CIT Vs Vinodkumar Hiralal Raja (Gujarat High Court)
Summary: The Gujarat High Court dismissed the Revenue’s Tax Appeal under section 260A of the Income Tax Act, 1961, challenging the Income Tax Appellate Tribunal, Rajkot Bench order dated 20.12.2023 for Assessment Year 2006-07. The Tribunal had deleted an addition of Rs.9,15,56,045/- made under section 69 as unexplained investment and an addition of Rs.10 lakh made under section 68 as unexplained cash credits.
The assessee had invested Rs.10,61,58,177/- in Mutual Funds during the relevant year. Following notice under section 148 dated 12.03.2013, he filed a return declaring total income of Rs.2,21,271/- and claimed exempt dividend income of Rs.33,22,644/-. The Assessing Officer completed reassessment under section 143(3) read with section 147 on 31.03.2014 at Rs.9,28,77,320/-, including the two disputed additions. The assessee’s case was that deposits in his bank accounts were primarily sourced from funds transferred from abroad by his son and sister.
The CIT(A) confirmed the additions on 22.12.2017, holding that the assessee had failed to establish the genuineness of the transactions and the source of funds with corroborative evidence. The Tribunal, however, relied upon several decisions including Tarun Kumar Sarkar, Shri Vijaykumar Vasantbhai Patel, Iqbal Ismail Virani, Hemant Mansukhlal Pandya, Madhusudan Rao and Smt. Susila Ramasamy. It found that the amounts received in the assessee’s NRE account had been transferred by his son in the U.K. through wire transfer and applied the same reasoning to the funds transferred by his sister. The Tribunal held that, on the facts, no addition was sustainable under section 69 and also deleted the Rs.10 lakh section 68 addition.
Before the High Court, the Revenue contended that the source of funds in the NRE account itself had not been explained and therefore the Assessing Officer and CIT(A) were justified in making the additions. The assessee relied upon the Gujarat High Court’s earlier decisions in Nitin Mavji Vekariya v. Income Tax Officer and Anilkumar Ramabhai Patel Vs ITO.
The High Court noted that the amounts received in the assessee’s NRE account came from his son, who was resident in the U.K., and his sister, and that the transactions were carried out through banking channels in accordance with RBI guidelines. The Revenue had not disputed the NRE status of the assessee, his son or his sister. The only basis for the additions was the assessee’s alleged inability to explain the source of funds received in the NRE account.
The Court then considered its decision dated 11.09.2023 in Special Civil Application No.7636/2022 and allied matters, where notices under section 148 had been quashed in circumstances involving investments made from NRE accounts. The Court had observed that the funds came from NRE accounts and that the source was beyond the reach of the authorities; it had also considered the exemption under section 10(4). The Court further relied upon its order dated 08.10.2024 in Special Civil Application No.9497/2024, where reassessment proceedings were quashed after finding that the assessee’s NRE status and the NRE nature of the account were undisputed, the source of deposits was explained and income earned in the NRE account was exempt under section 10(4)(ii).
Applying that legal position to the present appeal, the High Court concluded that the Tribunal had followed the applicable judicial precedents in deleting the additions. The Court held that no question of law, much less any substantial question of law, arose from the Tribunal’s order. Consequently, the Revenue’s Tax Appeal was dismissed.
Cases Discussed
- Tarun Kumar Sarkar, reported in 84 taxmann.com 91 (Kolkata Trib.)
- Shri Vijaykumar Vasantbhai Patel, ITA No.40/Ahd/2021
- Iqbal Ismail Virani, reported in 128 taxmann.com 181 (Panaji-Trib.)
- Hemant Mansukhlal Pandya, reported in 100 taxmann.com 280 (Mumbai-Trib.)
- Madhusudan Rao, reported in 57 taxmann.com 262 (Hyderabad-Trib.)
