Income Tax Appellate Tribunal - Delhi
Suresh Nanda , New Delhi vs Assessee
IN THE INCOME TAX APPELLATE TRIBUNAL
(DELHI BENCH 'G ' NEW DELHI)
BEFORE SHRI R.P. TOLANI, JUDICIAL MEMBER
AND
SHRI T.S. KAPOOR, ACCOUNTANT MEMBER
I.T.A. No.2237 & 3718/Del/2013
Assessment year : 2007-08 & 08-09
Shri Suresh Nanda, ACIT,
4-Casuarina Avenue, Central Circle-13,
Westend Greens, New Delhi.
Rajokri, New Delhi. V.
AND
I.T.A. No.3431 & 4641/Del/2013
Assessment year : 2007-08 & 2008-09
ACIT, Shri Suresh Nanda,
Central Circle-13, 4-Casuarina Avenue,
New Delhi. Westend Greens,
Rajokri, New Delhi.
(Appellant) j\espondent)
PAN /GIR/No.AAPPN-9895-H
Assessee by : Shri Ajay Wadhwa, Advocate.
Department by : Shri Ramesh Chandra, CIT-DR.
ORDER
PER TS KAPOOR, AM:
These are cross appeals two filed by the assessee and two by the revenue for assessment year 2007-08 & 2008-09 against separate orders of Ld CIT(A) dated 18.3.2013 and 22.5.2013 respectively. These appeals were heard together, therefore, for the sake of convenience these appeals are being disposed off by this common order. The grounds of appeals filed by assessee as well as revenue for these two years are detailed as under:-
2 ITA No2237,3718,3431&4641Del/13 Assessment year : 2007-08: (Assessee's appeal):
1. That the order of the Ld CIT(A), New Delhi dated 18.3.2013 is bad in law and in facts.
2. That on the facts and in the circumstances of the case the Ld CIT(A) has erred in upholding the action the Assessing Officer in taking the status of the appellant as "Resident" during the year as against the status of non resident claimed in the return accepted by the Department consistently year after year since 1985.
That during the year under consideration the appellant's stay in India exceeded 182 days as his passport was illegally seized by the CBI and he was compelled to stay in India for reasons beyond his control and accordingly the doctrine of impossibility of performance is application.
3. Whether while deleting the addition of Rs.17,94,15,000/- being share capital of Universal Business Solutions Mauritius in Claridges Pvt. Ltd., the Ld CIT(A) can direct the Assessing Officer to pursue the reference made to the Govt. of Mauritius and to make fresh reference to the Govt. of Jersey and British Virgin Island to arrive at real facts regarding flor of funds among various entities abroad.
4. Whether the Ld CIT(A) is justified in sustaining on protective basis addition of Rs.16,98,38,020/- being share capital subscribed by Palm Technologies Ltd. Mauritius in Claridges SEZ (P) Ltd. by observing / directing the Assessing Officer to ascertain the real facts by pursuing the reference made to the Govt. of Mauritius and to make fresh reference in the matter to the Govt. /Administrations of Jersey and British Virgin Islands with which India NOW has tax information exchange agreements.
That the above addition sustained on protective basis is against basic principles of law and the Ld CIT(A) ought to have deleted the entire addition after having arrived at the findings that keeping in view of the present facts of the matter share capital cannot be treated as unexplained money/investment of the appellant vide para 7.5. page 50 of the appellate order.
That the Ld CIT(A) has held that the money does not belong to the appellant but the company M/s Universal Business Solution Ltd. Sharjah. In spite of this finding, the Ld CIT(A) has sustained the addition on protective basis which is bad in law.
3 ITA No2237,3718,3431&4641Del/13
5. That on facts and in the circumstances of the case, the Ld CIT(A) erred in holding a sum of `.7,29,000/- on the ground that that the same represented unexplained cash out of total cash found during the course of search by the CBI On 10.10.2006.
6. That on the facts and in the circumstances of the case, the Ld CIT(A) has grossly erred in confirming an addition of `.28,47,533/- in respect of investment made in the renovation of Sonali Farms from appellant's overseas bank accounts on the ground that details of foreign bank account were not furnished and holding the appellant's status as resident during the year and subsequently his global income is taxable in India.
6.1. That the addition ought to have been deleted as the same has been added u/s 68 and hence tantamount to double taxation.
7. That the Ld CIT(A) has erred in upholding the addition of Rs..5,10,57,115/- representing appellant's deposits in Deutsche Bank, Singapore on the ground of the appellant's status as resident and accordingly his global income is taxable in India.
8. That on the facts and in the circumstances of the case, the CIT(A) has erred in upholding the action of Assessing Officer i.e. the sum of Rs.23,66,190/- as unexplained cash out of total cash found of Rs..44,57,800/- during the course of search u/s 132(1) on 28.2.2007.
9. That the appellant prays the Hon'ble Tribunal to award suitable cost of appeal under sub sec. 2B of sec. 254 of the Income Tax Act, 1961 .
10. The appellant craves leave to add, alter, remove and modify any grounds of appeal before or at the time of hearing of the appeal.
Assessment year: 2008-09: (Assessee's appeal):
1. That the order of the Ld CIT(A), New Delhi dated 22.5.2013 is bad in law and in facts.
2. That on the facts and in the circumstances of the case the Ld CIT(A) has erred in upholding the action the Assessing Officer in taking the status of the appellant as "Resident" during the year as against the status of non resident claimed in the return 4 ITA No2237,3718,3431&4641Del/13 accepted by the Department consistently year after year since 1985.
2.1. That during the year under consideration the appellant's stay in India exceeded 182 days as his passport was illegally seized by the CBI and he was compelled to stay in India for reasons beyond his control and accordingly the doctrine of impossibility of performance is application.
3. Whether while deleting the addition of Rs. 3,96,87,500/-
being share capital of Universal Business Solutions Mauritius in Claridges Pvt. Ltd., the Ld CIT(A) can direct the Assessing Officer to pursue the reference made to the Govt. of Mauritius and to make fresh reference to the Govt. of Jersey and British Virgin Island to arrive at real facts regarding flow of funds among various entities abroad and holding that the addition is presently deleted.
4. Whether the Ld CIT(A) is justified in sustaining on protective basis addition of Rs. 7,92,19,406/- being share capital subscribed by Palm Technologies Ltd. Mauritius in Claridges SEZ (P) Ltd. by observing / directing the Assessing Officer to ascertain the real facts by pursuing the reference made to the Govt. of Mauritius and to make fresh reference in the matter to the Govt. /Administrations of Jersey and British Virgin Islands and to examine transactions and flow of money to various entities.
4..1. That the above addition sustained on protective basis is against basic principles of law and the Ld CIT(A) ought to have deleted the entire addition after having arrived at the findings that keeping in view of the present facts of the matter share capital cannot be treated as unexplained money/investment of the appellant vide para 7.5. page 46 of the appellate order.
4.2. That having held the money does not belong to the appellant but to UBSS the addition sustained on protective basis is bad in law and ought to have been deleted on substantive basis.
5. That on facts and in the circumstances of the case, the Ld CIT(A) erred in holding a cum of Rs..8,45,288/- (10,000 GBP) on the ground that that the same represents foreign remittance taxable in India.
6. That the appellant prays the Hon'ble Tribunal to award suitable cost of appeal under sub sec. 2B of sec. 254 of the Income Tax Act, 1961 .
5 ITA No2237,3718,3431&4641Del/13
7. The appellant craves leave to add, alter, remove and modify any grounds of appeal before or at the time of hearing of the appeal.
Assessment year: 2007-08 (Revenue's appeal):
1. The order of Ld CIT(A) is not correct in law and facts.
2. On the facts and circumstances of the case the Ld CIT(A) has erred in deleting the addition of Rs.17,94,15,000/- made by the Assessing Officer on account of unexplained income made by the assessee in M/s Claridges Hotel Pvt. Ltd. through M/s Universal Business Solution Ltd. Mauritius and the various intermediately companies.
3. On the facts and circumstances of the case, the Ld CIT(A) has erred in upholding the addition of Rs.16,98,38,020/- on protective basis as against substantive basis in the hands of assessee on account of unexplained investment made by assessee in M/s Claridges SEZ Pvt. Ltd. through M/s Palm Technologies Ltd. Mauritius and the various intermediately companies created for this.
4. On the facts and circumstances of the case the Ld CIT(A) has erred in law in adjudicating the issues involved with certain directions and upheld the addition made by Assessing Officer on protective basis which is beyond the powers of CIT(A) as section 251(1)(a) of the IT Act empowers CIT(A) only to confirm reduce enhance or annul the issues involved in appeal.
5. On the facts and circumstances of the case the Ld CIT(A) has erred in deleting the addition of Rs.1,20,73,114/- made by the Assessing Officer on account of unexplained jewellery found from possession of his wife without appreciating the fact that Smt. Renu Nanda did not have an independent source of income and the source of payment was only Shri Suresh Nanda.
6. The appellant craves leave to add, amend any all the grounds of appeal before or during the course of hearing of the appeal.
Assessment year : 2008-09 (Revenue's appeal):
1. The order of Ld CIT(A) is not correct in law and facts.
2. On the facts and circumstances of the case the Ld CIT(A) has erred in deleting the addition of Rs.3,96,87,500/- made by 6 ITA No2237,3718,3431&4641Del/13 the Assessing Officer on account of unexplained income made by the assessee in M/s Claridges Hotel Pvt. Ltd. through M/s Universal Business Solution Ltd. Mauritius and the various intermediately companies.
3. On the facts and circumstances of the case, the Ld CIT(A) has erred in upholding the addition of Rs..7,92,19,406/- on protective basis as against substantive basis in the hands of assessee on account of unexplained investment made by assessee in M/s Palm Technologies Ltd., Mauritius and the various intermediately companies created for this and in adjudicating the issues involved with certain directions.
4. On the facts and circumstances of the case the Ld CIT(A) has erred in law in adjudicating the issues involved with certain directions and upheld the addition made by Assessing Officer on protective basis which is beyond the powers of CIT(A) as section 251(1)(a) of the IT Act empowers CIT(A) only to confirm reduce enhance or annul the issues involved in appeal.
5. The appellant craves leave to add, amend any all the grounds of appeal before or during the course of hearing of the appeal.
2. The brief facts of the case are that the Department of Income tax received intelligence information that assessee was involved in brokering the defence deals for Department of Defence Production & Supplies, Ministry of Defence, Union of India against govt. policy. Consequent to information, search operations were carried on assessee by the Income-tax department.
