2024 (9) TMI 136 - AT - Income Tax

Unexplained foreign inward remittance u/s 68 - assessee submitted that foreign remittance constitutes earning from abroad which could not be subject to tax in India as the source of the earnings was not from India - CIT(A) deleted addition - HELD THAT - As the assessee has earned sufficient income from outside India which has been brought in India by way of credit to NRE account and part of earnings have been used to make gifts to two brothers. In such a case, it could be concluded that the assessee duly explained the source of credit in the bank accounts. Under these circumstances, we would hold that the impugned order, for both the years, do not require any interference on our part. We therefore confirm the same. Decided in favour of assessee.

Issues Involved:
1. Addition made under Section 68 of the Income Tax Act for unexplained foreign inward remittance.

Issue-wise Detailed Analysis:

1. Addition Made Under Section 68 for Unexplained Foreign Inward Remittance:

Assessment Proceedings:
The case was reopened for reassessment, and notice under Section 148 was issued. The assessee filed various financial documents, including books of accounts and bank statements. The assessment was reopened due to significant investments made by the assessee in a partnership firm, M/s ST Couriers. The assessee claimed non-residential status and showed income from house property. Foreign remittances were found in the capital account, amounting to Rs. 188.52 Lacs for the year in question. The AO added this amount to the income as unexplained foreign remittances under Section 68, citing a lack of supporting documents to substantiate the source of these remittances.

Appellate Proceedings:
During appellate proceedings, the assessee argued that the foreign remittance was earned outside India and thus not taxable in India. The initial remand report by the AO was favorable to the assessee, confirming that the remittances were earned from abroad. However, a subsequent remand report had adverse remarks. The Foreign Tax & Tax Research (FT&TR) division confirmed that the assessee earned income from Kuwait and Bahrain through business commissions, salary, and dividends. The CIT(A) considered various reports and concluded that the assessee had sufficient sources of income outside India, which were deposited in NRE accounts and thus not taxable under Section 5(2).

Findings and Adjudication:
The CIT(A) found that the assessee's capital in M/s ST Couriers was sourced from income earned outside India. The assessee had been employed in the Middle East from 1993 to 2010, earning substantial amounts in Saudi Riyals and Kuwait Dinars. The Tribunal held that non-resident individuals are not liable to pay tax in India on income earned abroad if brought into India through banking channels. The provisions of Section 68 would not apply to funds transferred to an NRE account from abroad. The Tribunal cited similar decisions from other cases and CBDT Circular No. 5, which supports the non-taxability of money brought into India by non-residents.

Additional Considerations:
The Tribunal also considered the case of the assessee's brothers, where similar remittances were found to be legitimate and not taxable. The remand reports confirmed that the remittances were received from abroad, and the banks clarified that no RBI limit was prescribed for inward remittances. The FT&TR report and other documents confirmed the assessee's employment and income sources outside India. The Tribunal found that the assessee had sufficient income from abroad, which was used to make gifts to his brothers and contribute to the partnership firm.

Conclusion:
The Tribunal concluded that the source of funds was duly explained, and the impugned addition under Section 68 could not be made. The orders for both assessment years were confirmed, and the appeals were dismissed.

Order Pronounced:
The judgment was pronounced on 7th August 2024, dismissing both appeals.

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