2024 (1) TMI 155 - AT - Income Tax

Unexplained investment u/s 69 - wire transfer from NRE account - assessee is a non-resident during the impugned year under consideration holding a UK Passport and the amounts in question were transferred to the assessee s NRE bank account by way of wire transfer from the account of the assessee s son, who is also a resident of UK - only reason on the basis of which the additions have been made are that the assessee has not been able to explain the source of funds received by the assessee in his NRE account (although it has not been disputed that the aforesaid amount has been received by way of wire transfer from another NRE account of the assessee s son). HELD THAT - It would be useful to refer to the case of Tarun Kumar Sarkar 2017 (6) TMI 644 - ITAT KOLKATA wherein the ITAT held that where foreign employer directly credited salary for services rendered outside India into NRE bank account of non-resident seafarer in India, same could not be brought to tax in India in terms of section 5 of the Act. In this case of Iqbal Ismail Virani 2021 (3) TMI 664 - ITAT PANAJI ITAT held that money brought in India by non-resident for investment or for other purpose is not liable to tax under provisions of Act and question of assessment to income-tax arises only when there is no evidence to show that amount in question in fact represents remittance from abroad. In the case of Hemant Mansukhlal Pandya 2018 (11) TMI 949 - ITAT MUMBAI ITAT held that where additions were made to income of assessee, who was a non-resident since 25 years, since, no material was brought on record to show that funds were diverted by assessee from India to source deposits found in foreign bank account, impugned additions were unjustified. In the case of Smt. Susila Ramasamy 2009 (4) TMI 554 - ITAT CHENNAI ITAT held that in case of remittances by way of banking channel onus on assessee under Section 69 stands discharged, and, therefore, section 5(2)(b) does not apply. Thus CIT(A) has erred in facts and law in confirming the additions made by the assessee received by way of wire transfer from NRE account of his son in UK to assessee s NRE account from which investments were made into Mutual Funds. In our considered view, in the instant facts, no addition is sustainable under Section 69 of the Act. Decided in favour of assessee.

Summary

Issues Involved:
1. Addition of Rs. 9,15,56,045/- as unexplained investment under section 69 of the Act.
2. Taxability of amounts received by a Non-Resident from sources outside India.
3. Addition of Rs. 10,00,000/- under section 68 of the Act as unexplained cash credits.

Summary:

Issue 1: Addition of Rs. 9,15,56,045/- as unexplained investment under section 69 of the Act

The assessee invested Rs. 10,61,58,177/- in Mutual Funds, with Rs. 9,15,56,045/- added as unexplained investment under Section 69. The assessee argued that the funds came from his son's overseas accounts, both being non-residents. The CIT(A) upheld the addition, citing insufficient evidence on the source of funds, despite acknowledging the transfer into the NRE account. The ITAT referred to precedents like Tarun Kumar Sarkar and Vijaykumar Vasantbhai Patel, concluding that funds transferred from NRE accounts of non-residents are not taxable in India. The ITAT held that no addition is sustainable under Section 69 in the instant facts, allowing the ground of appeal.

Issue 2: Taxability of amounts received by a Non-Resident from sources outside India

The assessee contended that funds received from his non-resident son's NRE account should not be taxed in India. The CIT(A) rejected this, citing lack of evidence on the son's income source. The ITAT, referencing cases like Iqbal Ismail Virani and Hemant Mansukhlal Pandya, ruled that remittances from abroad by non-residents are not taxable in India. The ITAT found the CIT(A)'s decision erroneous, allowing the appeal.

Issue 3: Addition of Rs. 10,00,000/- under section 68 of the Act as unexplained cash credits

The CIT(A) upheld an addition of Rs. 10,00,000/- under Section 68 as unexplained cash credits. The ITAT, applying its observations from Issue 1, allowed the appeal, concluding that the addition was not justified.

Conclusion:

The ITAT allowed the appeals, setting aside the additions under Sections 69 and 68, ruling that funds transferred from non-resident accounts are not taxable in India. This order was pronounced in open court on 20/12/2023.