Cursory tax assessments of Indians holding foreign bank accounts under scrutiny now

NEW DELHI: Income tax assessments of Indians holding foreign bank accounts — done hurriedly and on the basis of weak evidence — are now falling apart.

The Commissioner Income Tax-4 (Appeals), a quasi-judicial appellate authority had, on October 9, rejected the department’s case on grounds that it had used unauthenticated and unverifiable photocopies of foreign bank account documents, to finalise assessment.

ET has reviewed this order, according to which, CIT (Appeals)-4 Vijay Kumar ordered deletion of around Rs 53 crore, added to income of Anil Kumar Jain, who is one of the HSBC Bank Geneva accountholders. Jain, CMD of Indo Count Industries, a textile manufacturer, had denied knowledge of five foreign accounts, which the I-T Department insisted, belonged to him. The Department of Income Tax, in 2012, had conducted a survey on Jain’s business premises and two years later completed his assessment and made an addition of around Rs 53 crore.

This was challenged by Jain, with appeal placed before CIT (Appeals), who allowed it. The CIT (Appeals) stated that the assessing officer had failed to establish his case, adding that over 50% income was of the wrong assessment year. Further, unauthenticated photocopies of bank accounts can’t be accepted as evidence against the assessee, who has also denied knowledge of these foreign accounts.

“I find that except the photocopies of some unsigned or unverified document which admittedly contained some personal details of the assessee, no further information or evidence was in AO’s possession on the basis of which he could come to conclusion that the amounts standing in the name of five different parties represented assessee’s income,” said the CIT (Appeals).

This is a huge setback for the department and will impact other foreign account cases, admitted one top I-T official, he requested anonymity. It will be difficult to establish these cases, since certified and authenticated data isn’t available, and some of the account holders have denied ownership of these accounts.

Meanwhile, the notices issued/assessments reopened under the Income Tax Act, are also being questioned by individuals, since unauthenticated electronic record is not admissible as evidence in court of law.

ET has reviewed show cause notices, issued to Indians holding foreign bank accounts, wherein the department allegedly used uncertified copies of bank statements, obtained under “spontaneous exchange of Information” under articles of Double Taxation Avoidance Convention. Some of the assesses have pointed out to the Department of Income Tax that uncertified electronic statement of bank account, under section 4 of the Banker’s book of Evidence Act of 1891, is not admissible as evidence and holds no basis for criminal prosecution.

ET also spoke to chartered accountants and tax officials handling foreign account cases, they said, on condition of anonymity, that the department had rushed to file prosecutions without even bothering to look at the Indian Evidence Act. In many cases, there is also no certificate issued in terms of Section 65 B of the Indian Evidence Act, 1872, which is a must for electronic records. A top I-T source, when confronted with this, admitted that in some
of the cases, certified copies are not available. We are in the process of obtaining certified copies, he said.

DEPT TO MOVE APEX COURT

The department of income tax is all set to challenge Delhi High Court judgement (Commissioner of Income Tax-Central-3 Tax vs Kabul Chawla) in the Supreme Court. “We are in the process of filing SLP in Supreme Court as it will affect all HSBC foreign account cases, a top I-T official told ET. According to this judgment, which was delivered on August 28, If no incriminating material is unearthed during the search, additions can’t be made to the income already assessed, said this official cited above.

Explaining the implications, the I-T official explained, that in none of the HSBC cases, incriminating material was unearthed during the search, but additions were made to the income, already assessed. The additions were made on the basis of information received under DTAA, or evidence gathered much after the search, but with this judgment, all HSBC cases, where search was conducted, will collapse, added this official.

REOPENING ASSESSMENTS

Another concern for assessees is the department’s decision to reopen tax assessments from 1996 onwards, in some of the foreign bank account cases. Until the government amended the law in 2014, there was no requirement to maintain records that long — previously, it was six years — and some of assessees say they are unable to produce records for those years. They are still punishable for this lapse, as the 2014 amendment requires them to keep records for 16 years, tax officials said.