Non-resident assessee's overseas fund remittance to NRE account cannot attract unexplained money provisions under section 69A

ITAT Ahmedabad held that unexplained money provisions under section 69A read with section 115BBE cannot be applied to a non-resident assessee who remitted funds from his overseas bank account in Hong Kong to his NRE account in India. The assessee provided Foreign Inward Remittance Certificate and other documents establishing his non-resident status and overseas source of funds. Since there was no business connection with India or income earned in India, the assessee discharged the primary onus regarding source of funds being outside India. The addition made by AO was deleted and appeal allowed.

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Issues Involved:
1. Addition of Rs. 2,17,48,600 under Section 69A read with Section 115BBE of the Income Tax Act, 1961.

Detailed Analysis:

1. Addition of Rs. 2,17,48,600 under Section 69A read with Section 115BBE:

Facts of the Case:
The assessee, an Israeli citizen and non-resident, engaged in business in Hong Kong, had opened NRE and NRO accounts with HDFC Bank in India. During the Assessment Year 2018-19, the assessee remitted Rs. 2,17,08,596 to his NRE account from his own funds and received Rs. 40,000 from his sister in his NRO account. The total credits in these accounts amounted to Rs. 2,17,48,596, out of which he made fixed deposits totaling Rs. 2,01,50,000.

Assessment Proceedings:
The assessing officer (AO) observed these high-value transactions and requested details regarding the source of the funds, including foreign bank account statements and tax residency certificates. The assessee provided a Certificate of Foreign Inward Remittance, indicating that the funds were transferred from his bank account in Hong Kong to his NRE account in India. However, the AO was not satisfied with the documentation provided, noting the lack of supporting evidence for the source of the remittance and the absence of foreign bank account statements and tax returns.

Observations by AO:
The AO concluded that the amount of Rs. 2,17,48,596 remained unexplained and added it to the assessee's income under Section 69A, which pertains to unexplained money, and initiated penalty proceedings under Section 271AAC(1).

Dispute Resolution Panel (DRP) Findings:
The DRP upheld the AO's decision, emphasizing the two conditions under Section 69A: ownership of the money and unsatisfactory explanation for its source. The DRP found the assessee's explanation improbable and lacking evidence of an active income source, both in India and abroad. They cited the Supreme Court's decision in CIT v. P. Mohanakala, which requires a proper, reasonable, and acceptable explanation for sums found credited in the books maintained by the assessee.

Appeal Before ITAT:
The assessee appealed to the ITAT, arguing that as a non-resident, he had no business connection with India, and the funds remitted were from his overseas bank account. The Counsel for the assessee provided a Foreign Inward Remittance Certificate and a copy of the foreign bank account statement from Hang Seng Bank, Hong Kong, to substantiate the source of funds.

ITAT's Analysis and Decision:
The ITAT noted that the Department did not dispute the assessee's non-residential status or provide evidence of any income source in India. The assessee had satisfactorily explained the source of funds as remittances from his own bank account in Hong Kong to his NRE account in India. The ITAT cited several precedents, including CIT v. Suresh Nanda and DCIT v. Hemant Mansukhlal Pandya, where similar remittances by non-residents were not taxed in India. The ITAT concluded that the assessee had discharged the primary onus of explaining the source of funds and deleted the addition made by the AO.

Conclusion:
The ITAT allowed the appeal, ruling in favor of the assessee and deleting the addition of Rs. 2,17,48,596 under Section 69A. The order was pronounced in open court on 24/07/2024.

Summary:
The ITAT ruled that the addition of Rs. 2,17,48,596 under Section 69A was unjustified as the assessee, a non-resident, had satisfactorily explained the source of funds as remittances from his overseas bank account. The appeal was allowed, and the addition was deleted.

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