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No Special Knowledge Needed To Know That Offshore Entities Are Used To Launder Unaccounted Money : ITAT

Nitish Kashyap
20 July 2020 3:52 AM GMT
No Special Knowledge Needed To Know That Offshore Entities Are Used To Launder Unaccounted Money : ITAT
The ITAT said that even laymen were aware of the kind of operations done by entities in places like Cayman Islands.
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The Income Tax Appellate Tribunal has upheld an order passed by the Commissioner of Income Tax (Appeals) holding Renu Tharani, a woman in her late eighties, to be liable to pay tax on over Rs.196 crore that has been stashed abroad in HSBC Private Bank, Geneva, Switzerland in the name of Tharani Family Trust, of which the assessee is a beneficiary.

The coram of Vice President Pramod Kumar and Amarjit Singh, Judicial Member of ITAT, Mumbai bench was hearing Renu Tharani's appeal against an order passed by Commissioner of income Tax (Appeals) confirming the order passed by the Assessing Officer reopening assessment for the year 2005-06, by issuing notice under Section 148 of the Income Tax Act, in 2014.

Reason given for reopening assessment was that some information about the appellant was received from the office of DIT(Investigation) Bangalore. As per the information received, the appellant who had declared income of Rs.1.7 lakh for 2005-06, had an account with HSBC Bank, Geneva. Moreover, it was visible from the bank statement of the said account that the appellant had a peak balance of US$ 39738122 in the said account during the period 2005-06 which amounted to Rs.196,46,79,146 at the time.

After perusing through relevant records and the assessing officer's order, CIT(A) concluded that Renu Tharani is the sole beneficiary of Tharani Family Trust, which is the sole beneficiary of GWU Investments Ltd. GWU Investments Ltd having an address in Cayman Islands has investment managed by Haresh Tharani, son of the appellant.

Advocates Ved Jain and Mukesh Advani appeared on behalf of the appellant. They submitted that the assessee is admittedly a non-resident and since the impugned assessment was framed on the assessee in her residential status as "non-resident", she was not required to disclose her foreign bank accounts, even if any.

Moreover, unlike in the United States, where global taxation of income of the assessee is on the basis of citizenship, the basis of taxability of income outside India, in India, is on the basis of residential status of the assessee, Jain submitted.

Since March 23, 2004, the assessee is regularly residing in the United States of America, and after the financial year ended on March 31, 2006, she is a non-resident assessee. Therefore, Jain contended that any sums credited in the bank account in question cannot be taxed in the hands of the assessee, and, when it cannot be so taxed, the very foundation of the impugned reassessment proceedings ceases to hold good in law.

However, at the very outset the bench raised questions about the appellant's Bangalore residence-

"As we have given our careful consideration to the rival contentions and the material on record in the light of applicable legal position, we have also taken off the factual matrix of this case. Here is an assessee who files her return of income, disclosing a meagre income of Rs 1,70,800, giving a Bangalore address and files the income tax return a ward which was meant for resident assessees.

Going by the facts placed by the assessee on record, which are also set out in the paper-book, the Bangalore property was sold in the year ended March 2003, but yet income tax return continued to be filed at that address. It is not clear as to what was the basis of filing the income tax return at Bangalore but then let's leave it at that for the time being. The income tax return filed by the assessee, a copy of which is placed before us at page 62 of assessee's paper-book, does not at all tick the status as 'non-resident', but there is a clearly visible mark in the status as 'resident'."

Importantly, the bench also clarified regarding objections by the appellant on reopening of assessment -

"As regards the decisions that reopening cannot be done for mere verifications, the present case is not a case which some general and vague information is received about the assessee, which may or may not lead to an income escaping assessment in the hands of the assessee, and which is thus required to be examined on merits, but of a very specific cogent information regarding a bank account, with complete details that is good enough for holding at least the prima facie view that income has escaped in the assessment in the hands of the assessee. The peak balance in the account, which has subsequently come to the knowledge of the Assessing Officer and on the basis of which reopening is done, is tens of thousand times more than annual income of the assessee."

Finding the appellant's connections with the entity based in Cayman Islands to be suspicious, the ITAT observed :

"The assessee states that she is neither a shareholder nor a director in GWU Investments Ltd. That‟s not even in dispute. GWU Investments Ltd is a Cayman Islands entity, and it needs no special knowledge to know that, more as a rule rather than as an exception, the Cayman Island entities are owned by nominees of the beneficial owners. The operations carried out by these entities, are mainly to facilitate financial manoeuvring for the benefit of its clients, or, with that predominant underlying objective, to give the colour of genuineness to these entities. These offshore entities, which are routinely used to launder unaccounted monies, are a fact of life, and as much a part of the underbelly of the financial world, as many other evils. Even a layman, much less a Member of this specialized Tribunal, cannot be oblivious of these ground realities. Nothing, therefore, really turns on the assessee not being a director or shareholder of the GWU Investments Ltd. The relevant question is whether she is beneficial owner of the said company or not".

Finally, the bench observed-

"Viewed in the light of factual backdrop of the case, and in the light of the above legal position, no reasonable person can accept the explanation of the assessee. The assessee is not a public personality like Mother Terresa that some unknown person, with complete anonymity, will settle a trust to give her US $ 4 million, and in any case, Cayman Islands is not known for philanthropists operating from there; if Cayman Islands is known for anything relevant, it is known for an atmosphere conducive to hiding unaccounted wealth and money laundering, and that does not advance the case of the assessee. This is a jurisdiction which has double the number of companies than resident, most of which remain only on paper, and it will be no naïve to believe that these companies are located here, in a country with around 65,000 residents, for bonafide core activities, rather than the benefits of anonymity, secrecy and liberal tax laws."

Furthermore, Cayman Island is one of the few jurisdictions in the world where public records of the beneficiaries of firms and companies, like GWU Investments Ltd, are not maintained, and it is only with effect from 2023, that is if the promises made by the Government of Cayman Islands can be believed at face value, that such public records will be maintained. That is an ideal situation, as of now, for holding the unaccounted monies through a web of proxy corporate entities", the Tribunal recorded.

Dismissing the appeal, the bench confirmed the conclusions arrived at by the CIT(A) and declined to interfere in the matter. Thus, the addition of over Rs.196 crore in respect of the assessee's account with HSBC Private Bank (Suisse) SA, Geneva, was confirmed.

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