Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, “D” BENCH, AHMEDABAD
Before: SHRI T.R. SENTHIL KUMAR & SHRI MAKARAND V. MAHADEOKAR
ORDER \nPER MAKARAND V. MAHADEOKAR, AM:\nBoth these appeals by the assessee pertain to Assessment Years (AYs)\n2013-14 and 2015-16 and are directed against the final assessment orders\npassed by the Assessing Officer [hereinafter referred to as “AO"] under\nSection 147 r.w.s.144C(13) of the Income Tax Act, 1961 [hereinafter referred\nto as \"the Act\"], pursuant to the directions of the Dispute Resolution Panel\n[hereinafter referred to as “DRP”]. The core issue in both the appeals concerns\nthe addition made by the AO on account of credits in the assessee's Non-\nResident External (NRE) bank accounts.\nITA Nos.105 & 106/Ahd/2023\nRajendra Manganbhai Patel vs. ACIT\nAsst. Years: 2013-14 & 2015-16\n2\nFacts of the case:\n2.\nThe assessee is a Non-Resident Indian and citizen of UK. The assessee\nhad not filed his returns of income for both the assessment years under\nconsideration. On the basis of information available in ITBA system, the AO\nissued notice u/s 148 of the Act to the assessee. The assessee submitted return\nof income for both the years in response to notice u/s 148 of the Act. On the\nbasis of information submitted by the assessee in response to notice u/s.\n143(2) / 142(1) of the Act and show-cause notice, the AO issued a draft\nassessment order proposing addition on account of unexplained credits to\nNRE accounts of the assessee. DRP directed the AO to delete some additions\nas explained. Based on the directives of DRP AO confirmed some additions.\nFollowing is the tabulated summary of the assessments in case of both the\nyears:\nParticulars\nDate of Notice u/s 148\nDate of Filing of return in\nresponse to Notice u/s 148\nReturned Income\nKey Information from ITBA System\n- Investments in Mutual Funds\nTDS Return Payments to\nNon-Residents\n- Time Deposit with Banking\nCo.\n- Credit Card Payments:\nAddition Proposed by AO in\nDraft order\nAdditions Directed by DRP\n(Unexplained NRE Credits)\nOrder of AO Section Invoked\nDate of Order\nAdditions Made by AO\nAY 2013-14\n31.03.2021\n30.04.2021\nRs.5,79,019/-\nRs.5,62,67,313/-\nRs.9,50,243/-\nRs.11,76,46,084/-\nRs.3,04,662/-\nRs.4,69,37,210/-\nRs.3,79,69,033/-\n147 r.w.s.144C(13)\n29-12-2022\nRs.3,79,69,033/-\nAY 2015-16\n31.03.2021\n30.04.2021\nRs.77,421/-\nRs.14,36,26,449/-\nRs.10,47,988/-\nNIL\nRs.3,96,515/-\nRs.3,77,60,000/-\nRs.3,67,60,000/-\n147r.w.s.144C(13)\n06-01-2023\nRs.3,67,60,000/-\nITA Nos.105 & 106/Ahd/2023\nRajendra Manganbhai Patel vs. ACIT\nAsst. Years: 2013-14 & 2015-16\n3\nFinal Assessed Income\nRs.3,85,48,052/- Rs.3,68,40,733/-\n3.\nAs the assessee was not satisfied with the orders of AO passed u/s 147\nr.w.s.144C(13) of the Act, the assessee preferred an order before us with\nfollowing grounds of appeal:\nIn 2023 for AY 2013-14\n1.0 ADDITION OF RS. 3,79,69,033/- ON ACCOUNT FUNDS RECEIVED\nIN NRE ACCOUNT:\n1.1 On the facts and circumstances of Your Appellant's case and law, the\nld.AO has made addition of Rs.3,79,69,033/- for the failure to prove\nsource of funds received in NRE Bank accounts. ld.AO as well as\nHon'ble DRP failed to appreciate the fact that source of fund along with\nsource of source was properly explained. ld.AO as well as Hon'ble DRP\nfailed to appreciate the fact that entire money was transfer from one\naccount to other account and therefore source was very well explained.\nThe action of ld. AO is totally arbitrary and not in accordance with\nprovisions of law.\n1.2 Your appellant prays that Your Honor be pleased to hold the action of\nld. AO unjustified and delete the impugned addition. Your appellant\ncraves leave to add, to amend and / or alter the above referred grounds.\nYour appellant craves leave to add, to amend and / or alter the above referred\ngrounds.\nIn AY 2015-16\n1\nORDER PASSED U/S 147 R.W.S. 144C(13) OF THE ACT IS BAD-IN-\nLAW:\n1.1 On the facts and in the circumstances of your appellant's case and in\nlaw, the order passed by Id. AO u/s 147 r.w.s.144C (13) of the Act is\nbad-in-law in as much as Id. AO while framing assessment order derived\nextra territorial jurisdiction to tax money earned in any country outside\nIndia by NRI. Such action of Id.AO is totally devoid of the provisions of\nIncome Tax Law in India and therefore assessment order itself is bad in\nlaw.\n1.2 Your appellant, therefore, prays before your Honor to hold so now and\nquash the order passed by Id. AO.