 2 S.C.R. 114: Tandon’s case [1974] 4 SCC 374 referred to.

Observations: Sensitive occupations demand stern juristic principles to reach at scapegraces, high and low, and not mere long drawn-out commissions whose verdicts often provedilatory ‘shelter’ for the men in whom Parliament his entrusted plenary management. Any sensitive jurisprudence of colliery management must make it cardinal to pt nish the Board vicariously for any major violations and dreadful disasters, on macro considerations of responsibility to the community. The Board must quit, as a legal pendry, if any dreadful deviation, deficiency, default or negligence anywhere in the mine occurs. This is a good case for new principles of liability, based on wider rules of sociological jurisprudence to tighten up the law of omission and commission at the highest levels. Responsibility and penalty must be the concomitants of highly-paid power vested in the top-brass. Any deviance on the part of these high-powered authorities must be visited with tortious or criminal liabilities. [908 F-H, 907 D-FI

(The Court emphasized the need for evolving a code of strict liability calling to utmost care not only the crowd of workers and others but the few shall care or quit so that subterranean occupations necessary for the nation are made as risk-proof as technology and human vigilance permit).

3.2 So far as the contention of the ld. Counsel for the assessee that such documents were not provided to the assessee is also incorrect as we have discussed in earlier paras of this order that not only the documents rather the English translated copy of such documents was also provided. Therefore, this assertion of the assessee is also without any basis. Another assertion made by the assessee was that the information was unvouched and not corroborated with any evidence. We note that the said documents were received officially by the Government pursuant to an investigation made by permanent sub-committee on investigation of United States Senate. The copy of exhibit list regarding tax haven banks has already been reproduced by us in earlier part of this order. As we have reproduced in earlier part of this order (host trust reg.), the distribution to the beneficiaries as well as profits earned are not subject to any further tax and, further, the supreme authority is vested in the settler and is transferable. It can be concluded that the Liechtenstein jurisdiction qualifies as an off shore financial centre due to a very modest tax regime, high standard of secrecy laws and further foreign investors had the opportunity to establish companies or trust with “HOST trust reg.” in the principality of Liechtenstein to enjoy the advantages of off-shore financial centre. As per the report Indian Investigating Agencies came across a number of cases where individual or entities from India were detected using banking channels of Liechtenstein to hide their illegal income or stash funds and it was only possible when India became signatory to a world-wide convention formulated by OECD an international policy advisory body which formulated global tax standards to fight tax evasion and concealment of illicit funds. It also provided option to undertake automatic exchange of information. It is a common knowledge that discretionary trusts are created for the benefit of particular persons and those persons need not necessarily control the affairs of the trust. Still the fact remains that they are the sole beneficiaries of the trust. Thus totality of facts clearly indicate that the deposit made in the bank account of the trust represents unaccounted income of the assessee, as the same was not disclosed by the these assessees in their respective returns in India, consequently, the addition was rightly made by the Assessing Officer and confirmed by the ld. CIT(A).

4. Finally, the all the appeals of the assessee stand dismissed.’

16. From the above, we find that in the tribunal’s order, it has been held that the assessee is a beneficiary of Ambrunova Trust. In the present case, the only distinction is that the assessee’s are beneficiary of Manichi Trust. The ld. CIT(A) in his appellate order has elaborately considered the issue of reopening. His order is well reasoned. Furthermore, we refer to the decision of Hon’ble Apex Court in the case of Rajesh Jhaveri Stock Brokers P. Ltd (supra) as under:-

“Section 147 authorises and permits the Assessing Officer to assess or reassess income chargeable to lax if he has reason to believe that income for any assessment year has escaped assessment. The word “reason” in the phrase “reason to believe” would mean cause or justification. If the AO has cause or justification to know or suppose (hat income had escaped assessment, it can be said to have reason to believe that an income had escaped assessment. The expression cannot be read to mean that the AO should have finally ascertained the fact by legal statute with solicitude for the public exchequer with an inbuilt idea of fairness to taxpayers. As observed by the Supreme Court in Central Provinces Managnese Ore Co, ltd. v. ITO(1991) 191 ITR 662, for initiation of action under section 14 7(a) (as the provision stood at the relevant time) fulfillment of the two requisite conditions in that regard is essential. At that stage, the final outcome of the proceeding is not relevant. In other words, at the initiation stage, what is required is “reason to believe”, but not the established fact of escapement of income. At the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed a requisite belief Whether the materials would conclusively prove the escapement is not the concern at that stage. This is so because the formation of belief by the AO is within the realm of subjective satisfaction ITO v. Selected Dalurband Coal Co, (P.) Ltd. (1996) 217 ITR 597 (Supreme Court): Raymond Woollen Mills Ltd. v. ITO (1999) 236 ITR 34 (Supreme Court).”

