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The Deputy Commissioner of Income Tax Versus Sri Madhusudan Rao Lagadapati, Chairman, M/s. Lanco Infratech Ltd.

2015 (3) TMI 755 - ITAT HYDERABAD

Addition made u/s.68 / 69 / 69A / 69C - CIT(A) deleted the addition accepting additional evidence under Rule 46A(1) - assessee is a non-resident Indian, generally resident of Dubai - Held that:- We are unable to understand how Assessing Officer can consider inward remittance of moneys into NRI A/c of a non-resident Indian as income of assessee as unexplained. Assessee in the course of assessment proceedings furnished enough evidences in support of inward remittance of funds including a certifica .....

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to verify from the internet and also from the website of the SEBI and came to the conclusion that the said company is one of the group companies of assessee listed as persons constituting group under Monopolies and Restrictive Trade Practices Act, 1969 and further noticed from the red herring prospectus of M/s.Lanco Infratech Limited, wherein this company was shown as single shareholder company of assessee as on 29-07-2006. This means the existence of the company is accepted by the authorities, .....

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in Mauritius to the NRI account in India. Therefore, the immediate source of funds is his own account from Mauritius which is not disputed. If funds are received into Mauritius account, then that becomes source of the source which cannot be examined by Assessing Officer, unless there is any incriminating evidence. Except presumptions and allegations, virtually there is no evidence against assessee that these funds received into his bank account in Mauritius are his own incomes from India or ' .....

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order of the CIT(A) is not correct. Therefore, the ground regarding creditworthiness of the company particularly from Ground No.6 to 10 also does not require any consideration.

It is not assessee who furnished the additional evidence. Therefore, it cannot be strictly considered as additional evidence under Rule 46A. CIT has co-terminus powers as that of Assessing Officer as far as appeals before him are concerned. In fact, he even had enhancement powers, if Assessing Officer has miss .....

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ia through banking channel and the manner in which this money was utilized in India is described in the Annexure. It has been observed that because of the mode of banking channel, admittedly, used for the remittance in this case, the onus on the assessee under section 69 stood discharged, and therefore it was not taxable in India under section 5(2)(b). In view of these facts of the case, we are of the opinion that various case laws relied by the Revenue does not apply and they are clearly distin .....

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dated 30-05-2014. 2. The only issue in this appeal is with regard to addition of ₹ 78,04,58,374/- made u/s.68 / 69 / 69A / 69C of the Income Tax Act (Act) in the assessment completed u/s.143(3) on 28-03-2014 by Dy. Director of Income Tax-I, International Taxation, Hyderabad. On the basis of the enquiries done by CIT(A) and considering the submissions of assessee, entire addition was deleted by CIT(A), on which Revenue is aggrieved. 3. The facts of the case are that, assessee is a non-resid .....

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/c'. He has made enquiries as there is increase in the liabilities side to the same extent. Assessing Officer noted that assessee applied the funds as under: i. Investment of shares of M/s. Lanco Infratech Limited, M/s. Lanco Group Services Limited to the tune of ₹ 44 Crores (approximately); ii. Gifts to relatives to the tune of ₹ 21 Crores (approximately); iii. Cash in Bank is about ₹ 9 Crores (approximately); and iv. Personal expenses to the tune of ₹ 4 Crores (appr .....

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. 1482/Hyd/2014 :- 3 -: Sri Madhusudan Rao Lagadapati, Chairman, M/s.Lanco Infratech Ltd., that such transcripts indicate that the remittal was by assessee himself. Assessing Officer issued a show cause notice calling for details of various remittances and sources thereof. Assessee has explained that the moneis remitted into the above banks were his own funds from abroad. He further submitted that the source of the above funds abroad were from M/s.Vitrual International Ltd., Mauritius who has pr .....

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ficer verified the internet and found out that the above said company was registered in Mauritius and assessee is a single shareholder. As per the annual financial statements published by M/s. Lanco Infratech Limited, this company M/s.Vitrual International Ltd., was shown as 'persons constituting group' as defined under MRTP Act, 1969 as on 31-03-2011. Assessing Officer also verified the website of SEBI and noted that in the 'red herring' prospectus of M/s. Lanco Infratech Limite .....