- Smt. Susila Ramasamy, reported in 37 SOT 146 (Chennai)
- Nitin Mavji Vekariya v. Income Tax Officer, Ward 4, Dham (Bhuj 2) Or His Successor, Special Civil Application No.7636/2022 and allied matters, judgment dated 11.09.2023
- Anilkumar Ramabhai Patel Vs ITO, Special Civil Application No.9497/2024, order dated 08.10.2024
FULL TEXT OF THE JUDGMENT/ORDER OF GUJARAT HIGH COURT
1.Heard learned Senior Standing Counsel Mr. Varun K. Patel for the appellant and learned advocate Mr. Mohit S. Banker for the respondent.
2.This Tax Appeal is filed by the Revenue under section 260A of the Income Tax Act, 1961 (For short “the Act”) against the judgment and order dated 20.12.2023 passed by the Income Tax Appellate Tribunal, Rajkot Bench, Rajkot(For short “the Tribunal”) in ITA No.59/Rjt/2018 for the Assessment Year 2006-2007 raising the following substantial questions of law:
“(a) Whether on the facts and circumstances of the case and in law, the learned ITAT has erred in deleting the addition made of Rs.9,15,56,045/ on account of unexplained investment u/s.69 of the Income Tax Act, 1961 despite assessee’s admission that the income was not offered in the country of source of money and thereby creating a situation of double non-taxation i.e. the source of investment was neither offered for taxation in the country of origin (UK) and nor in the country of invest (India)?
(b) Whether on the facts and circumstances of the case and in law, the learned ITAT has erred in ignoring the fact that the first point of receipt of the amount under consideration is in India and therefore, it is chargeable to tax on receipt basis?
(c) Whether on the facts and circumstances of the case and in law, the learned ITAT has erred in not appreciating the finding of Assessing Officer and CIT(A) that the assessee failed to explain his investment with corroborative evidence?
(d) Whether on the facts and circumstances of the case and in law, the learned ITAT has erred in deleting the addition made as per provision of Section 68 of the Income Tax Act, 1961 amounting to Rs. 10,00,000/- by Assessing Officer and confirmed by CIT(A)?
(e) Whether on the facts and circumstances of the case and in law, the learned ITAT has erred in concluding that the applicability of transfer details alone suffices to exclude the application of Section 69 of the Income Tax Act, 1961 without adequately investigating actual source of the funds used by the assessee for making the investment which is central to the application of Section 69?”
3.Brief facts of the case are that the assessee had invested a sum of Rs.10,61,58,177/- in Mutual Funds during the year under consideration. Notice under section 148 of the Act was issued on 12.03.2013. Pursuant to such notice, assessee filed return of income declaring total income at Rs.2,21,271/- and claimed exempt income of Rs.33,22,644/- being dividend income. Assessment order under section 143(3) read with section 147 of the Act was passed on 31.03.2014 finalising the assessment at Rs. 9,28,77,320/- after making addition of Rs.9,15,56,045/- being unexplained investment under section 69 of the Act and Rs. 10 lacs under section 68 of the Act being unexplained cash credits. It was the case of the assessee that the deposits made in his bank accounts were primarily sourced by the funds transferred by his son and his sister from abroad.
4.CIT(Appeals) by order dated 22.12.2017 confirmed the order passed by the Assessing Officer holding that the appellant assessee has failed to establish the genuineness of the transaction and source of funds transferred in his account with corroborative evidence and therefore, addition made by the Assessing Officer was held to be justified.
5.Being aggrieved, the assessee preferred an appeal before the Tribunal. The Tribunal relied upon the following decisions of the Tribunal:
1) Tarun Kumar Sarkar reported in 84 taxmann.com 91 (Kolkata Trib.)
2) Shri Vijaykumar Vasantbhai Patel in ITA No.40/Ahd/2021
3) Iqbal Ismail Virani reported in 128 taxmann.com 181 (Panaji-Trib).
4) Hemant Mansukhlal Pandya reported in 100 taxmann.com 280 (Mumbai-Trib.)
