Mrs Khanwani, originally from Bazari Gali, Odan Chowk, Beawar, and now living in Dubai, United Arab Emirates (UAE), decided to invest in India. She consulted her husband and invested Rs 3.41 crore in two FCNR term deposits. Her Husband, Mr Chand, decided that he should be the first holder and she should be the second holder of the two FCNR deposits and accordingly wired the money from Dubai to his IndusInd Bank NRE account.
Mr Chand picked Japanese Yen (JPY) denominated FCNR deposits. The first deposit of 1.726 crore JPY was made on October 14, 2017. The second FCNR deposit of 1.658 crore JPY was made on February 21, 2018.
Both Chand and Mrs Khanwani each got separate income tax notices for unexplained money under Section 69A. Now they are each fighting their own legal case about these unexplained money tax notices, even though they both own the FCNR deposits together.
This article talks about how Mrs Khanwani won her case. Her case concerned a Rs 3.41 crore unexplained money tax notice sent specifically to her under Section 69A. Her husband is fighting a different case for his own tax notice for unexplained money.
On September 22, 2026, Mrs Khanwani won the case in the Income Tax Appellate Tribunal (ITAT) Jaipur. Kuldip Singh, Judicial Member and Prakash, Accountant Member of ITAT Jaipur heard this case.
Why did Mrs Khanwani win the case in ITAT Jaipur?
Rahul Jain, Partner at Khaitan & Co, said to ET Wealth Online: A non-resident individual (NRI) is liable to pay income tax in India only on the income earned from India or income received in India. However, as an exception, any interest earned by a non-resident individual on moneys standing to the credit of such person in a Non-Resident (External) Account in any bank in India (NRE Account), is specifically exempted from taxes in India. The principal component of the deposit in NRE Account is generally not subject to tax in India.
In the case of Mrs. Khanwani, the income tax authorities treated the entire amount in the NRE Account (including the principal and interest) as unexplained money and levied tax under the provisions of Section 69A of the Income-tax Act, 1961. For context, 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 course of assessment proceedings, it seems the notices were not received by Mrs Khanwani and hence, no explanation could be furnished by Mrs Khanwani on the nature and source of acquisition of the NRE deposits. However, in the course of appeal before the Commissioner of Income-tax (Appeals) (“CIT(A)”), 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. Mrs Khanwani submitted the 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. Noting these facts, the CIT(A) ruled the appeal in favour of Mrs Khanwani and deleted the additions made by the tax officer.
The Income Tax Appellate Tribunal (ITAT) Jaipur noted that the income tax authorities have not disputed the authenticity of the bank statements. Jain says that the explanation on nature and source of acquisition of the same FCNR deposits has been found satisfactory and accepted by the tax authorities. Accordingly, there is no reason for the tax authorities to challenge the nature and source of acquisition in the case of Mrs Khanwani and hence, the order passed by the CIT(A) ruling in favour of Mrs Khanwani has been affirmed by ITAT Jaipur.
ITAT Jaipur discussion and findings
IndusInd Bank confirmed to tax department about the source of the funds
ITAT Jaipur observed that when the Income Tax Department sent a Section 133 (6) tax notice on November 9, 2022 to IndusInd Bank, the bank confirmed the transactions and the source of the funds.
Thus, the ITAT Jaipur held that the primary information was already with the Income Tax Assessing Officer (AO). The Income Tax Department has not disputed the authenticity of any bank statement or the correctness of Khanwani’s husband’s assessment.
AO treated Japanese Yen figures as Indian Rupees
There was a blunder by the AO as noticed by the ITAT Jaipur. The AO had incorrectly thought the figures in Japanese Yen (JPY) as Indian rupees.
Thus the ITAT Jaipur said that the AO has read the Yen figures as Rupees. The principal of the two deposits is JPY 3.384 crore (total, 1.726+1.658) and the rupee equivalent amount invested is Rs 2 crore. The addition of Rs 3.41 crore does not correspond to any sum of money in rupees found with Khanwani.
The bank statement proves funds for FCNR deposit originated outside India
ITAT Jaipur observed that each deposit was made by a debit to the joint NRE savings account, and each such debit was preceded by a credit of Rs 1 crore received through the banking channel with a narration bearing the name of Mr Chand, the first holder and Mrs Khanwani’s husband.
ITAT Jaipur said: “The immediate source is thus identified from the bank’s own record and points to the first holder. The Income Tax Department has not alleged, much less shown, that these funds arose from any source in India.”
Since husband could explain the source of funds, the same funds could not said as unexplained in wife’s case
ITAT Jaipur explained that Section 69A applies when a person is found to be the owner of money and offers no explanation, or no satisfactory explanation, about its nature and source.
However, in this case, Mrs Khanwani is the second holder of the FCNR deposits and her husband is the first owner. So when the husband could explain the source of funds for these FCNR deposits, then the same deposits cannot be treated as unexplained money of the second holder which is Mrs Khanwani.
Mrs Khanwani is non-resident and her Dubai address is verified
ITAT Jaipur said they observed that the CIT (A) has recorded the residential status of Mrs Khanwani as non-resident, which is consistent with the Dubai address and the NRE and FCNR nature of the accounts appearing in the bank statements. However, the Income Tax Department’s assessment order shows her status as a resident. ITAT Jaipur said that this is without any finding and they will deem her non-resident.
In the case of a non-resident, Section 5(2) of the Income Tax Act brings to tax only income which is received or deemed to be received in India, or which accrues or arises or is deemed to accrue or arise in India. ITAT Jaipur observed that no such income has been identified.
Thus Mrs Khanwani won the case based on the above discussion.