Savings from Foreign Salary Not Taxable: ITAT deletes Income Tax Notice against Dubai NRI for ₹2 Cr Residential Property Investment [Read Order]

The Mumbai bench of the Income Tax Appellate Tribunal (ITAT) deleted the ₹2 crore addition made on a Dubai‑based NRI after observing that the investment in a residential property was fully explained through foreign salary savings that were earned abroad and remitted to India through proper banking channels.

The assessee, Rajnish Kasturchand Ostwal, an NRI who had been living and working in Dubai since 2001 and returned to India only in 2021, invested Rs. 2 crore towards a residential property in India during the relevant year, with the balance consideration paid in later years.

Based on information regarding this investment, the Assessing Officer initiated reassessment proceedings under section 147 and treated the investment as unexplained, alleging that the assessee failed to satisfactorily explain the source of funds.

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During the assessment proceedings, the assessee argued that he had been earning salary income in Dubai for nearly two decades and had no income accruing or arising in India. The assessee’s counsel explained that the investment in the residential property was made entirely out of accumulated foreign salary savings remitted to India through authorised banking channels into his NRE account.

In support, the counsel submitted RAK Bank statements showing withdrawals in Dubai, authorised dealer certificates evidencing remittances, corresponding credits in assessee’s Axis Bank NRE account, salary records, employment contract, UAE residence visa, and official employee details from the UAE Ministry of Labour website.

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The Assessing Officer rejected the explanation and added Rs. 2 crore under section 69, questioning the authenticity of the foreign employer and bank documents without carrying out any independent verification. The Dispute Resolution Panel upheld the addition, leading to the final assessment order, which was challenged by the assessee before the ITAT.

Before the tribunal, the assessee argued that a complete and contemporaneous fund trail had been established and that the income used for the investment was earned and accumulated abroad, which was not taxable in India under section 5(2). They further argued that section 69 could not be invoked when the source of investment was fully explained and did not represent income chargeable to tax in India.

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The two-member bench comprising Amit Shukla (Judicial Member) and Girish Agrawal (Accountant Member) examined the material placed on record and observed that it was undisputed that the assessee was a non-resident with no source of income in India during the relevant period. The tribunal observed that the documentary evidence produced formed a complete and credible trail showing that the funds were sourced from foreign salary income remitted through proper banking channels.

The tribunal pointed out that the tax authorities had not brought any material on record to disprove the assessee’s explanation or to show that the investment represented income taxable in India. It explained that rejecting documentary evidence based on suspicion, without conducting any verification using available statutory powers, was not justified.

The tribunal further explained that section 69 presupposes that the investment represents income chargeable to tax, and when the source of funds is clearly established as foreign income not taxable in India, the provision cannot be applied.

Based on these findings, the ITAT deleted the addition of Rs. 2 crore made under section 69 and allowed the assessee’s appeal in full.

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