RAHULKUMAR NARSHIBHAI PATEL,AHMEDABAD vs. THE ITO, WARD-2, INT. TAXN., AHMEDABAD

The assessee has raised the following grounds of appeal:

In response, the assessee filed a return of income declaring nil income. During the course of reassessment proceedings, the assessee was asked to furnish complete details viz. bank account statements (both NRE and NRO), details of time deposits, explanation of SFT-reported figures and reconciliation thereof. However, the assessee did not effectively comply with these notices and furnished only limited information,

The Assessing Officer treated the entire balances reported under SFT, amounting to ₹3,63,16,568/-, as unexplained money under section 69A of the Act. The reasoning adopted by the AO was that the assessee had failed to discharge the primary onus cast upon him to explain the nature and source of these amounts. Since no documentary evidence was furnished to establish that the amounts denoted described sources such as foreign remittances or accumulated savings, the AO invoked section 69A of the Act and taxed the same under section 115BBE of the Act at the applicable rate. Thus, the assessed income was thus determined at ₹3,63,16,568/-.

Aggrieved by the assessment order, the assessee preferred an appeal before the CIT(Appeals) challenging the additions primarily on the ground that the AO had erroneously treated cumulative balances as income of the year without appreciating that these were capital receipts accumulated over time and sourced from foreign salary income earned abroad. The assessee contended that being an NRI, all credits in the NRE accounts represented foreign remittances which are not taxable in India. The assessee also contended that the AO had not provided any working or

During the appellate proceedings, the assessee filed an application under Rule 46A seeking admission of additional evidence. The additional evidence included foreign bank account statements (National Bank of Kuwait), salary details from employer (Mina Al-Ahmadi, KNPC), Indian NRE bank statements and other supporting documents to establish the trail of funds from foreign earnings to Indian accounts. The CIT(Appeals), considering that the assessee was prevented by sufficient cause from producing these evidences during assessment proceedings and that these were crucial for adjudication of the issue, admitted the additional evidence in the interest of natural justice and called for a remand report from the AO under section 250(4) of the Act.

In the remand proceedings, the AO examined the additional evidence and also issued notices under section 133(6) of the Act to ICICI Bank, HDFC Bank and ICICI Prudential Life Insurance Company to verify the SFT-reported figures. The remand report brought out significant factual aspects. It was observed that the assessee had been earning salary in Kuwait, which was credited in his account with National Bank of Kuwait and subsequently remitted to India through proper banking channels into his NRE accounts with ICICI Bank and HDFC Bank. To that extent, the source of certain deposits, particularly fixed deposits with ICICI Bank, stood explained.

However, the remand report also highlighted certain gaps. Firstly, the figures reported under SFT could not be reconciled with the actual bank statements. In the case of ICICI Bank, although statements and FD

The assessee, in rejoinder, contended that the AO himself was unable to reconcile the figures and therefore it was unjust to expect the assessee to do so. It was reiterated that all credits in NRE accounts were sourced from foreign earnings and that no Indian income was involved. It was further argued that cumulative balances cannot be taxed as income under section 69A of the Act.

The CIT(Appeals), after detailed consideration of the assessment order, additional evidence, remand report and rejoinder, adjudicated the issues before him. In respect of the ICICI Prudential amount of ₹3,77,711/-, the CIT(Appeals) held that this denoted merely the valuation of an insurance policy and not income accrued or received during the year, and therefore the addition was deleted.

In respect of the ICICI Bank amount of ₹1,09,63,510/-, the CIT(A) accepted the remand findings to the extent that ₹1,04,11,345/- stood explained as foreign remittances and FD transactions, and accordingly deleted the addition to that extent. However, the balance of ₹5,52,165/-

In respect of the HDFC Bank amount of ₹2,49,75,347/-, the CIT(A) upheld the addition in full. The CIT(Appeals) observed that despite multiple opportunities, neither the assessee nor the bank could provide any reconciliation or documentary evidence explaining the exact nature and source of the SFT-reported amount. The general explanation of foreign remittances was held to be insufficient in absence of specific correlation. Relying on settled legal principles laid down by the Hon’ble Supreme Court in Kale Khan Mohammad Hanif v. CIT and A. Govindarajulu Mudaliar v. CIT, the CIT(A) held that the burden of proof lies on the assessee to satisfactorily explain the source of sums found credited, failing which such sums are liable to be taxed as income.

Accordingly, the CIT(A) partly allowed the appeal by deleting additions aggregating to ₹1,07,89,056/- (ICICI Prudential and part of ICICI Bank) and sustaining additions of ₹2,55,27,512/- (HDFC Bank and balance ICICI Bank). The tax liability was directed to be recomputed accordingly, while interest was treated as consequential and penalty ground was dismissed as premature.

The assessee is in appeal before us against the order passed by CIT(Appeals) dismissing the appeal of the assessee.

We have heard the rival contentions and perused the material on record. The core issue for adjudication in the present appeal is the sustainability of addition of ₹2,49,75,347/- in respect of the HDFC Bank NRE account and ₹5,52,165/- relating to ICICI Bank, sustained by the CIT(Appeals) under section 69A of the Act.

In so far as the addition of ₹5,52,165/- relating to ICICI Bank is concerned, we find that the same represents only a minor residual difference arising on account of inability to reconcile the cumulative SFT figure with bank records. There is no independent material brought on record by the Revenue to show that this amount represents any unexplained income or undisclosed source. When the substantial portion of the very same account has been accepted as explained and the nature of the account itself is an NRE account fed by foreign remittances, there is no justification to isolate a small residual figure and treat it as unexplained merely on account of reconciliation differences.

In this context, the legal position laid down by the Hon’ble Gujarat High Court in Anilkumar Ramabhai Patel v. ITO [2025] 178 taxmann.com 634 (Guj.) squarely applies, wherein it has been held that once the source of funds in NRE account is established as foreign earnings, no addition is warranted. Similar view has been taken in Nitin Mavji Vekariya v. ITO [461 ITR 18 (Guj.), holding that funds received from

Coming to the addition of ₹2,49,75,347/- relating to HDFC Bank, we find that the addition has been made solely on the basis of a cumulative SFT-reported figure as on 31.12.2018 without any transaction-wise analysis or supporting material. The remand report clearly records that despite issuance of notices under section 133(6), HDFC Bank did not furnish any details and even the AO was unable to reconcile or verify the basis of such figure. Thus, the very foundation of the addition remains unverified.

At the same time, it is also a matter of record that the assessee has not been able to furnish a complete one-to-one reconciliation of the exact SFT figure with documentary evidence, though he has demonstrated that funds in NRE accounts originate from foreign salary income. In such a situation, where the Revenue has failed to substantiate the basis of addition and the assessee has explained the broad source but precise reconciliation is lacking, the issue cannot be conclusively decided one way or the other without proper verification.

Accordingly, in the interest of justice, we deem it appropriate to set aside the addition of ₹2,49,75,347/- to the file of the Assessing Officer for fresh adjudication. The AO is directed to obtain complete details directly from HDFC Bank, including transaction-wise statements and basis of SFT reporting, and thereafter examine the explanation of the assessee in light of evidences of foreign remittances. If it is found that the funds

In view of the above, the addition of ₹5,52,165/- relating to ICICI Bank is deleted, whereas the issue relating to addition of ₹2,49,75,347/- pertaining to HDFC Bank is restored to the file of the Assessing Officer for fresh consideration.

In the result, the appeal of the assessee is partly allowed for statistical purposes. This Order pronounced in Open Court on 24/04/2026