5) Madhusudan Rao reported in 57 taxmann.com 262 (Hyderabad- Trib.)]
6) Smt. Susila Ramasamy reported in 37 SOT 146 (Chennai)
6. The Tribunal considered the fact that the amounts received in NRE Account of the assessee were transferred by his son in U.K. by wire transfer and adopted the same reasoning in case of funds transferred by his sister and after considering the decisions of the Tribunal referred above, the Tribunal allowed the appeal by observing as under:
“15 In view of the instant facts and the judicial precedents cited, above we are of the considered view that Ld. CIT(A) has erred in facts and law in confirming the additions made by the assessee received by way of wire transfer from NRE account of his son in UK to assessee’s NRE account from which investments were made into Mutual Funds. In our considered view, in the instant facts, no addition is sustainable under Section 69 of the Act.
16. In the result, Ground No. 1 of the assessee’s appeal is allowed.
17. Ground No. 3 (Addition of Rs. 10 lakh under Section 68 of the Act) is similar to Ground No. 1 of the assessee’s appeal. In view of our observations made in Ground No. 1 of the assessee’s appeal, Ground No. 3 of the assessee’s appeal is also allowed.”
7.Learned Senior Standing Counsel Mr. Varun Patel appearing for the appellant Revenue submitted that the source of funds in NRE account was not explained by the assessee and, therefore, the Assessing Officer and CIT(Appeals) were justified in making the addition.
8.On the other hand, learned advocate Mr. Banker appearing on caveat submitted that the issue is not more res integra in view of the following decisions:
1) Nitin Mavji Vekariya v. Income Tax Officer, Ward 4, Dham (Bhuj 2) Or His Successor (Judgment dated 11.09.2023 passed in Special Civil Application No.7636/2022 and allied matters).
2) Anilkumar Ramabhai Patel Thro POA v. Income Tax Officer Ward 1 (Order dated 08.10.2024 passed in Special Civil Application No.9497/2024)
9.Having heard the learned advocates for the parties and considering the facts of the case, it is not in dispute that amount received in NRE account of the assessee was received from his son who is resident of U.K. and from his sister and all the transactions were carried out through banking channel as per RBI guidelines. Revenue has not doubted NRE status of the assessee or his son or sister at any stage of the proceedings as they were residents and citizen of U.K. for the year under consideration and only reason on the basis of which additions have been made are that the assessee could not explain the source of funds received in his NRE account.
10. This Court in Special Civil Application No.7636/2022 and allied matters vide order dated 11.09.2023 while quashing the notices issued under section 148 of the Act held as under:
“4 Having considered the submissions made by the learned advocates appearing for respective parties, what is evident from the explanation tendered by the petitioner was that all the investments in Time Deposits and Mutual Funds were made from NRE Accounts. The order impugned indicates that the petitioner had furnished such details which read as under:
“i. Time deposits (NRE) of Rs.51,00,000/- with Kotak Mahindra Bank Limited were made out of his NRE Saving account number 6511210464 with Kotak Mahindra Bank Limited. Assessee submitted bank account statement of his NRE bank account with Kotak Mahindra Bank Limited.
ii. Time deposits (NRE) of Rs.80,00,000/- with HDFC Bank Ltd were made out of his NRE Saving account number 50100158161603 with HDFC Bank Ltd. Assessee submitted copy of certificate from Bank of Baroda in this regard.
iii. Investment of Rs.47,00,000/- in ICICI Prudential Mutual Fund was invested out of his NRE Saving bank account (A/c. No. 0086011017024) with ICICI Bank Ltd., Bhuj (Rs.8,50,000/- dated 08.08.2017 + Rs.8,50,000/- dated 08.08.2017 + Rs. 15,00,000/- dated 04.01.2018) and from NRE Saving account number 50100158161603 with HDFC Bank Ltd (Rs.15,00,000/- dated 09.08.2017). Assessee submitted copy of summary of ICICI Prudential Mutual Fund Statement and Statement of ICICI Bank NRE Account.
