Addition under s.69A r.w.s.115BBE deleted as FD transfer from NRE remittance, not fresh unexplained income

ITAT Rajkot allowed the assessee's appeal and deleted the addition made under s.69A read with s.115BBE. The Tribunal found that no new fixed deposit was made and no remittance occurred during the relevant year; the amount represented a mere transfer of an existing fixed deposit between branches of the same bank. The original source of the fixed deposit was established as an NRE remittance from the UK in 2015. As it was a second receipt and traceable to NRE funds, it was held not taxable in the current year or at all.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether the time deposit of Rs. 25,00,000 credited on 09.06.2017 in a bank account could be treated as unexplained money under section 69A read with section 115BBE.

1.2 Whether any taxable event in respect of the said fixed deposit arose in the assessment year under consideration, having regard to its origin from earlier year foreign remittances and transfer between branches of the same bank.

1.3 Whether the consequential addition of interest income of Rs. 1,094 on such fixed deposit was sustainable.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 & 2: Addition of Rs. 25,00,000 as unexplained money u/s 69A r.w.s. 115BBE and year of taxability of the fixed deposit

Legal framework (as discussed)

2.1 The assessment and additions were made by treating the fixed deposit of Rs. 25,00,000 as unexplained money under section 69A, taxable at the rate prescribed in section 115BBE. The Court also proceeded on the basis of section 5 regarding scope of total income, in the context of receipt of funds from abroad by a non-resident through NRE account.

Interpretation and reasoning

2.2 The Assessing Officer treated a time deposit of Rs. 25,00,000 credited on 09.06.2017 in a bank account with South Indian Bank as unexplained, on the footing that the assessee had failed to explain the source, and the Dispute Resolution Panel upheld this view.

2.3 The assessee produced documentary evidence showing that in May 2015 a remittance of 25,000 GBP was made from a foreign bank (HSBC, London) to an account in South Indian Bank, India, at an exchange rate of Rs. 100.25, and that a fixed deposit of Rs. 25,00,000 was created in 2015 out of this remittance.

2.4 The evidence further showed that on 07.06.2017 the existing fixed deposit (bearing one FD number at the Pune branch) together with accrued interest of Rs. 29,41,713 was transferred to another branch of the same bank (Mumbai) and allotted a new FD number; the impugned credit represented this transfer and not any fresh deposit or remittance in the relevant year.

2.5 The Tribunal found that the Dispute Resolution Panel had confused the fixed deposit number with a bank account number and thereby erroneously concluded that the assessee had not explained the flagged account; on proper appreciation of the documents, the same funds could be traced from the 2015 foreign remittance into an NRE-linked deposit and its later inter-branch transfer.

2.6 The Court held that there was no fresh remittance or investment during the relevant previous year; the transaction in 2017 was only a transfer of an existing fixed deposit from one branch to another of the same bank, and hence did not constitute income or investment arising in that year.

2.7 The Court accepted the assessee's contention that the original source of the fixed deposit was an NRI remittance from the United Kingdom into an NRE account in 2015, making it a "second receipt" in India not chargeable to tax under section 5 in the year of remittance, and in any case not a receipt or investment of the year under consideration.

Conclusions

2.8 The fixed deposit of Rs. 25,00,000 was satisfactorily explained as arising from an identifiable foreign remittance received in 2015 and merely transferred between branches in 2017; it could not be treated as unexplained money under section 69A.

2.9 No taxable event occurred in the assessment year by reason of the inter-branch transfer of the existing fixed deposit; the amount was neither taxable in that year nor otherwise taxable on the facts found.

2.10 The addition of Rs. 25,00,000 under section 69A read with section 115BBE was unsustainable and was deleted.

Issue 3: Sustainability of addition of Rs. 1,094 as interest income

Interpretation and reasoning

2.11 The addition of Rs. 1,094 was made as interest arising from the fixed deposit which had been treated as unexplained; once the principal fixed deposit itself was accepted as explained and not taxable in the relevant year, the basis for the interest addition no longer survived.

Conclusions

2.12 The consequential addition of Rs. 1,094 as interest income on the impugned fixed deposit was also unsustainable and was deleted.

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