Case Law Details
Estate of Ramniklal Rajmal Mehta Vs DCIT (ITAT Mumbai)
Introduction: In a significant decision, the Income Tax Appellate Tribunal (ITAT) Mumbai recently directed the re-adjudication of foreign income earned by the estate of Ramniklal Rajmal Mehta. The dispute revolved around the residential status of the deceased assessee during the previous year and the implications of this status on the taxation of foreign income. This article provides a detailed analysis of the ITAT’s ruling and its implications.
1. Background of the Case: The article begins by providing an overview of the case, introducing the key parties involved, including the deceased assessee, Ramniklal Rajmal Mehta, and the tax authorities.
2. Common Order of CIT(A) and Appeals by the Assessee: This section explains that the appeals filed by the assessee were in response to a common order issued by the Commissioner of Income Tax (Appeals) (CIT(A)) in Mumbai. These appeals related to the assessment years 2011-12 to 2015-16.
3. Issues in Dispute: The article outlines the primary issues in dispute. These include the additions made by the Assessing Officer under section 69A of the Income Tax Act, the validity of reopening the assessment, and the residential status under which the Assessing Officer assessed the income.
4. Arguments Presented by the Assessee: This section presents the arguments made by the assessee’s representative. The representative highlighted that Ramniklal Rajmal Mehta had passed away and argued that his residential status during the year of his death should determine the status of his estate.
5. Importance of Residential Status: The article emphasizes the significance of determining the correct residential status of the assessee, explaining how it impacts the taxation of foreign income.
6. Parallel Case from AY 2006-07: This section references a parallel case from the assessment year 2006-07 in which the assessee raised similar concerns about residential status. The article explains that the Tribunal had restored this issue to the CIT(A) for reevaluation.
7. ITAT’s Decision: The ITAT’s decision to remit the issue of residential status back to the CIT(A) is discussed in detail. The article highlights that this decision will influence the outcome of other issues in the case.
Conclusion: The article concludes by summarizing the ITAT’s ruling and its implications. It stresses the importance of resolving the residential status issue, which will have a domino effect on other aspects of the case. The final outcome of this case will have a significant impact on the taxation of foreign income earned by the estate of Ramniklal Rajmal Mehta, setting a precedent for similar cases in the future.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
All these appeals filed by the assessee are directed against a common order dated 30.11.2022 passed by the learned CIT(A), Mumbai and they relate to A.Y. 2011-12 to 2015-16. All these appeals were heard together and are being disposed of by this common order, for the sake of convenience.
2. In all these years, the assessee is aggrieved by the decision of the learned CIT(A) in confirming the additions made by the Assessing Officer under section 69A of the I.T. Act in respect of peak balance found in the bank accounts of M/s. White Cedar Investments Ltd./Red Oak Operations Limited maintained with HSBC Bank, Geneva. Besides the above, the assessee has also raised ground challenging the validity of reopening of assessment and also questioning the residential status under which the Assessing Officer has assessed income of the assessee.
3. Learned AR submitted that the assessee (Shri Ramniklal Rajmal Mehta) passed away on 7.4.2022 and he was a non-resident during A.Y. 2002-03. He submitted that under the provisions of section 168(1) of the Act, residential status of the executor would depend upon the residential status of the deceased person during the previous year in which his death took place. Since the assessee died on 7.4.2002, residential status of Shri Ramniklal R. Mehta relevant for the immediately preceding assessment year, i.e., A.Y. 2002-03 shall be residential status of “Estate of Ramniklal R Mehta, the assessee herein. He submitted that the AO has taken the residential status of the present as “Resident”. However, it is the contention of the legal heir that the residential status of Ramniklal R Mehta was “Non-resident” during the A.Y. 2002-03 and hence the Assessing Officer was not justified in assessing the Estate of Ramniklal R Mehta in the status of “Resident”, since it is contrary to the provisions of sec.168(1) of the Act.