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ering the above and also the legal position as discussed by him in para 6 of the assessment order, he came to the conclusion vide para 8 of the assessment order as under: "8. The assessee who is a high net worth individual and who has significant business interest in India, as can be seen from the Statement of Affairs, has failed to furnish sufficient evidence with regard to nature and source of ₹ 78,04,58,374/- credited in the NRI Ledger. The assessee has merely relied on a copy of a .....

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as per Sec.68 / 69 / 69A / 69C of the I.T.Act, 1961." 5. Before the Ld.CIT(A), assessee had filed detailed submissions and contended point-wise observations of Assessing Officer which was extracted by the CIT(A) in the order. Ld.CIT(A) also directed assessee to furnish further evidence with reference to the creditworthiness of the said company and on examination, came to the conclusion that action of Assessing Officer in treating the amount as income of assessee is not correct, not only on .....

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the sections stated by Assessing Officer. He accordingly, deleted the same. His detailed order from para 6 to 12 is as under: "6. I have carefully gone through the above submissions of the appellant. As noted in para no.5 above, the AO has made the addition of ₹ 78,04,58,374/- u/s.68/69/69A/69C of the Act by observing that the assessee has not discharged the burden of satisfactorily explaining the source of ₹ 78,04,58,374/-credited in his NRI Ledger Account. On the other hand, t .....

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itrual International Limited, Mauritius. 6.1 In order to examine the correctness or otherwise of the assessee's claim, I have called for the Balance Sheet and other details of M/s.Vitrual International Limited, Mauritius, in response to which the appellant has filed before me, copies of the following documents so as to prove the identity, credit worthiness and qenuineness of the creditor-company (M/s.Vitrual International Limited, Mauritius) (a) Certificate of Incorporation of Mls Vitrual In .....

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nts, I find that the identity of the creditor company, viz., Vitrual International Limited, Mauritius is proved. 6.3 It is clear from the above documents that the loan given to the appellant for USD 1,74,00,000 (Rs.78,04,58,374) is shown under the head "Non Current Assets" in the statement of Financial position of M/s.Vitrual International Limited, Mauritius as at 31.3.2011 where in the capital and Reserve amount to USD 2,37,33,247 and the current liabilities amount to USD 59,50,478. H .....

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ands. Since the appellant has proved the Identity, creditworthiness of the creditor and the genuineness of the transaction, the addition made u/s. 68/69/69A/69C of the Act for ₹ 78,04,58,374/- is not warranted. 7. With regard to the observations and inference drawn by the AO in para nos. 4.4 and 4.5 of the assessment order, I found them as baseless because of the fact that the appellant has explained the source of the impugned credit satisfactorily. 7.1 The observation of the AO at para 4 .....

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o presume that such income necessarily comes/arises outside India in view of the decisions of Seth Kale Khan Md. Hanif Vs. CIT(1958) 34 ITR 669,673,674(MP), affirmed in 50 ITR 1 (SC) and CIT V. Krishna Mining Co. (1972) 83 ITR 860 (AP) is not correct. I also agree with the appellant's contention that the AO's observation at para no.4.7 of the assessment order relying on the Supreme Court's decision in the case of Vodafone International Holdings B.V vs. Union of India [341 ITR I (SC)] .....

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the confirmation letter is not an original certificate, that the relationship between the assessee and the company is not stated therein, that there is no mention of tax residency of the company, that there is no seal of the company on the copy of certificate submitted, that there is no date on the certificate and that there are no contact details on the certificate except for the postal address have no merit in view of the above mentioned evidence. Since the appellant has satisfactorily explai .....

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mittances certificates, bank statements and the certificate from the accountant from Mauritius [Quiyoom Dustogheer, FCCA, MIPA(M)]. I, therefore, agree with the explanation of the assessee that the amount of ₹ 78,04,58,374/- is received by the assessee from his own bank account maintained outside India. 9. Since the appellant is a non-resident, Section 5(2) of the I.T.Act and Board Circular No.5 dated 20-2-1969 deal with the issue on hand. The provisions of sub section(2) of section 5 of t .....

