ITAT Mumbai (‘H’ Bench) confirms assessment on beneficiaries the balance in the account of a trust in Liechtenstein as unaccounted money stashed abroad - T. N. Pandey - Article published in Business Advisor, dated November 25, 2014 http://www.magzter.com/IN/Shrinikethan/Business-Advisor/Business/

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ITAT Mumbai (‗H‘ Bench) confirms
assessment on beneficiaries the balance
in the account of a trust in Liechtenstein
as unaccounted money stashed abroad
T. N. Pandey
In (presumably) the first order regarding the (alleged)
India‘s black money abroad, the Income Tax Appellate
Tribunal (ITAT) has confirmed the Income-tax
Department‘s order (passed by the AO and confirmed by
the CIT(Appeals) taxing funds aggregating $2.4 million
(Rs 11.73 crore approximately) as of December 31, 2001,
held in a Liechtenstein bank account of Ambrunova
Trust (a discretionary trust) held to be undisclosed
income of beneficiaries, who are Indian residents.
The ITAT held that the funds standing in the name of the trust were taxable
in India in the hands of the beneficiaries.
2. This decision has been greatly hailed by the media. The Times of India
in its issue dated 12th November, 2014, has appreciated the Tribunal‘s order
saying, ―ITAT ruling gives a boost to black money fight – Funds in
Discretionary Trust’s Liechtenstein Bank A/c Undisclosed Income of
Beneficiaries”. The Economic Times in one of its issues has said, ―Delhi Wins
the 1st Round in Liechtenstein Account case”. In later paragraphs, the
Tribunal‘s decision is analysed to see how far such optimistic observations
are realistic.
3. Analysis of Tribunal’s decision
The Tribunal has passed a 33-page order dismissing the 3 appellants‘
appeals by passing a detailed and consolidated order in the case of Mohan
Manok Dhupelia (‗MMD‘ for short) covering his case and cases of Ambrish
Manoj Dhupelia & Ms. Bhavya Manoj Dhupelia as the facts in the three
cases were identical. The Tribunal‘s operative order is merely in 4 pages
discarding appellants‘ pleas in a summary way. The Tribunal order is
considered under the following heads:
(i) Pages 1 to 5 – Contain facts and grounds of appeal before the
Tribunal.

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(ii) Pages 6 to 26 - These contain merely extracts from the exhibit list of
permanent sub-committee on investigations submitted by Committee
on Homeland Security and Governmental Affairs in the context of US
Tax Compliance on 7th July to 25th July, 2008.
(iii) Pages 30 to 32 – Extract from the judgment of Justice Krishna Iyer.
(iv) Pages 27 to 29 & page 3 - Tribunal‘s decision – operative part. Thus
the ITAT has confirmed taxation of Rs 11,73,31,988 (US $2,406,490)
in the hands of the beneficiaries of the trust by passing an operative
order of 4 pages rejecting their pleas that they never received any
financial benefit from the trust.
4. Reasons for taxing the balance amount in the account of trust as
beneficiaries unaccounted income:
(a) In para 2.2 of the order, the Tribunal has observed:
―We note that the assessment was reopened by the AO on the information
received from the LGT Bank regarding Ambrunova Trust wherein the name of
assessee was appearing as a beneficiary. Before the AO, it was contended
that the documents so received by the department (LGT Bank) are
unauthenticated and unverified and thus reopening is incorrect”.
(b) The aforesaid observations raise basic issues concerning evidence on
which the Tribunal has based its order. It is no doubt true that the Courts
have taken the view that the provisions of the Indian Evidence Act, 1872 do
not strictly apply to the income-tax proceedings, but perfunctory and
summary decisions cannot be given against taxpayers disregarding the
spirit of the provisions of the rules of evidence.
(c) Further, material gathered in the assessment of one person is no legal
evidence in the assessment of another person (See N.S. Choodamani v. CIT
(1959) 35 ITR 676 (Karnataka)). But this is what the ITAT has actually done
when it has relied on the report of the US Committee regarding trusts
pertaining to the US when the names of the 3 appellants before the Tribunal
did not appear at all in the extracts given by the Tribunal at page 6 of the
order. The observations in the order of the Tribunal culminating in the
confirmation of the aforesaid amount show utter disregard of rule of
evidence in coming to the conclusions arrived by the ITAT.
(d) One of the reasons given for taking the balance in the trust‘s account
in the beneficiaries‘ cases is that ―……the assessee did not provide any
document in support of his statement that he is not connected with the trust”.
This is queer jurisprudence being propounded by the Tribunal against the

