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2025 (6) TMI 1447 - AT - Income TaxCharging of salary income earned by the assessee from an entity registered outside India - Income deemed to accrue or arise in India - residential status - period of stay in India - AO noted that assessee was a proprietor of M/s Saket Gems and also acted as Director in a foreign based company named M/s Saket Gems (H.K.) Ltd. situated in Honkong China - HELD THAT - Since the assessee was also directed to place on record the copy of Balance sheet and P L account of M/s. Saket Gems Hong Kong and M/s. Saket Gems India Appointment letter from employer Ownership details of M/s. Saket Gems Hong Kong Ledger copy of M/s. Saket Gems India in the books of M/s. Saket Gems Hong Kong and ledger of Saket Gems Hong Kong in books of M/s. Saket Gems India Ledger copy of Sh. Saket Agrawal in the books of M/s. Saket Gems Hong Kong but the assessee has placed on record copies of documents and that too without any certification as to which of said documents were forming part of the records before the CIT(A) and which were before the ld. AO it is not possible for us to decide the fact that he earned the income of Salary outside India. This fact needs to be considered by Ld. CIT(A) after providing opportunity to the assessee of being heard. Change of the residential status during the assessment proceeding this aspect being the change in the factual aspect of the matter and the assessee having rectified the same on having realized the mistake even before the completion of the assessee the lower authority should have considered said fact to be correct. As relying on Babubhai Ramanbhai Patel 2017 (7) TMI 744 - GUJARAT HIGH COURT assessee must place on record documents as desired by ld. CIT(A) before him to enable him to decide the issue.
The core legal questions considered by the Appellate Tribunal (AT) in this appeal pertain primarily to the assessment year 2018-19 and involve the following issues:
1. Whether the delay of 18 days in filing the appeal should be condoned under Section 5 of the Limitation Act, considering the reasons provided by the assessee. 2. Whether the salary income of Rs. 29,86,963/- received by the assessee from a foreign company, M/s Saket Gems (H.K.) Ltd., for services rendered outside India, is taxable in India. 3. Whether the assessee's residential status for the assessment year 2018-19 should be treated as 'Resident' or 'Non-Resident' under Section 6 of the Income Tax Act, 1961, given the facts of his stay inside and outside India. 4. Whether the assessment order was passed in violation of principles of natural justice due to insufficient time granted for filing replies to notices. 5. Whether initiation of penalty proceedings under Section 270A of the Income Tax Act was justified at this stage. 6. Miscellaneous grounds including general objections to the assessment order and claims for amendment of grounds during hearing. Issue-Wise Detailed Analysis 1. Condonation of Delay in Filing Appeal The assessee filed the appeal with an 18-day delay, citing ill health and inability to submit the appeal within the prescribed period. The application under Section 5 of the Limitation Act was supported by an affidavit detailing the health issues and procedural delays. The Revenue did not object to the condonation. The Tribunal relied on the Supreme Court decision in Collector, Land Acquisition vs. Mst. Katiji, which allows condonation of delay where sufficient cause is shown. Given the genuine health reasons and absence of willful delay, the Tribunal condoned the delay, allowing the appeal to be heard on merits. 2. Taxability of Salary Income Received from Foreign Company The assessee received director's emoluments amounting to Rs. 29,86,963/- from M/s Saket Gems (H.K.) Ltd., a Hong Kong based company, for services rendered outside India. The assessee contended that this income is not taxable in India since it was earned abroad and he was a Non-Resident Indian (NRI) during the relevant financial year. The Assessing Officer (AO) rejected this claim, noting that the assessee had declared himself as 'Resident' in the original Income Tax Return (ITR) and had not paid tax on this income either in India or abroad. The AO made an addition of the said amount to the total income. The CIT(A) and the Tribunal noted that the assessee's revised claim of non-resident status was made without filing a revised return, which is impermissible as per the Supreme Court ruling in M/s Goetze (India) Ltd. v. CIT. The Tribunal further observed that the assessee failed to provide critical documents such as appointment letters, ownership details, and ledger accounts despite repeated requests, thereby undermining the credibility of his claim. However, the Tribunal also noted that the assessee had stayed outside India for 188 days during the financial year 2017-18, which prima facie satisfies the condition for non-resident status under Explanation 1 to Section 6(1)(c) of the Income Tax Act. The assessee's claim that the income was earned outside India for services rendered outside India and thus not taxable was supported by various judicial precedents, including decisions of ITAT Delhi Benches and the Authority for Advance Rulings (AAR), which held that salary income earned outside India by a non-resident for services rendered outside India is not taxable in India. Despite these precedents, the Tribunal found that the AO and CIT(A) had not considered the revised status claim properly due to the lack of a revised return and incomplete documentary evidence. Therefore, the Tribunal restored the matter to the file of the CIT(A) for fresh adjudication after the assessee places on record the required documents and is provided an opportunity of hearing. This approach reflects the principle that factual disputes and documentary evidence must be fully examined before a final conclusion on residential status and taxability is reached. 