BY TIOL News Service

MUMBAI, DEC 16, 2015: THE issues is: Whether merely adopting strategies for not receiving the money in India can render the assessee free, although documentary evidence seized during search operations raises a strong presumption that the assessee held foreign bank accounts in Switzerland and indulged in cross border transactions. NO is the answer.

Facts of the case

Addition on account of Pay Orders

The assessee's assessment was reopened u/s 147 on the basis of information found by the Revenue during searches u/s.132 of the Act carried at the residences of the assessee as well as that of Shri Kashinath Tapuriah and others in 2007. The assessee, in response to notice u/s.148 furnished a return declaring an income of Rs.1,50,000/-, as income from horse betting (Rs.9,950/-) and from business (Rs.1,40,050/-). A letter dated 12.04.1999 bearing the seal of UBS (Union Bank of Switzerland), was found during search from the residence of Kashinath Tapuriah (KT) at Kolkata which was regarding pay orders which have expired its encashment period. The letter also indicated that the assessee possessed foreign bank accounts and had indulged in cross border transactions. But when the assessee was questioned about the same, he vehemently denied any knowledge of the document. Various documents seized during search also reveal close association between him and KT, Chairman (of the Board of directors) of Robert Mclean & Co. Ltd. Later, several notice of hearing were served on the assessee but he could not be traced. The assessee finally was represented through a General Power of Attorney. The assessee pleaded for admission of additional evidence in the form of a letter dated 29.2.2008 written by UBS AG, Zurich (a bank in Switzerland) to the Enforcement Directorate (ED) which mentioned that documents which indicated the assessee's linkage to foreign bank accounts were forged.

Addition on account of life style and other expenditure

The assessee in his return of income disclosed Rs.1.50 lacs only; however, during the search operation, he recorded in his statement that his annual earnings to be around Rs.30 lacs, while that of his wife at around Rs.3 lacs. Since the assessee was found to be leading a lavish lifestyle, travelling abroad, gifting luxury cars to his relatives, etc, the Revenue contended that all this lent credence to the statement u/s. 132(4) stating his annual earning to be to the tune of Rs.30 lacs. The AO made an addition of Rs 28.5 lakhs which was confirmed by the CIT(A).

Having heard the parties, the Tribunal held that,

Addition on account of Pay Orders

++ the document under reference clearly relates to an addition for the current year, which stands disputed by the assessee per the instant appeal, it would firstly be of little consequence that the assessee's application is for A.Ys. 2001-02 to 2007-08, i.e., the years to which the evidence in the main relates, and not the current year. Further, the letter under reference is unsigned. Its contents, therefore, carry little weight, i.e., as evidence. The same accordingly cannot be admitted in evidence;

++ nothing on record exists to suggest any link between the assessee and the said foreign company i.e., Robert Mclean & Co. Ltd., which appears to be an Indian company and is only to be regarded as a distinct legal entity. And income due to or receivable by it could be regarded as the assessee's income only on the strength of evidence which leads to the inference of it being the assessee's money, being transferred to it, or the like. There is, in fact, no mention or even a whisper in this regard, or of any association or link between the two. Clearly, no case for including the amount received or receivable by the said company (USD 2 million) in the assessee's hands is made out;

++ in view of the clear prescription of section 292C, it is the assessee who is to disprove the said document as not representing the truth. Merely denying the knowledge of the said transaction/s or stating of not having any foreign bank account, etc. would be of little assistance to the assessee. the pay orders, in the absence of anything to the contrary, establishes the assessee's right to the said amount. Merely because because the pay order, per which it was conveyed to the assessee, gets lapsed by time (stipulated for its encashment) or due to the validity of the relevant instrument having expired, the assessee's right to receive the money does not get affected. The assessee's right would subsist, resulting in the relevant amount being remitted to him vide a fresh instrument, which is precisely what the letter states;

++ then, it is said that the amount has in fact not been received by the assessee at any time subsequent to 12.4.1999. Why, he does not answer, and which is the next logical question that arises. The fresh pay order/s is, and as per the letter itself, which would be governed by the presumption of section 292C, i.e., with regard to the truth of its' contents, to follow. The assessee's case rests on a bald statement as to the ignorance of the transaction/s, and who does not even explain as to why, or on what account, or under what circumstances, was the amount due to or receivable by him in the first place? The charge of forgery is, again, without any basis. Rather, the letter itself may have been written by the bank to officially confirm the remittance by it, i.e., at the insistence of the beneficiaries themselves. On the other hand, the Pay Orders may have been deliberately not encashed, allowing them to expire, as the assessee (payee) did not wish monies to be brought into India. For all we know, the assessee may have issued fresh instructions to the bank, which is, as apparent from the letter, in clear communication with the assessee, to whom the letter is addressed, having the details, including telephone numbers, of all the beneficiaries;

++ the existence of cross border transactions, or foreign bank accounts, as the seized material bears out, only strengths this presumption. Income, it is well-settled, could be brought to tax either on accrual or receipt basis. In the present case, the underlying transactions having not been divulged, much less explained, it is difficult to issue any definite finding with regard to accrual, except to state that the normal presumption is of payment following accrual. The payment is, as aforediscussed, only in the current year and, further, in one's own capacity;

++ there is nothing to suggest that the amount is on capital account, or in lieu of a capital asset. Why, any unexplained deposit or money, etc., is, by virtue of the provisions of the Act, and for the same reason, also deemed as income. That is, the onus to establish the nature (as well as the source) of the money, i.e., as being not in the nature of income, is on the assessee, and which he has clearly not;

++ there is, under the circumstances, no case for or no basis to consider the impugned sum as not received (during the relevant year) and, two, of it being not in the nature of income. The assessment of the amount, sought to be paid to the assessee initially vide Pay Order (No. 004 06298 027 43 2895), as income, is, accordingly upheld. We decide accordingly, and the assessee gets part relief;

Addition on account of life style and other expenditure

++ the said estimate, to be valid in law, has to be an informed one, taking into account the different variables or attributes on which it depends, viz. the number of family members, their living style, including expenditure on food, clothing, domestic helps, etc.; the expenditure on their education, medical bills; the number of residences being maintained; social or health clubs joined, etc. No such exercise has been attempted by the Revenue. Under the circumstances, it is only considered proper to determine the addition on account of lifestyle, including by way of maintenance, expenditure on the basis of the assessee's own estimate, and which we do at Rs.7.50 lacs. The assessee shall be allowed credit for any sum reflected in his books of account toward the same. The assessee gets part relief.

(See 2015-TIOL-2063-ITAT-MUM)