On June 27, 2025, the Income Tax Appellate Tribunal (ITAT) Mumbai ruled in favor of an Indian engineer working in Dubai since 1997, canceling a tax demand of Rs 69 lakh that was earlier added to his income as “unexplained investments” under Section 69 of the Income Tax Act, 1961.
Background of the Case
- Financial Year 2014-15: The engineer purchased a property in Kerala worth Rs 39 lakh and had fixed deposits (FDs) worth Rs 30 lakh in India.
- April 2022: The Income Tax Department reopened his case under Section 148, claiming both investments were unexplained.
- March 2024: A best judgment assessment under Section 144 was passed, treating Rs 69 lakh as unaccounted income and initiating penalty proceedings.
- The engineer challenged this at the Dispute Resolution Panel (DRP), which accepted the explanation for the FDs but not for the property purchase.
Appeal to ITAT Mumbai
Unsatisfied with the DRP’s partial acceptance, the engineer filed an appeal with the ITAT Mumbai, arguing that:
- He was a Non-Resident Indian (NRI) when the investments were made.
- The funds came from his foreign salary earned in Dubai.
- The FDs were reinvestments of matured deposits, originally funded from past remittances.
- The property purchase was funded entirely from overseas remittances and had already been explained with documents.
Key Grounds of Appeal Accepted by ITAT
The taxpayer’s lawyers raised four grounds, with the first two technical grounds being accepted:
- Jurisdictional Error: The Assessing Officer (AO) who issued the notice was from a domestic circle in Mumbai, not from the International Taxation Wing, which has jurisdiction over NRIs.
- Violation of Legal Procedure: The notice under Section 148 and the subsequent assessment were issued without jurisdiction, violating the E-Assessment of Income Escaping Assessment Scheme, 2022 under Section 151A.
Section 292BB Not Applicable
The tax department tried to invoke Section 292BB, which validates procedural errors if the taxpayer participates in proceedings without objection. However, ITAT held that this does not apply when jurisdiction itself is flawed, especially since the AO was aware the engineer was an NRI.
ITAT Verdict
- The tribunal quashed the entire Rs 69 lakh addition.
- Ruled that notices and assessment proceedings were invalid due to jurisdictional issues.
- As grounds 1 and 2 were upheld, grounds 3 and 4 (related to timing of property purchase and assessment deadline) were not considered necessary.
Conclusion
The ITAT Mumbai’s decision emphasizes the importance of jurisdiction and procedural compliance, especially in cases involving Non-Resident Indians (NRIs). It also highlights how technical lapses by the tax authorities can lead to the cancellation of substantial tax demands.
Source #ET
