By TIOL News Service

MUMBAI, JAN 24, 2017: THE ISSUE IS - Whether non-filing of return of the interest earned by a non-resident in India from his NRO account, can be a reason for reopening his assessment, if the deposits are souced from abroad. NO is the verdict.

Facts of the case:

The assessee is a non-resident. He had deposited an amount of Rs.9.17 Crores and out of which, sum of Rs.9.09 Crores had been withdrawn for acquiring interest/assets in India. During assessment, it was noticed that the assessee paid Rs. 2 lakhs to M/s. Sunny Vista Realtors Pvt. Ltd., and was a Director of M/s. Sunny Vista Realtors Pvt. Ltd. for some time. He had also paid Rs.90,000/- to the Registrar of Trade Marks, Rs.10.84 lakhs to Insurance Company and Rs. 1.67 lakhs to a CA on the basis of which it was inferred that assessee had business interest in India. The AO also perused the bank statement of assessee which indicated that interest income of Rs.1.43 lakhs had accrued/earned in India from its NRO account in HSBC in India and that no return of income had been filed for the subject A.Y. On the above reasons, the AO came to a reasonable belief that an amount of Rs. 9.17 lakhs deposited in the NRO bank account and an amount of Rs.1.43 lakhs being the interest given by HSBC Bank were chargeable to tax as income escaping assessment for Assessment Year 2009-10.

On appeal, the HC held that,

++ the reasons recorded in support of the impugned notice proceeds on an assumption that the assessee has business interest in India merely because he had made large withdrawals from the HSBC Bank account. This is particularly so when, prima facie, it is undisputed that the deposits are sourced from abroad. The other basis for re-opening of Assessment viz: nonfiling of return of income on accrued interest earned of Rs.1.43 lakhs, prima facie, is not sustainable as a nonresident, in these facts, is not required to file his return of income in view of Section 115G of the Act. Similarly, the other factors viz: expenditure of Rs.90,000/paid to Trade Mark Registry is explained in the objections being the withdrawal by the wife of the assessee from the joint account, an amount of Rs.1.67 lakhs paid to C.A. was on account of professional services received and payment of Rs.10.84 lakhs to insurance company was on account of car insurance;

++ further, the payment of Rs.2 lakhs to M/s. Sunny Vista Realtors Pvt. Ltd. does not establish, prima facie, any business connection of assessee in India as it was, according to assessee, for booking of house to be constructed. None of these, prima facie, taken individually or together can form the basis of reasonable belief that the assessee has business connection in India which gives rise to income in India. These materials are indefinite/incomplete to form a reasonable belief of income escaping assessment by themselves. In the above view, the impugned notice is without jurisdiction as the reasonable belief of the non-resident having any business in India which could lead to income here is, prima facie, not satisfied.

(See 2017-TIOL-161-HC-MUM-IT)