2025 (6) TMI 1706 - AT - Income Tax

Addition of interest on HSBC Account on protective basis - assessee is having account with HSBC Geneva Switzerland - CIT(A) has confirmed the addition on substantive basis - HELD THAT - From the perusal of the bank statement as reproduced it is found that the said bank account contained the client no. and client name which are matching with the client profile code and client name referred. It is correct that nowhere in the statement name of the assessee is mentioned however the other particulars referred therein suggest that it is the same bank account which has been made basis for computing the notional interest by the AO. A bare perusal of the said bank account it is seen that on opening day of previous year i.e. on 01.04.2011 there was a credit balance of 8, 599.72 USD as against which the AO in the table of the order has taken the balance at 4, 07, 651.17 USD. AO ignored the fact that the bank has not credited any interest rather account maintenance fee was charged on two occasions totaling to 1391.51 USD (941.29 USD 450.22 USD) and NIL balance was remained as on 16.11.2011. These facts clearly suggest that neither the assessee is having the balance as alleged by the AO nor has received any interest for which the AO could made additions rather account maintenance charges was levied by the bank. Under these circumstances in our considered view no addition on account of notional interest could be made in the hands of the assessee. Co-ordinate Bench of ITAT in the case of Krishan Kumar Modi 2019 (7) TMI 596 - ITAT DELHI where under identical circumstances additions were made on notional interest @ 4% were deleted by the Co-ordinate Bench - we delete the addition made on account of notional interest on substantive basis in the hands of the appellant. Addition towards cash found/seized during the course of search - HLD THAT - The immediate source as explained by the assessee that bank withdrawals made within the period of one month totaling to INR 4, 50, 000/- from her bank account out of which a sum of INR 2, 78, 142/- was available with assessee as on the date of search. The withdrawals were made on 26.11.2011 of INR 2, 50, 000/- and on 08.07.2011 of INR 2, 00, 000/- and the date of search is 28.07.2011. Looking to this short span of time of around of 30 days from the withdrawals and the search the claim of the assessee cannot be ignored solely for the reason that she was not able to state these facts during the course of search. It is not the case of the Revenue that the bank account from where the withdrawals were made was not of the assessee nor the said account was undisclosed bank account. Therefore we find no reason to confirm such addition. Accordingly we hereby direct the AO to delete the addition of INR 2, 78, 142/-. Ground No.4 raised by the assessee is accordingly allowed. Addition made towards the jewellery found during the course of search - The total jewellery found of 3619.170 grams during the course of search following jewelry could be held as explained - (i) Declared under VDIS 1997 at 1088.910 grams; (ii) Gift from other in law 375.200 grams; (iii) Purchase of jewellery 1621.140 grams; and (iv) As per CBDT instruction 700 grams. The total comes to 3785.25 grams as against which the total jewellery was 3619.170 grams therefore no jewellery could be held as unexplained accordingly we direct the AO to delete the addition of INR 1, 01, 52, 902/- made on account of jewellery. Ground Nos. 5 6 raised by the assessee are accordingly allowed. Legality of the assessment order as the same was barred by limitation and without jurisdiction - In this case it is seen that a reference was made by the AO to FT TR in respect of foreign assets and foreign transactions and as per Explanation (9) to section 158B of the Act. There is an extension of one year is granted. In view of these facts we do not find any infirmity in the action of the AO and order is not barred by limitation and accordingly these grounds of appeal are dismissed.Before us the assessee has taken one additional ground wherein the approval granted u/s 153B of the Act was challenged however during the course of hearing Ld. AR of the assessee has withdrawn this additional ground. Therefore the same is hereby dismissed. Levy the penalty u/s 271(1)(c)- additions so made by holding that the assessee has concealed the particulars of income - As we have already deleted the additions made on account of notional interest cash and jewellery found during the course of search by considering the arguments of the assessee on merits. Therefore there remained no income for which any particulars were concealed by the assessee and therefore the penalty levied u/s 271(1)(c) of the Act has no legs to stand and accordingly the same is hereby dismissed.

