A Dubai-based woman successfully challenged a tax notice for unexplained income worth ₹3.41 crore after investing in FCNR term deposits with her husband. According to reports from The Times of India and Mint, the woman, originally from Beawar and now residing in Dubai, along with her husband Kishan Chand invested ₹3.41 crore in two Foreign Currency Non-Resident (FCNR) term deposits through their jointly held Non-Resident External (NRE) account. The husband held the deposits in Japanese yen, with the first deposit worth 1.726 crore JPY opened on October 14, 2017, followed by a second deposit of 1.658 crore JPY on February 21, 2018. The couple decided that the husband would be the first holder and she would be the second holder of the two FCNR deposits, with both receiving separate income tax notices for unexplained money under Section 69A despite owning the deposits together.
On September 22, 2026, the Income Tax Appellate Tribunal (ITAT) Jaipur provided relief to the woman, as reported by The Times of India and Mint. The tribunal, comprising Kuldip Singh, Judicial Member and Prakash, Accountant Member, found that the Income Tax Department had issued a notice under Section 133(6) to the concerned bank on November 9, 2022, seeking information about the transactions. The bank confirmed the transactions and provided details of the source of the funds, which were already available with the Income Tax Assessing Officer (AO). ITAT Jaipur identified a significant error where the AO mistakenly interpreted amounts recorded in Japanese yen as figures in Indian rupees, leading to the addition of ₹3.41 crore that did not correspond to any amount in rupees found in the woman's possession. The tribunal noted that the principal of the two deposits was approximately 3.38 crore yen, while the actual rupee amount invested was about ₹2 crore, and the addition of ₹3.41 crore did not correspond to any amount in Indian rupees found in the taxpayer's possession.
According to The Times of India and Mint, the tribunal examined bank statements and found that both FCNR deposits were funded through debits from a jointly held NRE savings account. The records showed that each deposit was funded through a debit of approximately ₹1 crore from the savings account, with each debit preceded by a ₹1 crore credit received through the banking channel. The transaction narrations carried the name of Kishan Chand, the first holder of the deposits, and the immediate source was identified from the bank's own record, pointing to the first holder. The tribunal noted that the assessing officer had sought information from IndusInd Bank under Section 133(6) of the Income-tax Act in November 2022, and the bank had confirmed the transactions and provided information about the source of the funds. The department did not dispute the authenticity of the bank statements or challenge the finding that Chand's explanation for the same deposits had been accepted in his own assessment.
As reported by The Times of India and Mint, ITAT Jaipur treated the woman as a non-resident based on her Dubai address and NRE and FCNR accounts reflected in bank statements. The CIT(A) had recorded her status as a non-resident, which was consistent with her Dubai address. However, the AO's assessment order classified her as a resident without recording any finding to support that conclusion. Under Section 5(2) of the Income-tax Act, income earned by a non-resident is taxable in India only if it is received or deemed to be received in India, or accrues or arises in the country. The department had not identified any income meeting these conditions in the woman's case. The tribunal found that no such income had been identified to justify the disputed addition, and the Income Tax Appellate Tribunal noted that the income tax authorities have not disputed the authenticity of the bank statements.
According to The Times of India and Mint, Rahul Jain, Partner at Khaitan & Co, explained that the Indian tax liability of a non-resident Indian (NRI) generally extends only to income earned in India or received in the country. However, interest earned by a non-resident on funds held in an NRE account with an Indian bank is specifically exempt from Indian income tax. The principal amount deposited in an NRE account is also generally not taxable in India. In this case, the tax authorities treated the entire amount held in the NRE account, covering both the principal and interest, as unexplained money and sought to tax it under Section 69A of the Income-tax Act, 1961. Section 69A seeks to levy tax on any money, bullion, jewellery, or other valuable article, in respect of which, the owner either does not furnish any explanation on its nature and source of acquisition or the explanation offered is not satisfactory to the tax authorities. During the assessment proceedings, it seems the notices were not received by Mrs Khanwani and hence, no explanation could be furnished by her on the nature and source of acquisition of the NRE deposits. However, in the course of appeal before the Commissioner of Income-tax (Appeals), Mrs Khanwani clarified that her husband was the first holder of NRE deposits under dispute and these deposits were funded out of another joint NRE account with the same bank, submitting corresponding bank statements. Interestingly, her husband was also questioned on the same NRE deposits by the same jurisdictional tax officer and his explanation was accepted by the tax department. The tribunal upheld the CIT(A)'s order, confirming the deletion of the tax addition relating to the alleged unexplained money, with the ruling specifically relating to Khanwani's case while her husband's separate proceedings remain undecided.