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a within the meaning of this section by reason only of the fact that it is taken into account in a balance sheet prepared in India. Explanation 2. -For the removal of doubts/ it is hereby declared that income which has been included in the total income of a person on the basis that it has accrued or arisen or is deemed to have accrued or arisen to him shall not again be so included on the basis that it is received or deemed to be received by in India. Board Circular No.5 in F.No.73/A/2/69-IT(A-I .....

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ed from abroad by such persons might be subjected to income-tax in India, The apprehension appears to be due to lack of information regarding the correct legal position about the taxability of the remittances of money from abroad, The general position, in this regard is clarified below. 2. Money brought into India by non-residents for investment or other purposes is not liable to Indian income-lax. Therefore, there is no question of a remittance into the country being subjected to income- tax in .....

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orm of assets like plant and machinery or stock-in-trade, for which the necessary import permits had been obtained, no questions at all are asked by the Income-tax Officers as to the origin of the money or assets brought in. It is only in case where the money is claimed to have been brought from outside otherwise than through banking channels and there is no evidence regarding the transfer of the money, that the department has to make enquiries about the source thereof. Even in these cases, havi .....

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ress Note. dated 1962 22-05-1967 (Circular No. 8, dated 22-5-1967 printed as Annex I) b. 1-1- Zanzibar Kenya, Tanzania and Uganda [vide Ministry of 1963 Finance Press Note. dated 22-5-1967 (Circular No. 8, dated 22-5-1967 printed as Annex I)] c. 1-1- East Pakistan and Burma [Vide Ministry of Finance Press 1964 Note dated 15-6-1964/22-5-1965 (Circular Nos. 16D dated 15-6-1964 and 11 dated 22-5-1965 printed as Annex 11 and Annex III respectively. d. 1-10- West Pakistan [vide Ministry of Finance Pr .....

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uction is given to the Income-tax Officer within two months of the migrant's arrival. 4. Cases not covered by preceding paragraph, namely : a. where the money (in the case of Mozambique, Zanzibar, Kenya. Tanzania, Uganda, East Pakistan and Burma) and money and/or the personal jewellery in the case of West Pakistan claimed to have been brought exceeds ₹ 50,000/- or b. where the assessee had some sources of income either in India or in any foreign country, other than the one from which h .....

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at the transfer of the cash/jewellery to India can directly be linked with the said funds or wealth. In other words, these migrants will have to lead proper evidence like any other assessees, about the source of the cash/jewellery alleged to have been brought by them from these countries. In support of the claim that they had sufficient funds in those countries. they might produce before the income-tax authorities in India their bank accounts in those countries as also copies of the assessment o .....

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s it is proved that they have accrued or arisen or received in India In the present case, it is found that the amount of ₹ 78,04,58,324/- has been remitted into India from aboard through normal banking channels from the appellant's own bank account at Mauritius. 10. Further, I agree with the submissions of the appellant that the amount of ₹ 78,04,58,324/- havl iq been received in India by the appellant from Mauritius through normal banking channels is not to be included in the to .....

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agree with the Assessing Officer's view that the provisions of Sec 68 or 69 of the I.T.Act prevail over the provisions of Sec 5(2)(b) of the Act. As claimed by the appellant, this issue is squarely covered by the decisions of Income Tax Appellate Tribunal in the case of DCIT Vs. Finlay Corporation Ltd[2003] 86 ITD 626 (Delhi ITAT) and Smt. Sushila Ramasamy Vs. ACIT, Central Circle-II(2), Chennai [2011] 008 ITR (trib) 18 (Chennai). In this regard, I don't agree with the observation of the .....

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d at Para No.10 of this order that bringing of his own money by the non-resident into India from outside India cannot be charged to tax in India and the provisions contained in section 5(2)(b) of the act are very clear in this regard. I have also held at Para No.11 of this order that the provisions of section 68 or 69 of the act cannot prevail over section 5(2)(b) of the act as the assessee is a Non-Resident Indian and income other than Indian income cannot be taxable in India. In view of this, .....