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well-established rule of evidence. Section 101 of the Indian Evidence Act,
1872 stipulates regarding the burden of proof that whoever desires any
Court to give judgment as to any legal right or liability dependent on the
existence of facts which he asserts, must prove that those facts exist. When
a person is bound to prove the evidence of any fact, it is said that the
burden of proof lies on that person. The section has given some illustrations
to explain the concept contained in section 101. These are -
(a) A desires a court to give judgment that B shall be punished for a crime
which A says B has committed.
A must prove that B has committed the crime.
(b) A desires a court to give judgment that he is entitled to certain land in
the possession of B, by reason of facts which he asserts, and which B denies
to be true.
A must prove the existence of those facts.
These show that Tribunal is wrong in passing burden of proof to
beneficiaries.
(dl) Thus, matters pleaded by plaintiff controverted by the defendant have to
be positively proved by the plaintiff and not negatively disproved by the
defendant (H. Kantilal P. Patel. v. D.J. Rathod, AIR 2003 Guj 82 (85) : 2004 (1)
Cur cc 291 : 200 (2) GCD (Guj) 1614). The IT Department wrongly asked the
assessees to prove the negative!
(e) The IT Department has ignored the appellant‘s plea that he has been
provided only with photocopies which are unverified and unauthenticated.
No assessment can be made on the basis of such photocopies creating a tax
liability of crores of rupees. In Moosa S. Madha & Azam S Madha v. CIT
(1973) 89 ITR 65(SC), the apex Court has held that photostat copies have
very little evidentiary value. In face of such views, demands against the
assessees cannot be made without providing admissible evidence. But the
ITAT has decided the appeal against the assessees in total disregard of the
apex Court‘s decision regarding photocopies evidentiary value!
(f) The Tribunal in para 3.2 of the order has accepted the position that
―….the documents rather English translated copy of such documents was also
provided”. The photocopies of documents in German language and their
translation in English cannot provide a legal basis for assessment of balance
amount in a trust account to make an assessment on the appellants and
create huge demand against them against the tenets of justice.

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5. Other aspects concerning Tribunal’s order
(a) Relating to re-opening of assessment
Since the amount stood in the name of the trust, the assessment should be
in the name of the trust through trustees. Hence reopening of assessment in
the case of beneficiaries is apparently invalid because there is no evidence
to show that the MMD and his two relatives named earlier earned black
money and stashed the same in the name of trust in ‗L‘ bank. As such it is
bad in law.
The expression ‗reason to believe‘ must be held in good faith not motivated
by prejudice or bias because of publicity by media concerning black money.
The fulfillment of this condition is not a mere formality but is mandatory.
The failure to fulfill this condition would vitiate the entire proceedings (See
Sheonath Singh v. AAC (1971) 82 ITR 147SC). It has been held by the apex
Court that information from a circular from the IAC to the effect that a
certain group of persons with whom the assessee was having transactions
were indulging in bogus transactions was not enough to entertain the
requisite belief (CIT v. Narninder Nath Praveen Chand (1975) 101 ITR 7
(Punjab) / ITO Laxmani Mewal Das (1976) 103 ITR 437 (SC)). This is what
exactly has been done in beneficiaries‘ cases.
(b) Relating to taxing of entire balance in trust‘s accounts in one year
In para 3.1 of the order, Tribunal has stated that the ―Trust was established
on 31.03.1997”. Hence the total balance in the account cannot be taxed in
one year. If at all, the interest of the amount relatable to the AY 2002-03
could be taxed. In fact, the appellant made such claim but the Tribunal has
not given any finding on such claim. Subjecting the entire balance to tax in
the hands of the beneficiaries for the AY 2002-03 is, prima facie, not correct.
(c) Regarding best judgment assessment
The best judgment assessment in the case of beneficiary is not based on a
fair and proper estimate of the assessee‘s income and the inferences to be
drawn from the available material is not properly inferable inference. The
assessment has to proceed upon definite basis or data as in the case of an
assessment after enquiry, but the enquiry is summary unlike the case of a
normal assessment. The assessment is to be based on materials to the
extent to which the materials are discovered. In other words, the Assessing
Officer, while making a best judgment assessment, should make an
intelligent well-grounded estimate. Such estimate must be based on
adequate and relevant materials (CIT v. Popular Electric Co. (P) Ltd. (1993)
203 ITR 630, 633 (Cal)).

