RAJUL JAYENDRA SHAH,MUMBAI vs. ITO WARD 41(1)(4), MUMBAI

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ITA 6512/MUM/2025Status: DisposedITAT Mumbai24 December 2025AY 2017-188 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the assessee had duly explained the source of funds in her foreign account. The opening balance was carried forward from the previous year and was transferred through the Liberalised Remittance Scheme (LRS) following RBI guidelines. The balance in the Indian account was explained as transfers from her father's account and her own income and savings. The interest earned from M/s OVKS LLC was also explained with corroborative evidence and offered to tax. The Tribunal found the CIT(A)'s doubt regarding the gift amount from the assessee's father to be unreasonable, noting that the amount transferred from the assessee's own Indian account to her US account was substantial and the closing balance was consistent with this. The Tribunal concluded that the assessee had substantiated the source of funds with documentary evidence. Therefore, the addition made by the AO and sustained by the CIT(A) was deleted. The appeal was allowed.

What were the facts?

The assessee, Rajul Jayendra Shah, an individual, filed an appeal against the order of the CIT(A) for Assessment Year 2017-18. The appeal challenged the addition of Rs. 1,72,51,585/- under Section 68 of the Income Tax Act, 1961, concerning the peak balance in a foreign bank account. The Assessing Officer (AO) made an addition of Rs. 3,47,02,065/- on account of peak balances in two foreign bank accounts, stating that the assessee failed to provide sufficient justification. The assessee had e-filed her return on 28.02.2018, declaring Rs. 40,59,490/-. The case was selected for scrutiny due to foreign bank account verification. The AO observed high peak balances without adequate justification. The CIT(A) deleted the addition related to one account (Rs. 1,74,50,480/-) but sustained the addition for the other account (Rs. 1,72,51,585/-). The assessee is in appeal against the sustained addition.

What were the issues?

1. Whether the addition of Rs. 1,72,51,585/- under Section 68 of the Income Tax Act, 1961, in respect of the peak balance in a foreign bank account is justified? Assessee's Contentions: - The interest income of Rs. 1,72,435/- earned on a loan given to OVKS LLC was offered to tax and should not be part of the addition. This interest was earned on a loan of USD 2,48,000/- repaid with interest. - The account in question had an opening balance of USD 2,49,634/- brought forward from the previous year, which was transferred from the assessee's Indian bank account under the Liberalised Remittance Scheme (LRS). - The credit entries in the previous year were explained as gifts from her father, Shri Jayendra Shah, and her own income and savings. - The addition is without basis and liable for deletion. Revenue's Contentions: - The requisite details were not furnished by the assessee before the Assessing Officer. - The addition sustained by the CIT(A) should be upheld.

Which sections of the Income-tax Act were involved?

Section 68,Section 143(3),Section 139(4),Section 142(1),Section 270A

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “D” BENCH, MUMBAI

Before: SHRI AMIT SHUKLA, JM & SHRI ARUN KHODPIA, AM

For Appellant: Mr. Dharmesh Shah a/w Ms. Mitali
For Respondent: Shri Annavaram Kosuri, Sr. DR
Hearing: 17.12.2025Pronounced: 24.12.2025

O R D E R

Per Arun Khodpia, AM:

1.

The aforesaid appeal is filed by the Assessee challenging the order of Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre, Delhi (for short “ld. CIT(A)”) dated 19.09.2025 for Assessment Year (AY) 2017-18, which emanates from the assessment order passed under section 143(3) of the Income Tax Act, 1961 (the Act) on 24.12.2019 by the ITO, Circle 26(2), Mumbai (for short “ld. AO”). The grounds of appeal raised in present appeal are extracted as under:

Rajul Jayendra Shah 1. The Id. CIT(A) has erred in law and in facts in confirming the addition w/s 68 of the Act amounting to Rs. 1,72,51,585/- in respect of peak balance in foreign bank account. 2. The appellant craves leave to add, amend, alter, delete all or any of the forgoing grounds of appeal.

2. Brief Fact from records: The assessee is an individual earning income from business and profession and capital gains. For the year under consideration, the appellant had e-filed her Return of Income u/s. 139(4) on 28.02,2018 declaring a total income at Rs. 40,59,490/-. The case was selected for scrutiny under CASS for verification of foreign Bank account.

Consequently, notices u/s. 143(2) and 142(1) of the Act were issued calling for details from the appellant. In response to the notice u/s. 143(2), the assessee submitted the copies Bank Statement of all foreign bank account held by the appellant for the year. It is submitted that the assessing officer had issued notice to the appellant but the all the details and justification could not be filed before the assessing officer in time due to reasons beyond the control of the appellant.

The assessing officer thereby observed that the peak balance in the bank statements is high and sufficient justification for the same has not been given by the assessee. Accordingly, the assessing officer proceeded to make addition of peak balance in 2 bank accounts of the appellant as under:

1 Wells Fargo 7227355604 1,72,51.585 Bank 2 Wells Fargo 9227572105 1,74,50,480 Bank Total 3,47,02,065

3.

It is submitted by the assessee that during the year, the assessee had transferred funds of USD 2,50,000/- from her Indian Bank Account to her Foreign Bank Account under Liberalised Remittance Scheme for investment in the Share/ Real Estate. This had led to increase in peak balance in one bank account. Further, the said amount was then transferred to her another bank account which led to increase in peak balance in other bank account. This fact could also be seen from the bank statement filed before the assessing officer.