Summary

1. ISSUES PRESENTED and CONSIDERED

- Whether the addition of INR 8,26,879/- on account of notional interest on the HSBC Geneva bank account is justified, given the absence of disclosed interest income and presence of maintenance charges.

- Whether the addition of INR 2,78,142/- towards cash found/seized during search is sustainable, considering the source claimed by the assessee through recent bank withdrawals.

- Whether the addition of INR 1,01,52,902/- on account of unexplained jewellery found during search is valid, in light of the assessee's claims of declared jewellery, gifts, and purchases supported by bank withdrawals and affidavits.

- Whether the assessment order is barred by limitation or lacks jurisdiction due to procedural defects.

- Whether the penalty imposed under section 271(1)(c) for concealment of income stands when additions have been deleted on merit.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Addition of Notional Interest on HSBC Geneva Bank Account

Relevant Legal Framework and Precedents: The Income Tax Act, 1961, section 271(1)(c) penalizes concealment of income. The AO estimated interest income @ 4% on the balance of the foreign bank account based on information received under DTAC/DTAA. The Tribunal referred to a coordinate bench decision in the case of Krishan Kumar Modi, where similar notional interest additions were deleted for lack of basis.

Court's Interpretation and Reasoning: The AO assumed the assessee had a substantial balance in the HSBC account and credited interest at 4%, despite the bank statement showing no interest credited but maintenance charges debited, with the balance reducing to zero within the year. The assessee's bank statement showed an opening balance of USD 8,599.72, maintenance fees totaling USD 1,391.51, and a closing balance of nil, contradicting AO's assumption of a balance exceeding USD 400,000.

Key Evidence and Findings: The bank statement produced by the assessee, showing no interest credited, maintenance charges levied, and zero closing balance. The AO's calculation was purely hypothetical and not supported by actual bank transactions.

Application of Law to Facts: The Court held that additions based on notional interest without evidence of actual receipt or accrual of interest are impermissible. The AO's approach was a figment of imagination unsupported by facts.

Treatment of Competing Arguments: Revenue relied on information from the Swiss Government and the assessee's failure to provide details. The assessee countered with bank statements and judicial precedents. The Tribunal favored the latter, emphasizing evidence over presumptions.

Conclusion: The addition of INR 8,26,879/- as notional interest was deleted.

Issue 2: Addition of Cash Found/Seized During Search

Relevant Legal Framework and Precedents: Cash found during search can be added unless satisfactorily explained by the assessee. The burden lies on the assessee to prove legitimate source.

Court's Interpretation and Reasoning: The assessee claimed the cash was withdrawn from her bank account shortly before the search date. Withdrawals of INR 4,50,000/- were made within about 30 days prior to the search, and the cash found/seized was within this amount.

Key Evidence and Findings: Bank statements showing withdrawals on 08.07.2011 and 26.11.2011, close to the search date of 28.07.2011. The Revenue did not dispute the ownership or disclosure of the bank account.

Application of Law to Facts: The Tribunal accepted the proximity of withdrawals to the search date as sufficient explanation for the cash found, rejecting the Revenue's reliance on non-disclosure during search proceedings as insufficient ground for addition.

Treatment of Competing Arguments: Revenue insisted on confirmation of source during search; assessee provided documentary proof of bank withdrawals. The Tribunal gave weight to documentary evidence over procedural lapses.

Conclusion: The addition of INR 2,78,142/- towards cash found/seized was deleted.

Issue 3: Addition of Jewellery Found During Search

Relevant Legal Framework and Precedents: CBDT Instruction No. 1916 dated 11.05.1994 allows a certain quantity of jewellery (500 grams for married women) to be treated as explained. Judicial precedents from Karnataka and Gujarat High Courts support this principle. The burden is on the assessee to establish the source of jewellery.