Department claimed to have found evidence that assessee was getting huge amount of commission from the companies abroad which was received by him outside the country and was brought into India in the form of FDI for making investments into various hotels, land and other properties. The Assessing Officer on the basis of information and documents made the following additions to the income of assessee in these two years and further denied the claim of the assessee to be treated as NRI:-
7 ITA No2237,3718,3431&4641Del/13 A.Y. A.Y. 2007-08 2008-09 Addition on a/c of investment into Claridges Hotel Pvt. Ltd. by Universal Business Solutions Ltd. 179415000/- 39687500/-
Investment by Palm Technologies In Mauritius Claridges. 169838020/- 79219406/-
Unexplained cash found during Search on 10.10.2006/ 729000/- - Investment made in renovation of Sonali Farms from appellant's Overseas Bank A/c. 2847533/- - Deposit in Deutsche Bank, Singapore. 51057115/- - Unexplained cash found at the time of Search. 2366190/- - Foreign remittance taxable in India. -- 845288/-
3. Aggrieved against the assessment order, assessee filed appeals before Ld CIT(A) and made various submissions. One of the grounds raised by the assessee was to the effect that he was assessed as non resident from the year 1985 to 2006. For impugned years he has filed income tax returns as non resident. His stay in India during the years under consideration had exceeded 182 days because of reasons beyond his control as his Passport was illegally impounded by govt. agencies and he was unable to travel from India. Assessee submitted that he remained as non resident as he was forced to become resident because of illegal impounding of his Passport. The Ld CIT(A) after going through the submissions of assessee confirmed the order of AO on this issue and held him to be a resident as per literal meaning of the provisions of the Act. He, however, partly deleted the additions made by the Assessing Officer on merits and further upheld certain 8 ITA No2237,3718,3431&4641Del/13 additions to be added on protective basis. Various grounds of appeals of assessee has been dealt by Ld CIT(A) as under:-
a) Regarding Residential status:
"5.3 1 have considered the facts and the submissions made. The Hon'ble lTAT, Delhi, in appellant's own case, in ITA Nos.1428, 1429 & 1430/Del/2012 (for A Ys 2001-02, 2002-03 and 2003-04, respectively), have ruled in favour of the appellant and held him to be 'non-resident vide Para-8 of its order dated 24.07.2012. Detailed reasons have been given by the lTAT. Accordingly, and respectfully following the order of Hon'ble ITAT, I have held the appellant to be 'non-resident' for A.Ys 2004-05, 2005-06 and 2006- 07 also, on the ground that plain reading of the relevant provisions mandates that any individual who is in India for a period of 182 days or more is a resident for that year. The law does not provide for the reasons for residency. In tax law, as in general law, literal construction is the fundamental rule. Other rules of interpretation are to be resorted to only when the literal construction is not clear or is ambiguous or it results in absurdity. The principle of 'reading down' of the provisions is not applicable in the instant case as the plain meaning of the words used is unambiguous and clear. The appellant has himself used it to his advantage and accepted the same in the order of Hon'ble ITAT and my orders. Having done so, appellant cannot now agitate the contrary position and derive advantage again out of that contrary position. Secondly, possibility of performance is also not applicable if the appellant remained in India by operation of the law and procedure established, even though for no fault on his part. Certainly, it was not the case that he was compelled to an disadvantaged position. Thirdly, the incidence of taxation due to his residential status is only an unintended consequence of certain proceedings, which had no connection whatsoever with proceedings under the tax laws. Fourthly, no legal injury has been caused to the appellant. Residential status is determined by number of days in India, plainly and if a resident is taxable on his global income, he will be given credit for taxes paid on income accruing or arising outside India in terms of the Double Taxation Avoidance Agreement / Treaty with the respective countries. In these circumstances and legal position of the matter, the status of the appellant is held as 'resident' for every A.Y. wherein he has stayed in India for 182 days or more, including the current A Y.
b) Regarding additions in the hands of assessee on account of Invetment made by Universal Business Solutions Mauritius in the Claridges Hotelks (P) Ltd.
9 ITA No2237,3718,3431&4641Del/13 6.5 I have considered the assessment order, submissions made and the records relevant to the matter in issue here. In fact there are several aspects of the matter - (a) whether income accrued or arose to the appellant in India which was not disclosed by him for tax purposes, (b) whether such income was received by him abroad and routed as investments into India, and (c) whether such investments can be taxed in the hands of the appellant or the entities wherein the investments have been brought in. The undisputed facts are that UBS (Universal Business Solutions) is an entity duly incorporated under the law in Mauritius. The said UBS has invested in Claridges Hotels P Ltd. as foreign direct investment (FDI) under the automatic route permissible by the Government of India for the hospitality industry. It has taken all necessary approvals and complied with all new rules and regulations prescribed by the Government in this regard. There is no evidence on record that it has not done so. The ownership of UBSM is known, from the response received from the Govt. of Mauritius, from the additional evidence filed by the appellant, and from the seized documents itself. 20% ownership of UBSM is held by Infotec Services Ltd., a company incorporated in Jersey, wherein the appellant is undisputedly a shareholder. Remaining 80% equity is held by two companies incorporated in the Brit'sh Virgin Islands, which are under the control of one Mr. Hugh Hamilton. equity base of UBSM is USD 2 million. The equity of Infotec invested in UBSM is only to the tune of USD 400,000 and as per the balance sheet available UBSM raised resources / borrowings of USD 100.77 million to invest in subsidiaries, including Claridges. Details of the sources of borrowings or the investments made are not known. There is no evidence yet to establish that the money brought in as FDI by UBSM was sourced from the appellant or any entity under his control. There cannot be any presumption as to facts. Therefore, in the present facts of the case, the addition of investments made by UBSM in to Claridges Hotel as unexplained investment of the appellant cannot be legally sustained. The primary onus of establishing the transaction stands discharged by the appellant and it is up to the revenue to use the machinery at its disposal to get at the matter. Accordingly, I direct the AO to pursue the reference made to the Govt. of Mauritius, and also to make fresh reference in the matter to the Governments / Administrations of Jersey and British Virgin Islands, with which India now has Tax Information Exchange Agreements, to arrive at the real facts by examining interconnected transactions and the flow of funds among various entities involved. The addition made is presently deleted.
10 ITA No2237,3718,3431&4641Del/13
c) Regarding addition in the hands of assessee on account of Investment made by Palm Technologies Ltd. into Claridges SEZ.
7.5 I have considered the assessment order and submissions made. The undisputed facts are that investment as share capital has been brought into Claridges SEZ by Palm Technologies Limited (PTL), a company duly registered in Mauritius. The ownership of PTL is known, from the response received from the Govt. of Mauritius, from the evidence filed by the appellant, and from the seized documents itself. The appellant is not a shareholder in PTL, which is owned by one Mr. E.A. Half11and. The appellant is, however, 99% shareholder / owner of Universal Business Solutions FZC (UBSS), an entity duly incorporated under the law in Sharjah. Dividend declared by UBSS, and payable to the appellant, was invested in Infotech Services Ltd. (ISL), Channel Islands, and Mideast Consortium, SA (MCSA), British Virgin Islands, at the instruction of appellant. Appellant has controlling interest in ISL. The equity base of PTL is USD 1,001 only. The investment of PTL in Claridge's SEZ is seen to be emanating from loan / borrowings from UBSS of USD 3,000,000 and from Y2K SIL (another company in which the appellant holds interest) of USD 431,197. Thus, unlike in the case of UBSM (in Para-6 above), in the present instance there is a backward link between funds transferred from PTL to Claridges SEZ, which have been sourced from entities under the control of the appellant (UBSS & 1SL). However, the moot question is whether money sourced from UBSS and lSL even though the appellant has interest / controlling interest in those companies, can be treated as income of the appellant? I find that, on present facts, it cannot be so held unless there is evidence to indicate that the resources and incomes of these two entities are nothing but incomes accrued or arising to the appellant. It is undisputed, having been mentioned in the assessment order, that UBSS had substantial resources and incomes generated through its activities as reflected in its accounts. There is no evidence yet to establish that money brought into Claridges SEZ as FDI by UBSS was directly attributable to the personal income / assets of appellant. But, as mentioned earlier, unlike in the instance discussed in the previous ground of appeal in this instance the funds did flow from the entities under the appellant's control. Yet, it can be taxed as income or the appellant only if there is direct link to of the investment to the assets I income of the appellant. The Hon'ble lTAT had. vide Para-lO of its order dated 24.07.2012, remanded the matter back to the AO on similar facts to examine if the additions can be made at all and in whose hands the additions are to be made. Therefore, in the present 11 ITA No2237,3718,3431&4641Del/13 facts of the matter, although it cannot be held that the amount is unexplained money / investment of the appellant, the source of money emanating from entities under the control of the appellant the addition ought to be sustained on a protective basis till the real' facts are ascertained for which necessary references be made or pursued as already directed. I hold accordingly and direct the AO to pursue the reference made to the Govt. of Mauritius, and also to make fresh references in the matter to the Governments / Administrations of Jersey and British Virgin Islands, with which India now has Tax Information Exchange Agreements, to arrive at the real facts by examining interconnected transactions and the flow of funds among various entities involved. In Para-6.5 and 6.6 above, I have considered the matter in detail. This decision is in consonance with the decision of Hon'ble ITAT as above. The addition is sustained on protective basis as unexplained investments u/s 69 in the hands of appellant.
d) Regarding cash found at the premises of assessee.
8.2 I have considered the facts and the submissions made. Cash of over `..l crore was found during search by the CBI on 10. 10.2006 at various premises belonging to the appellant and connected entities persons, out of which the appellant claimed ownership of `.20,64,000/-. The AO found that out of bank withdrawals of `.22,35,000/- made by the appellant, `.14,20,0001- was made up to 30.06.2006, i.e. 4 months before the search by CBI. The AO estimated the monthly expenses of the appellant at Rs.1 ,50,0001-and observing that withdrawals accounted for only about `..13,35,OOO/- held the remaining cash of `.20,64,000/- minus `.13,35,000/- `.729,000/- as unexplained in the / hands of the appellant. I do not find any infirmity with conclusions reached by the AO. The need for keeping large quantities of cash is inexplicable, particularly in view of substantial business of the appellant abroad and in India and the availability of anytime anywhere banking 1 ATM facilities. The AO has been fair in treating `.13,35,000/- as explained. The addition is sustained u/s 69 A. There is no merit in this ground of appeal and is, accordingly, dismissed.
e) Regarding Investment made on account of renovation of Sonali Farms from assessee's Overseas Bank Accounts.
4. The submissions filed on behalf of the appellant in this regard are as under:-
12 ITA No2237,3718,3431&4641Del/13 ''The Assessing Officer made an addition of Rs.28,47,533/- being investment made in Sonali Farms from overseas bank account.
According to the Assessing Officer the appellant is a resident of India and the payments made from abroad in favour of consultants for construction of Sonali F'arms have to be added as unexplained investment since the details of valuation, bank account from which these payments have been made have not been furnished. It is respectfully submitted that the assessee is a non-resident. The payments made from abroad have been sourced out of the Bank account, Singapore and the said fact was placed before the Assessing Officer. The AO has made the addition in pursuance of assessing the residential status of the assessee as "Resident" from Non Resident stating that his income accrues to him out of sources in India. This basis has been the subject in the relevant grounds and detailed submissions are already on record before your goodself. Needless to add that all the credits in the Singapore Bank account have already unexplained income U/s 68 of the Act and therefore the addition in respect of the debits also tantamount to making double addition of the same income. Hence on this count also the addition deserves to be deleted.
9.4 I have considered the facts and the submissions made. Firstly, it is for the appellant to explain the source of investments / expenditure in an asset held / owned by him in India. In the present case, the appellant has failed to do so. The primary onus not having been discharged in the matter, the appellant must suffer the consequences. Secondly, the appellant has been held to be 'resident' for tax purposes during this A.Y. Thus, even if the amount originated from Singapore / foreign bank account(s) of the appellant, the global income of the appellant is taxable and he shall be entitled only to credit for taxes paid abroad under the relevant DTAA. The appellant has not been able to establish that the amounts paid are from Deutsche Bank, Singapore. Therefore, these grounds of appeal are dismissed and addition made by the AO is sustained u/s 69 unexplained expenditure of the appellant in Sonali Farms, an asset held in India.
f) Regarding deposits in Deutche Bank, Singapore.
10.3. I have considered the submissions. The primary onus of `explaining the nature of the transactions and sources thereof, recorded in documents seized from the premises / possession of the appellant, has not been discharged by the appellant. The presumptions u/s 132( 4A) and u/s 292C thus become binding.