\n2 Rejection of Additional Evidence:\n2.1 On the facts and circumstances of Your Appellant's case and law, The\nId.AO failed to appreciate the fact that all explanation and evidences were\nproduced before Hon'ble DRP but ignoring the above mentioned facts\nand also without verifying record rejected the claim of your appellant\nrejected the claim stating that \"During the course of DRP proceedings,\nno explanation/additional evidence was produced before the Hon'ble\nDRP in this regard. Hence, though the assessee has given explanation in\nthis regard, no verification/comments are offered as directed by the\nDRP\".\n2.2 Your appellant, therefore, prays before your Honor to hold so now and\nquash the order passed by Id. AO.\n3. ADDITION OF RS. 3,67,60,000/- ON ACCOUNT FUNDS RECEIVED\nIN NRE ACCOUNT:\n3.1On the facts and circumstances of Your Appellant's case and law, The\nId.AO has made addition of Rs.3,67,60,000/- for the funds received in\nNRE Bank accounts. Further the said fund is introduced by appellant in\nhis NRE account from his foreign bank account.ld.AO failed to appreciate\nthe fact that inward remittances in NRE account has to be necessarily from\nabroad and for non-residents, any funds brought into India into NRE\naccount does not become tayable irrespective of the fact whether such NRI\nhas filed its tax return in his country of residence. The action of Id. AO is\ntotally arbitrary and not in accordance with provisions of law.\n3.2 Your appellant prays that your Honor be pleased to hold so now and direct\nthe ld. AO to delete the addition made on this account.\nYour appellant craves leave to add, to amend and / or alter the above referred\ngrounds.\nITA Nos.105 & 106/Ahd/2023\nRajendra Manganbhai Patel vs. ACIT\nAsst. Years: 2013-14 & 2015-16\n4\n4.\nSince the issues involved in both these appeals are common, we heard\nthem together and dispose of the same by way of a common order for the\nsake of convenience.\n5,\nDuring the course of the hearing before us, the Authorized\nRepresentative (AR) submitted that the additions made by the AO were\nsolely on account of credits in the NRE account, which are not subject to tax\nas per the provisions of Section 10(4) of the Act. The AR further emphasized\nthat the assessee's non-resident status is an admitted fact, and throughout the\nassessment and DRP proceedings, the assessee had duly explained all credits\nappearing in the NRE accounts.\n6.\nThe Departmental Representative (DR), on the other hand, referred to\nthe DRP's order in case of AY 2013-14, stating that the assessee had failed to\nestablish the source of a credit entry of Rs.1,80,00,000/- in the HDFC Bank\nNRE account on 06-02-2013. As per the bank statement, this amount was\ntransferred from the assessee's own NRO account with HDFC Bank, where\ntwo cheques of Rs.1 crore and Rs.80 lakhs were deposited on 03-12-2012 and\n10-12-2012, respectively. The DR also pointed out that the DRP concluded\nthat two additional credit entries remained unexplained-one for\nRs.1,50,00,000/- credited in Deutsche Bank on 16-09-2012 and another for\nRs.48,69,033/- credited in HSBC Bank on 13-09-2012.\n7.\nIn response, the AR argued that all entries had already been explained\nduring the proceedings. He contended that if the NRO account was the\nsubject matter of concern, then the AO should have examined and, if\nrequired, made the addition at the NRO account level instead of adding the\namount based on the NRE account credit. The AR reiterated that since the AO\nmade the addition based on credits in the NRE account, such an addition is\nunsustainable as per Section 10(4) of the Act. The AR placed reliance on\njudicial precedents from the Hon'ble Gujarat High Court, which support the\nassessee's claim that credits in an NRE account sourced from foreign\nremittances are beyond the reach of taxation under Indian law. Following are\nthe judicial precedents relied on\nNitin Mavji Vekariya Vs. ITO – (2024) 461 ITR 18.\nBhavesh Chandrakantbhai Bhatt Vs. ACIT – Special Civil Application\nNo. 8240 of 2024.\nAnilkumar Ramabhai Patel Vs. ITO - Special Civil Application No.\n9497 of 2024.\n8.\nWe have carefully considered the rival submissions, perused the\nevidence on record, and studied the relevant legal provisions and precedents\ncited. The issue before us is whether the various credits in the assessee's NRE\nbank accounts during the year under consideration were correctly added as\nunexplained income by the AO, or whether the assessee has successfully\nexplained those credits such that they are not liable to tax.\n8.