17. The above Hon’ble Apex Court decision duly complements the validity of reopening in this case. Moreover, in view of the above, the case laws referred by the ld. Counsel of the assessee are not applicable on the facts of this case. The assessee’s claim that the said deposits do not belong to the assessee or they have no information about the same has already been decided against the assessee by the tribunal in the order as above. Furthermore, we find that in the present case, from the employee of the said foreign bank, sovereign government of Germany comes into possession of documents relating to the deposit in the said bank. These deposit and detail give the name and address, date of birth, passport copy and all relevant particulars of the assessee. Then the sovereign government of Germany passes on this information to the sovereign government of India. Thereafter, the said document and information comes into the possession of Central Board of Direct Taxes and, thereafter, to the assessing officer. In this scenario, the assessee claim that the assessee has no information about the said bank deposit is totally unsustainable. That assessee’s name and address, date of birth, passport copy and other particulars were planted in those documents to the prejudice of the assessee by some unknown person is totally an unbelievable story. That some good Samaritan deposited that huge amount for the benefit of the assessee in the said foreign bank account and gave all the names and address and particulars of the assessee without any information to the assessee, is equally an unbelievable story. We do not find any relevance in ld. Counsel of the assessee’s submission that the data were stolen by the foreign bank employee and it was not the case of a whistle blower. How this affects the veracity of information has not been spelt out.

18. In our considered opinion, the above evidence is cogent and sufficient. Furthermore, we note that in terms of the extant secrecy provisions of liechestein, no further information from the said bank can be obtained by the A.O. The assessee is clearly trying to get benefit under this provision and denying the existence of the said bank account. This as per the facts discussed hereinabove is a self serving statement not at all sustainable. In the background of the above discussion, the onus now is clearly on the assessee to prove that the assessee has no beneficial interest in the said bank account or that the said bank account is a fictitious story, which the assessee has failed to discharge. Hence, the impugned additions in the hands of the assessee are justified and I uphold the same.

19. As regards reference of the learned counsel of the assessee for the tax treatment of the discretionary trust is concerned, it is noted that the said trust is in Liechestein, the tax laws of government of India do not apply. Hence, reference to cases which are in the Indian context are not at all applicable. Some of the salient features of trust in liechestein are already mentioned in the above said tribunal order. Hence, reference by the ld. Counsel of the assessee to apply Indian case laws to trust that are governed by law of Lieche stein is bereft of cogency.

20. The ld. Counsel of the assessee’s reference that data regarding bank balance is as on 31.12.2001 does not oxygenate the case of the assessee. The A.Y. 2002-03 very much encompasses the same. The reference by ld. Counsel of the assessee for A.O. mentioning sometimes US Dollars and sometimes Euro as currency is also not relevant as some error in mentioning the name of the currency in transcontinental, transfer of information regarding surreptitious bank holdings is not fatal.

Apropos all other appeal

21. In the present case before us, in four appeals relating to assessment year 2005- 06, the reopening is under challenge as well as the merits of the addition of interest in bank account.

22. In the rest of the appeal, only the merits of the addition of interest in the foreign bank account are under challenge. For the sake of convenience, we refer to the facts and figures from ITA No. 5003/Mum/2014.

23. Brief facts of the case are as under:

Information was received by CBDT from German Authorities about bank account held by a trust named as Manichi Trust where economically beneficial ownership of the assets is of the appellant and his family members. Specific details such as date of birth, residential address, nationality, domicile etc., were available with the bank authorities. The summary of account as on 31.12.2001 also showed that the interest income had accrued on the deposits made in the said bank account. All these information was duly provided to the assessee during the course of assessment proceedings for assessment year 2002-03 by the Assessing Officer.

