$3 million in NRI’s Swiss account not black money: ITAT – Times of India

MUMBAI: In a case covering several financial years, the Mumbai bench of the Income Tax Appellate Tribunal (ITAT) has struck down the action of the I-T officer in treating $3 million — with which a Swiss bank account was opened — as “unaccounted income” in the hands of an individual, who at that point of time was a non-resident.
The financial years covered by this litigation spanned from 1998-99 up to 2006-07. The I-T officer had also estimated an annual return on investments at 17% and considered approximately Rs 2.3 crore as the individual’s taxable income. Such additions were also set aside by the ITAT.
Coming to the rescue of Kamal Galani, the ITAT rebuffed the motive presented by the I-T officer that a secret bank account was opened to stash “unaccounted” Indian income (black money) without paying taxes or disclosing such income in India. It upheld that the individual was not a beneficiary in the bank account which had been set up by his brother.

The tax tribunal pointed out that the overseas account was opened in 1998 and at that point in time, Kamal Galani and his brother were already residing overseas for the past over 20 years. Both of them had no source of income in India during the course of their residence abroad.
The I-T officer, who had sought to tax the overseas bank funds, had failed to provide any evidence that the $3 million invested when opening the bank account was income from undisclosed sources earned or accrued from India, observed the ITAT. Galani returned to resettle in India in 2001 and has since then been duly filing his tax returns.
The ITAT also noted that Kamal Galani had placed on record that the bank account was that of his brother and he did not hold any rights. His brother had also filed a letter with the I-T officer along with an affidavit and claimed the bank account was opened by him in his capacity as an NRI and the money belonged to him.
The ITAT stated, “Once it was established that the assessee (Kamal Galani) was not a beneficial owner, further additions toward estimated return of income on the said unexplained money are arbitrary.”
The case before the ITAT was not that of a “fly-by-night non-resident”. This term loosely refers to those individuals who change their tax residential status (which is based on the number of days stay in India over a given period) to that of a non-resident. This is done to avoid paying tax in India on their worldwide income (including overseas income).
The ITAT has, in several instances in its 40-page plus order, termed the action of the I-T officer, who had sought to rely extensively on a “base note”, in bringing the funds in the bank account and making the additions to income in the hands of Kamal Galani, as “unjustified”.
His brother had opened the overseas bank account with the British Bank of the Middle East, which was subsequently taken over by HSBC (Suisse). The “base note’ refers to the information of HSBC Swiss bank account holders, shared by the French government with authorities of India and other countries. This was pursuant to a whistleblower and ex-employee of the bank taking refuge in France. It is regarded as the largest bank leak with funds in the bank accounts aggregating over $120 billion.