4. The Learned AR submitted that determination of correct residential status of the assessee is crucial to decide the grounds urged on merits. He submitted that the assessing officer has assessed the deposits found in the two bank accounts belonging to two companies as income of the assessee u/s 69A of the Act. However, if the contention of the assessee that the status of Shri Ramniklal R Mehta was “Non-resident” during AY 2002-03 is accepted, then the Assessing Officer could not have assessed the alleged deposits made in two accounts made with HSBC Bank in the hands of the assessee, since the foreign income is not taxable under the Income tax Act in the hands of a non-resident assessee. Accordingly, he submitted that the grounds urged by the assessee on the residential status and the validity of reopening of status should be adjudicated properly, which Ld CIT(A) has failed to do.
5. The Learned AR further submitted that identical issue relating to residential status was agitated by the assessee in its own case relating to A.Y. 2006-07 in ITA Nos. 3771 & 4095/Mum/2017 before ITAT and the Tribunal, vide its order dated 25.8.2022, has restored the above said issue to the file of the learned CIT(A) for adjudicating the said ground. The Learned AR submitted that the decision taken by Ld CIT(A) in AY 2006-07 will have to be applied in the present cases also and if it is decided in favour of the assessee, then the impugned additions made by the AO are liable to be deleted in all the years under consideration. Accordingly, the Ld A.R prayed that all the issues contested in these appeals may be restored to the file of the learned CIT(A) as done by the Coordinate Bench in A.Y. 2006-07 for examining them afresh.
6. We heard learned DR and perused the record. For the sake of convenience, we extract below the order passed by the Coordinate Bench in assessee’s own case for A.Y. 2006-07.
2. Assessee has filed following grounds of appeal in ITA.No. 3771/Mum/2017 relating to A.Y. 2006-07: –
“1. The Learned Commissioner of Income-tax (Appeals) erred in upholding the validity of notice under Section 153A of the Act and the order passed by the Learned Assessing Officer under Section 153A r.w.s. 143(3) of the Act on the ground that the Appellant did not object to the notice under section 153A of the Act and no submissions were made during the course of appeal proceedings.
It is submitted that a notice under Section 153A of the Act can be issued only if a search is initiated under Section 132 of the Act on the appellant. The Appellant had explained the status of proceedings. In absence of a search, the notice issued under Section 153A of the Act and the subsequent assessment order passed under Section 153A r.w.s. 143(3) of the Act are bad in law and ought to be cancelled.
2. The Learned Commissioner of Income-tax (Appeals) without disposing the specific ground raised, erred up holding the order of Learned Assessing Officer passed without furnishing the information/details purported to have been received by him before using the same against the appellant. It is submitted that the learned Assessing Officer has made huge additions under Section 69A of the Act to the Returned Income of the Appellant without giving any opportunity to the Appellant to make his submissions in the matter. The order passed based the information/details which were never made available to the appellant and without affording an opportunity to the appellant is against the natural justice and is had in law and ought to be cancelled.
3. The Learned Commissioner of Income-tax (Appeals) erred in upholding the order passed by Learned Assessing Officer assessing the appellant in the status of “Resident” under Income-tax Act, 1961. It is submitted that in accordance with the provisions under Section 168 r.w.s. 6 of Income-tax Act, 1961 the appellant is a “non-resident” as claimed in the return of income. The appellant has furnished all details as available to establish the status of the “Estate” as nonresident and as such there is no reason to for the learned Assessing Officer to take a contrary view without bring any material evidence to negate the claim of the appellant.
4. The Learned Commissioner of Income-tax (Appeals) erred in upholding the addition of Rs.1,88,65,84,826/- made under Section 69A of the Act to the Returned Income. It is submitted that the appellant does not own any such money as alleged by the learned Assessing Officer as such there is no reason to make such huge addition under Section 69A of the Act. Learned Assessing Officer failed to bring any material on record to suggest that the Appellant owns the said money. The addition made by the Learned Assessing Officer is based on conjectures and surmises and is contrary to the facts. The addition made is bad in law and ought to be deleted.