At the outset, we note that the assessee's status as a Non-Resident\nIndian (NRI) during the year is not in dispute, and it is also undisputed fact\nthat the bank accounts in question are NRE accounts maintained by the\nassessee.\n8.
The AR, during the course of proceedings before us, contended that the\naddition made by the AO on account of credits in the NRE account is not\nsustainable in law. The AR submitted that credits in an NRE account are\ngoverned by Section 10(4) of the Act. The AR emphasized that the AO and\nDRP have failed to appreciate that an NRE account itself is a foreign\nexchange-designated account, and funds credited therein originate either\nfrom foreign remittances or permissible transfers as per FEMA regulations.\nThe AR stated that the AO has incorrectly made additions based on credits in\nthe NRE account. In particular, the AO should have verified the credit entries\nin the NRO account from where certain transfers were made to the NRE\naccount instead of directly taxing the NRE credits. The AR argued that if the\nAO doubted the source of funds in the NRO account, the addition should\nhave been made at that stage, not at the NRE account level, which is contrary\nto settled legal principles.\n8.
We verified the disputed credits in NRE bank account which are\ntabulated below\nITA Nos.105 & 106/Ahd/2023\nRajendra Manganbhai Patel vs. ACIT\nAsst. Years: 2013-14 & 2015-16\n7\nS\nAmount (Rs.)\nReasons for addition\nTransfer from NRO A/c\nNo.1471510000790 - In said\nNRO account there were two\ndeposits of Rs.1,00,00,000/- by\nway of Cheque No. 93582 on 03-\n12-2012 and\nRs.80,00,000/- by way of\nCheque No. 93563 on\n12-2012. These two entries\nassessee could not explain.\n10-\nPage No. 17\nDRP\nOrder\nHDFC Bank NRO\nStatement is available\nfrom 05-01-2013\nRemark\nParticulars\nAY\nDate\nBank\nNRE\nAccount\nNo.\n2013-14\n06/02/2013\nHDFC Bank (NRE)\n1471560001628\n1,80,00,000/-\n2015-16\n23/01/2015\nHDFC Bank\n(NRE)\n147156000162\n900\n3,67,60,000/-\nCredited with Narration\n\"INWGBP400000@91.9230115104\n9900919\"\nPage No. 9-10\nNIL\n2013-14\n16/09/2012\nDeutsche Bank\n(NRE)\n4200147137800\n19\n1,50,00,000/-\nNo Explanation / additional\nevidence\nPage No. 16\nDeutsche Bank\nStatement Not\navailable\n2013-14\n13/09/2012\nHSBC Bank\n(NRE)\n030-344220-\n8\n48,69,033/-\nAmount credited to NRE\naccount on 13-09-2012 with\nNarration \"HSBC INC FD-SH\nTRM PLN-R SOF NRE\" could\nnot be explained\nPage No. 19\nNIL\nITA Nos.105 & 106/Ahd/2023\nRajendra Manganbhai Patel vs. ACIT\nAsst. Years: 2013-14 & 2015-16\n8\n8.
From the paper book submitted before us, we observed that the all the\nrelevant bank statements are not available in the paper book.\n8.
We have noted the submission of the assessee before DRP and found\nthat the funds deposited in the NRE account were primarily sourced from\nproceeds of pharmacy business sales in the UK between 1992 and 2006,\nredemptions of FCNR deposits and mutual funds previously invested in\nIndia, inter-account transfers within India from existing NRE accounts, and\nremittances from foreign bank accounts. The assessee emphasized that a sum\nof GBP 400,000/- was transferred on 22-01-2015 from JP Morgan Chase Bank,\nNA to the HDFC NRE account, forming part of the addition made by the AO.\nTo substantiate this, the assessee furnished remittance certificates issued by\nHDFC Bank, which were ignored by the AO.\n8.