24. On these facts, the assessment was reopened and the Assessing Officer made addition for the interest accrued on those bank deposits. In appeal before the ld. Commissioner of Income Tax (Appeals), the assessee challenged both the reopening as well as merits of the addition. The ld. Commissioner of Income Tax (Appeals) affirmed both the action of the Assessing Officer by holding as under:

6.2 In the assessment order for A.Y.2002-03, it was elaborately discussed about the undisclosed income which was deposited by appellant and his family members in LGT Bank in the name of Manichi Trust, Vaduz, sources of which have not been disclosed by the appellant. The appellant’s share @ 25% out of undisclosed income worked out to Rs. 37,67,807/- and was added to the total income of the appellant for the A.Y. 2002-03-. For the year under consideration, the appellant had not disclosed any interest income / benefit derived out of the interest accrued or otherwise on deposit / asset in LGT Bank in the name of Manichi Trust, Vaduz, Liechenstein in the return of income filed for the A.Y.2005-06.

6.3 When the above specific information was confronted to the appellant, the appellant merely denied the existence of such trust and being beneficiary of the trust without adducing any iota of evidence in support of its claim, which therefore remained only as a self serving statement. There was credible and reliable lation available that the appellant is beneficiary of above trust along with his, which had been set up by or on behalf of the family and for the family members. The detail such as name, address, date of birth mentioned in the trust documents are those of the appellant and his family members. In these circumstances/ the outright denial by the appellant of existence of the said trust or the bank account or other information with which he v/as confronted amounted to an explanation which is false, fraudulent, malafide and with intention to commit tax fraud.

6.4 The source of information is reliable and the validity of information cannot be in doubt. The onus is on the appellant to prove that the information obtained by the Indian Government is wrong. The ITAT Delhi Bench had occasion to consider a similar issue in the case of Shri Hersh Wing Chedha. In this judgement, it was held that “if the statement of a sovereign Govt, is not acceptable as reliable evidence in Indian tax proceedings, no case of cross-border transaction can ever be detected or proved.” In this background the onus lies on the appellant to prove that the information is wrong and also to prove that no benefits has been derived by the appellant from the deposits made in bank account held by the said trust. The appellant has not denied that it is his name and details mentioned in the list of beneficiaries. The evidence is therefore, direct, reliable and demonstrative proof of the appellant having stashed unaccounted money, in the name of trust, abroad. Although the appellant has simply denied knowledge of any such trust or bank account, he has no explanation as to how his correct name, address, date of birth, nationality could be available to a ‘person creating trust in a far off place like Vaduz. Thus, it was held that this trust is created for the sole benefit of the appellant and his family members. The knowledge of the trust and its other related details which is sought by the appellant are information which are in the exclusive knowledge of the appellant and the appellant has no option to remain selective, elusive, evasive or restrained in disclosure. It has been held in the above cited judgement of Hersh Win Chadha that “The assessee has to give proper explanation and disclose facts which are in his exclusive knowledge. The assessee lias no option to remain selective, elusive, evasive or restrained in disclosure. Further, it has been held that “it is the duty of the revenue authorities to be mindful of clues and coincidences and bring them to the logical conclusion, otherwise clandestine tax evasion through shady economic deals null go undetected, as appears to be the order of day. India is neither a tax heaven nor a banana republic.”

6.5 Hence, in view of the above discussion, it was held that all the contention of the appellant that he is not aware of being a beneficiary of any such trust is not acceptable unless the appellant brings on record any such evidence to establish its self-serving claims.

6.6 The appellant has also claimed that there is no tangible material to have to believe that there is income escaping assessment and no such income is chargeable to tax. In this regard, it is stated that the contentions of the appellant with regard to validity of issue of notice has already been dealt with by the A.O. elaborately. However, it is important to note here that the information received by the department also contained a summary of bank account as on particular date which showed that interest has been paid by the bank on the deposits made in the said bank account held by the trust of which the appellant and his family members are the beneficiaries. The appellant has not disclosed any such bank account or the benefits derived out of it in the income tax returns filed by it. Hence, there was tangible material on record to believe that income chargeable to tax had escaped assessment arid it is for the appellant to prove with supporting evidence mat no such benefit has been derived by the appellant out of the deposits made in the bank account held by the trust It has also been held by the Hon’ble ITAT Delhi in the above cited judgment of Hersh Win Chadha that “there is no presumption in law that tJte A. G. is supposed to discharge an impossible burden to assesss the tax liabilit; by direct evidence only and to establish the evasion beyond doubt as in criminal proceeding:., He can assess on consideration of material available on record, surrounding circumstances, human conduct, preponderance of probabilities and nature of incriminating information /evidence available on record.”