13 ITA No2237,3718,3431&4641Del/13 The claim of the appellant that the deposits represent maturity proceed of old/earlier deposits in Citibank UK remains unsubstantiated. The appellant has been held to be 'resident' for tax purposes during this A Y. Therefore, the earlier decision holding the appellant as 'non-resident' is not applicable. Also, even if the amounts represent appellant's foreign income, his global income is taxable and he shall be only entitled to credit for taxes paid abroad under the relevant DTAA. This ground of appeal is devoid of any merit and is, therefore, dismissed. The addition is sustained as unexplained credits I deposits / expenditure in the bank account of the appellant and also his income not disclosed in his tax returns chargeable to tax u/ss 68 or 69 or 69A or 69C, as may be applicable.
g) Regarding unexplained cash found during search on 28.2.2007.
11. The ninth ground of appeal (renumbered) is against addition of `.23,66, 190/- as unexplained cash found during the course of income-tax search u/s 132 on 28.02.2007. The submission of appellant is reproduced in Para-8.l above. Facts are that from the residence of the appellant and his wife, and two bank lockers held by him/wife/son, total cash amounting to `.45,47,800/- was found out of which `.32,71,300/- was seized. During assessment, appellant claimed total bank withdrawals of `..60,45,610/-. The AO held that explained cash, in view of personal expenses estimated at `.1.50,000/- per month and cash of `..20,64,OOO/- found earlier on 10.10.2006 in the CBI search, was `.38,64,000/- and the balance cash of `.23,66,l90/remained unexplained. He, therefore, made an addition of `.23.66,190/- as unexplained cash. There is no infirmity in the decision taken by the AO. He has also been reasonable in not adding the entire cash found. The addition made is, therefore, upheld as unexplained money u/s 69A. This ground of appeal is, accordingly, dismissed.
h) Regarding residential status in the assessment year 2008-09.
5.3 1 have considered the facts and the submissions made. The Hon'ble ITAT, Delhi, in appellant's own case, in ITA Nos.1428, 1429 & 1430/Del/2012 (for A Ys 2001-02, 2002-03 and 2003-04, respectively). have ruled in favour of the appellant and held him to be 'non-resident' vide Para-8 of its order dated 24.07.2012. Detailed reasons have been given by the ITAT. Accordingly, and respectfully following the order of Hon'ble ITAT, I have held the appellant to be 'non-resident' for A.Ys 2004-05, 2005-06 and 2006- 14 ITA No2237,3718,3431&4641Del/13 07 also, on the ground that plain reading of the relevant provisions mandates that any individual who is in India for a period of 182 days or more is a resident for that year. The law does not provide for the reasons for residency. In tax law, as in general law, literal construction is the fundamental rule. Other rules of interpretation are to be resorted to only when the literal construction is not clear or is ambiguous or it results in absurdity. The principle of 'reading down' of the provisions is not applicable in the instant case as the plain meaning of the words used is unambiguous and clear. The appellant has himself used it to his advantage and accepted the same in the order of Hon'ble ITAT and my orders. Having done so, appellant cannot now agitate the contrary position and derive advantage again out of that contrary position. Secondly, 'impossibility of performance' is also not applicable if the appellant remained in India by operation of the law and procedure established, even though for no fault on his part. Certainly, it was not the case that he was compelled to any disadvantaged position. Thirdly, the incidence of taxation due to his' residential status is only an uninterrupted consequence of certain proceedings, which had no connection whatsoever with proceedings under the tax laws. Fourthly, no legal injury has been caused to the appellant. Residential status is determined by number of days in India, plainly, and if a resident is taxable on his global income, he will be given credit for taxes paid on income accruing or arising outside India in terms of the Double Taxation Avoidance Agreement / Treaty with the respective countries. In these circumstance and legal position of the matter, the status of the appellant is held as 'resident for every A Y wherein he has stayed in India for 182 day or more, including the current A.Y. (as 1 have already held in appellant's own case for A.Y. 2007-08 in Appeal NO.82/11-12 vide order dated 18.3.2013).
i) Regarding addition in the hands of assessee on account of investment made by Universal Business Solution in Claridges Hotels (P) Ltd.
6.3 I have considered the assessment order, submissions made and the records relevant to the matter in issue here. In fact there are several aspects of the matter (a) whether income accrued or arose to the appellant in India which was not disclosed by him for tax purposes, (b) whether such income was received by him abroad and routed as investments into India and (c) whether such investments can be taxed in the hands of the appellant or the entities wherein the investments have been brought in. The undisputed facts are that UBSM (Universal 15 ITA No2237,3718,3431&4641Del/13 Business Solutions) is an entity duly incorporated under the law in Mauritius. The said UBSM has invested in Claridges Hotels Pvt. Ltd. as foreign direct investment (FDl) under the automatic route permissible by the Government of India for the hospitality industry. It has taken all necessary approvals and complied with all necessary requirements under the stated policy, rules and regulations prescribed by the Government in this regard. There is no evidence on record that it has not done so. The ownership of UBSM is known, from the response received from the Govt. or Mauritius, from the additional evidence filed by the appellant, and from the seized documents itself. 20% ownership of UBSM is held by one Infotec Services Ltd., a company incorporated in Jersey. wherein the appellant is undisputedly a shareholder. Remaining 80% equity is held by two companies incorporaed in the British Virgin Islands, which are under the control of one Mr. Hugh Hamilton. The equity base of UBSM is USD 2 million. The equity of lnfotec invested UBSM is only to the tune of USD 400,000 and as per the balance sheet available UBSM raised resources / borrowings of USD 100.77 million to invest in subsidiaries, including Claridges. Details of the sources of borrowings or the investments made are not known. There is no evidence yet to establish that the money brought in as FDJ by UBSM was sourced from the appellant or any entity under his control. There cannot be any presumption as to facts. Therefore, in the present facts of the case the addition of investments made by UBSM into CJaridges Hotel Pvt. Ltd. as unexplained investment of the appellant cannot be legally sustained. The primary onus of establishing the transaction stands discharged by the appellant and it is lip to the revenue to use the machinery at its disposal to get at the truth of the matter. Accordingly, I direct the AO to I pursue the reference made to the Govt. of Mauritius, and also to make fresh I references in the matter to the Governments / Administrations of Jersey and British Virgin Islands, with which India now has Tax Information Exchange Agreements, to arrive at the real facts by examining interconnected transactions and the flow of funds among various entities involved. The addition made is presently deleted. Appellant gets relief of Rs.3,96,87,500/-.
j) Regarding addition made in the hands of assessee on account of investment made by Palm Technologies into Claridges SEZ.
7.5 I have considered the assessment order and reports of the Revenue, various documents and the submissions made on behalf of the appellant. The undisputed facts arc that investment as share capital has been brought into Claridges SEZ by Palm 16 ITA No2237,3718,3431&4641Del/13 Technologies Limited (PTL), a company duly registered in Mauritius. The ownership of PTL is known, from the response received from the Govt. of Mauritius, from the evidence filed by the appellant, and from the seized documents itself. The appellant is not a shareholder in PTL, which is owned by one Mr. LA. Haltlland. The appellant is, however, 99% shareholder / owner of Universal Business Solutions FZC (UBSS), an entity duly incorporated under the law in Sharjah. Dividend declared by USSS, and payable to the appellant, was invested in Infotec Services Ltd. (ISL), Channel Islands, and Mideast Consortium, SA (MCSA), British Virgin Islands, at the instruction of appellant. Appellant has controlling interest in ISL. The equity base of PTL is USD 1001 only. The investment of PTL in Claridges SEZ is seen to be emanating & from loan / borrowings from UBSS of USD 3,000,000 and from Y2K SIL (another company in which the appellant holds interest) of USD 431.197. Thus, unlike in the case or UBSM (in Para-6 above), in the present instance there is a backward link between funds transferred from PTL to Claridges SEZ, which have been sources from entities under the control of the appellant (UBSS & ISL). However, the moot question is whether money sourced from UBSS and ISI" even though the appellant has interest / controlling interest in those companies, call be treated as income of the appellant? I find that on present facts, it cannot be so held unless there is evidence to indicate that the resources and incomes or these two entities are nothing but incomes accrued or arising to the appellant in India. It is undisputed, having been mentioned in the assessment order, that UBSS had substantial resources and incomes generated through its activities as reflected in its accounts. There is no evidence yet to establish that money brought into Claridges SEZ as FDI by UBSS was directly attributable to the personal income / assets of appellant. But, as mentioned earlier, unlike in the instance discussed in the previous ground of appeal, in this instance the funds did flow from the entities under the appellant's control. Yet, it can he taxed as income of the appellant only if there is direct link of the investment to the assets / income of the appellant. The Hon'bIe ITAT had, vide Para-10 of its order dated 24.07.2012, remanded the matter back to the AO on similar facts to examine if the additions can be made at all and in whose hands the additions are to- be made. Therefore, in the present facts of the matter although it cannot be held that the amount is unexplained money / investment of the appellant, the source of money emanating from entities under the control of the appellant the addition ought to he sustained on a protective basis till the real facts are ascertained for which necessary references are to be made or pursued as already directed. I hold accordingly 17 ITA No2237,3718,3431&4641Del/13 and direct the AO to pursue the reference made to the Govt. of Mauritius, and also to make fresh references in the matter to the Governments/Administrations of Jersey and British Virgin Islands, with which India now has Tax Information Exchange Agreements, to arrive at the real facts by examining interconnected transactions and the flow of funds among various entities involved. In Para-6.3 and 6.4 above. I have considered the matter in detail. This decision is in consonance with the decision of Hon'bIe ITAT as above. The addition is sustained on protective basis as unexplained investments u/s 69 in the hands of the appellant.
k) Regarding foreign remittance.
8. The sixth ground of appeal is against addition of `.8,45,288/- being unexplained receipt of GRP 10,000 in appellant's bank account. I am unable to find any explanation / justification with regard to this ground of appeal in the submissions made before me. Accordingly, this addition made by the revenue is confirmed.
l) Regarding jewellery found in possession of his wife.
"I have considered the assessment order the submissions made and appeal order dated 30.5.2011 in the case of Smt. Renu nanda in Appeal No. 423/09-10 for A.Y. 2007-08. The same addition was under
consideration in that order, wherein it was held by the CIT(A) that the jewellery found during search was less than the jewellery disclosed in various wealth tax returns of the appellant, his wife, son and daughter in law. As the same jewelleries were held to be explained in the case of appellant's wife and for good reasons, I do not find any cause not to delete the addition of the same amount in the hands of the appellant. This ground of appeal is accordingly allowed. Appellant gets relief of Rs. .1,20,73,114/-."
5. Aggrieved with the orders of Ld CIT(A), both assessee as well as revenue are in appeal before us.
6. At the outset, arguing on the common ground in both years regarding residential status, the Ld AR submitted that assessee had been assessed from 1985 to 2006 as a non resident having not lived in India for more than 182 in days each year. Assessee never had any business or salary income in India but earned only passive income from other sources such as interest, capital gains, 18 ITA No2237,3718,3431&4641Del/13 dividend etc. which were offered to tax by filing returns of income in India. It is contended that assessee had come to India on 28.9.2006 to celebrate 91st birthday of his father and he was searched by CBI on 10.10.2006 and consequent upon search a FIR was registered against him and his Passport was impounded. On 2.1.2007 he made an application to Hon'ble Judge CBI for release of his Passport illegally impounded and vide order dated 15.1.2007 the Ld. Judge ordered for its release. The CBI appealed against the order for release of the passport and Hon'ble Delhi High Court vide its order set aside the order of the Lower Court. The assessee filed SLP against the said order of Hon'ble Delhi High Court and Hon'ble Supreme Court vide order dated 24.1.2008 reversed the order of Hon'ble Delhi High Court by observing that the right of assessee to travel out side India was a fundamental right and investigating agency had no power to impound the passport. In view of the above circumstances starting from 10.10.2006 the assessee was not permitted to go abroad due to illegal impounding of his passport and therefore he was compelled to stay in India by government and thereby his stay exceeded 182 days in these years. The Assessing Officer ignoring these crucial facts held the status of assessee as a 'resident' and computed his worldwide income as taxable in India. Continuing his arguments the Ld AR submitted that the passport was impounded allegedly for offences committed under IPC but till the date of release of Passport by CBI i.e. 21.9.2011 no charge sheet was filed against the assessee. Besides, it is submitted that none of the alleged offences related to Income tax Act. The passport was impounded on account of unfounded and wild suspicion of receiving commission to assessee in Barak missiles case. These unfounded allegations no longer exist because the CBI has already filed a closure report stating lack of evidence to press any alleged charges in FIR. It is submitted that entire basis for impounding of passport was illegal from beginning to end and assessee was thus forced to stay in India against his will for more than 182 days in these years due to illegal action of CBI. It was argued that in these circumstances the period of forced stay cannot be used for determination of assessee's residential status under income tax, as 19 ITA No2237,3718,3431&4641Del/13 the stay in India was under compulsion and not voluntarily; it was against his wishes and for reasons beyond his control.