3. Residential Status of the Assessee The residential status determination under Section 6 is crucial because it governs the scope of taxable income under Section 5. The assessee's stay in India during the relevant financial year was 177 days, and outside India was 188 days. Under Section 6(1)(c), an individual who has been in India for 365 days or more in the preceding four years and is in India for 60 days or more during the current year is a resident. However, Explanation 1 to Section 6(1)(c) modifies this for Indian citizens leaving India for employment outside India, substituting the 60 days with 182 days. The Tribunal recognized that the assessee's stay outside India for 188 days satisfies the condition for non-resident status under the Explanation, provided the assessee left India for employment outside India. The Tribunal also noted judicial precedents supporting that an individual spending less than 182 days in India while employed abroad is to be treated as non-resident for tax purposes. Nonetheless, the Tribunal emphasized that the assessee cannot have dual residential status for the same assessment year-claiming non-resident status for salary income and resident status for business income. The Tribunal found the AO's and CIT(A)'s approach to treat the assessee as resident based on the original return declaration and non-filing of revised return legally sound but subject to verification of documentary evidence. Therefore, the residential status issue was remanded for reconsideration by the CIT(A) on the basis of complete evidence. 4. Adequacy of Time Granted to File Replies to Notices The assessee challenged the assessment order on the ground that the Show Cause Notice (SCN) dated 19.04.2021 provided less than seven days to file a reply, violating principles of natural justice and relevant procedural circulars. The assessee relied on several High Court and ITAT decisions which held that less than seven days' time to respond to notices under Section 142(1) or 148 is insufficient and vitiates the assessment order. The Tribunal noted these precedents but did not decide this ground separately as the appeal was being restored for fresh adjudication on merits. The issue remains open for consideration by the CIT(A) upon restoration. 5. Initiation of Penalty Proceedings under Section 270A The assessee contended that initiation of penalty proceedings under Section 270A was erroneous. The CIT(A) and the Tribunal held this ground to be premature since penalty proceedings cannot be adjudicated in the appeal against the assessment order. Hence, this ground was dismissed without detailed examination. 6. Miscellaneous Grounds General grounds alleging illegality and assumptions in the assessment order without specific evidence were not separately adjudicated due to lack of substantiation. Significant Holdings "Since as the assessee was prevented by sufficient cause in filing of appeal within the prescribed period of limitation, the delay of 18 days in filing the appeal by the assessee is condoned, having regard to the decision of Hon'ble Supreme Court in the case of Collector, land Acquisition vs. Mst. Katiji and Others." "The appellant cannot declare himself for two residential status for the same year i.e. A.Y.2018-19 i.e. Non-resident status for salary income and Residential status for business income. So, the residential status of the appellant is hereby held as 'Resident' only." "The revised claim of the appellant to treat himself as Non-resident cannot be considered in absence of a revised return as held by the Hon'ble Supreme Court in M/s. Goetze (India) Ltd. -v- CIT (2006) 284 ITR 323 (SC)." "The appellant failed to provide the copy of passport reflecting his foreign stay for more than the prescribed period and other relevant documents despite repeated requests. Thus, the claim of appellant regarding residential status is not verifiable." "On the totality of the case, it is held that the status of the appellant is 'Resident' and the salary received to the tune of Rs. 29,86,963/- is taxable in the hands of the appellant in India. Therefore, the addition of Rs. 29,86,963/- made by the AO as unadmitted salary received by the appellant from M/s. Saket Gems (HK) Ltd., Hongkong is hereby sustained." "However, since the assessee has now placed certain documents on record before the Tribunal without certification as to whether these were before the AO or CIT(A), it is not possible to decide the fact that he earned the income of Salary of Rs. 29,86,963/- outside India. This fact needs to be considered by Ld. CIT(A) after providing opportunity to the assessee of being heard." "The matter is restored to the file of the Ld. CIT(A), who will decide the issue on the material to be placed on record by the assessee." Core principles established include:
Final determinations on each issue are:
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