The decision of the Income-Tax (I-T) department to add a sum of Rs 19.48 crore – held in an alleged undisclosed bank account — to the income of a taxpayer was quashed by the Income Tax Appellate Tribunal (ITAT) Mumbai, which ruled that the reassessment was time-barred and based on insufficient evidence.The case pertained to late D Mehta, and the assessment proceedings continued against his legal heir K Mehta, who filed the appeal before the ITAT.
The tax department had initiated reassessment proceedings for the financial year 2006-07, after receiving information from the French government (part of a ‘base note’ dataset) allegedly indicating Mehta’s foreign bank holdings.
The genesis of this case dates back to 2007, when an employee of HSBC Bank, Geneva, obtained information on nearly 30,000 bank accounts and became a whistleblower. It is regarded as the biggest bank leak in history, covering the period 2005-07, with the aggregate sum of funds in these accounts amounting to $120 billion. The employee took refuge in France and in 2011 the French government shared information of the bank account holders with authorities in India and other countries, by way of what is referred to as a ‘base note’.
The I-T officer issued a notice under Section 148 (for recomputing income that has escaped assessment) in March 2012, and passed an order adding the foreign bank balance — amounting to $43,29,943 (then equivalent to Rs 19.48 crore) to D Mehta’s income. Unexplained money can be added to the income of a taxpayer under section 69A.
In this case, not only was the notice for commencing the scrutiny issued after the expiry of the statutory time limit, but the reassessment order itself was time-barred. As the notice under section 148 was served in March 2012, the reassessment order was required to be passed by March 2013 (as per the tax provisions pertaining to this period). However, this order was issued only on March 18, 2014.
The I-T department had claimed a one-year extension based on a reference made to Swiss authorities under the exchange-of-information protocol. But the ITAT rejected this argument, noting that the protocol enabling such exchange came into force later and did not cover the year in dispute.
Relying on an earlier decision of the Mumbai bench itself, the ITAT held that references to Swiss authorities for information prior to April 1, 2011, were not valid. “It would be a futile exercise to wait for such information, and that too, by an invalid reference,” the tax tribunal bench observed.
The ITAT also noted that the addition was based solely on a photocopy of a ‘base note’ and that the account’s existence had never been independently confirmed by HSBC Geneva. Thus, the ITAT held the reassessment proceedings to be invalid.
Source #TOI