7. Ld counsel to explain his case cited an example that suppose Mr. Bill Gates, who earns world wide income, visits India and due to some violation of law is held in India and his stay exceeds 182 days, as his passport is impounded. He challenges the impounding in court of law. The issue of impounding of passport take 2-3 years to be decided finally by Supreme court declaring the impounding of passport to be illegal. In these circumstances, can the forced stay of Mr. Gates can be held to treat him as resident and assess his worldwide income in India. Ld counsel contends that this type of interpretation results in unintended, arbitrary and absurd consequences which cannot be the intention of legislature to forcibly make NRIs as resident in India and collect tax on their world wide income. It is pleaded that due to arbitrary misinterpretation of the phrase "stay in India" the Income tax authorities have treated him as resident in India and taxed his entire global income.
8. In view of the above facts and circumstances, as a consequence of being forced to held as resident in India by an illegal impounding of the passports, the assessee is subjected to various hardships including following:-
i) He has been subjected to double taxation of income.
ii) His bank balances abroad which as per the order of Hon'ble High Court were not subjected to tax since he was a non resident till assessment year 2006-07 now are being brought under the ambit of tax.
iii) The disclosure norms which did not apply to him i.e. bank account disclosure, property disclosure etc. would become applicable to him.
iv) The appellant has business interest abroad and has understanding and relations with foreigners for a long period of time on which Indian income tax authorities have his domain. The Department is compelling him to reveal those relationships, agreements, understandings etc. which the Department cannot enforce in the case of non residents qua the income which does not relate to India.
20 ITA No2237,3718,3431&4641Del/13
v) Details about his living standard abroad, transactions and drawings etc. are being sought which are not required to be scrutinized.
vi) The Department is asking to reveal the identity and capacities of foreign business partners, balance sheets of the companies in which he is a Director etc. which are creating complication of foreign business related problems.
9. Arguing further the Ld AR submitted that the CBI has accepted that there was no sufficient evidence and dropped the FIR lodged on alleged Barak Missiles issue and accepted that he has not received any commission in alleged defence deals. Thus no evidence exist which in any way indicates this offence and the passport was illegally impounded on suspicion. The Ld AR submitted that Tribunal vide order dated 24.7.2012 for assessment year 2001-02, 2002-03 & 2004-05 has held the status of assessee as non resident on the basis of number of days stay in India on a totally different issue and facts. In this respect our attention was invited to paper book pages 857 to 905.
10. The Ld DR interrupted at this juncture and invited our attention to the Tribunal order cited by Ld AR and submitted that the Tribunal has held the assessee as non resident on the basis of number of days of his stay in India. Therefore this Tribunal judgment is against the assessee by drawing our attention to relevant paper book pages where the relevant provisions are reproduced.
11. The Ld AR resuming the arguments contends that in those years the issue of stay is on altogether different footing, In earlier years the pertinent issue was as to whether the provisions of section 6(1)(c) were applicable or provisions of section 6(1)(c) along with explanation (b) to the assessee's case. Highlighting the difference between section 6(1)(c) as read individually and as read with Explanation (b) it was submitted that period of stay ordinarily is sixty days in the case of all individuals whereas in the case of citizens of India or for a person of Indian origin who were non residents, the period is 182 days. It was submitted that in those years the Tribunal has held that Explanation (b) was applicable in the case of assessee and instead of 60 days of stay 182 days were 21 ITA No2237,3718,3431&4641Del/13 relevant in those years. Whereas in the present years this is not the issue at all, the real issue in these years is determining the NRI status in the backdrop of illegal restraint on assessee's travel out of India and consequent forced over stay in India beyond 182 days. The question here is as to whether under these circumstances, the assessee by impounding of passport and restrained in India against will, can he be forced to pay taxes on his global income or not. Continuing his arguments the Ld AR submitted that as soon as the passport of assessee was released after a long drawn legal battle he immediately proceeded out of India. In support of his arguments for adopting a liberal interpretation of provisions in these peculiar circumstances, it is pleaded that the assessee cannot be said to be a resident for the purpose of imposition of tax on world wide income. In support thereof Ld AR relied upon a number of case laws with the following propositions:-
1. CIT v. Abdul Razak 337 ITR 267 (Ker.) with the proposition that if a person goes out for treatment or study or travel abroad he will be a resident of India even if he is outside India for more than 182 days in a year. The Ld AR highlighting the facts of this case argued that with the reverse analogy if a person is forced to stay in India for more than 182 days, he cannot be considered to have become a resident for the purpose of taxation.
2. Vipin Kumar v. Union of India in Civil Writ Petition No.386 of 206. In a case of impounding of passport by FERA authorities under alleged violations of Foreign Exchange Management Act for short (FEMA) in nearly simillar circumstances. Though Hon'ble Supreme Court permitted the retention of passport but it was on the explicit undertaking given by Additional Solicitor General to the effect that if there was any problem about the NRI status of the petitioner as apprehended, the Govt. of India would extend full cooperation to help the petitioner in that respect.
Thus even Govt. has not taken the days of stay in India as an absolute rule. Had it been so ld ASG would not have given a concession for estoppels against law and Hon'ble Supreme Court may not have accepted 22 ITA No2237,3718,3431&4641Del/13 such concession unless it was within the four corners of law. Thus the stay as envisaged in the Income Tax Act by a harmonious interpretation and applying the concept of reading down of legal provisions, means stay without force.
3. CIT v. J.H. Gotla 156 ITR 323 (SC) for the proposition that if result of plain reading of a section of an Act is absurd and not be intended then construction that results in equity rather than injustice is to be preferred. In assessee's case this interpretation is leading to a totally absurd and unintended result.
4. K.P. Verghese v. ITO & Anothers 131 ITR 597 (SC) with the proposition that if the literal construction leads to manifestly and unreasonable and absurd consequences then though the suggested construction cannot alter the meaning of statutory provision but it can certainly help to fix its meaning. In this respect it was also submitted that it is a well recognized rule of construction that a statutory provision must be so construed so that absurdly and mischief is best avoided.
5. C.W.S. (India) Ltd. Etc. v. CIT 208 ITR 649 (SC) for the proposition that if literal approach leads to results absurd which are un-intended results, discriminatory and incongruous, a construction which modifies the meaning of the word or even the structure of the sentence may be put by the courts.
6. Mysore Minerals Ltd. v. CIT 239 ITR 775 (SC) for the proposition that meaning of a will is to be gathered from the connection in which it is used and the subject matter to which it applies.
7. Birla Cement Works v. CBDT 248 ITR 216 (SC) for the proposition that in case of absurd and interpretation that favours the assessee should be adopted by taking realistic meaning.
12. Ld AR in support of his plea for liberal interpretation adverted to doctrine of impossibility of performance and argued that law does not expect a person to do the impossible. If Passport is illegally impounded against the constitutional rights of the assessee and they are challenged in the court of 23 ITA No2237,3718,3431&4641Del/13 law, it is impossible to perform the obligations of NRI status under income tax act. Thus assesses disposition in ensuring the stay of prescribed days in India is impeded by an act of impossibility, attributable to wrongful action of govt. Without availability of passport assessee cannot be assumed to leave India. Thus the eligibility to a provision is rendered impossible for compliance by the illegal action of none other than the Govt. Ld AR relied upon the following case laws for the proposition that a person cannot be expected to perform impossible acts based on the recognized doctrine of impossibility of performance:
1. Chandra Kishore Jha v. Mahaveer Prasad & Others (1999) 8 SCC 266.
2. Mohd. Gazi v. State of Madhya Pradesh (2000) 4 SCC 342.
3. Gujrat Assembly Election (2002) 8 SCC 237.
4. CR Reddy Law College Employee v. Bar Council of India (2004) 5 ALD 180.
5. State of Rajasthan v. Shamsher Singh (1985) AIR 1082.
6. Smt. Tejasvani Panigrahi v. State of Orissa in W.P. No.571 of 2011 dated 13.9.2013
7. Krishnaswamy S. Pd. V. UOI (2006) 281 ITR 305.
8. ACIT v. Ramachandra Educational & Health Trust (2010) 128 TTJ (Chennai) 408.
9. National Aviation Co. of India v. DCIT (2011) 137 TTJ (Mum.) 662.
10. ACIT v. Jindal Irrigation Systems Ltd. (1996) 56 ITD (Hyd.) 164.
11. Canara Bank v. ITO 125 TTJ 819.
12. South Eastern Coalfields Ltd. v. JCIT (2003) 85 ITD 608 (Nag.).
13. Standard Chartered Bank v. Directorate of Enforcement (2005) 275 ITR 81 (SC).
24 ITA No2237,3718,3431&4641Del/13
13. Further reliance is placed on the doctrine of Force Majeure which refers to events beyond the control of parties inhabiting them to fulfill their duties and obligations under the agreement. In this respect counsel relied upon the case law of Global Steel Philippines v. STC of India decided by the Hon'ble High Court in I.T.A. No.4615 & 5316/2009 and the decision of Hon'ble Apex Court in the case of State of Tamilnadu v. NK Kandaswamy 26 SCC 191 with the proposition that in interpreting the provision where a construction which would defeat its purpose and obliterate it from the statute book should be excluded.
14. The Ld AR also relied upon rule of beneficial interpretation of legal provisions as an aid of construction in case of doubt and unintended consequences. This rule propounds that in case of varying results flowing from statutory interpretation, benefit of doubt in a taxing statute should always be given to the tax payer.
15. The Ld AR invited our attention to the legal opinions sought by the assessee from of Justice VN Khare, Former Chief Justice of India and Shri S.R Wadhwa an eminent Income tax consultant. After independent examination of the assessee's case they have opined that in these facts and circumstances he cannot be held to be a resident in India for income tax purposes.
16. Arguing on common ground No.3, the Ld AR submitted that though Ld CIT(A) granted relief to the assessee but went beyond his jurisdiction by directing the Assessing Officer to make further investigations from Govt. of Mauritius, Jersey and British Virgin Islands. The Ld AR contends that CIT(A) has coterminous powers of enquiry which ought to have been excercised. The directions suffer from legal infirmity in as much as by amendment of FA, 2001 wef 1-6-2001 CIT(A) has been divested from the power of set aside of any issue of assessment to the Assessing Officer. In the absence of statutory power ld CIT(A) can neither set aside the matter nor ask for further enquiries more so when he has taken a judicious decision to allow the relief. Thus direction given by ld. CIT(A) are urged to be expunged.
