Nominee Shareholder Not Beneficial Owner Without Actual Investment | ITAT

Case Details: Additional Commissioner of Income-tax v. Deepak Jain - [2025] 179 taxmann.com 39 (Delhi-Trib.)

Judiciary and Counsel Details

• Challa Nagendra Prasad, Judicial Member & M. Balaganesh, Accountant Member
• S.K. Jadhav, CIT DR for the Appellant.
• Gaurav Jain & Shubham Gupta, Advs. for the Respondent.

Facts of the Case

The assessee was alleged to have undisclosed foreign assets in two British Virgin Islands (BVI) companies, M/S Alabama Assets Ltd. and M/S Meadow Offshore Ltd., based on information received by the Income Tax Department from the International Consortium of Investigative Journalists (ICIJ).

The Assessing Officer (AO) held that the assessee was the beneficial owner of the entire deposits appearing in the bank accounts of these companies and made an addition of Rs. 31.48 crore under section 10(3) of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (BMA), along with penalties under sections 41 and 43.

The assessee contended that the companies were incorporated pursuant to a Memorandum of Understanding with a UAE resident, Mr Alhammadi, for a proposed lighting business. The entire capital was contributed by Mr Alhammadi, while the assessee merely held 1 out of 1000 shares in each company as a nominee shareholder on behalf of Mr Alhammadi. The assessee had no control over the funds or operations of the companies and did not derive any benefit therefrom.

The assessee further submitted that the Revenue had received information regarding these companies and bank accounts as early as 2013, and hence, proceedings under the BMA were barred by section 71(d)(iii). It was also argued that the BMA could not be applied retrospectively to assets that had ceased to exist before its enactment.

The CIT(A) accepted that the assessee was only a nominee shareholder and could at best be considered a beneficial owner to the extent of his proportionate shareholding, i.e., 1/1000th, and accordingly restricted the addition to Rs. 3,14,855, deleting the balance addition and penalties. Both the assessee and the Revenue filed cross appeals before the Tribunal.

ITAT Held

The Tribunal observed that the assessee was only a nominee shareholder, holding one share out of 1000 on behalf of Mr Alhammadi, who had contributed the entire capital and controlled the foreign companies. The Revenue had failed to prove that the assessee was the beneficial owner of the funds lying in the foreign bank accounts.

It further held that since the Revenue had received information in 2013, prior to the enforcement of the BMA, the case was barred by section 71(d)(iii), and therefore, the proceedings under the BMA lacked jurisdiction. The Tribunal also applied the Doctrine of Election, holding that the Department, having already initiated proceedings under the Income-tax Act, could not subsequently invoke the BMA for the same matter.

Accordingly, the Tribunal upheld the CIT(A)’s order, sustaining addition only to the extent of the assessee’s nominal shareholding and dismissing the Revenue’s appeals, granting the assessee complete relief on jurisdictional as well as retrospective applicability grounds.