We note that the transfer amounting to Rs.1,80,00,000/- from the NRO\naccount to the NRE account maintained with HDFC Bank was sourced from\nthe assessee's NRO account, where two prior deposits of Rs.1 crore on\n03-12-2012 and Rs.80 lakh on 10-12-2012 were made. Given these facts, it\nbecomes crucial to examine whether the initial credits in the NRO account\nwere from taxable income or capital receipts.\n8.
We also note that the amount credited to the NRE account on 13-09-\n2012, with the narration \"HSBC INC FD-SH TRM PLN-R SOF NRE\",\nremained unexplained by the assessee during the assessment and DRP\nproceedings. However, both the AO and DRP orders explicitly mention the\nnarration from the bank statement, indicating that the credit represents\nproceeds from a short-term fixed deposit (FD) redemption. Given that an\nNRE FD redemption typically originates from previously tax-exempt foreign\nremittances, this entry is self-explanatory and can reasonably be treated as\nexplained. Consequently, the addition made on this account appears\nunsustainable, as the source of funds is inherently linked to a legitimate\nfinancial transaction rather than unexplained income.\n8.
The transaction dated 16/09/2012, involving a credit of\nRs.1,50,00,000/- in the Deutsche Bank (NRE) account (A/c No.\n420014713780019), remains unexplained, as no supporting explanation or\nadditional evidence has been provided by the assessee. Furthermore, the\nbank statement for Deutsche Bank is not available in the paper book\nsubmitted during the course of hearing before us. Given the lack of\ndocumentary support, this transaction requires further verification by the AO\nto determine the actual source of funds.\nITA Nos.105 & 106/Ahd/2023\nRajendra Manganbhai Patel vs. ACIT\nAsst. Years: 2013-14 & 2015-16\n9\n8.
Regarding the inward remittance of Rs.3,67,60,000/- (GBP 400,000)\ndated 23/01/2015 in HDFC Bank (NRE) account, the assessee stated that\nthese funds were accumulated from the sale proceeds of pharmacy\nbusinesses in the UK between 1992 and 2006. The last store was sold in 2006-\n07, and a portion of the proceeds was transferred to India. The assessee\ntransferred GBP 950,000 to India on 12/11/2008, with the majority of these\nfunds invested in FCNR deposits and mutual funds. As per the submission,\nthis inward remittance of GBP 400,000 was part of the tax-paid funds\naccumulated over the years and repatriated to India. Based on the detailed\nexplanation and supporting documents submitted before the DRP and given\nthat the bank statement itself confirms the nature of the transaction, this\ninward remittance is adequately explained and does not require further\nverification.\n8.
The judicial precedents relied on by the assessee establish that foreign\nremittances into NRE accounts are not taxable under Indian law. However,\nall three cases involved quashing of reassessment proceedings under Section\n148A, whereas the present case involves a completed assessment under\nSection 147 r.w.s.144C(13) of the Act after a full-fledged inquiry. Therefore,\nwhile the substantive principles remain relevant, the procedural distinction\nlimits their direct applicability in challenging the assessment in the present\nappeal.\n8.
Section 10(4) of the Act provides an exemption for certain incomes\nearned by a Non-Resident Indian (NRI) in India. The relevant provision i.e.\nSection 10(4) (ii) is as follows:\nITA Nos.105 & 106/Ahd/2023\nRajendra Manganbhai Patel vs. ACIT\nAsst. Years: 2013-14 & 2015-16\n10\nin the case of an individual, any income by way of interest on money standing\nto his credit in a Non-Resident (External) Account in any bank in India in\naccordance with the Foreign Exchange Management Act, 1999 (42 of 1999),\nand the rules made thereunder:\nProvided that such individual is a person resident outside India as defined in\nclause (w) of section 2 of the said Act or is a person who has been permitted by\nthe Reserve Bank of India to maintain said Account.\n8.
We have noted the key elements of the applicable provisions,\naccordingly, it applies to individuals who maintain an NRE account in an\nIndian bank, interest earned on funds deposited in an NRE account is exempt\nfrom income tax in India and the exemption is applicable only if the\nindividual qualifies as a \"Person Resident Outside India\" under FEMA, 1999\nor has specific RBI permission to maintain an NRE account. This provision\nensures that income earned outside India and deposited into an NRE account\nremains free from Indian taxation. The assessee in the present case is an NRI,\nand the additions made by the AO pertain to credits in NRE accounts\nmaintained with HDFC Bank, Deutsche Bank, and HSBC Bank. The assessee\nhas claimed exemption under Section 10(4)(ii) of the Act, arguing that the\ncredited funds originated from foreign sources and should not be taxed in\nIndia. The AO made additions based on credits in the assessee's NRE account,\ntreating them as unexplained income. However, as per Section 10(4) of the\nAct, funds deposited in an NRE account are not subject to Indian taxation if\nthey originate from foreign income. The assessee has provided\ndocumentation showing that the funds were either foreign remittances or\nredemptions of existing NRE deposits and hence should not be considered\ntaxable under Indian law.\nITA Nos.105 & 106/Ahd/2023\nRajendra Manganbhai Patel vs. ACIT\nAsst. Years: 2013-14 & 2015-16\n11\n8.