iv. Investment of Rs.14,00,000/- in HDFC Mutual Fund was invested out of his NRE saving bank account (A/c. No.7611617528) with Kotak Mahindra Bank Ltd., Bhuj (holding jointly with his wife Jasuben). Assessee submitted copy of statement of Kotak Mahindra Bank Ltd. NRE Account.
v. Investment of Rs.14,00,000/- (Rs.7,00,000/- each on 31.05.2017 and 28.09.2017) in Kotak Mahindra Mutual Fund was invested out of his NRE saving bank account (account number 6511210464) with Kotak Mahindra Bank Limited. Assessee submitted copy of statement of Kotak Mahindra Bank Ltd. NRE account.
vi. Assessee submitted copy of certificate of residence from Uganda, issued to him. Above reply of assessee is duly considered. Assessee did not submit copy of his passport. Without that residential status of the assessee cannot be ascertained during year under consideration which is required as per provision of section 6 of the I.T. Act. Therefore, reply of the assessee has not been found satisfactory.”
5 Undisputedly, the funds came from NRE Accounts and the source therefore was beyond the reach of the authorities. Even on reading the provisions of section 10(4), it is apparent that such incomes are exempt from being included in the total income.
6 The impugned orders dated 29.03.2022 in all these petitions are, therefore, without jurisdiction. The orders dated 29.03.2022 in the respective petitions are therefore quashed and set aside. Petitions are allowed, accordingly. Rule is made absolute accordingly, with no orders as to costs.”
11. Similarly in Special Civil Application No.9497 of 2024 vide order dated 08.10.2024, this Court quashed and set aside notice issued under section 148 of the Act by observing as under:
“6. Considered the submissions. It is noticed that the status of assessee as Non-Resident Indian and having settled in Uganda, is not in dispute. It is not a case of revenue that income deposited in the account of assessee for A.Y. 2017-18 was not the NRE Account.
6.1. Further, in response to Notice under section 148A(a) of the Act, the assessee filed his reply dated 25.01.2024, in which he explained the source of time deposit. He submitted that the said deposit during the year under consideration was renewal/receipts of maturity proceeds of fixed deposits placed earlier and from funds remitted from overseas savings NRE Account in India with ICICI bank. Most of the deposits were from maturity proceeds of fixed deposits placed earlier. The detail of maturity receipts was provided. In the objections filed dated 14.03.2024, to the Notice under section 148A(b) of the Act, the assessee had explained loans received from Sohm Inc. of Rs.9,92,637/-, and of Rs. 20,00,000/- from Nileshbhai Patel. From the bank details provided, it is evident that remittance of the loan was made from NRE account of the assessee, and source of that income was explained. The assessee’s explanation is supported by the bank statement produced at Annexure “F” (Page-134 and 135).
6.2. Moreover, in the case of Nitin Mavji Vekariya (supra), this Court has held as under:
“5. Undisputedly, the funds came from non-resident (external) accounts and the source therefore was beyond the reach of the authorities. Even on reading the provisions of section 10(4), it is apparent that such incomes are exempt from being included in the total income.”
6.3. Thus, on both the counts that the income earned in NRE Account is exempt under section 10(4)(ii) of the Act and the source of income and the remittance of loan being explained by the assessee, we do not find any justification for issuance of Notice under section 148, as also for passing of order under section 148A(d) of the Act
7. In view of the above, the present petition is allowed. The Notice under section 148 the Income Tax Act dated 09.04.2024 and the order under section 148A(d) of the Act dated 09.04.2024 are hereby quashed and set aside. No order as to costs.”
12. In view of above conspectus of law and in view of the decisions which are followed by the Tribunal we are of the opinion that no question of law much-less any substantial question of law arises out of the impugned order passed by the Tribunal. Appeal is therefore, dismissed.