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(d) Regarding unconfirmed and unattested documents
In para 3.1 of the order, it has been stated that on 21st November, 2013, ‗L‘
joined India as important partner in fighting overseas tax abuse and black
money and shed its secrecy clause and joined the league of a host of other
countries for automatic exchange of information and mutual assistance in
tax matters. This being the situation why authenticated and verified
information from the banks cannot be procured and supplied to the
assessees?
(e) Regarding basing the assessment on the basis of other cases
Income tax liability on an assessee cannot be sustained on the basis of what
happened in other cases of trusts in the US. If various trusts of the US like
Marsh Foundations, WV Foundation, Greenfiled Foundation, Laity
Foundation etc. are found to have indulged in tax evasion activities through
the ‗L‘ Banks and the ‗L‘ Bank assisted such trusts in such activities, from
this it cannot be inferred that ‗A‘ trust where three Dhupelias are
beneficiaries also acted in this manner.
It needs to be ‗proved‘ not presumed. Regretfully, Tribunal has done so. In
Chiranji Lal Steel Rolling Mills v. CIT (1972) 84 ITR 222 (Puj), copy of entries
from the accounts of another firm supplied to the Assessing Officer by, say,
Sales Tax Department are not legal and admissible evidence on which the
Assessing Officer could act for imposing extra burden of tax on the assessee
when such accounts in original were not available and the assessee denied
the transaction.
6. Summing up
It is unfortunate that basic arguments which go to the root of the
assessment order passed by the AO have been rejected by ITAT in 4 pages of
paraphrased observations by the AO and confirmed by the CIT(A) and the
Tribunal. Dhupelia submitted to the ITAT that reopening of the assessment
was bad in law as the principal of natural justice was violated. He claimed
Income tax liability on an assessee cannot be sustained on
the basis of what happened in other cases of trusts in the US.

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the documents based on which his I-T case was reopened were
unauthenticated and unverified. Since it was a discretionary trust, no
income accrued or was credited to him as the beneficiary, he contended. In
fact, his case was not among the beneficiaries of the trust and he was not
liable to pay any taxes on the trust funds, he claimed.
He also argued that there was no evidence to show that he had made these
deposits (stashed money overseas) in the name of the trust. He also
contended that if at all tax was to be charged, it could be levied only on
$13,500 (Rs 6.58 lakh approximately) earned by the trust and not the entire
fund standing in the trust‘s Liechtenstein bank account.
These contentions of MMD have been rejected by the Tribunal in a summary
way without going to the substance of the arguments. The ITAT observed
that Liechtenstein qualifies as an offshore financial centre due to a very
modest tax regime, high standard of secrecy laws, which enables foreign
investors to set up trusts under Host Trust regulations.
The assessment has been sustained by the Tribunal on the basis of
unverified and unattested document while accepting the position that in
November, 2013, Liechtenstein became a signatory to the OECD Multilateral
Convention on Mutual Administrative Assistance on tax matters, which
allows countries, including India, to gather required banking information of
tax evaders.
The appeal should have been remanded back to AO and he could have been
directed to obtain attested documents from ‗L‘ Bank under the revised
agreement with the Liechtenstein. The ITAT, the 2nd tier in the appellate
hierarchy under the IT Act has, it is said with utmost respect, held against
appellant in a summary manner supporting the AO‘s assessment on
extraneous material concerning US trusts discarding principles of natural
justice, the argument based on this plea too having been rejected in a
unconvincing way.
(T. N. Pandey is Former Chairman, Central Board of Direct Taxes)
The ITAT observed that Liechtenstein qualifies as an offshore
financial centre due to a very modest tax regime, high
standard of secrecy laws, which enables foreign investors to
set up trusts under Host Trust regulations.