TMI Blog2014 (12) TMI 335X X X X Extracts X X X X X X X X Extracts X X X X ..... omplete set of documents received by him to the appellant during the course of assessment proceedings - as a part of the remand report, the AO had called the appellant and opportunity to cross examine the AO himself was available to the appellant, however, the appellant chose not to appear and hence cannot raise the bogey of cross examination here - Further, the right to cross examine is available when the department has already recorded the statement and is being used against the appellant. In the instant case, no such thing was done by the department or the AO - the information passed to the AO had been received as a part of the tax information exchange treaty and therefore, there could not have been any cross examination – thus, the AO rightly assumed jurisdiction to reopen the assessment – Decided against assessee. Addition of undisclosed income – Held that:- Not only the documents rather the English translated copy of such documents was also provided - another assertion made by the assessee was that the information was unvouched and not corroborated with any evidence - the documents were received officially by the Government pursuant to an investigation made by permanent su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cess of the laws hence the order of reassessment is bad in law, as the principal of the natural justice is violated, sanction was given by the Additional Commissioner without application of mind, objection of the reopening was not deal with, the purported reasons recorede3d were served beyond limitation period, hence the notice is bad etc. 2. Addition on account of alleged undisclosed income- ₹ 2,34,64,398/- (original Ground no.4) The ld. Commissioner of Income Tax (Appeals), erred in confirming the order of the Assessing Officer making an addition of ₹ 2,34,64,398/- on account of alleged undisclosed income, without appreciating the fact that the alleged trust was discretionary trust as neither the amount was accrued nor credited to Appellant s name, hence addition cannot be made in the hands of the Appellant. 3. Not adjudicating the alternative ground regarding taxability of income only (Original Ground no.4). Without prejudice to the above, the learned CIT(A) erred on facts and in law in not adjudicating the alternative grounds regarding the taxability of income only of US $ 13,500/- earned by the alleged trust and not the amount outstanding of US $24,06,6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ranslation of the document was provided to the assessee. The ld. Special Counsel filed certain documents which will be discussed in the later part of this order. It was contended that the assessee was made aware about the names of the beneficiaries, bank account. Our attention was invited to section 106 of the Evidence Act (burden of proving fact) by contending that the department got these authenticated documents which were provided to the assessee also, therefore, reopening is valid. It was pointed out that the assessee was summoned by the Revenue authorities but she/they did not appear before the AO and even sought adjournment during remand proceedings which was granted, convenient date was fixed and even on that date the assessees did not appear. It was submitted that money was arranged by the beneficiaries to the local jurisdiction because distribution of assets was not liable for further taxation at that place (where account of the trust was opened ) but liable for taxation in India. 2.2. We have considered the rival submissions and perused the material available on record. Since identical facts/issues are involved and all the assessees are relatives, therefore, these appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r persons, acting on behalf of such banks, shall be obliged to maintain secrecy of facts that they have been interested too or have been made available to them pursuant to their business relations with clients. The obligation to maintain secrecy shall not be limited in time. These documents are available at pages from 1 to 15 of the paper book filed by the ld. Special Counsel. We are reproducing hereunder the exhibit list (Hearing) on Taxhaven Bank and US tax Compliance (July 17 and 25, 2008) for ready reference and proper conclusion. United States Senate PERMANENT SUB COMMITTEE ON INVESTIGA TIONS Committee on Homeland Security and Governmental Affairs Carl Levin, Chairman Norm Coleman, Ranking Minority Member EXHIBIT LIST Hearing On TAX HAVEN BANKS AND U. S. TAX COMPLIANCE July 17 and 25, 2008 1. Marsh Foundations, chart prepared by the U. S. Senate Permanent Subcommittee on Investigations. 2. Wu Foundation, chart prepared by the U. S. Senate Permanent Subcommittee on Investigations. 3. Greenfield Foundation, chart prepared by the U. S. Senate Permanent Subcommittee on Investigations. 4. Laity Foundation, chart prepared by the U. S. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to TM Lung Worldwide, Ltd, dated January 21, 1997. 22. LGT Memorandum by Kim Choy regarding JCMA Foundation, dated June 26, 2002. 23. Documents regarding withdrawal of$1 00,000 by JCMA Foundation/william Wu from LGT through HSBC Hong Kong and Shanghai Banking Corp. Hong Kong, June 2002. 24. Excerpt from Resolution, The Foundation Board of JCMA Foundation, indicating statement of assets asper3l December2001 in the total amount of USD 4.283,4 73 .49. dated February 7, 2002. 25. Excerpt from Resolution, The Foundation Board of JCMA Foundation, indicating inventory of assets and liabilities at 31 December 2003 showing a total of USD 2.1 7Z145.9 7, dated March 10, 2004. 26. Excerpt from Resolution of the Foundation Board of JCMA Foundation, showing assets as per 31 December2004 amount to USD 1,202,636.25, dated February 13, 2006. 