Based on the analysis of Section 10(4) of the Act, and the facts of the\ncase, the following conclusions can be drawn:\n- Credits directly originating from foreign remittances into the NRE\naccount are exempt from taxation under Section 10(4) of the Act. The\nRs.3,67,60,000/- credited on 23-01-2015 in HDFC Bank (NRE) is a\nforeign remittance from the UK and should be deleted from the\nassessed income. The Rs.48,69,033/- credited on 13-09-2012 in HSBC\nBank (NRE) is a redemption of an NRE fixed deposit, which is also tax-\nfree under Section 10(4).\n- Transfers from an NRO account to an NRE account require verification\nof the original source in the NRO account. If the source of the NRO\naccount deposit was an earlier foreign remittance, Section 10(4) of the\nAct applies. If the NRO account contained taxable income earned in\nIndia, the AO's action may be justified to the extent of taxable income.\nThe transactions of Rs.1,80,00,000/- (HDFC Bank, 06-02-2013) and\nRs.1,50,00,000/- (Deutsche Bank, 16-09-2012) need further verification.\n8.
The AO's additions cannot be sustained merely on the basis of NRE\ncredits without proving that the original source of funds was taxable in India.\nAs held in judicial precedents like Nitin Mavji Vekariya (461 ITR 18) and\nBhavesh Chandrakantbhai Bhatt (8240 of 2024), NRE deposits sourced from\nforeign remittances are beyond Indian taxation. In the absence of material\nestablishing that the credits were from an Indian taxable source, the additions\nare legally unsustainable.\n8.
Considering all the facts, legal precedents, and provisions of Section\n10(4) of the Act, it is evident that funds remitted from foreign sources into\nNRE accounts are not taxable in India unless there is material to establish that\nthey originate from taxable Indian income.\n8.
In AY 2013-14, the addition of Rs.48,69,033/- credited on 13-09-2012 in\nHSC Bank (NRE) is deleted, as it represents a redemption of an NRE fixed\ndeposit, which qualifies for exemption under Section 10(4). However, the\naddition of Rs.1,80,00,000/- in HDFC Bank (NRE) and Rs.1,50,00,000/- in\nDeutsche Bank (NRE) requires further verification by the AO to ascertain\nwhether the original source of funds in the NRO account was from taxable\nincome or tax-free foreign remittances.\n8.
For AY 2015-16, the addition of Rs.3,67,60,000/- credited on 23-01-2015\nin HDFC Bank (NRE) is deleted, as it is an inward remittance from JP Morgan\nChase Bank, UK, and qualifies for exemption under Section 10(4) of the Act.\nAccordingly, the appeal for AY 2013-14 (ITA No. 105/Ahd/2023) is partly\nallowed for statistical purposes, with a direction to the AO for further\nverification. Since there are no pending verifications or unresolved issues for\nthis year, the appeal for AY 2015-16 ( ) is allowed in\nfull.\n9.\nIn the combined result, the appeal of the assessee in ITA\nNo.105/Ahd/2023 for AY 2013-14 is partly allowed for statistical purposes,\nwhereas the appeal of the assessee in for AY 2015-16\nis allowed in full.\nOrder pronounced in the Open Court on\n4th March, 2025 at Ahmedabad.\nSd/-\n(T.R. SENTHIL KUMAR)\nJUDICIAL MEMBER\nSd/-\n(MAKARAND V. MAHADEOKAR)\nACCOUNTANT MEMBER\nअहमदाबाद/Ahmedabad, दिनांक/Dated 04/03/2025\nटी.सी. नायर, व.नि. स. / T.C. NAIR, Sr. PS\nITA Nos.105 & 106/Ahd/2023\nRajendra Manganbhai Patel vs. ACIT\nAsst. Years: 2013-14 & 2015-16\n13\n14\nआदेश की प्रतिलिपि अग्रेषित/