5. The Learned Assessing Officer in proceedings under Section 153A of the Act, erred in adding Rs.188,65,84,826/- to the returned income. It is submitted that no addition can be made to the returned income other than the income determined on the basis of incriminating document/evidences found during the course of search. No evidence of what so ever in nature relating to the impugned addition was found the course of search. Impugned addition made in proceedings under Section 153A of the Act is without jurisdiction and bad in law.
6. The learned Assessing Officer erred in levying interest under Section 234B of the Act.
It is submitted that the Appellant is not liable to pay interest under Section 234B of the Act.
The appellant reserves the right to add, to alter or amend the grounds of appeal.”
3. At the time of hearing, Ld. AR of the assessee brought to our notice that Ground No. 4 and 5 which is relating to merits of the addition made by the Assessing Officer u/s. 69A of the Income-tax Act, 1961 (in short “Act”) and also the addition made by the Assessing Officer u/s. 153A of the Act in absence of any incriminating documents/evidences being found during the course of the search. He submitted that the above two issues are covered in favour of the assessee by the orders of the Tribunal in group cases wherein similar additions were made and it is relevant to refer those decisions. He submitted that the above said group orders of ITAT are placed on record in the form of Paper Book.
4. With regard to Ground No. 1, 2 and 3 are concerned which are relating to jurisdictional issues and Assessing Officer has not extended/afforded any opportunity to the assessee before passing the order which is against the natural justice and bad in law, for which he submitted that Ld.CIT(A) has failed to adjudicate or inappropriately considered. In this regard he submitted as under: –
“a) By ground No. 1 in the appeal, the Appellant urged that Late Shri Ramniklal Rajmal Mehta has passed away on 07/04/2002, while the search action has been carried out on 25/08/2011. Therefore, search action has been carried out on a dead person. In this regard attention is invited to Panchanama at Page 1 of the paper book which shows that the search action was on Mr. Ramniklal Rajmal Mehta. It is fundamental principle that a search cannot be carried out on a dead. person. Hence, the consequential order passed under section 153A of the Act is also invalid. The said issue has been dealt with by the CIT(A) in paragraph 5 at page 4 of his appellate order. The Appellant submits that finding given by him to the effect that it did not make any submission in this regard is factually incorrect. Though no written submissions have been filed with the CIT(A) on any ground, all the grounds have been argued before him.
b) By ground No. 2 of the appeal, the Appellant has urged that the AO had passed the assessment order without Ramniklal Mehta information/ details relied upon by him. The Appellant had inter alia relied upon letter dated 27/12/2011 from Mr. Karl French of White Cedar Investments Ltd. to the effect that he held only 5.73% of the corpus in the said company. However, relying on information received by the AO from the Spanish. Tax Authorities in response to the reference through FT of TR division of CBDT, he has observed that the authenticity of the aforesaid letter has not been established. Consequently, he has assessed the entire balance in the bank account held by White Cedar Investments Limited with HSBC Bank in Geneva as taxable in his hands. The said information has not been provided to the appellant till date. The CIT(A) in his appellate order in paragraph 8 at pages 16 to 18 had upheld the assessment at 100% on the ground that the appellant had not shown that he owned only 5.73% of the corpus. It is submitted that certificate from White Cedar Investments Ltd. would be the best evidence in this regard which clarifies that the Appellant held only 5.73% of the corpus. Without providing the information received from the Spanish Tax Authorities to the appellant, it is submitted that the AO and the CIT(A) could not have relied on the same to come to this conclusion.
c) By ground No. 3, it is urged that the Appellant is to be regarded as a non-resident in India as per section 168 read with section 6 of the Act as Late Shri Ramniklal Mehta was non-resident in assessment year 2002-03 i.e., the year in which he passed away. The CIT(A) has dealt with this issue in paragraph 6 at pages 4 to 6 of his appellate order, wherein he has held that the appellant has not discharged the onus with documentary evidence. Though the passport of Late Shri Ramniklal Mehta is not available, the Appellant has placed the necessary facts for consideration in an affidavit before the AO and CIT(A). They have adjudicated on this issue without dealing with the said affidavit.
b) In view of the above, the Appellant most respectfully submits that the issues arising in grounds 1 to 3 which are preliminary in nature have either not been adjudicated or not appropriately dealt with by the CIT(A). In view thereof, the Tribunal may be pleased to set aside the appellate order and remit the matter back to him for re-consideration. Consequently ground Nos. 4 and 5 of the appeal may also be dealt with by him after considering grounds 1 to 3 herein.”