27. Excerpt from Resolution of the Foundation Board of JCMA Foundation, showing assets as per 31 December2005 amount to USD 1,188,957.64, dated March 30, 2006. 28. Excerpt from Resolution of the Foundation Board of JCMA Foundation, showing assets as per 31 December2006 amount to USD 422,249.10, dated April 18,2007. 29. WI report on Veli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... June 26, 2001, regarding Luperla Foundation. 47. Memorandum for the File, dated July 16, 2001, regarding Luperla Foundation, Valuz. 48. Memorandum for the File, dated December 17, 2001, regarding Luperla Foundation, Valuz. 49. Memorandum for the File, dated December 18, 2001, regarding Luperla Foundation, Valuz. 50. Memorandum for the File, dated December 20,2001, regarding Luperla Foundation, Valuz. 51. Documents regarding Beverly Park Corporation. 52. IRS Information Document Requests (IDR) regarding Beverly Park Corporation. 53. State of Delaware, Division of Corporations, Entity Details for Beverly Park Corp., listing Incorporation Dates of December 17, 1991, and January 3, 1997. DOCUMENTS RELATING TO GREENFIELD ACCOUNTS: 54. LGT Memorandum for the Record, dated March 27, 2001, memorializing a March 23, 2001 meeting regarding Maverick Foundation between LGT and Harvey and Steven David Greenfield. 55. WI Summary of Maverick Foundation as of December 31, 2001, dated January 1, 2002., 56. LGT report on Maverick Foundation, undated. 57. LGT report on TSF Company Limited, undated. 58. LGT report on Chiu Fu (Far East) Limited, undated. 59. LG ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vices Activities. Country Paper USA (Effective Date June 1, 2007), prepared by UBS. 87. Excerpt of Key Clients in NAM, Business Case 2003-2005. 88. Correspondence of UBS to Clients dated November 4,2002, We are writing to reassure you that your fear is unjustified and wish to outline only some of the reason why the protect ion of client data cannot possibly be compromised .... UBS s entire compliance with its QI obligations does not create the risk that his/her identity be shared with U.S. authorities. 89. Martin Liechti (Head of UBS Wealth Management Americas) email, January2007, regarding net new money goal and Year of the Pig. 90. Referral Campaign BU Americas, June 2002 (Swiss watch await!). 91. Overview Figures North America, prepared by UBS. 92. Case Studies Cross-Border Workshop NAM. 93. UBS Memorandum, dated November 15, 2007, re: Changes in business model for U.S. private clients. 94. Talking Points for Informing U.S. Private Clients With Securities Holdings About The Realignment Of Our Business Model Plus Q .A. DOCUMENTS RELATED TO OLENICOFF: 95. Statement of Facts, United States of America vs. Bradley Birkenfelc4 dated 2008. 96. Plea Agre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reign Credit Cards Hold Mail Shred Files Liechtenstein Secrecy Laws Article 14 of the Banking Act: The members of the organs of banks and their employees as well as other persons acting on behalf of such banks shall be obliged to maintain the secrecy of facts that they have been entrusted to or have been made available to them pursuant to their business relationships with clients. The obligation to maintain secrecy shall not be limited in time. Article 11 of the Trustee Act Trustees are obliged to secrecy on the matters entrusted to them and on the facts which they have learned in the course of their professional capacity and whose confidentiality Is in the best interest of their client. They shall have the right to such secrecy subject to the applicable rules of procedure in court proceedings and other proceedings before Government authorities. Article 10- Data Confidentiality: Whoever processes data or has data processed must keep data from applications entrusted to him or made accessible to him based on his professional activities secret, notwithstanding other legal confidentiality obligations, unless lawful grounds exist for the transmission of the da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x Investigation and any lessons learned Tax Office Strategy The ATO is investigating the use of Liechtenstein entities and bank accounts in collaboration with other revenue agencies. In Australia, we are conducting 20 tax audits which are likely to raise tax liabilities In excess of $100 million. Anecdotal information suggests that relatively few Australians are involved in Liechtenstein arrangements relative to citizens from other countries. Liechtenstein -The ATO is currently reviewing the taxation affairs of Australian taxpayers who appear to have concealed income in offshore entities located hi banking secrecy jurisdictions and tax havens. ~M have a particular focus on taxpayers who have used the services of the LGT Group and Its trustee entity, LGT Treuhand Aktiengesellschaft in Vaduz. Liechtenstein (LGT.) LGT Treuhand A.O. operates a fiduciary or trustee service and establishes and administers legal entitles such as anstalts, stiftungs (foundations) and trusts for its clients. LGT Bank in Liechtenstein A.G. Is the banking division of the LGT Group. It has responsibility for banking services related to the investment functions of the LGT Group. The serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stablish d by LGT for its clients are commonly Invested with its own bank or funds management entities: LGT Bank in Liechtenstein; LGT Capital Invest Limited Grand Cayman; and LGT Portfolio Management (Cayman) Limited. At the clients direction, funds may be invested with a third party bank, usually operated In a banking secrecy jurisdiction. The ATO understands that for a trust or foundation to be established by LGT, substantial funds must be settled In the trust or foundation for it to be economically viable for LGT. LGT clients are wealthy