17. Vide Ground No.4 the assessee is aggrieved with sustaining of addition on protective basis in respect of share capital subscribed by Palm Technologies, Mauritius in the Claridges SEZ (P) Ltd. It is argued that Ld CIT (A) while deciding the ground held in favor of the assessee that the amount of share capital belonged to Palm Technologies, Singapore and not the assessee. Ld CIT (A) as an appellate authority thus decided the issue of investment in substantive terms as belonging to Palm 25 ITA No2237,3718,3431&4641Del/13 Technologies, thereafter, there is no justification in sustaining the same addition again on protective basis and giving directions to Assessing Officer to conduct fresh investigations from Govt. of Mauritius Jersey & British Virgin Islands. This ought to have been done by AO in original proceedings or by Ld. CIT(A) using his own powers of inquiry or by calling a remand report from AO and then deciding by himself. Thus ld. CIT(A) though has given relief on one hand but unjustifiably contradicted his findings. An appellate authority is under obligation to decide the issue of taxability in correct assessee, which is already held to be belonging to Palm Technologies and not the assessee.
18. With regard to grounds No.5 to 8 for assessment year 2007-08 and ground in assessment year 2008-09 the Ld AR submitted that if assessee fails on the main ground of appeal regarding 'residential status' then these issues can be set aside by ITAT to the Assessing Officer for further verification and in case the ground of residential status is decided in favour than all other grounds of appeal become in fructuous as the additions were made holding the assessee to be a resident in India. Without prejudice to other arguments it was argued that Ld CIT(A) even otherwise deleted the additions by holding that the moneys did not belong to assessee.
19. The Ld AR also argued that as a legal course of appeal proceedings, once ld CIT(A) held that incomes did not belong to assessee there is no justification to retain additions on protective basis as it amounts to self contradictory findings. It is contended that assessee has been put to undue harassment by the income tax department in proceeding against him in a vindictive and arbitrary manner, causing severe hardships and sufferings. In this situation suitable cost may be awarded against department by ITAT by using its powers in this behalf.
20. The Ld DR, on the other hand, in reply to assesses contentions on ground No.2 submitted that Ld CIT(A) while deciding the appeals has considered all these arguments and contentions and dealt with them in details. ITAT in assessee's own case has while interpreting sec 6(1)(c) held that for deciding the residential status what is to be seen is physical presence in India. This decision has been confirmed by Hon'ble Delhi High Court thus the issue stands covered against him. Applying this decisive parameter it is undisputed that assesses physically stayed in India exceeding the no of prescribed days.
26 ITA No2237,3718,3431&4641Del/13 Following ITAT judgment and applying literal meaning i.e. strict interpretation to provision of the I T Act, ld. CIT(A) has rightly held the assessee to be a resident in India. It is further argued that assessee's contentions are reminiscent of provisions contained in 1922 IT Act when casual visit concept was there, perhaps under those provisions the Ld AR's argument would have been valid to some extent. Ld DR submitted that while enacting 1961 IT Act, legislature consciously deleted those words as contained in 1922 IT Act. Thus it cannot be said that intention of legislature is not there.
21. As regards arguments regarding principle of performance of impossibility the Ld DR submitted that they apply to contractual provisions and do not apply to IT proceedings. Besides it is further submitted that assessee was maintaining a house in India and UAE thus practically he was operating from India. His passport was impounded by a due process of law and looking at the entirety of facts, circumstances and proper interpretation of legal provisions assessee has been rightly held to be a resident in India for taxation purposes. Besides the issue about determination of residential status being based on physical presence in India for a period of more than 180 days is covered against assessee by I.T. judgment in his own case (supra). Ld CIT(A) order in this behalf is relied on.
22. The Ld DR arguing on revenue's appeal submitted that Ld CIT(A) has wrongly deleted the additions and further relied upon the assessment order. The Ld AR on the other hand with regard to revenue's appeal relied upon the Ld CIT(A)'s order.
23. The request of Ld DR for filing of written submissions was acceded by Bench which are filed on 5.3.2014. After reiterating facts & discussion regarding search by CBI, impounding of Passport etc. ld DR's submissions are mainly as under:-
27 ITA No2237,3718,3431&4641Del/13
(i) That the Assessing Officer has gone strictly by the meaning of bare provisions of law as per which the assessee had to be treated as a resident in India. It is submitted that having stayed for more than 180 days in these years, the Ld AR fails to appreciate the fundamental principle of interpretation whereby a taxing statue is to be strictly construed and is very clear that rely upon the case law of Commissioner Customs v. Top Ten Promotions (1969) 3 All ER 39HL page 90. It is argued that deducing meaning of a taxing act one has to look merely at what is clearly said. Further reliance is placed upon the case law of CWT v. Modi Sugar Mills AIR 1961 (SC) 1047 wherein it was held that while interpreting a taxing statute equity or equitable consideration are entirely out of consideration and therefore taxing statute cannot be interpreted on any presumption or assumption and courts including ITAT cannot look beyond the words of statute.
24. Replying to assessee's arguments regarding principle of performance of impossibility, the ld DR submitted that this principle is not applicable because law does not force that one person should reside at a particular place. During the course of stay how assessee can say that had passport been not impounded, he would have necessarily gone abroad and for a specified number of days in an year. Therefore, despite clear law, tasking benefit of impounding of passport by CBI, cannot come to assessee's advantage and needs to be rejected.
25. Apropos Ld AR's reliance on the expert opinions, the Ld DR submitted that these opinions have traveled beyond the bare and unambiguous provisions of section 6(1)(a) and moreover these opinions have meaning of no evidentiary or precedential value.
26. Apropos of Ld AR's reliance on the Supreme Court judgment dated 24.1.2008 in assessee's case whereby the passport of the assessee was ordered to be released, Ld DR submitted that the order does not hold that all actions 28 ITA No2237,3718,3431&4641Del/13 taken in pursuance of impounding of passport would become nullity. On the aspects of orders for release of passport and closure report in Barak Missile case, Ld DR submitted that in any case still the fact remains that assessee had stayed in India for a period which is more than prescribed by the relevant provisions of Income Tax Act for claiming NRI status. Since many cases were ongoing against the assessee, he may have stayed in India for defending the cases even if his passport was not impounded. Therefore, it was argued that plea about the forced presence in India has no relevance to determine his residential status.
27. Apropos the other issues i.e. direction of Ld CIT(A), post substantive relief for further enquiries, the Ld DR submitted that ld CIT(A) in effect intended to set aside the issue. However, finding that he has no power to set aside, middle course was adopted to order further enquiries. The directions of Ld CIT(A) to investigation are just aimed to ascertain correct fact/truth which cannot be agitated by the assessee. In any case, if any action on the basis of further investigation is required to be taken it will only be possible when there would be tangible material and the limitation would still be available with Assessing Officer. Therefore, it was argued that assessee's grievance against the above directions is unfounded and needs to be dismissed.
28. Arguing upon the revenue's appeal in respect of deletion of addition on jewellery amounting to Rs. 1.20 crores, Ld DR submitted that Ld CIT(A) has committed a serious error in not appreciating that Mrs. Renu Nanda ex wife of assessee did not have any independent source and the only logical inference cqan be to the effect of holding that the investment made was from assessee's sources only. It was submitted that Ld CIT(A) failed to appreciate that even otherwise also the addition was required to be deleted from Mrs. Renu Nanda hands as the jewellery found was held to have been acquired out of income of assessee only. Therefore, deletion in the hands of assessee's wife was inconsequential because the Ld CIT(A) was required to decide the issue on 29 ITA No2237,3718,3431&4641Del/13 stand on alone basis. In view of the above, it was prayed that Assessing Officer's order in this respect be restored more so when the assessee has specially not disputed the finding of Assessing Officer that it was the assessee who had invested his own income in jewellery.
29. Regarding deletion of addition of Rs.17.94 crores on account of investment in Claridges Hotel Pvt. Ltd., the Ld DR relied on various documents referred to in assessment order and argued that UBBS had no income of its own and effectively this company was used as conduit pipe to channelize unaccounted income of Mr. Nanda because of the less stringent exchange norms there. It was argued that Assessing Officer had highlighted various issues of investment into Claridges Hotel Pvt. Ltd. and Ld CIT(A) has deleted the addition, summarily relying upon the assessee's submission which emerges from short findings running into just one page. Ld DR submitted that Ld CIT(A) has failed to appreciate the combined effect of the seized material relied on in the assessment order which clearly demonstrated that assessee was introducing his own unaccounted income through various intermediaries. The fact that Ld CIT(A) gave directions to Assessing Officer to make further investigation itself prove that CIT(A) was not clear about the relief. CIT(A) should have called for such enquiries and then should have dealt with the addition based upon such further investigation. Thus the relief accorded is not proper and deserves to be reversed.
30. Regarding addition of Rs. 16.98 crores on protective basis, the ld DR submitted that this amount was brought into Claridgeds SEZ by Palm Technologies Ltd. (PTL) and Palm Holdings/Technologies Ltd. They made these investments by borrowings coming from two other entities controlled by Mr. Nanda. The transactions are closely linked with assessee which is demonstrated by AO. Referring to documents seized during the course of search indicating that assessee's own money got routed to PTL i.e. Indian company. It was argued that despite finding direct link through backward working, the Ld CIT (A) held that there was no evidence to establish that money brought into 30 ITA No2237,3718,3431&4641Del/13 Claridges SEZ as FDI by UBBS was attributable to personal income of the appellant. The Ld DR further stated that the appeal order reflects that looking at the overlapping facts ld. CIT(A) directed the Assessing Officer to make further investigation and retained the addition on protective basis. In right earnest, ld. CIT(A) should have waited for the out come of such information and then decided the issues. In these circumstances the additions ought to have been confirmed.
31. Assailing the deletion of addition of Rs. 7.28 lakhs, the Ld DR submitted that Assessing Officer gave appropriate relief for withdrawals made by the assessee from bank. After deduction of household expenses he has given credit against cash found by the CBI on 10.10.2006 recovered at various premises. The Ld CIT(A) has justified the need for keeping huge quantity of cash by the assessee looking at his business. The relief is not warranted when majorl business of the assessee is located abroad and ATM facilities are available at all places. Therefore, the ld CIT(A) has wrongly deleted the addition.
32. As regards the deletion of addition of Rs. 28.47 lakhs qua investment in Sonali Farms, the Ld DR submitted that despite various queries, the Assessing Officer was not supplied the information on the bank account from which the payment as reflected in the seized documents were made. Therefore, Ld CIT(A) ignored that assessee failed to explain the source of expenditure on Sonali Farms and even if the amount originated from Singapore/foreign bank account no evidence was adduced in this behalf. By failure to file required evidence before lower assessee failed to discharge his burden in support of his claim, therefore, ld. CIT(A) erred in giving this relief.
33. Regarding addition of Rs. 5.10 crores being deposit in Deutsche Bank, the Ld DR submitted that Ld CIT(A) had upheld the addition taking note of the fact that in terms of section 132(4)(a)/292C primary onus of explaining the nature of transaction and source of amounts recorded in documents seized was 31 ITA No2237,3718,3431&4641Del/13 not discharged. He further submitted that Ld CIT(A) has rightly endorsed the Assessing Officer's view that even if the amount represent appellant's foreign income still it was required to be taxed in India because he was being held to be resident. The Ld DR further submitted that during appellate proceedings before ITAT also the Ld AR did not adduce evidence to explain the source of deposits. Therefore, it was submitted that Ld CIT(A) has rightly upheld the addition.
34. As regards addition of Rs. 23.66 lakhs out of total cash found of Rs. 45.47, lakhs the Ld DR submitted that Assessing Officer after giving relief or withdrawal of Rs. 60.45 lakhs from bank had rightly calculated the un- explained cash amounting to Rs. 23.66 lakhs. Therefore, the Ld CIT(A) found the order to be correct and upheld the addition u/s 69 of the Act.