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rected to delete the addition. The appellant gets relief of ₹ 78,04,58,374/- for the year under." 6. Aggrieved, Revenue has raised the following grounds: (i) The order of the Ld. CIT(A) is erroneous on facts and in law (ii) The Ld. CIT(A) erred in deleting the addition of ₹ 78,04,58,374/- made in the assessment order u/s.68 of the I.T. Act as well as u/s.69, 69A and 69C of the I.T. Act. (iii) The Ld. CIT(A) erred in admittinq additional evidences furnished by the assessee during .....

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Ld. CIT(A) erred in accepting the veracity of the copy of certificate of incorporation of M/s.Vitrual International Ltd., Mauritius and the copies of the audited financial statements of the said company furnished by the assessee as additional evidences without causing verification of their genuineness from the tax authorities in Mauritius. (vi) The Ld. CIT(A) ought to have noticed that the audited financial statements of M/s.Vitrual Internatioral Ltd. for the F.Y.2010-11 furnished as additional .....

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d copies of the income tax returns filed in Mauritius by the said company to prove its identity either during the assessment proceedings or the appellate proceedings. (viii) The Ld. CIT(A) erred In holding that the genuineness of the loan purported to have been advanced by M/s Vitrual International Ltd. to the assessee is considered to be proved without citing any supporting reasons and disregarding the fact that the assessee failed to furnish copies of the bank accounts of the creditor company .....

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ny as on 31/03/2011 disregarding the fact that fresh capital of US$ 64 lacks is shown to have been contributed by the assessee himself to the said companv during the relevant year in his capacity as the sole shareholder in the statement of cash flows and the note-14 to financial statements. (x) The Ld. CIT(A), while considering the creditworthiness of M/s.Vitrual International Ltd., also erred in disregarding the fact that a fresh borrowing of US$ 52,95,478 by the said company is shown to have b .....

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ernational Ltd. is correctly depicted as a credit in the capital account of the statement of affairs of the assessee. The Ld. CIT(A) ought to have appreciated that the same should have been shown as a loan in the statement of affairs irrespective of whether it was received outside India or in India, if the claim of the assessee that the said amount was sourced out of loan taken in Mauritius was true. (xii) The Ld. CIT(A) erred in holding that there is no round tripping of funds without citing an .....

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by the unsubstantiated loan has accrued or arisen outside India to the assessee so as to take it outside the ambit of income chargeable to tax in the hands of a non-resident u/s.5(2)(b) of the I.T. Act. (xiv) The Ld. CIT(A) erred in holding that the observation of the Hon'ble Supreme Court in the case of Vodafone International Holding (341 ITR 1) that in the case of a one man company the control over the company may be so complete that it is his alter ego is not relevant to the facts of the .....

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the assessee's own bank account in Mauritius to his bank accounts in India through normal banking channels cannot be subjected to tax in India. The Ld. CIT(A) ought to have seen that the benefit of the circular will be applicable only when such remittances are sourced out of income which accrued to the non-resident outside India which is not taxable in India as per section 5(2)(b) of the Act and it will not be applicable to the assessee as the remittance was made out of a loan purported to .....

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provisions of the Act including section 68/69 in view of the presence of the specific phrase "subject to provisions of the Act" in section 5 of the I.T. Act. (xvii) The Ld. CIT(A) ought to have appreciated that the above mentioned decisions of ITAT, Delhi and ITAT, Chennai, have been rendered without considering the ratio laid down by the Hon'ble Supreme Court in the case of Kale Khan Mohammad Hamf (50 ITR 1) that the onus of proving the source of a sum of money received by the ass .....

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. 7. As can be seen from the above, Ground No.2 to 5 pertain to issue of additional evidence under Rule 46A(1) and Ground No.6 to 10 pertain to identity and creditworthiness of M/s. Vitrual International Ltd. Ground No.11 & 12 pertains to findings of CIT on the genuineness of the amount remitted. Ground No.13 to 18 pertain to various principles relied on by the Revenue on the basis of the judgments in various cases and Board's circular. 8. Ld.DR relied on the detailed orders of Assessing .....

