Tax implication on certain credits in Banks Accounts

[PRIYAM KHAMBHATA]

Respected Sir

I want to ask to ask that in my client case, who is NRI and not filed Return of Income of AY 2024-25, therefore, he wants to file Updated return of income of AY 2024-25, I have gone through his NRO Bank Account for the year under consideration. I came to know that certain bank credits towards Loan taken from Friends, which he never pays subsequently, and other few credits, which he does not knows from whom such receipts credits in Bank.

Therefore, I will have to consider as income in respect of Loan taken from Friends, which he never pays and other few credits which he does not knows from whom such receipts credits in Bank as income of the nature of section 56(2)(x) under the head Income from other Sources.

Is this correct disclosure under the Income from other Sources in Updated ITR file of AY 2024-25.

Please guide me

[YAGAY andSUN]

Treatment of Unexplained Bank Credits in NRO Account – Disclosure under section 56(2)(x) of the Income-tax Act, 1961 in Updated Return for AY 2024-25

In the case of the assessee, being a Non-Resident Indian (NRI) for the relevant previous year corresponding to Assessment Year (AY) 2024-25, it is observed upon examination of the NRO Bank Account that there are certain credits reflected therein which pertain to the following:

1. Loan amounts received from friends, which have neither been repaid during the year nor is there any corroborative evidence placed on record indicating the identity, creditworthiness of the lender(s) and genuineness of the transaction(s); and
2. Certain unexplained credits, in respect of which the assessee is unable to identify the source or provide an explanation as to the nature and purpose of such receipts.

In the absence of satisfactory explanation and supporting documentation regarding the nature and source of such credits, and considering that such transactions do not qualify as loans or gifts from "relatives" as defined under the proviso to section 56(2)(x), nor do they fall under any of the exclusions provided under the said clause or the corresponding Rule 11UA of the Income-tax Rules, 1962, such receipts are liable to be treated as income chargeable under the head "Income from Other Sources", being deemed income under section 56(2)(x).

It is further noted that the assessee had not filed the original return of income for AY 2024-25 within the time prescribed under section 139(1). In view thereof, the assessee now proposes to file an Updated Return under section 139(8A) read with section 140B, disclosing such receipts appropriately under the head "Income from Other Sources", offering the same to tax along with payment of additional tax as applicable.

Conclusion:

On the facts and in the circumstances stated above, and in the absence of acceptable explanation and documentation, the inclusion of the aforesaid unexplained bank credits under section 56(2)(x) as “Income from Other Sources” in the Updated Return for AY 2024-25 appears to be in accordance with the provisions of the Income-tax Act, 1961.

 

AI Summary

Unidentified Bank Credits in NRO Account Trigger Tax Liability Under Section 56(2)(x) for Income Disclosure An NRI with an NRO bank account containing unexplained credits from unidentified sources and unpaid loans seeks guidance on tax treatment. Based on section 56(2)(x) of the Income Tax Act, these unsubstantiated bank credits should be disclosed as income under 'Income from Other Sources' in an updated income tax return for Assessment Year 2024-25, as no satisfactory explanation or documentation exists to justify their origin.