Unsubstantiated Foreign Remittances Ineligible for Exemption u/s 10(4): ITAT Partly Upholds  Claim of NRI [Read Order]

In a recent  decision, the Ahmedabad bench of the Income Tax Appellate Tribunal ( ITAT ) held that unsubstantial foreign remittances cannot qualify for exemption under Section 10(4) of the Income Tax Act,1961, for Non-Resident Indians ( NRI ).

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The Assessing Officer (AO) had issued a notice under section 148 of the Income Tax Act 1948 to Rajendra Manganbhai Patel (assessee), an NRI residing in the United Kingdom. The assessee filed his returns in response. The AO then proposed additions based on the credits in the assessee's NRE accounts.

Later on, following directions from the Dispute Resolution Panel (DRP), some additions were deleted by the AO, while others were upheld. The assessee thereafter challenged the order before the ITAT.

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Tushar Hemani &  Parimalsinh N. Parmar, counsels who appeared on behalf of the assessee, argued that the additions were solely based on credits in the assessee’s Non-Resident External Account (NRE), which are exempt under Section 10(4) of the Income Tax Act of 1961.

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The counsels pointed out that the assessee's NRI status was undisputed, and all credits were duly explained during assessment and DRP proceedings. The credits included foreign remittances, redemption of NRE deposits, and transfers from other NRE accounts.

To support this claim, the counsel relied on numerous cases, including Nitin Mavji Vekariya v. Income Tax Officer (2024), in which the court held that investments made from NRE accounts are not taxable.

Meanwhile, Prathvi Raj Meena, counsel for the department, opposed the claims of the assessee.

The counsel pointed out that the assessee failed to explain the source of ₹1.8 crore credited to the HDFC NRE account, which was transferred from a Non-Resident Ordinary (NRO) account with unexplained deposits. He also pointed out that the other credits of ₹1.5 crore in Deutsche Bank and ₹48.69 lakh in HSBC Bank remained unsubstantiated.

The bench, comprising  T.R. Senthil Kumar (Judicial Member) and Makarand V. Mahadeokar (Accountant Member), carefully considered the submissions made by the parties.

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The Bench observed that the assessee had substantiated the remittances of ₹3.67 crore and ₹48.69 lakh. Since these amounts were received from abroad and deposited into NRE accounts, they qualified for exemption under Section 10(4) of the Income Tax Act, 1961.

The Tribunal deleted the additions made under these amounts, holding them to be valid foreign remittances.

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However, for the remittances of ₹1.8 crore and ₹1.5 crore, the assessee failed to explain the sources of funds deposited in the bank accounts. These transactions remained unsubstantiated on record. As a result, the Tribunal restored these additions to the file of the Assessing Officer for verification of the sources.

While doing so, it referred to the decision in Nitin Mavji Vekariya v. ITO (2024) and held that only genuine and verifiable foreign remittances are eligible for exemption under Section 10(4) of the Income Tax Act of 1961.

To Read the full text of the Order CLICK HERE

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