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the RBI and funds were utilized for various investments in the group companies, gifts and loans to others including personal expenditure. Therefore, Assessing Officer's observation that remittances have come under three headings do not establish the amount as unexplained. It was further contended that assessee is a non-resident and Assessing Officer has jurisdiction only to the extent of taxing the incomes arising in India. The moneys obtained by assessee abroad and transmitted to India cann .....

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ng Officer tried to consider assessee's own funds as income of assessee are not legally correct. He has given detailed written submissions countering the written submissions filed by the Revenue and his submissions can be summarized as under: "a. The remittance of ₹ 78,04,58,374/- has been made from the assessee's own Overseas Bank account and thus income, if any had already been received in abroad. Consequently the question of receiving the same income again in India does not .....

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received the above said amount from his Barclays Bank, Mauritius to NRI A/c. from the loan obtained from M/s.Vitrual International Limited, Mauritius in support of which the assessee has submitted confirmation letter from M/s.Vitrual International Limited, Mauritius. d. Without prejudice to the above, the assessee has not only established the source of the money as also established the source to source by way of submitting the confirmation from M/s.Vitrual International Limited, Mauritius. As t .....

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oneys into NRI A/c of a non-resident Indian as income of assessee as unexplained. Assessee in the course of assessment proceedings furnished enough evidences in support of inward remittance of funds including a certificate from M/s.Vitrual International Ltd., about the source of funds being loan. If Assessing Officer has any doubt about the said company in Mauritius, he cannot reject the genuineness of the said company without making necessary enquiries either through the internal mechanism of f .....

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e red herring prospectus of M/s.Lanco Infratech Limited, wherein this company was shown as single shareholder company of assessee as on 29-07-2006. This means the existence of the company is accepted by the authorities, not only by SEBI and other statutory authorities but even by the Assessing Officer, as can be seen from the enquiries conducted. We are unable to understand how the Revenue could raise ground on existence of the above company in Ground No.7 about the identity of the company when .....

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any incriminating evidence. Except presumptions and allegations, virtually there is no evidence against assessee that these funds received into his bank account in Mauritius are his own incomes from India or 'round trip' funds of assessee as alleged. Therefore, all the grounds raised on this issue, particularly Ground No.10 & 11 does not require any consideration on the facts of the case. 12. Coming to the issue of creditworthiness of the above said company, there is no dispute with .....

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ions of CIT(A) required to be sent to Assessing Officer under Rule 46A(1). It is not assessee who furnished the additional evidence. Therefore, it cannot be strictly considered as additional evidence under Rule 46A. CIT has co-terminus powers as that of Assessing Officer as far as appeals before him are concerned. In fact, he even had enhancement powers, if Assessing Officer has missed out bringing into tax any amounts. He also has powers of enquiry and investigation. Therefore, the CIT(A) if ex .....

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as held as under: "Having regard to the provisions of Part A of Chapter XX relating to the appeals before the first appellate authority, a distinction has to be made between the evidence and material voluntarily furnished by an assessee in support of his appeal and the evidence/material requisitioned from an assessee by the first appellate authority with a view to have proper disposal of proceedings before him. While the provisions of rule 46A apply to the former, the same have no applicati .....

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e provisions of section 250(4), cm the other hand, empower the first appellate authority to make such further enquiry as he thinks fit or to direct the Assessing Officer to make further enquiry and report the result of the same. There are many judgments to the effect that in view of the provisions of section 250(4), the first appellate authority is duty bound to make an enquiry even if such an enquiry was not made by the Assessing Officer if the facts and circumstances of the case warrant such a .....

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n is to be recorded by the appellate authority in writing and with which the appellate authority is further required to confront the Assessing Officer and allow him a reasonable opportunity to have his say in the matter. [Para 9] From the various authorities of courts, the legal position is that the first appellate authority has wide powers over the order of assessment appealed against before him. In the course of exercise of such power the first appellate authority can direct the assessee to pr .....

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ntained in rule 46A shall affect the power of the first appellate authority to direct the production of any document or to examine any witness to enable him to dispose of the appeal or for any other substantial cause including the enhancement of the assessment or penalty (whether on his own motion or on the request of the Assessing Officer).[(Para 13] In the instant case, the entire additional evidence had come on the record of the Commissioner (Appeals) because he had decided to examine the fac .....