investors who typically Invest a small portion of their total wealth in a LGT structure and who do not need access to these funds to supped their domestic lifestyle. LGT plays an active role in servicing and administering the clients Liechtenstein entity. For example the bawd members of a foundation will be LGT employees. They are responsible for administration of the entity and are the approved signatories. The use of LGT employees as board members or trustees and in-house or omnibus entities as nominee directors of Interposed entities is considered to be another means by which the beneficial owner is distanced fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tein to achieve greater transparency and exchange of Information. The ATO welcomes news that new laws In Liechtenstein will enhance regulation and transparency in relation to some legal entities. However, we are concerned to see the detailed law and Its proposed implementation in 2009 to determine whether there are practical changes to trustee/banking practices. Lessons learned Project management strategies are essential to successful audit outcomes. Sharing of information with other revenue agencies expedites the progress of cases. Our compliance activities have resulted in disclosures or settlements. 2.3. We are reproducing hereunder the salient features of the Host Trust reg. Home -The trust Reg. can be structured like a company limited by shares or foundations as an instrument for commercial activities or for the administration of assets. Company overview -The trust reg. qualifying as private asset structure pays an annual tax of CHF 1,200 only Executive Sum Company norms many Liechtenstein -Distribution to the beneficiaries as well as profits e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for investors. Company The company limited by shares is suitable for all economic objectives, in particular for: - international commercial transactions or - as a holding structure for subsidiary companies. - The company limited by shares qualifying as private asset structure pays an annual tax of CHF 1 '200 only. - The coupon tax of 4% is not any longer levied on dividends distributed from income accrued after January 1, 2011. - The profits earned are not subject to any further tax. - Bearer or registered shares are admissible. The minimum nominal value is not regulated. It is also possible to issue voting shares. The Liechtenstein law does not ask for any qualifying shares to be held by the directors. - The general meeting of the shareholders is the supreme authority. - The board of directors conducts and manages the company business. - The auditor has to examine the annual accounts and reports to the general meeting. - The annual accounts approved have to be submitted to the Liechtenstein tax administration. - The minimum capital to constitute a company limited by shares is CHF 50'000. The organization of an individual esta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as private asset structure pays an annual tax of CHF 1 '200 only. - Neither the endowment to the foundation nor the distributions to the beneficiaries or the profits earned are subject to any further tax, - The supreme authority is vested in the members of board who also take care of the administration. - The founder may designate other bodies as e.g. protectors, collators and auditors. - An individual as founder may by creating retained founder's rights preserve for himself the authority to revoke the foundation and to amend the foundation documents. - Only if the foundation pursues commercial activities the annual accounts approved by the auditor must be submitted to the Liechtenstein tax administration. - The minimum capital to constitute a foundation is CHF 30'000. The Liechtenstein trust settlement is shaped according to the English law trust. Trust (Trust Settlement) - Trusts are used in a similar manner as the foundation. - However, the trust is not a legal entity itself, but a kind of contractual relationship. - The settlor transfers movable or immovable assets or rights to the trustee with the obligation to hold and make use of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e so-called by-laws. These are regulations setting forth who the first beneficiary of the assets is and who qualifies as second beneficiary once the first has died. As no formal change of ownership takes place in case of succession, no inheritance tax becomes payable. - Asset protection by means of a holding company If assets - earmarked for the personal benefit only - are held by a holding company (normally a foundation) not all assets are endangered in case of losses or liabilities incurred during the course of business activities pursued by the beneficiary. Fees and Costs in General The fees and costs involved with the constitution and administration of a Liechtenstein company or trust are approximately the following: - For the constitution of a company/trust between CHF 5'000 and 6'000; - The court fees (costs) coming along with the constitution depend on the kind of company, normally approx. CHF 600 - I '300; - For the local director/trustee of the company/trust an annual lump sum between CHF 5'000 and 6'000; - For the legal representative in charge to accept services on behalf of the company an annual lump sum between CHF 500 and 60 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exchange of information and mutual assistance in tax matters. The country, a landlocked jurisdiction in Central Europe, became the 62nd signatory to a worldwide convention, accepted by almost all economic superpowers and formulated by the Paris-based Organisation for Economic Cooperation and Development (OECD), an international policy-advisory body that formulates global tax standards to fight tax evasion and concealment of illicit