35. Ld. counsel for the assessee in reply vehemently argues that the ITAT in assessee own case has not decided the issue of forcible stay. As already argued the issue decided is totally different i.e. interpretation of sec. 6 of IT Act in different context where the assessee being NRI was held to be resident because of business connections abroad.
36. It is pleaded that there is no force in the contention of ld DR that the issue of physical presence in India stands decided against the assessee.
37. We have heard the rival submissions, case laws cited and have gone through the material available on record. The appeals were first heard on 11.2.2014 thereafter while dictating the order certain further clarifications were required, therefore, these appeals were re-fixed and clarifications were sought from Ld AR which were finally submitted on 14.3.2014 and also filed a copy of ITAT order dated 21.2.2014 in the case of assessee for assessment years 2004-05, 05-06 & 2006-07 contending that some of the issues in the present years are already dealt by ITAT in earlier years. Ld. DR is also heard thereon.
32 ITA No2237,3718,3431&4641Del/13
38. Ground No. 1 & 10 in A.Y. 2007-08 and ground No.5 & 7 in A.Y. 2008-09 are general in nature and do not require any adjudication.
39. We advert to the common legal ground taken by the assessee as ground No.2 in both appeals regarding determination of residential status. The dispute of residential status in these years has arisen because the Assessing Officer rejected the assesses claim of being 'non resident' and determined the status of the assessee as 'resident in India' finding the number of days of stay in India being more than 180 days as per the provisions of section 6. Per contra the claim of the assessee is that he was illegally forced to stay in India because his Passport was illegally impounded and he was compelled to stay in India against his wishes or free will. The Ld AR has forcefully argued that assessee has been a non resident since a long time and was earning only passive income in India for which he was filling regular income tax returns in India and was assessed accordingly. The ITAT order dated 24.7.2012 holding the assessee as non resident for assessment year 2001-02, 2002-03 & 2003-04 on the basis of number of days of stay in India is in totally different context. It has been confirmed by Hon'ble Delhi High Court in I.T.A. No. 85,87 & 100/2013 vide judgment dated 25.2.2013 placed at paper book pages 688 to 695.
40. Following the same ITAT vide another order dated 21.2.2014 for assessment year 2004-05, 05-06 & 06-07 has also held the assessee to be a non resident. The details of sources of income of assessee as placed in the form of a chart at paper book page 906 depicts that from assessment years 2001-02 to 2007-08 the assessee earned only passive income from house property and income from other sources.
41. The claim of the assessee being an NRI for the last 23 years also emerges from the observations in the order of Hon'ble Delhi High Court, dated 5.2.2007 placed at paper book pages 26 to 40 vide para 4 the Hon'ble Court has noted as under:-
33 ITA No2237,3718,3431&4641Del/13 "The resident moved an application on 2.1.2007 before the Special Judge claiming that he is non resident for the last 23 years and permanently settled in United Kingdom. He alleged that he come to India on 28.9.2006 to attend the 91st Birthday of his ailing father. When on 9.10.2006 the CBI conducted a search at various places including his residence and arbitrary seized Passport of all family members including that of respondent and his son."
42. The facts on record and the combined reading of relevant documents makes it undisputed that the status of assessee during all these earlier years was that of a 'non resident' and person of Indian origin, his indian earnings were passive income in nature. During assessment year 2007-08 also before impounding of passport on 10.10.2006 out of a total elapsed period of 193 days the assessee was in India only for a period of 83 days as can be verified from the paper book pages 1 to 20 detailing stay in India and out of India along with copies of passport are placed. After 10.10.2006 till 21-9-2011 , due to said illegal impounding of Passport and passport authorities, assessee was unable to go out of India.
43. The brief facts relating to impounding of Passport are on 10.10.2006 the CBI impounded assesses Passport suspecting his alleged broker's role in purchase of Barak Missiles from Israel in contravention of defence purchase policies. On assessee's application against illegal impounding of passport, the ld Special Judge, CBI Court by order dtd. 15.1.2007, directed for release of his passport on the fulfillment of certain conditions. Before assessee could comply with those stringent conditions, the CBI challenged CBI judge's order before Hon'ble Delhi High Court. By order order dated 5.2.2007 Hon'ble Delhi High Court reversed this order of ld Special Judge, CBI. Against the order of Hon'ble Delhi High Court the assessee approached Hon'ble Supreme Court and Hon'ble Supreme Court vide order dated 24.1.2008 ordered for release of passport. Ironically before the passport could be physically released consequent to 34 ITA No2237,3718,3431&4641Del/13 Supreme Court order, the Passport Authorities again impounded the passport on 25.3.2008 under some other provisions. Against the later order of Pass Port Authorities the assessee again approached Hon'ble Delhi High Court against impounding of passport vide order dated 5th October, 2010 was pleased to order for release of Passport with a condition that assessee will take permission of the Trial Court before seeking to travel abroad.
44. The assessee then filed application for permission to travel abroad for two months which was dismissed by the Trial Court vide its order dated 25th October, 2010. Against this order, the assessee again approached Hon'ble Delhi High Court and Hon'ble Court vide order dated 21.9.2011 directed the Trial Court to permit the assessee to go to London for a period of two weeks on furnishing of security of Rs. 50 crores. A query was raised by the Bench as to whether consequent to any earlier order by CBI or other courts order prior to 21-9-2011, whether the passport was physically released to assessee. Ld AR stated at the Bar that passport was never handed over to assessee prior to 21- 9-2011 order, a fact which is clear from the orders thus during this entire period, the passport was physically never released.
45. Consequent to the orders of Hon'ble Delhi High Court and in view of further orders of Special Judge dated 26.9.11, 17.11.11, 31.1.12 & 17.12.12, the assessee remained out of India for a total period of 71 days. It is contended that these facts are verifiable from the copies of Passport and details of stay in India and abroad as placed in paper book 1A. Therefore at the first available opportunity after release of passport, the assessee went abroad after seeking specific permission from the Trial Court. However, due to these legal impediments, the assessee could not remain outside India for more than 182 days, as about half year had already passed by the time he was permitted. During financial year 2012-13 he remained out of India for 252 days as is verifiable from paper book where details of his stay in India and abroad along with copies of Passport are placed. It is thus pleaded that assessee was thus 35 ITA No2237,3718,3431&4641Del/13 forced to stay in India due to repeated impounding of passport and consequent litigation and seeking court permission for travel outside India.
46. The assessee was fervently raising the issue of his NRI status and praying for release of his passport. It is evident from the specific prayer raised before various courts. Before Hon'ble Delhi High Court also this issue was prayed of release his Passport in order to maintain his non-residential status as is evident from para 6 of the Hon'ble High Court's order which reads as under:-
"It was claimed that in order to maintain his non resident status in accordance with the Income Tax Act, he has to remain out of India for more than 182 days and that continued seizure of his passport jeopardized his NRI status and resulted in irreparable loss. He also alleged that for more than three months since 10.10.2006 he had to postpone visits abroad and reschedule business meetings but such indefinite postponement could not be continued for ever."
47. Therefore, the intention and anxiety of the assessee to maintain his NRI status demonstratively emerges from the proceedings. In these facts and circumstances it is very clear that assessee made every legal effort to maintain his past status as non resident and endeavored to defend his legal rights before various legal forums. Had the Passport been released after first order of spl. Judge CBI court, the assessee would have travelled abroad thus maintaining his NRI status, it is only the wrongful impounding of passport which is the cause of preventing the assessee from excercising his lawful right of travelling abroad. In the light of above legal hurdles, facts and circumstances, the Ld AR argued that for the purpose of determination of residential status of assessee the period of impounding of passport which resulted in forced/compelled stay in India should be excluded while counting the days of stay in India.
48. The application of strict meaning of provisions in this behalf by lower authorities, leads to manifestly absurd results which cannot be the intention of legislature. It cannot be intended to deny the NRI status in cases of illegal 36 ITA No2237,3718,3431&4641Del/13 criminal charges and impounding of passport despite repeated requests to allow the subject who is NRI since last 2 decades, to go out of India as usual. Ld. counsel has relied upon a number of case laws for the proposition that where application of strict and literal meaning to provisions of Act gives absurd results, the courts can interpret the language suitably by applying the aids of constructions. This is claimed to be a fit case which necessitates the interpretation of the relevant provisions by applying harmonious construction to the provision together with doctrine of reading down of provision. One of these case laws is that of CIT v. JH Gotla (1985) 156 ITR 323 wherein the Hon'ble Supreme Court has observed as under:-
"Where the plain literal interpretation of a statutory provision produces a manifestly unjust result which could never have been intended by the Legislature, the court might modify the language used by the Legislature so as to achieve the intention of the Legislature and produce a rational construction. The task of interpretation of a statutory provision is an attempt to discover the intention of the Legislature from the language used. It is necessary to remember that language is at best an imperfect instrument for the expression of human intention. It is well to remember the warning administered by judge Learned Hand that one should not make a fortress out of the dictionary but remember that statutes always have some purpose or object to accomplish and sympathetic and imaginative discovery is the surest guide to their meaning. If the purpose of a particular provision is easily discernible from the whole scheme of the Act, which in this case is to counteract the effect of the transfer of assets so far as computation of income of the assessee is concerned, then bearing that purpose in mind, we should find out the intention from the language used by the Legislature and if strict literal construction leads to an absurd result, i.e., a result not intended to be subserved by the object of the legislation found in the manner indicated before, then if another construction is possible apart from strict literal construction, then that construction should be preferred to the strict literal construction. Though equity and taxation are often strangers, attempts should be made that these do not remain always so and if a construction results in equity rather than in injustice, then such construction should be preferred to the literal construction. Furthermore, in the instant case, we are dealing with an artificial liability created for counteracting the effect only of attempts by the assessee to reduce tax liability by transfer."
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49. The assessee's case gets further strength from the case law of CWS India Ltd. v. CIT (1994) 208 ITR 649 (SC) wherein the Hon'ble Supreme Court has observed as under:-
"Where the language of the statute in the ordinary meaning and grammatical construction, leads to manifest contradiction of the apparent purpose of the enactment, or to some inconvenience or absurdly which can hardly have been intended a construction may be put upon it which modifies the meaning of the words and even the structure of the sentence, this may be done by departing from the rules of grammer, by giving an unsual meaning to particular words, or by rejecting them altogether on the ground that the legislature could not possibly have intended what its words signify and that the modifications made are mere corrections of careless language and really give the true meaning., Where the main object and intention of the statute are clear, it must not be reduced to a nullity by the draftsman's unskilfulness or ignorance of the law, except in a case of necessity, or the absolute intractability of the language used. Lord Reid has said that he prefers to see a mistake on the part of the draftsman in doing his revision rather than a deliberate attempt to introduce an irrational rule, the canons of construction are not so rigid as to prevent a realistic solution."
50. Similarly in the case law of KP Verghese v. ITO 13 ITR 597, the Hon'ble Supreme Court has observed as under:-
"Interpretation of statutory enactment is not a mechanical task - It is also an attempt to discover the legislative intent from the language used - Plain literal interpretation of statutory provision has to be avoided if results in absurd and unreasonable consequences, not in consonance with legislative intent - Such avoidance is necessary to arrive at the obvious intention of the legislative and to produce rational construction of the statute."
51. Ld. counsel has heavily relied on the case of Vipin Kumar wherein in similar facts about question of NRI status, govt. through ASG undertook to consider the issue suitable. Thus the rule of strict interpretation of residential status is not absolute.
