Income Tax Appellate Tribunal - Delhi
Nagappan Arunachalam, Usa vs Income Tax Officer, Ward Int Tax 1(1)(1) on 5 April, 2023
THE INCOME TAX APPELLATE TRIBUNAL
DELHIBENCH 'D', NEW DELHI
Before Sh. Kul Bharat, Judicial Member
Dr. B. R. R. Kumar, Accountant Member
ITA No. 1902/Del/2021: Asstt. Year: 2017-18
Nagappan Arunachalam, Vs. Income Tax Officer,
169, Waverley Streel, Apt C, Ward Int Tax-1(1)(1),
Palo Alto ca 94301, USA New Delhi
(APPELLANT) (RESPONDENT)
PAN No. BHVPA4801J
Assessee by : Sh. G. Srikanth, CA
Revenue by : Sh. Sanjay Kumar, Sr. DR
Date of Hearing: 09.03.2023 Date of Pronouncement: 05.04.2023
ORDER
Per Dr. B. R. R. Kumar, Accountant Member:
The present appeal has been filed by the assessee against the order of the ld CIT(A)-42, Delhi dated 11.10.2021 for Assessment Year 2017-18.
2. The assessee has raised the following grounds of appeal:-
"A d di ti o n u / s 69 of i nv es tm e nt s m ad e in C a pi t a l Ac c o u nt o f Li m it ed L i a b i li ty C om p an y ( LL C) - R s . 86 ,1 8, 9 32 /-
a) Th e L e a rn ed C om m i s si on e r e r r ed in ob s e rvin g t h at in r e sp e ct of In v e st m en t in M/ s. K LU , L LC , t h e A p p e l lan t f ail ed t o su b s t a n t iat e t h at fu n d s r em it t e d b y h im f ro m In d ia t o U S A wa s a ct u a lly in v e st ed in t h e s aid fi r m .
b) Th e L ea rn ed C o m m i s si on e r fail e d t o ap p r e cia t e th at t h e A p p el lan t h ad su b st an t iat ed t h r ou g h h is p e rs on al b an k st at em en t s in In d ia o f HD F C Ban k , H S BC in U S A an d t h at of t h e lim i t ed l iab ili t y Co m p an y in U n i on Ban k ( N o . 3 4 6 ) t h at t h e s u m s w e r e i n d e e d t ra n s f e r r ed f r om HD F C t o HS BC a c c ou n t an d fin al ly t o U n i o n b an k ac c ou n t of t h e LL C.
c) E v en on l aw , t h e L e arn e d C om m i ss io n e r m isa p p li ed S ec 6 9 in s o fa r a s h e fa il ed t o ap p r e ci at e t h at t h e o p en in g b al an c e o f t h e A p p ell an t ' s ca p it a l ac c ou n t r el at es t o i n v es t m en t s m ad e i n p ri o r 2 ITA No. 1902/Del/2021 Nagappan Arunachalam y ea r s an d t h at S e c 6 9 b y t h e p lai n r e ad in g , can on l y d e em a s in c om e , t h e va lu e o f in v e st m en t s m ad e d u rin g t h e y ea r - an d n ot p ri o r t h e r et o . It i s als o u rg ed t h at ev e n if S ec 6 9A w e r e t o b e e xam in ed in p la c e o f S e c 6 9 , t h e fo r m e r r el at e s on l y t o m on e y , b u lli on , j e w ell e r y o r o t h e r valu ab l e a r t icl e an d d o e s n ot c ov e r In v e st m en t i n ca p it al ac c ou n t s .
2. Ad d it io n s r e l at i ng to In ve st m e nt s in Se cu r i ti e s - R s. 19 ,3 3, 50 0 /-
a) Th e L ea rn ed C om m is si on e r fa il ed t o a p p r e ciat e th at an y in v e st m en t m a d e in p ri o r y ea r s can n ot b e c on sid e r ed a s I n c om e u / s 6 9 of t h e cu r r e n t ye a r, a s t h e p r o vi si on d e em s a s in c om e , on l y in v e st m en t s m ad e in t h e r el e van t fin an ci al y e ar wh i ch cou ld n ot b e s at i s fa ct o ril y ex p lain e d .
b) In s o f a r a s t h e su m m en t i on ed in S ch F A o f t h e I TR w as d e m on s t r at ed as r el at in g t o 3 1 / 1 2/ 2 0 1 5 ( an d n ot 1/ 4 / 2 0 1 6) wit h r el e van t d ocu m en t ar y e vid en c e s in t h e f o r m of B r ok er s' S t at em e n t o f A c c ou n t an d fu rt h e r t h i s f act w a s n ot d i sp u t e d , t h e Co m m is si on e r e r r ed in b rin g in g t o t ax an in v e st m en t r el at in g t o t h e p r io r y ea r a s d e em e d in c om e u / s 6 9 . C om m is si on er e r r ed in b rin g in g t o t ax an in v e st m en t r e lat i n g t o t h e p ri o r y ea r as d e e m ed in co m e u / s 6 9 .