funds. Switzerland, in October, had joined the same convention. Liechtenstein and San Marino became the 62nd and 63rd signatories of the multilateral convention on mutual administrative assistance in tax matters at a ceremony marking the first day of the November 21-22 meeting of the Global Forum on Transparency and Exchange of Information for Tax Purposes, the OECD said in a statement. A senior Finance Ministry official in Delhi said the step, announced by Liechtenstein last week, is a boost to India's efforts to combat black money instances overseas. Indian investigating agencies have come across a number of cases where individuals or entities from India have been detected using banking channels of Liechtenstein to hide their ill ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s escaped assessment. Even vide letter dated 23/9/2009 the Assessing Officer showed details (a) information of trust, (b) details of settler of the trust, (c) purpose of creating trust, (d) copy of trust deed, (e) asset and bank accounts held by the trust in India and abroad and (f) benefit received by the appellant during the financial years relevant to Assessment Year 2002-03 to 2007-08 (page 21 ). The assessee vide letter dated 14/10/2009 denied the allegation of the Assessing Officer (page-22). The assessee also informed that she/they had not received any benefit from the trust or for that matter in any other Assessment Years. Vide letter dated 26/10/2009 the Assessing Officer furnished the copies of documents (pages 24 to 28) which formed the basis for initiating proceedings u/s. 148/147 of the Act. The Assessing Officer vide letter dated 8/12/2009 informed that he has information that the assessee deposited USD 24,06 604.90 in the name of Ambrusova trust in LTG Bank (pg-31). The assessee was asked to explain as to why it may not be treated as investment out of undisclosed sources and added to the income (pg-34). The assessee vide letter date 18/12/2009 informed the Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lf of the assessee is that the addition was made by the AO without appreciating the fact that the alleged trust was discretionary trust and neither the amount was accrued/credited nor the name of the assessee appeared as beneficiary of Ambrunova Trust. On the other hand, the ld. Special Counsel brought to our notice certain documents evidencing that the names of all the assessees were appearing, who are beneficiaries of the said trust. 3.1 We note that (Pg-14 of the document filed by the ld. Spl. Counsel) the trust was established on 21/3/1997 and the status of the account is active . On 21st Nov. 2013, Liechtenstein joined India as important partner in fighting overseas tax abuse and black money and shed its secrecy cloak and joined the league of a host of other countries for automatic exchange of information and mutual assistance in tax matters. Thus, became 62nd signatory to a worldwide convention, accepted by almost by all economic super powers and formulated by Paris based Organization for Economic Co-operation and Development (OECD), an international policy advisory body which formulates global tax standard to fight tax evasion and concealment of illicit funds. Switzerlan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... than between Tweedledum and Tweedledee Recommendations are not binding but are merely raw materials for consideration. Where there is no surrender of judgment by the Board to the recommending Regional Inspector, there is no contravention of the cannons of natural justice. (5) Natural justice is no unruly horse, no lurking landmine, nor a judicial cure-all. If fairness is shown by the decision-maker to the man proceeded against, the form features and the fundamentals of such essential processual propriety being conditioned by the facts and circumstances of each situation. no breach of natural justice can be complained of. Unnatural expansion of natural justice. without reference to the administrative realities and other factors of a given case, can be exasperating. Courts cannot look at law in the abstract or natural justice as a mere artifact. Nor can the), fit into a rigid mould the concept of reasonable opportunity. If the totality of circumstances satisfies the Court that the party visited with gelverse order has not suffered from denial of reasonable opportunity the Court will decline to be punctilious or fanatical as if the rules of natural justice were sacred scriptures ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ittee on investigation of United States Senate. The copy of exhibit list regarding tax haven banks has already been reproduced by us in earlier part of this order. As we have reproduced in earlier part of this order (host trust reg.), the distribution to the beneficiaries as well as profits earned are not subject to any further tax and, further, the supreme authority is vested in the settler and is transferable. It can be concluded that the Liechtenstein jurisdiction qualifies as an off shore financial centre due to a very modest tax regime, high standard of secrecy laws and further foreign investors had the opportunity to establish companies or trust with HOST trust reg. in the principality of Liechtenstein to enjoy the advantages of off-shore financial centre. As per the report Indian Investigating Agencies came across a number of cases where individual or entities from India were detected using banking channels of Liechtenstein to hide their illegal income or stash funds and it was only possible when India became signatory to a world-wide convention formulated by OECD an international policy advisory body which formulated global tax standards to fight tax evasion and concealme ..... X X X X Extracts X X X X X X X X Extracts X X X X
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