OJUS RAMDAS BAXI,MUMBAI vs. INCOME TAX OFFICER WARD 1(2)(1), MUMBAI

Briefly stated, the assessee is a non-resident individual who has been residing and working in Dubai for several years. He is stated to be a qualified architect and has been working with the Landmark Group in Dubai since 2006. His principal source of income is from Dubai, while the income arising in India is mainly from investments and bank deposits. For the year under consideration, the assessee did not file his return of income in India under a bona fide belief that the income taxable in India was nominal. Certain information was thereafter flagged on the Insight portal regarding financial transactions aggregating to ₹2,26,83,029, on the basis of which proceedings under section 148A were initiated. Since there was no response from the assessee, order under section 148A(d) was passed on 29.03.2024 followed by notice under section 148 dated 30.03.2024. Even during the reassessment proceedings, there was no effective compliance and, consequently, the Assessing Officer proceeded ex parte and framed the draft assessment, inter alia, making the aforesaid additions.

Before the DRP, the assessee appeared and furnished additional evidences explaining the nature and source of the investments. It was explained that the assessee had been residing in Dubai for more than a decade and, being largely outside India, could not properly attend to the reassessment proceedings. The additional

Insofar as the addition of ₹1,61,00,000 is concerned, the assessee furnished a detailed reconciliation explaining that the fixed deposits made during the relevant financial year were sourced from maturity proceeds of earlier fixed deposits, balances available in the bank account and inward remittances from Dubai. After examining these evidences, the Assessing Officer recorded in his remand report as under:

Before us, the learned counsel submitted that the aforesaid approach of the DRP overlooks the actual documentary trail available on record. He drew our attention to the Bank of Baroda statements in India, the assessee’s Emirates Islamic Bank statements in UAE and the reconciliation of the earlier fixed deposits. It was submitted that these documents, when read together, demonstrate the source and movement of the funds and were also the documents examined by the Assessing Officer in the remand proceedings.

We have heard the parties and carefully examined the material placed before us. At the outset, the addition in the draft assessment was made essentially because the proceedings had gone unattended and no explanation regarding the source was available before the Assessing Officer. The evidentiary position, however, materially changed before the DRP when the assessee produced the relevant banking records and the same were forwarded to the Assessing Officer for verification. The remand report, therefore, assumes importance, though our conclusion does not rest upon the remand report alone and has to be seen in the light of the underlying documentary evidence.

From the Bank of Baroda statement, we find that the banking trail is quite discernible. An inward remittance of ₹18,94,579 is reflected on 24.05.2019. Thereafter, maturity/closure proceeds of an earlier fixed deposit of ₹21,51,137 were credited on 28.05.2019, followed by funding of a fresh fixed deposit of ₹20,00,000 on

The assessee has also produced the statements of his account maintained with Emirates Islamic Bank, UAE, demonstrating that he was maintaining and operating a bank account in Dubai during the relevant period. These foreign banking records have to be read together with the corresponding inward credits appearing in the Indian bank account. The material, therefore, establishes that the explanation of foreign remittances is not merely an assertion unsupported by banking evidence. More importantly, these documents substantially answer the reservation expressed by the DRP regarding absence of adequate foreign banking material.

The second and substantial stream of funds consists of maturity proceeds of the assessee’s pre-existing fixed deposits. The

Therefore, when the material is appreciated cumulatively, there is a clear and identifiable fund trail. One component comprises maturity proceeds of old fixed deposits aggregating to ₹1,02,66,952; another comprises inward remittances from Dubai reflected in the Indian bank account, including the aforesaid credits of ₹18,94,579, ₹28,80,850 and ₹29,22,389; and the remaining requirement is met from balances already available in the banking account. It was precisely this material which was subjected to verification by the Assessing Officer during the remand proceedings, whereupon he recorded that the source of the fixed deposits of ₹1.61 crore had been verified from the bank statements and supporting documents and prima facie appeared correct. Thus, the conclusion in the remand report stands corroborated by the underlying documentary trail which has also been examined by us.

In this backdrop, we are unable to concur with the DRP that the investment should nevertheless be treated as unexplained because the original source of the fixed deposits created several years earlier or the entire accumulation of the assessee’s foreign savings had not been independently investigated. What is sought to be taxed under section 69 is the investment made during the relevant financial year. Once its proximate source is demonstrated through maturity proceeds of identifiable old fixed deposits, inward remittances through banking channels and available bank balances, the explanation regarding the investment made during the year stands substantiated. There is no material to show that the earlier fixed deposits did not belong to the assessee, that the maturity proceeds were fictitious or that the foreign remittances represented accommodation transactions. Nor is there any unexplained cash introduction contemporaneous with the creation of the impugned deposits. In these circumstances, merely requiring the assessee to travel further backwards and establish afresh the original source of deposits made several years earlier cannot, in the absence of contrary material, justify treating the investment made during the year as unexplained.

Accordingly, having regard to the banking trail, maturity history of the earlier deposits, foreign remittance evidence and the specific verification undertaken by the Assessing Officer during the remand proceedings, we hold that the source of the fixed deposits of ₹1,61,00,000 stands satisfactorily explained. The addition made under section 69 is, therefore, directed to be deleted.

Coming to the addition of ₹5,44,106 towards alleged investment in shares/securities, the learned counsel pointed out that even the quantum adopted by the Assessing Officer is factually incorrect. According to the assessee, the actual investment was ₹2,89,834.90, i.e. approximately ₹2,89,835, and not ₹5,44,106. It was further submitted that the investment was made through the assessee’s NRE account maintained with ICICI Bank and the source thereof is fully reflected in the bank statement.

On perusal of the reconciliation and ICICI Bank statements, we find that the assessee had an opening balance in the said account and a sum of ₹3,10,000 was transferred from Bank of Baroda on 21.08.2019. The account further reflects maturity proceeds of an ICICI fixed deposit of ₹1,14,325 on 30.08.2019. The subsequent payment of ₹1,00,000 on 27.09.2019 is reflected in the same banking account. For the subsequent transaction in March 2020, the assessee has relied upon the opening balance and transfer of AED 35,000 from Emirates Islamic Bank, Dubai, stated in the reconciliation at ₹7,12,943. Thus, quite apart from the discrepancy in the very quantum adopted in the assessment, the funds available in the assessee’s disclosed banking account were sufficient to explain the actual investment of ₹2,89,834.90.

Once the actual investment is shown to have been made through the assessee’s disclosed bank account and the availability of funds immediately preceding the investment is demonstrated

We may also note that the remand report refers to certain other small items, namely ₹9,990 towards short-term capital gain, ₹4,715 towards interest income and ₹26,718 towards insurance premium, for which the Assessing Officer stated that supporting documentary evidence had not been furnished. No specific arguments were advanced before us seeking independent adjudication of these items. We, therefore, refrain from recording any finding on their merits and confine our adjudication to the two substantive additions which were specifically pressed and argued before us.

To sum up, both the substantive additions had initially arisen in an ex parte assessment when no explanation or supporting material was available before the Assessing Officer. Once the relevant evidence was produced before the DRP, it was subjected to remand verification and the source of the fixed deposits was found by the Assessing Officer to be prima facie correct. Our

In the result, the appeal of the assessee is partly allowed.