NRI's NRE Account Credits Linked to Overseas Earnings Cannot Be Taxed as Unexplained Money: ITAT Deletes ₹5.52 Lakh Addition [Read Order]

The Income Tax Appellate Tribunal (ITAT) has held that credits in a Non-Resident External (NRE) account sourced from overseas earnings cannot be treated as unexplained money under Section 69A of the Income Tax Act, 1961. The Tribunal consequently deleted an addition of ₹5.52 lakh made against an NRI assessee while remanding a separate addition of ₹2.49 crore for fresh verification.

The appeal was filed by Rahulkumar Narshibhai Patel, a Non-Resident Indian employed in Kuwait against the order of the Commissioner of Income Tax (Appeals) [CIT(A)] for Assessment Year 2019-20.

The case arises from information received through the SFT/Insight system which reflected substantial balances in the assessee’s accounts with HDFC Bank, ICICI Bank and ICICI Prudential Life Insurance Company. Since the assessee had not filed a return of income for the relevant assessment year, reassessment proceedings were initiated.

The Assessing Officer treated the entire SFT-reported amount of ₹3.63 crore as unexplained money under Section 69A and taxed it under Section 115BBE observing that the assessee had failed to satisfactorily explain the source of the funds.

Before the CIT(A), the assessee produced additional evidence including salary records from Kuwait, foreign bank statements, and NRE account statements demonstrating that the funds originated from salary income earned abroad and were remitted to India through banking channels. After considering the remand report, the CIT(A) deleted substantial additions but sustained ₹2.55 crore, comprising ₹2.49 crore relating to HDFC Bank and ₹5.52 lakh relating to ICICI Bank.

The assessee argued before the Tribunal that all credits in the NRE accounts represented foreign salary remittances and that the Revenue itself had failed to reconcile the SFT figures with actual bank records. It was further contended that cumulative balances could not be taxed as income.

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The Tribunal observed that the Assessing Officer had already accepted that a substantial portion of the ICICI Bank funds originated from foreign salary remittances routed through the National Bank of Kuwait. It held that the residual difference of ₹5.52 lakh could not be treated as unexplained merely because of reconciliation issues particularly in the absence of any material indicating undisclosed income.

The Bench comprising Annapurna Gupta (Accountant Member) and Siddhartha Nautiyal (Judicial Member) held that once the source of funds in an NRE account is established as foreign earnings no addition under Section 69A is warranted.

Accordingly, the bench deleted the addition of ₹5.52 lakh and restored the issue relating to the ₹2.49 crore HDFC Bank balance to the Assessing Officer for fresh adjudication after obtaining complete details from the bank.

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