Court's Interpretation and Reasoning: The AO had erred in calculating total jewellery weight, overstating it by 332.73 grams. The assessee produced an affidavit regarding jewellery gifted by mother-in-law and bank statements evidencing withdrawals used for jewellery purchases. The AO did not dispute the withdrawals or their utilization but rejected the claim for want of bills or donor confirmation.

Key Evidence and Findings: Reconciliation statements, affidavits, valuation reports, and bank statements showing cash withdrawals totaling INR 10 lakhs used for jewellery purchases. The Tribunal noted the absence of any material contradicting the assessee's claims or showing alternate utilization of withdrawn cash.

Application of Law to Facts: The Tribunal accepted the gift claim despite absence of donor confirmation, considering the elderly donor's inability to appear and customary gifting practices. The purchase claim was accepted based on bank withdrawals and absence of contrary evidence. The CBDT instruction was applied to allow 700 grams as explained jewellery.

Treatment of Competing Arguments: Revenue demanded invoices and donor confirmation, which were not produced. The Tribunal held that absence of such documents alone cannot disallow the claim if other credible evidence exists.

Conclusion: The addition of INR 1,01,52,902/- on account of unexplained jewellery was deleted, and the total jewellery was held as explained.

Issue 4: Legality and Limitation of Assessment Order

Relevant Legal Framework and Precedents: Section 158B(9) of the Act allows extension of limitation in cases involving foreign assets and transactions. Proper jurisdiction and limitation are essential for valid assessments.

Court's Interpretation and Reasoning: The AO had referred the case to the Foreign Tax and Transfer Pricing (FT & TR) wing, triggering an extension of limitation by one year under Explanation (9) to section 158B. The Tribunal found no infirmity in the AO's action or limitation period.

Key Evidence and Findings: Records showing the AO's reference to FT & TR and compliance with statutory provisions.

Application of Law to Facts: The Tribunal held the assessment order valid and not barred by limitation.

Conclusion: Grounds challenging limitation and jurisdiction were dismissed.

Issue 5: Penalty under Section 271(1)(c) for Concealment of Income

Relevant Legal Framework and Precedents: Penalty under section 271(1)(c) is levied for concealment or furnishing inaccurate particulars of income. If additions are deleted on merit, penalty cannot be sustained.

Court's Interpretation and Reasoning: Since the Tribunal deleted all substantive additions on merit, there remained no income concealed by the assessee. Consequently, the penalty order lost its foundation.

Key Evidence and Findings: Deletion of additions relating to notional interest, cash, and jewellery.

Application of Law to Facts: The Tribunal dismissed the penalty as unsustainable in absence of any concealed income.

Conclusion: Penalty under section 271(1)(c) was quashed.

3. SIGNIFICANT HOLDINGS

- "Since there is no evidence that the assessee actually received interest on the disputed deposit and just by figment of imagination it has been concluded that the assessee earned interest on such deposits @ 4% p.a., the impugned addition on account of notional interest, has, even on merits, been rightly deleted by the CIT(A)."

- The Tribunal held that "neither the assessee is having the balance as alleged by the AO nor has received any interest for which the AO could made additions rather account maintenance charges was levied by the bank."

- Regarding cash found during search: "Looking to this short span of time of around of 30 days from the withdrawals and the search, the claim of the assessee cannot be ignored solely for the reason that she was not able to state these facts during the course of search."

- On jewellery additions, the Tribunal stated: "It is customary in Indian family that normally on the occasion of marriage anniversary etc., elders of the family made gifts. Therefore, the claim of the assessee cannot be ruled out."

- The Tribunal applied CBDT Instruction No. 1916 and judicial precedents to hold that "700 grams of jewellery in terms of CBDT instruction can be held as explained."

- On penalty: "Since we have already deleted the additions made on account of notional interest, cash and jewellery found during the course of search by considering the arguments of the assessee on merits. Therefore, there remained no income for which any particulars were concealed by the assessee and therefore, the penalty levied u/s 271(1)(c) of the Act has no legs to stand."

- On limitation: "In view of these facts, we do not find any infirmity in the action of the AO and order is not barred by limitation."