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52. In the light of the aforementioned facts, circumstances and judicial precedents we have to examine whether the strict and literal construction of sec 6 and other provisions in this behalf as proposed by the lower authorities, leads to absurd results which cannot be intended by legislature.
53. It has been held by ld. CIT(A) and vehemently pleaded by ld. CIT(DR) that issue about residential status on the basis of physical presence in India is covered against assessee by virtue of ITAT judgment which is confirmed by Hon'ble Delhi High court. Therefore, what is to been only seen is the physical presence of assessee in India for more than 182 days and nothing else is to be considered. It is pleaded that provision do not lay down any difference in voluntary or forced stay as is being pleaded by the assessee.
54. Per contra assessee contends that the earlier ITAT order has been rendered altogether on a different issue i.e. the non resident assessee though not remained in India for more than 182 days was willy nilly held as resident because it was alleged to have been doing global business from India. An allegation which has been factually and legally refuted by ITAT and confirmed by Hon'ble High Court. The issue in question of illegal impounding of passport, illegal restrain in India and consequent litigation was neither in question nor an issue at all in earlier years. Therefore, the earlier ITAT order is on totally different set of facts and legal propositions, which cannot be held to be covering the issues in question. The issue of literal or strict interpretation and these peculiar facts about untenable impounding of passport and restrain on travel out of India was not at all present in earlier years. Thus a judgment which has no parity of facts or issues cannot be applied to present case. These issues cannot be summarily held to be covered against assessee on assumptions and presumptions as is being canvassed by the revenue.
55. After careful consideration of the facts we are inclined to agree with ld. counsel for the assessee that facts and legal issues before us and earlier years 39 ITA No2237,3718,3431&4641Del/13 are significantly different. In earlier years the ITAT was concerned with a totally different set of facts i.e. the assessee though not physically present in India for more than 182 days was assumed to be resident on the plea that if assessee carries on business from India then he becomes a resident even without physical presence of 182 days in India. This assumption and interpretation of department was dislodged and rejected by the ITAT in earlier years, which has been confirmed by Hon'ble High court. Thus we are of the view that assessee's cases before us cannot be held to be directly covered against it on the basis of said earlier years ITAT orders. This finding of ld. CIT(A) is reversed.
56. In tax jurisprudence various countries/ jurisdictions have enacted different criteria of days of stay to determine residential or NRI status. The Indian law prescribes 182 days of stay outside India as a permissible way of claiming the NRI status. The law provides that assessee has a liberty to choose the prescribed number of days of stay outside India. It is ingrained in the provision that in exercise of this right assessee has to move from one country to other to comply with the relevant provisions and regulations in this behalf. The assessee's case before us does pose a peculiar case where passport is illegally impounded by govt. agencies, putting embargo on assessee's leaving India. The impounding is held to be unjustified by CBI court in first instance and by the Hon'ble Supreme court ultimately after intense litigation in this behalf. The intervening period amounts to being a compelled/forced stay imposed by wrongful application of law by the govt. agency as held by the apex court. This results in restraint on assessee to travel out side India. CBI court of competent jurisdictions holds the impounding unjustified and directs the release of passport. CBI without releasing it appeals to High Court which upholds the impounding. Assessee files SLP before Supreme Court which is pleased to hold that impounding of passport is unjustified and directs the release. Before passport is actually released it is re impounded by the passport authorities. Again after one more round of litigation passport is ultimately released actually 40 ITA No2237,3718,3431&4641Del/13 and assessee immediately leaves India. Ultimately CBI drops alleged charges and no FIR is applied to be closed.
57. These proceedings clearly reveal that the repeated impounding of assessee's passport and lodging of criminal case was found to be untenable by courts. This entangled the assessee into spat of litigation, forcing him to stay in India and unwillingly loose his NRI status on strict and literal interpretation of relevant provision. The plea of imminent loss of NRI status consequent to illegal restraint on assessee from traveling outside India is pleaded before Hon'ble High Court as mentioned above. Thus looking at the matter from all possible angles the assessee was restrained by govt. from traveling abroad, compelled to stay in India for more than 180 days. The circumstances were beyond assessee's control and no fault can be attributed to assessee in this behalf.
58. In our considered view these facts and circumstances create a peculiar situation. Due to initiative on the part of govt. agency which is held to be untenable, it became impossible for the assessee to go out of India. If only a strict and legal meaning is assigned to relevant provision it leads to a manifest absurdity thereby denying a lawful entitlement to an assessee by an action of a govt. agency which is held to be untenable by courts and the FIR is ultimately closed by CBI. Assessee did not sit idle and pursued legal remedies requesting release of passport to enable him travelling out of India to look after his world-wise business. Thus the assessee was diligent in protecting his legal rights. The assessee's over stay in India is neither attributable to his volition nor free will and is a result of untenable actions of impounding his passport by executive orders which are quashed by highest court. In our considered view in these circumstances, the literal meaning of the provisions lead to a manifest absurdity in as much as by untenable actions of executive, a tax payer is exposed to the peril of loosing his valuable right under taxation law i.e. retaining his NRI status. In the entire episode no fault can be attributed to assessee who has shown active diligence in defending his legal rights. In our 41 ITA No2237,3718,3431&4641Del/13 considered view legislature cannot have enacted this provision with an intention to forfeit the NRI status by unlawfully compelling the assessee not to leave India even if he has found not to have violated the alleged law. In the given facts and circumstances which we consider to be very peculiar, the strict and literal interpretation applied by lower authorities to the provisions leads to manifest absurdity resulting in a meaning which cannot be intended by the legislature. The opening example proposed by ld counsel for assessee gives a fair indication about absurdity and unintended results if strict and literal construction of the provisions is applied to facts before us.
59. The case of Vipin Kumar cited by the ld counsel copy whereof is placed on record also indicates that Govt. through ASG, looking at the peculiar facts of that case and plea of hardship raised by assessee; has undertaken before Hon'ble Supreme court to properly consider the issue of NRI status questioned by wrongful impounding of passport. Thus the Govt. is very much alive to the unintended consequences posed by such untenable actions of passport impounding. We do not know the ultimate result of the case but the order gives a fair indication that Govt. did not treat the provision about residential status and physical presence in case of impounding to be an absolute rule. In our view government's undertaking through ASG in Vipin Kumar's case throws a light on possibility of applying rules of interpretation to be adopted in case of aberrations in NRI status caused by untenable impounding of passport.
60. In view of the foregoing and taking guidance from Hon'ble Supreme court order in the case of Vipin Kumar(supra) we are inclined to hold that the strict and literal interpretation put by lower authorities is not an absolute rule. Looking at facts and unintended hardship caused to the assessee by illegal impounding of passport and the fact that assessee is not found to be on the wrong side of law on these issues and whose passport was untenably impounded and released after a long winding and apparently tiring spat of legal proceedings. In our considered view the literal meaning and strict interpretation cannot be applied to decide the NRI status in the peculiar facts 42 ITA No2237,3718,3431&4641Del/13 of this case. The literal meaning manifestly leads to unintended absurdities and undue hardship on an assessee who is not found to have violated the law. Untenable impounding of passport and restriction on freedom of movement to travel abroad and thereafter adverse tax consequences cannot be the intention of legislature. In these circumstances it is desirable to apply appropriate rules of interpretation of statutes. Our view is fortified by Hon'ble Supreme court judgments in the cases of J H Gotla, K P Verghes, C W S (India) ltd., Mysore Mineral, and Bharat Cement Works (all supra).
61. In our considered view in the facts and circumstances, the rules of interpretation of "reading down of statutory provision" and "harmonious construction" will provide most appropriate interpretation and meaning to the relevant provisions for determining the NRI status. Applying these rules of interpretation relevant rules are to be read together and with harmonious construction the provision is to be read with an exception that " if stay of an assessee in India is extended due to any untenable action which is proved to be so by competent court, in that case, the over stay caused by such untenable restriction of movement out of India should be excluded while calculating the no. of days of stay in India". In our considered opinion this interpretation evens the scale judicial conscience and does not lead to any unintended hardships. It provides a level playing field to persons who are subjected to untenable restriction on their constitutional liberties of free movement outside India. With these observations we hold that the no. of days of impounding of assessee's passport till it is effectively released as mentioned above should be excluded while counting the days of his stay in India. From the no. of days given above the assessee deserves to be accorded with status of Non Resident in India. Thus the claim of the assessee to be treated as nonresident is allowed and the order of ld CIT(A) on this issue is reversed.
62. The second aspect of arguments of Ld AR rest upon the doctrine of impossibility of performance wherein he has argued that in the absence of passport it was impossible for the assessee to move out of India and therefore 43 ITA No2237,3718,3431&4641Del/13 doctrine of impossibility of performance is squarely applicable. The Ld AR has relied upon number of case laws in this respect which are listed above. In the case of Gujarat Assembly Election Matter (2002) 8 SSC 237 the Hon'ble Supreme Court has held as under:-
"The maxim of law impotentia excusat legem is intimately connected with another maxim of law lex non cogit ad impossibilia, impotentia excusat legem is that when there is a necessary or invincible disability to perform the mandatory part of the law that impotentia excuses. The law does not compel one to do that which one cannot possibly perform. Therefore, when it appears that the performance of the formalities prescribed by a statute has been rendered impossible by circumstances over which the persons interested had no control, like an act of God, the circumstances will be taken as a valid excuse."
63. Similarly the Apex Court in the case of State of Rajasthan v. Shamsher Singh (1985) AIR 1082 applied the doctrine of impossibility of performance by observing as under:-
"Mr. Jethmalani placed before us a passage from Broom's Legal Maxims (p. 162) 10th Edn. Where the doctrine of impossibility of performance (lex non cogit ad imporsibilia) has been discussed, it has been indicated therein that however mandatory the provisions may be, where it is impossible of compliance that would be a sufficient excuse for non compliance, particularly when it is a question of the time factor. Keeping the attendant circumstances of this case in view, we find it difficult to hold that the time taken by the State Govt. can amount to withholding of the representation which resulted in non compliance of sec. 10 of the Act so as to vitiate the detention."
64. Similar were the findings in the case law of Standard Chartered Bank v. Directorate of Enforcement (2005) 275 ITR 81 (SC), wherein the Hon'ble Apex Court held as under:-
"It is an acceptable legal maxim that law does not compel a man to do that which cannot possibly be performed (impotentia excusat legem). This principle can be found in Bennion's Statutory Interpretation,m 4th Edn. At p/969 "All civilized systems of law import the principles that lex not cogit ad 44 ITA No2237,3718,3431&4641Del/13 impossibilia...". As patternson, J. said the law compels no impossibility". Bennion discussing about legal impossibility at p. 970 states that. If an enactment requires what is legally impossible it will be presumed that Parliament intended it to be modified so as to remove the impossibility of performance (Lex non cogit ad impossibilia) in numerous cases (State of Rajasthan v., Shamsher Singh (1985) Supp. SCC 416. Spl. Reference No.1 of 2002 reported in (2002) 8 SCC 237."
65. The Ld AR has also relied upon the doctrine of 'force majeure' which refers to situations of happening of certain events which is beyond the control of the parties. The doctrine of force majeure has been explained by the Hon'ble Delhi High Court in the case of Global Steel Philippines v. STC of India Ltd & Others in I.T.A. No. 4615/2009 & I.T.A. No.5316/2009 wherein it has been held that parties shall be released from responsibility for a failure to fulfill completely or partially their obligations under the present contract, if it is a consequence of force majeure circumstances such as fire, floor earthquake was, military operations of any kind, blockades, prohibition of export/import, strikes or some other contingencies beyond control of the parties,
66. When the facts and circumstances of the present cases are examined with respect to judicial pronouncements as relied upon by the Ld AR, we find that assessee was forced to stay in India for a period of more than 182 days by which he lost his NRI status and became liable to enhanced income tax on his global. The legislature in its wisdom might not have envisaged such a situation wherein a person is forced to become a resident due to wrongful restraint of subject in absence of eligibility to travel outside India. Therefore, assessee's case becomes fit where doctrine of forced meajure may be applicable as it was impossible for the assessee to move out of country and therefore doctrine of impossibility of performance is also applicable. This is a fit case where strict legal reading of the provisions regarding residence in India should not be applied. An interpretation or construction should be applied which results in harmonious meaning, equity rather than injustice.
