Unexplained investment addition fails where NRE funds are traced to a foreign business account with supporting evidence.

An investment in a fixed deposit could not be treated as unexplained under section 69 where a non-resident assessee linked the funds credited to the NRE account with withdrawals from a foreign business account and supported that linkage with contemporaneous evidence. The assessee produced the foreign business licence and bank records, and the accepted explanation for a similar immovable property investment reinforced the source explanation. On those facts, the investment source stood explained and the addition was not justified.

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Issues: Whether the addition under section 69 of the Income-tax Act, 1961 was sustainable in respect of the assessee's investment of Rs. 1,00,00,000 in fixed deposits, where the assessee explained the source as remittance into his NRE account from business carried on outside India.

Analysis: The assessee was a non-resident and the investment in the fixed deposit was made from funds credited in the NRE account. The dispute was not about receipt of the amount in India, but about whether the assessee had satisfactorily linked the remittance to his foreign business activity. The material on record showed that the assessee had produced the foreign business licence and bank account details, and had demonstrated that the remittance into the NRE account corresponded to withdrawals from the foreign business account. The same explanation for a similar investment in immovable property had also been accepted by the Assessing Officer, which supported the assessee's explanation for the fixed deposit investment.

Conclusion: The source of the fixed deposit investment stood explained and the addition under section 69 was not justified.

Ratio Decidendi: Where the assessee establishes that the investment was made from funds remitted into an NRE account from a foreign business account, and the explanation is supported by contemporaneous evidence, the investment cannot be treated as unexplained merely because the revenue seeks further corroboration of the foreign source.

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