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TMI Blog2025 (3) TMI 519X X X X Extracts X X X X X X X X Extracts X X X X ..... had not filed his returns of income for both the assessment years under consideration. On the basis of information available in ITBA system, the AO issued notice u/s 148 of the Act to the assessee. The assessee submitted return of income for both the years in response to notice u/s 148 of the Act. On the basis of information submitted by the assessee in response to notice u/s. 143(2) / 142(1) of the Act and show-cause notice, the AO issued a draft assessment order proposing addition on account of unexplained credits to NRE accounts of the assessee. DRP directed the AO to delete some additions as explained. Based on the directives of DRP AO confirmed some additions. Following is the tabulated summary of the assessments in case of both the years: Particulars AY 2013-14 AY 2015-16 Date of Notice u/s 148 31.03.2021 31.03.2021 Date of Filing of return in response to Notice u/s 148 30.04.2021 30.04.2021 Returned Income Rs. 5,79,019/- Rs. 77,421/- Key Information from ITBA System - Investments in Mutual Funds Rs. 5,62,67,313/- Rs. 14,36,26,449/- - TDS Return Payments to Non-Residents Rs. 9,50,243/- Rs. 10,47,988/- - Time Deposit with Banking Co. Rs. 11,76,46,084/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Your Appellant's case and law, The Id.AO failed to appreciate the fact that all explanation and evidences were produced before Hon'ble DRP but ignoring the above mentioned facts and also without verifying record rejected the claim of your appellant rejected the claim stating that "During the course of DRP proceedings, no explanation/additional evidence was produced before the Hon'ble DRP in this regard. Hence, though the assessee has given explanation in this regard, no verification/comments are offered as directed by the DRP". 2.2 Your appellant, therefore, prays before your Honor to hold so now and quash the order passed by Id. AO. 3. ADDITION OF Rs. 3,67,60,000/- ON ACCOUNT FUNDS RECEIVED IN NRE ACCOUNT: 3.1 On the facts and circumstances of Your Appellant's case and law, The Id.AO has made addition of Rs. 3,67,60,000/- for the funds received in NRE Bank accounts. Further the said fund is introduced by appellant in his NRE account from his foreign bank account.ld.AO failed to appreciate the fact that inward remittances in NRE account has to be necessarily from abroad and for non-residents, any funds brought into India into NRE account does not become ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourced from foreign remittances are beyond the reach of taxation under Indian law. Following are the judicial precedents relied on - - Nitin Mavji Vekariya Vs. ITO - (2024) 461 ITR 18. - Bhavesh Chandrakantbhai Bhatt Vs. ACIT - Special Civil Application No. 8240 of 2024. - Anilkumar Ramabhai Patel Vs. ITO - Special Civil Application No. 9497 of 2024. 8. We have carefully considered the rival submissions, perused the evidence on record, and studied the relevant legal provisions and precedents cited. The issue before us is whether the various credits in the assessee's NRE bank accounts during the year under consideration were correctly added as unexplained income by the AO, or whether the assessee has successfully explained those credits such that they are not liable to tax. 8.1. At the outset, we note that the assessee's status as a Non-Resident Indian (NRI) during the year is not in dispute, and it is also undisputed fact that the bank accounts in question are NRE accounts maintained by the assessee. 8.2. The AR, during the course of proceedings before us, contended that the addition made by the AO on account of credits in the NRE account is not sustainable in law. The AR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and remittances from foreign bank accounts. The assessee emphasized that a sum of GBP 400,000/- was transferred on 22-01-2015 from JP Morgan Chase Bank, NA to the HDFC NRE account, forming part of the addition made by the AO. To substantiate this, the assessee furnished remittance certificates issued by HDFC Bank, which were ignored by the AO. 8.6. We note that the transfer amounting to Rs. 1,80,00,000/- from the NRO account to the NRE account maintained with HDFC Bank was sourced from the assessee's NRO account, where two prior deposits of Rs. 1 crore on 03-12-2012 and Rs. 80 lakh on 10-12-2012 were made. Given these facts, it becomes crucial to examine whether the initial credits in the NRO account were from taxable income or capital receipts. 8.7. We also note that the amount credited to the NRE account on 13-09- 2012, with the narration "HSBC INC FD-SH TRM PLN-R SOF NRE", remained unexplained by the assessee during the assessment and DRP proceedings. However, both the AO and DRP orders explicitly mention the narration from the bank statement, indicating that the credit represents proceeds from a short-term fixed deposit (FD) redemption. Given that an NRE FD redemption typica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant provision i.e. Section 10(4) (ii) is as follows: in the case of an individual, any income by way of interest on money standing to his credit in a Non-Resident (External) Account in any bank in India in accordance with the Foreign Exchange Management Act, 1999 (42 of 1999), and the rules made thereunder: Provided that such individual is a person resident outside India as defined in clause (w) of section 2 of the said Act or is a person who has been permitted by the Reserve Bank of India to maintain said Account. 8.12. We have noted the key elements of the applicable provisions, accordingly, it applies to individuals who maintain an NRE account in an Indian bank, interest earned on funds deposited in an NRE account is exempt from income tax in India and the exemption is applicable only if the individual qualifies as a "Person Resident Outside India" under FEMA, 1999 or has specific RBI permission to maintain an NRE account. This provision ensures that income earned outside India and deposited into an NRE account remains free from Indian taxation. The assessee in the present case is an NRI, and the additions made by the AO pertain to credits in NRE accounts maintained with HD ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... material to establish that they originate from taxable Indian income. 8.16. In AY 2013-14, the addition of Rs. 48,69,033/- credited on 13-09-2012 in HSBC Bank (NRE) is deleted, as it represents a redemption of an NRE fixed deposit, which qualifies for exemption under Section 10(4). However, the addition of Rs. 1,80,00,000/- in HDFC Bank (NRE) and Rs. 1,50,00,000/- in Deutsche Bank (NRE) requires further verification by the AO to ascertain whether the original source of funds in the NRO account was from taxable income or tax-free foreign remittances. 8.17. For AY 2015-16, the addition of Rs. 3,67,60,000/- credited on 23-01-2015 in HDFC Bank (NRE) is deleted, as it is an inward remittance from JP Morgan Chase Bank, UK, and qualifies for exemption under Section 10(4) of the Act. Accordingly, the appeal for AY 2013-14 (ITA No. 105/Ahd/2023) is partly allowed for statistical purposes, with a direction to the AO for further verification. Since there are no pending verifications or unresolved issues for this year, the appeal for AY 2015-16 (ITA No. 106/Ahd/2023) is allowed in full. 9. In the combined result, the appeal of the assessee in ITA No.105/Ahd/2023 for AY 2013-14 is partly all ..... X X X X Extracts X X X X X X X X Extracts X X X X
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