3. A d d it io n s re l a t i ng to P e ak B a l a nc e s in B an k A cc ou nt s - Rs . 80 ,6 2, 09 2 /-
a) Th e L ea rn ed C om m is si on e r wh il e ob s e rv in g t h at th e A p p ell an t c ou ld n ot r eb u t t h e cl aim s of t h e A O t h at n ar r at i on o r n at u r e o f c r ed it in t h e b an k ac c ou n t s w e r e n ot fil e d , fa il ed t o t ak e c og n i san c e o f t h e fa ct t h at d et ail e d n a r rat i on o f th e b an k ac c ou n t s en d in g wi t h ac c ou n t n u m b e r 8 0 7, 7 9 7 a n d 3 9 6 we r e v er y m u ch a vail ab l e in t h e b an k st a t em en t s it s el f an d f u rt h e r t h at t h es e w e r e a ls o e xt r ac t ed an d s e t ou t in t h e rej oi n d e r t o t h e r em an d r ep o rt on 2 3 J an 2 0 2 1 b e f o r e t h e l e ar n ed C om m i s si on e r, all o f wh i ch a r e on r e c o rd .
b) In s o fa r as e v e ry c r ed it in t h e t h r e e b an k a c cou n t s h a v e b e en e xp la in ed in d e t ail , an d n on e p a rt ak e s t h e ch a r ac t er o f in c om e , t h e l ea rn ed C o m m i s si on e r f ell in e r r o r in h old in g th at t h e p eak b alan c e s in t h e a c c ou n t s c on s t it u t ed in c o m e u / s 6 9A o f t h e In c o m e Ta x A ct . "
3. The assessee is a citizen of UK and currently residing in the United States of America as a Green Card Holder. Having been outside India for more than 40 years, he briefly came to India for employment for a little over 3 years and thereby he became a Resident of India for the tax purposes in the Assessment year 2017-18. Since the assessee owned foreign assets, he duly disclosed all his foreign assets in Schedule FA to the ITR. His 3 ITA No. 1902/Del/2021 Nagappan Arunachalam assessment was done without the benefit of any explanations from the assessee as all the email notices sent by the department had purportedly landed in his spam folder and eventually auto- deleted by the software. The Assessment was completed with an addition of Rs. 14,30,65,720 being the total value of all his foreign assets, including assets jointly held with his spouse. In First Appeal, the assessee was granted a relief of Rs. 12,44,51,196, sustaining thereby an addition of Rs. 1,86,14,524.
4. The assessee is before the Tribunal against the additions sustained of Rs. 1,86,14,524/-.
5. Financial interest in an LLC in USA:-
Facts relevant to the adjudication of this issue are that the assessee along with his wife had formed an LLC in USA on 26 Oct 2015 with an initial combined capital of US$ 74,856. A further capital of US$ 91,730 each ( aggregating to US$ 183,460) was introduced in the previous year 2016-17 relevant to the AY 2017-
18. This was sourced out of tax paid income earned in India. This amount of US$ 183,460 being the appellant's share of capital introduced in AY 2017-18 was sustained u/s 69 as unexplained Investments for the reason the assessee failed to show that funds remitted from India was invested as capital in the firm.
6. The addition also includes 50% share of the opening balance of US$ 74,856 introduced in a prior year (on 26 Oct 2015). This is evidenced by the US IT return of the LLC in Annexure
7. Salary earned by the assessee in India were deposited in HDFC Bank. A sum of US$ 10,19,075 equivalent to INR 645 lacs was transferred from HDFC Bank to HSBC Bank ( account ending
807) till 31/3/2016. Bank Statements of HDFC Bank from where 4 ITA No. 1902/Del/2021 Nagappan Arunachalam the following transfers were made to HSBC-807 reflects the transactions as under:-
Date Amount of USD Amt of INR
transferred
Up to 10/2/2015 439,075 2,69,40,178
07/04/15 200,000 1,25,82,000
26/05/15 100,000 64,55,000
30/07/15 100,000 64,77,000
22/09/15 30,000 19,94,900
15/10/15 30,000 19,68,000
30/10/15 ,30,000 19,83,600
01/12/15 15,000 10,11,600
04/01/16 15,000 10,08,600
20/01/16 10,000 6,87,700
03/02/16 20,000 13,82,200
09/03/16 15,000 10,25,550
30/03/16 15,000 10,07,700
Up to 31/3/2016 USD 10,19,075 INR 6,45,24,028
8. The assessee transferred monies from time to time to Union Bank Account of the LLC. Bank Statement of Union Bank, US held by the LLC where credits from HSBC Bank can be traced have been enclosed which reflect that a sum of US$ 183,460 was transferred from HSBC to Union Bank belonging to the LLC.