5. On the other hand, Ld. DR objected to the above submissions and however, relied on the orders passed by lower authorities.
6. Considered the rival submissions and material placed on record, we observe that Ld.CIT(A) even though considered the submissions made by the assessee, however, Ld. AR brought to our notice that Ld. CIT(A) has ignored or failed to adjudicate on the following issues which is relevant and at the same time does not satisfy the overall justice. With regard to Ground No. 1 raised by the assessee it is brought to our notice that the search action was carried on a dead person and Ld. AR brought to our notice Panchanama in this regard. Ld. AR also brought to our notice that Late Shri Ramniklal Mehta was passed away on 07.04.2002 whereas the search was carried on 25.08.2011. Therefore, the search cannot be initiated on a dead person. This is very relevant and which goes to the root of the initiation of the search proceedings and Ld.CIT(A) has not adjudicated on this ground. Therefore, we are inclined to accept the submissions of the Ld. AR and accordingly this issue is remitted back to the file of the Ld. CIT(A) with a direction to adjudicate on this important issue.
7. With regard to Ground No. 2 it is brought to our notice that Assessing Officer has completed the assessment without furnishing information/ details relied upon by him. With regard to investment made by the assessee in White Cadar Investments Ltd., based on the letter from Mr. Karl French, we observe that this issue also was not adjudicated by Ld. CIT(A) that Assessing Officer has not submitted the relevant information received from Mr. Karl French without giving proper opportunity to the assessee. Further, with regard to Ground No. 3 it is brought to our notice that Late Shri Ramniklal Mehta was a “non-resident” in A.Y. 2002-03 i.e. in the year in which he passed away. Even though Ld. CIT(A) dealt this issue, however, he dismissed the submissions of the assessee with the observation that assessee has not discharged onus with documentary evidences. Even though the passport of Late Shri Ramniklal Mehta is not available, assessee has placed necessary facts for consideration in an affidavit before Assessing Officer and Ld. CIT(A). However, Ld.CIT(A) has not adjudicated on this issue without properly dealing with the above said affidavit. Therefore, we remit this issue back to the file of the Ld. CIT(A) with a direction to adjudicate on these three grounds afresh, after giving proper opportunity of being heard to the legal heir of Late Shri Ramniklal Mehta. Accordingly, Ground Nos. 1, 2 and 3 raised by the assessee are allowed for statistical purpose.”
7. We notice that the issue relating to residential status of the assessee has been restored to the file of Ld CIT(A) in AY 2006-07 and the decision taken in that year has to be applied to the years under consideration. It is the submission of Ld A.R that, if the residential status of the assessee is accepted as “non-resident”, then the impugned additions are liable to be deleted. The Ld A.R submitted that he is not conceding the additions on merits, but the decision on the residential status being crucial, the assessee is first harping on that issue. He submitted that if it is decided against the assessee, then the assessee shall advance its arguments on merits of additions and on other legal issues also.
8. Thus, we notice that the issue relating to “residential status” of the assessee is crucial in deciding other issues and the said issue has been restored to the file of Ld CIT(A) by the co-ordinate bench in AY 2006-07. The necessity of adjudication of other grounds would depend upon the decision taken on the residential status of the assessee. Accordingly, following the decision rendered by the Coordinate Bench in AY 2006-07, we restore all the issues to the file of the learned CIT(A) for adjudicating them afresh.
9. In the result, all the appeals filed by the assessee are treated as allowed for statistical purposes.
Order pronounced in on 11.08.2023.