However, before any further details could be filed, the assessment order came to be passed in the present case. Further, it is submitted that the only nature of income in the aforesaid 2 bank account is on account of interest income of Rs. 10,26,857/-. Such interest income is already offered to tax by the appellant in her return of income. However, disregarding the facts and submissions of the appellant, the assessing officer added Rs.3.47,02,065/- as income of the Rajul Jayendra Shah assessee. The assessing officer has also initiated penalty proceedings u/s 270A of the Act in respect of the above additions made in the assessment order.

4.

Being aggrieved with the aforesaid assessment order, the assessee preferred an appeal before the Ld CIT(A), wherein the explanations of the assessee qua the balance in Account No. 9227572105, which was justified being a transfer from other Account no. 7227355604 of the assessee for Rs. 1,74,50,480/-, have been found satisfactory and accordingly deleted. However, the additions on account of balance in Account No. 7227355604 for USD 2,63,790 i.e. Rs.1,72,51,585 was sustained.

5.

The assessee, being dissatisfied with aforesaid part relief by the Ld CIT(A) have filed the present appeal before us.

6.

Before us, Ld. Counsel of the assessee (Ld. AR) submitted that the addition which is still disputed being sustained by the Ld. CIT(A) was not justified for the reason that:

7.

Interest amount of Rs. 1,72,435/- (15797.8x65) has been offered to tax by the assessee, which could not be located by the Ld. CIT(A), neither any further query was raised to the assessee to explain. Copy of computation of total income placed before us to substantiate the same. The interest was earned by 4 Rajul Jayendra Shah the assessee on loan given to OVKS LLC on 18/04/2016 for USD 2,48,000/-, which was repaid on 26.10.2016 along with interest. Copy of promissory note and release of promissory note enclosed in the assessee’s paper book.

8.

In account no. 7227355604, the assessee had an opening balance of USD 2,49,634/- which was brough forward from the earlier year, so addition cannot be made in the current year. To substantiate the quantum of opening balance, Ld. AR shown us the entries in bank statement of account no. 7227355604 at page 6 of the PB, that an amount of USD 2,49,960/- was credited on 22/02/2016, as received through Oriental Bank of Commerce vide Transaction No. 160222052943 ref Bill ID: 104560001720116. To correspond the aforesaid entry, we were shown the bank statement of assessee at Punjab National Bank (PNB), A/c No. 10672010000180, from which an amount of Rs. 1,71,66,901/- was transferred under LRS Scheme Bill ID: 104560001720116, thus it is proved that the amount was transferred by the assessee only. For balance in assessee’s account our attention was drawn to credit entries from Jan to 22.02.2016 by assessee’s father shri Jayendra Shah which was gifted to her and balance in her account.

9.

In remand report Ld. AO opposed the admission of additional evidence u/r 46A(1), as the circumstances are not falling within the exceptions carved out

10.

In background of the aforesaid facts and circumstances, Ld. AR argued that the balance in assessee’s account was brought forwards from the previous year for which explanations could not be sought in the current year, at the most for explaining the same reopening for the year in which such funds were credited in assessee’s account can be done. However, assessee had fully clarified the source of opening balance also, the entire sum credited in assessee’s account in previous year was transferred though LRS from her bank account in India to Bank account at USA. The major amount was received from assessee’s father and remaining was out of her own income and savings.

11.

It was therefore the prayer that the addition u/s 68 on account of unexplained cash credit was without any basis, liable to deleted.

12.

Ld Sr. DR representing the revenue on the other hand vehemently supported the order of Ld. CIT(A). He submitted that the requisite details were not furnished by the assessee before the Ld. AO. The addition sustained by the Ld. CIT(A) may be sustained.

Rajul Jayendra Shah 13. Having thoughtfully considered the rival submissions, perused the material facts from record. We find that the assessee’s bank balance maintained at USA accounts was from explained sources, which is coming forth from the opening balance being carried forward from previous year. In previous year assessee transferred the amount though LRS following the prescribed guidelines of RBI though proper banking channel. The balance in her Indian account in PNB (successor of Oriental Bank of Commerce) was also duly explained as the entries are reflating credit from here father’s account, which was transferred to her foreign account. Interest earned from M/s OVKS LLC was also duly explained through corroborative evidence referred supra and was offered for tax in India as per computation of income under the head “Foreign Income”. AO’s contention to not admit the additional evidence in absence of any comment on the merits was declined by the Ld. CIT(A) in the interest of justice. Ld. CIT(A) allowed the part relief on account of transfer of funds from one account to another. But disbelieved the explanations of assessee qua the balance in principal account (7227355604), stating that the gift amount by assessee’s father was only Rs. 1.50 Crores (US$ 2,18,482.50), but the transfer of amount was more than that. Herein, we would note that the amount transferred was from asseesee’s own account maintained in India to her own US account for US$ 2,49,960/- 0nn 22/02/2016 and closing balance was US$ 2,49,634/-, so doubt of Ld. CIT(A) found to be unreasonable. The explanations of the assessee are substantiated with documentary evidence such as bank statements, 7 presumptions without any logical basis.

15.

In view of aforesaid observations, as the assessee had duly explained the source of funds in her foreign account, the addition made by the Ld. AO and to the extent sustained by the Ld. CIT(A) stands deleted.

16.

The appeal of assessee, accordingly allowed as per our observations here in above.

Order pronounced in the open court on 24-12-2025.

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