9. The following table extracted from Union Bank is self explanatory:-
Date Amount of Transfers Remarks
credit in
USD in KLU
Union Bank
A/c ending
346
08/01/2016 50,000 Transferred from HSBC Over a period of time from
807 joint Account Jan 2014 to March 2016,
01/03/2016 13,392 Cheque from mortgage the salary received from
service centre deposited - Reliance in India in HDFC this is the refund of A/c is transferred to HSBC excess loan amount paid. 807 A/c.
16/06/2016 42,000 Transferred from HSBC Can be traced to HSBC-
5 ITA No. 1902/Del/2021Nagappan Arunachalam 807 joint Account 807 22/07/2016 35,000 Cheque deposited from Can be traced to HSBC-
HSBC 807 joint Account 807 05/12/2016 25,000 Transferred from HSBC Can be traced to HSBC-
807 joint Account 807 27/12/2016 14,000 Transferred from HSBC Can be traced to HSBC-
807 joint Account 807
Various
dates 4,067
Total 183,460
10. The assessee had earned tax-paid income in excess of Rs. 13.94 crores during his employment in India, which was transferred from time to time and was used to fund the capital. From the trail of funds emanating from HDFC India to HSBC bank account in US and in turn to the Union Bank account of the LLC that the capital invested into the LLC was from tax paid income earned in India as depicted by the above table and in view of the explanations provided supported by bank statements of all 3 banks, One-to-One correlation, and the ITR of the LLC, we hold that the investment in LLC cannot be considered as unexplained investments.
11. The appeal of the assessee on this ground is allowed.
12. Investment in Securities-Rs. 19,33,500 Your Appellant had disclosed in Sch FA to the ITR, a sum of Rs. 19,33,500 as cost of Securities held as on 1/4/2016. This cost actually represents the closing balance of Securities as of 31/12/2015 being the year-end in US.
13. The above addition was sustained u/s 69 for the following reasons:
6 ITA No. 1902/Del/2021Nagappan Arunachalam a. The assessee has not submitted that taxability of such income/loss on such securities occurred during the year with documentary evidence;
b. It is not verifiable from the statement of E*Trade as to how the sum of Rs. 19,33,500 was arrived at; and c. It is not proven from documentary evidence that the investment was made in a prior year, i.e., FY 2015-16.
14. Before us it was submitted that the tax year in US is the Calendar year and hence the year under consideration is CY 2016 (1/1/6 to 31/12/16) and the assessee incurred loss on Short term capital loss of US$ 641 as well as Long Term Capital loss of US$ 1,940. Evidences filed shows the date of purchase of each of the security from reflecting the investments were made in CY 2015. Hence, they are not amenable to tax/ evasion in the instant year.
15. Hence, appeal of the assessee on this ground is allowed.
16. Peak balance in Bank Accounts in HSBC Bank The ld. CIT(A) has sustained an addition u/s 69A equal to 50% of the peak balance in the accounts jointly held with the spouse. The Ld. CIT(A) erred in holding that the Appellant was not able to rebut the issues raised by the AO during remand proceedings as the Assessee has not filed narrations/nature of credit and not submitted computation of income tax filed in USA/UK to substantiate the credits were not taxable in India.
17. Before us it was submitted that the complete narration of each and every entry in the 3 accounts were produced before the learned CIT(A). Copy of the statement showing narrations has been perused by us. The original bank statement of all 3 7 ITA No. 1902/Del/2021 Nagappan Arunachalam accounts are examined. On examination it can be seen that almost all the credits were inter-account transfers including from wife's account. Relevant parts of these bank accounts of the Appellant and that of his spouse is part of paperbook. There were no items in the nature of income save and except sale of securities for US$ 37,000 ( 13/4/16 - US$ 19,000 and 10/6/16 - US$ 18,000) which has only resulted in a loss of US$ 1,940 as evidenced by the E*Trade statement set out earlier. With regard to the US Tax returns the assessee filed his US Tax Returns and provided copies of the same. From submissions before us it can be observed that there are no entries in the nature of income.
18. In view of the explanations provided, backed by bank statement of all 3 banks along with narrations, as well as the US Returns, we hold that no part of the balance in the banks should be added u/s 69 or 69A.
19. In the result, the appeal of the assessee is allowed.
Order Pronounced in the Open Court on 05/04/2023.
Sd/- Sd/-
(Kul Bharat) (Dr. B. R. R. Kumar)
Judicial Member Accountant Member
Dated: 05/04/2023
*Ajay Kumar Keot, Sr. PS*
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)
5. DR: ITAT
ASSISTANT REGISTRAR