6.7 In view of the above discussion, the A.O. had no hesitation in holding that interest income / benefits derived by the appellant out of the deposits made in the said bank account have to be brought to tax. However, in the absence of any specific details provided by the appellant during the course of assessment proceedings of such benefits, the following method of calculation of interest was adopted as reasonable method by me A.O. Therefore, the same is quoted below verbatim

6.8 “an average rate of interest @ 3.8225% on US $ (U.S. Department of the Treasury interest rates as on 3 1.3.2005 on deposits for 1 year; 3.35%, 2 years :3.8%, 3 years : 3.96% and for 5 years 4.18%), the interest accrued during the F.Y.2004-05 on the deposited amount of US $3,09, 154.74 is worked out to US $ 11,817.44. Considering the conversion rate of US $ to INK as on 3 1.3.2005 at Rs.43.74/-, the total accrued interest / benefit derived out of deposit / asset in LGT Bank in the name of Manichi Trust, Vaduz, Liechenstein is worked out in INK at Rs.5,16,895/-. The appellant’s share @ 25% amounts to Rs.1,29,224/- (Rs.5,16,895/- * 25%) which is taxed as his concealed income for the assessment year under consideration.”

6.9 I have carefully perused the assessment order, the grounds of appeal, the statement of facts and the authorized representatives written submissions. The appellant’s AR has referred to various case laws in his written submissions but they are not applicable to this case because of its peculiar nature. Here reassessment has been done on the basis of tangible information. In the light of the detailed reasons given in para 6.1, 6.2, 6.3, 6.4, 6.5, 6.6, 6.7, 6.8 above, I see no reason to differ from the A.O.’s finding. I, therefore, confirm his assessment order.

25. Against the above order, the assessee is in appeal before us.

26. We have heard both the ld. Counsel and perused the material on record. Both the Counsel reiterated the submissions in the assessee ’s appeal for assessment year 2002-03 dealt by us as above. As regards reference to time limit u/s. 149(1)(b) for reopening by the ld. Counsel of the assessee is concerned, we find that this ground was not raised before the authorities below. Before us also, no cogent reason was submitted for not raising the same earlier. Moreover, this is a general submission by the ld. Counsel of the assessee without reference to relevant facts. Hence, in our considered opinion, this limb of the ld. Counsel of the assessee’s submission does not fructify the case of the assessee.

27. Upon careful consideration, we find that we have in the assessee’s own case in the earlier portion considered the said deposits in the same bank accounts. We have upheld the reopening as well as the addition of the amount of deposits in the bank in the hands of the assessee’s. We find that once it is settled that the assessee is having sums deposited in the foreign bank account, it was incumbent upon the assessee to disclose the same in the subsequent years, unless the assessee produces necessary evidence that the afore-said deposit has been liquidated. Thus, once the Assessing Officer has come to the possession of the information that the assessee is beneficiary of deposits in foreign bank accounts and from the return of income filed by the assessee, the Assessing Officer notices that the interest from the said deposit in accounts has not been disclosed in the return of income, the reopening of the case is duly justified. The computation and assessment of interest is reasonable and justified. Furthermore, we refer on the same reasoning of upholding of reopening as well as merits of addition in the case of assessee’s for assessment year 2002-03 above and following the same also we uphold the reopening as well as merits of addition in assessments in the present cases.

28. In the result, all the appeals filed by the assessee’s stand dismissed.

Order pronounced in the open court on 15.11.2017

Download Judgment/Order

Author Bio

More Under Income Tax

Posted Under

Category : Income Tax (25791)
Type : Judiciary (10458)
Tags : ITAT Judgments (4713)

Leave a Reply

Your email address will not be published. Required fields are marked *