NRI’s Property Investment Explained with Bank Statements and Agreements: ITAT Quashes Addition Due to Jurisdictional Error
The Tribunal quashed an addition of ₹69.99 lakh under Section 69 of the Income Tax Act, 1961, ruling that the notice issued by the Assessing Officer lacked jurisdiction, as the assessee was a non-resident Indian (NRI)
The Mumbai Bench of the Income Tax Appellate Tribunal ( ITAT ) has set aside an assessment order adding Rs. 69.99 lakh as unexplained investment under Section 69 of the Income Tax Act, 1961 as the notice issued by the Assessing Officer ( AO ) was invalid due to lack of jurisdiction.
Mr. Sanand Sankardas, a non-resident Indian (NRI), filed his income tax return for the Assessment Year 2015-16, declaring an income of Rs. 5,85,620. The AO observed that the assessee had made investments in immovable property worth ₹39,62,714 and a time deposit of Rs. 30,36,720 which totalled to Rs. 69,99,460.
The AO alleged escapement of income and reopened the case by issuing a notice. Despite the submissions, the AO proceeded with a best judgment assessment citing non-compliance with statutory notices, and added Rs. 69,99,460 as unexplained investment under Section 69 of the Act.
Aggrieved by the AO’s order, the assessee filed objections before the Dispute Resolution Panel (DRP). The assessee argued that the AO ignored his replies and that the investments were made from foreign income not accruing or arising in India. The DRP directed a revised addition of Rs. 36,12,173, which was incorporated in the final assessment order.
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Aggrieved by the DRP’s order, the assessee appealed to the ITAT. The Counsel for the assessee contended that the AO lacked jurisdiction to issue the notice under Section 148, as the jurisdiction over NRIs lies with the Income Tax Officer (International Taxation).
The Counsel for the assessee relied on the precedent in CIT v. M.I. Builders (P.) Ltd. which held that notices issued by an officer without jurisdiction are invalid. The counsel further argued that Section 292BB, invoked by the Revenue to validate the notice, was inapplicable, as the challenge was to the issuance of the notice, not its service.
The Revenue argued that the assessee’s participation in the proceedings barred him from challenging the notice under Section 292BB.
The two-member bench comprising Ms. Padmavathy S (Accountant Member) and Raj Kumar Chauhan (Judicial Member), observed that the AO was aware of the assessee’s NRI status, as acknowledged in the order under Section 148A(d) dated 20.04.2022.
The Tribunal held that the notice was issued by an officer lacking jurisdiction, rendering the assessment proceedings void. It further noted that the assessee had provided sufficient evidence, including bank statements and property purchase agreements, to explain the source of funds.
The bench concluded that the addition under Section 69 was unsustainable due to the jurisdictional error and the explained nature of the investments. It quashed the addition of Rs. 69.99 lakh and set aside the assessment order. The appeal of the assessee was allowed.
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