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t that of the revenue, it has no bearing on the jurisdiction and powers of the Commissioner (Appeals). The Commissioner (Appeals) could have confronted the Assessing Officer with the evidence thus received and the material thus gathered and allowed the Assessing Officer to have his say in the matter and perhaps had he done so the dispute in question would not have arisen. But there is no requirement, in law, that the Commissioner (Appeals) should invariably consult or confront the Assessing Offi .....

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rule 46A requires the first appellate authority to allow the Assessing Officer a further opportunity to rebut the fresh evidence filed by the assessee. Even that requirement cannot be said to be a rule of universal application. If the additional evidence furnished by the assessee before the first appellate authority is in the nature of a clinching evidence leaving no further room for any doubt or controversy, in such a case no useful purpose would be served by performing the ritual of forwardin .....

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. 14. In this case CIT(A) requisitioned the evidence to examine the contentions. Therefore, the grounds raised from Ground No.3 to 6 on the issue of additional evidence are infructuous and does not require any consideration. 15. Therefore, on the facts of the case, it is to be admitted that assessee having his own funds abroad has remitted the amount to India and this inward remittance cannot be considered as unaccounted income of assessee for the year under consideration. 16. Revenue has raised .....

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t The assessee has merely transferred his own money from his account in Barclays Bank, Mauritius to NRI A/c held in Axis Bank and Indusind bank. As he transferred the amount from his own bank a/c. Therefore, the question of unexplained credit will not come. 69: Unexplained Investment The amount of ₹ 78,04,58,374/- does not represent any investment, it is the assessee own money transferred from outside India a/c to Indian NRI A/c. Therefore, Unexplained Investment does not attracts. 69A: Un .....

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he context to take a different meaning of the general circular issued by the Board. Ld.CIT(A) having examined that the principles laid down by the Board circular are clearly applicable to the facts of the case, we do not see any merit in Ground No.15 raised by Revenue unless it is established that assessee has earned income in India or received in India. Provisions of Section 5 does not permit taxation of amounts remitted to India from sources outside India which are not incomes under the provis .....

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on 69. Under section 5(2) the income accruing or arising outside India is not taxable unless it is received in India. Similarly, if any income is already received outside India, the same cannot be taxed in India merely on the ground that it is brought in India by way of remittances. Reference can be made to the judgment of Supreme Court in the case of Keshav Mills Ltd. V. CIT (1953) 23 ITR 230 (Supreme Court of India) if such income is shown in the books of account then it cannot be taxed in Ind .....

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the ground that the assessee fails to prove the genuineness and source of such cash credit. Therefore, we are of the considered view that the provisions of Section 68 or 69 would be applicable in the case of non-resident only with reference to those amounts whose origin of source can be located in India. Therefore, the provisions of section 68 or 69, in our opinion, have limited application in the case of non- resident." 18. Likewise, in the case of Smt. Susila Ramasamy V. ACIT, Central Ci .....

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or it is deemed to arise to him in India. [para 14.1]. if a non resident person, having money in a foreign country, brings that money to India, through a banking channel, he cannot be called upon to pay income tax on that money in India, firstly, for the reasons stated above and secondly, because the remittance of money into India through banking channel will make, the onus on the assessee under section 69, discharged. [Para 14.2]. Once an amount is received as income, any remittance or transmi .....

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assessee as his own money which he had already received and had control over it and it does not take the character of income, profits and gains after being brought into India. [Para 14.3]. There could of course be a situation where a non-resident has money in India, transmits it to a foreign country then brings it back to India through a banking channel. If this circular motion of the money is conclusively proved with evidence then the non resident will surely do the, explaining under section 6 .....

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ged, and consequently such remittances cannot be taxed under section 5(2) (b). Therefore, the argument of the revenue that, in the present case, the impugned money was taxable under section 5(2)(b) read with section 69, on the facts, as no merit and cannot be accepted. [para 14.6]. But, the position will be entirely different if the money has been brought into India otherwise than through banking channel, because in that case the onus on the assessee under section 69 will not stand discharged. I .....

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