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67. In our considered view application of rule of interpretation of 'reading down' and 'harmonious construction' automatically take care of assessee's arguments on doctrines of impossibility of performance and 'force majeure' . In view of the above facts and circumstances we hold that for calculation of stay in India for these years the same should be calculated after exclusion of days of wrongful impounding of passport which constitutes forced stay in India. Thus period for which assessee could not travel outside India in above facts and circumstances i.e. from 10.10.2006 to 21-9-2011 i.e. till the passport was finally handed over to assessee and allowed to travel outside India should be excluded. Consequently assessee's residential status is held to be as 'non resident' for the years before us. Therefore, ground No.2 in both the years is allowed.
68. We may hasten to add that this conclusion is based on consideration of peculiar facts and circumstances in the present cases and it cannot be used as a general precedent.
69. Vide ground No.3 the assessee has challenged that Ld CIT(A) was not justified to direct the Assessing Officer to pursue the reference made to Govt. of Mauritus, Govt. of Jersey and British Islands to arrive at real facts regarding funds involved in various entities abroad. We find that this direction given to Assessing Officer does not amount to set aside of the AOs order. CIT(A) has tried to caution the AO to keep the interest of revenue in mind. Generally the appellate authorities should restrict their conclusions to the subject matter and should avoid generalized directions. Such directions are susceptible to be taken to be orders of a higher authority. Ld CIT(A) has deleted the entire addition without any pre condition, therefore, general instructions given to Assessing Officer do not amount to binding order and at best amount to obiter dicta. To protect the interest of revenue is the duty of investigation or assessing officer even without any direction. Consequently we are of the view that observations of ld CIT(A) are general and inconsequential observations requiring no interference.
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70. Ground No.4 relates to addition made on protective basis. We find that Ld CIT(A) has clearly held that share capital was subscribed by Palm Technologies Ltd. which is a separate entity. Ld. CIT(A) held by a clear finding that the capital did not belong to assessee but to a distinct entity whose existence is not denied. After giving such clear finding, he should not have given finding about addition on protective basis. Palm Technologies Ltd. and assessee are held to be two different persons. The ld CIT(A) has held that ownership of Palm Technologies Ltd is known and appellant was not a shareholder in Palm Technologies which was owned by One Mrs. EA Halfland. It is undisputed that both UBBS and PTL are duly incorporated companies under the laws of Sharjah and Mauritius respectively. The Ld CIT(A) has himself observed that this amount cannot be held as un-explained money/investment of appellant thereafter there is no justification in keeping a protective addition in this behalf. We also find that similar addition on substantive basis was made in assessment year 2004-05 and Tribunal on revenue appeal in I.T.A. No.2605/Del/2013 has dealt with this issue at page 60 onwards vide order dated 21.2.2014 and vide para 7.5. at page 68 has dismissed the appeal of revenue on this issue. During these years the Ld CIT(A) has however made the addition on protective basis without justification. In view of the above and following the ITAT order for 2004-05 in assesses own case we delete the alternate retention of addition on protective basis. Therefore, ground No.4 in both the years is allowed.
71. Ground No.5 in A.Y. 2007-08 relates to addition of Rs. 7,29,0000/- confirmed by ld CIT(A) on account of excess cash found at the time of search. The assessee had submitted his explanation vide letter dated 14.1.2009 along with cash flow statement placed at paper book page 261. The Assessing Officer has made the addition by rejecting the opening balance of cash in the cash flow statement and also estimated Rs. 1,50,000/- per month as household expenses against Rs. 75,000/- per month claimed by the assessee. The Ld AR has argued that without considering opening balance and arbitrarily estimating household expenses, the Ld CIT(A)'s action in confirming the action of 47 ITA No2237,3718,3431&4641Del/13 Assessing Officer is not justified. It is pleaded that assessee has explained the cash flow along with opening balance before AO who has not considered the same. After hearing the parties we are of the view that interest of justice will be served if this issue is setaside to AO with a direction to consider the cash flow statement and explanation of the assessee and readjudicate this issue after giving a reasonable opportunity of being heard regarding opening balance of cash and regarding justification of drawings. Therefore, ground No.5 is allowed for statistical purpose.
73. Ground No.6 in A.Y. 2007-08 relates to addition of Rs. 28,47,533/- qua investment in renovation of Sonali Farms from appellant Overseas Bank account. The addition was made holding the assessee as a resident in India. The fact that investment in Sonali Farms was made from Overseas Bank account emerges from the relevant findings of Ld CIT(A). We have held the assessee to be a non resident consequently any amount is not taxable in India unless it is deemed to have been received or accrues or arises or deemed to have arisen to assessee in India. We find that similar addition was made in A.Y. 2006-07 and Tribunal vide its order dated 21.2.2014 has set aside the issue to the office of Assessing Officer vide para 21.2 at page 88 of the said order. The issue was set aside to arrive at unexplained expenditure in the construction of Sonali Farms if any. Since the issue is coming from the earlier year, respectfully following the earlier order we set aside this issue to the office of Assessing Officer for the limited purpose of verification as to whether the total amount spent on Sonali Farms exceeded the amount as estimated by the valuer and if any addition is possible under section 69C.
73. In view of the above, this ground of appeal is allowed for statistical purposes.
74. Ground No.7 is similar to ground No.6 whereby the addition of Rs. 5,10,57,115/- representing deposits in Deutsche Bank New Delhi has been 48 ITA No2237,3718,3431&4641Del/13 upheld to be his income on the basis that assessee was a resident. The deposit in Deutsche Bank New Delhi represent money transferred from Deutsche Bank Singapore. This issue is squarely covered in favour of assessee by the order of Tribunal dated 21.2.2014 wherein similar addition representing deposits in Deutsche Bank were deleted allowing the ground taken by assessee. The relevant findings of the ITAT are reproduced below:-
"This issue has been covered by the decision of the Hon'ble High Court in the case of the appellant where the deposits in the same bank account for the assessment year 2001-02, 2003-04 were deleted with the following observations:-
We are left to consider the addition of Rs.10,51,20,000/- made u/s 68 of the said Act. Insofar as this addition is concerned, the decision with regard to it would depend on whether the respondent/assessee is regarded as a resident or a non resident. In case he is regarded as a resident then obviously this addition would have to be made. But, if he is regarded as a non resident then this addition will have to be deleted. This is exactly what the Tribunal has done. The Tribunal considered the case of the revenue as well as that of the respondent/assessee and determined that the respondent/assessee was a non resident and therefore the said addition has --------.
In view of the fact that the Tribunal has correctly decided that the respondent/assessee was not a resident in India in the years in question, it is axiomatic that the addition of `.10,51,20,000/- u/s 68 would have to be deleted because it was a transfer from the respondent/assessee's foreign account to the domestic account. Hence, the matter is squarely covered since it is the same bank account which has already been considered and adjudicated upon by the Hon'ble High Court.
75. In these two years we have already held the assessee to be a non resident for the purpose of income tax. Therefore, this ground is squarely covered in favor of assessee. In view thereof the above, ground No.7 in A.Y. 2007-08 is allowed.
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76. Ground No.8 relates to addition on account of un-explained cash found out of cash found during search on 28.2.2007. Similar ground was raised by the assessee vide ground No.5 wherein the unexplained cash was found on 10.10.2006. We have already set aside the issue to the Assessing Officer, the issue being is like wise set aside. Therefore, ground No.8 in A.Y. 2007-08 is allowed for statistical purposes.
77. Vide ground No.9, in A.Y.. 2007-08 and ground No.6 in A.Y. 2008-09 the assessee has prayed for award of suitable cost to assessee. We find that Assessing Officer and Ld CIT(A) are both officers of Govt. of India and were discharging their duties. They do not have any role in impounding of passport consequently no cause of action regarding awarding of costs arises, consequently ground No.9 in A.Y. 2007-0-8 and ground No. 6 in A.Y. 2008-09 are dismissed.
78. Ground No.5 in assessment year 2008-09 relates to addition of Rs. 8,45,280/- (10000 GBP) on the ground that same represents foreign remittance taxable in India. We have held the assessee as non resident for the purpose of income tax therefore the remittance from abroad are taxable in India only if they represent income accrued or deemed to have been received in India. The Assessing Officer made the addition as assessee could not explain the source of remittance into India. This ground is similar to ground No.7 in assessment year 2007-08 wherein we have allowed the relief to assessee on the basis of ITAT order in earlier year besides holding him to be a non resident. However, clear facts are not emerging from the assessment order and Ld CIT(A)'s order, consequently this ground is set aside to Assessing Officer to examine the taxability of this amount keeping the NRI status in mind and after affording a reasonable opportunity of being heard. Therefore, ground No.5 for AY 2008-09 is allowed for statistical purposes.
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79. Adverting to the appeals filed by revenue in these years, ground No.1 in both the years and ground No.6 in A.Y. 2007-08 & ground No.5 in A.Y. 2008-09 are general in nature and do not require any adjudication. Ground No.2 in both years is regarding grievance of the assessee wherein Ld CIT(A) deleted the addition on account of investment made by Universal Business Solutions in the Claridges Hotels Ltd. We find that Ld CIT(A) has dealt with this issue very elaborately and after recording proper reasons has rightly deleted the addition. Therefore, we do not find any infirmity in the same. In view of the above, revenue's ground No.2 in both years is dismissed.
80. Ground No.3 relates to the grievance of revenue regarding addition made on protective basis only instead of on substantive basis. We have already dealt with this issue and decided in favor of assessee. Therefore, this ground in both years is dismissed.
81. Ground No.4 relates to the grievance of revenue whereby Ld CIT(A) had made the addition on protective basis and at the same time issued certain directions to the Assessing Officer. The grievance of the revenue regarding addition on protective basis has already been dealt in assessee's appeal and we have allowed the relief to assessee. As regards directions issued by Ld CIT(A) we have already held them to be inconsequential and not amounting to set aside proceedings. Therefore, this ground in both years is dismissed.
82. Ground No.5 in assessment year 2007-08 is regarding addition made by Assessing Officer on account of unexplained jewellery. Ld CIT(A) has rightly deleted this addition holding that the same addition was made in the hands of his wife which ld CIT(A) in appeal No.423/2009-10 in assessment year 2007-08 had deleted the same finding the jewellery as explained. Therefore, ground No.5 in assessment year 2007-08 is dismissed.
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83. As a result the appeals filed by the assessee are partly allowed for statistical purposes, whereas appeals filed by the revenue are dismissed.
84. Order pronounced in the open court on 11th day of April, 2014.
Sd/- Sd/- (R.P. TOLANI) (T.S. KAPOOR) JUDICIAL MEMBER ACCOUNTANT MEMBER Dt. 11.04.2014. HMS Copy forwarded to:- 1. The appellant 2. The respondent 3. The CIT 4. The CIT (A)-, New Delhi.
5. The DR, ITAT, Loknayak Bhawan, Khan Market, New Delhi. True copy.
By Order (ITAT, New Delhi).
Date of hearing Date of Dictation Date of Typing Date of order signed by both the Members & pronouncement.
Date of order uploaded on net & sent to the Bench concerned.