ITAT Jaipur identified a significant error in the AO's assessment. (Image for representative purpose only)
Indians based globally and investing in India can in some cases face tax notices for unexplained income.In one such case, a woman invested money in FCNR term deposits along with her husband. Both of them received separate tax notices from the Income Tax Department for unexplained income worth crores.
What the case is about
A woman, who originally hails from Beawar, and now resides in Dubai, United Arab Emirates (UAE), decided to put money into investments in India. She along with her husband invested Rs 3.41 crore in two Foreign Currency Non-Resident (FCNR) term deposits.The husband’s name appeared as the first holder of both deposits, with the woman listed as the second holder. The funds were accordingly transferred from Dubai to his Non-Resident External (NRE) account in a bank in India.Also Read | Man skipped filing ITR and got tax notice so he declared Rs 12.9 lakh income; department imposed 200% penalty of Rs 3.99 lakh on taxable amount, but ITAT cancels itThe husband chose to hold the deposits in Japanese yen (JPY). The first deposit, worth 1.726 crore JPY, was opened on October 14, 2017, followed by a second deposit of 1.658 crore JPY on February 21, 2018, according to an ET report.Despite jointly holding the FCNR deposits, the husband and his wife received separate income tax notices alleging unexplained money under Section 69A of the Income-tax Act.This article focuses on the woman’s legal battle against the notice seeking to treat the deposits as unexplained money in her hands under Section 69A.
On September 22, 2026, the woman secured relief from the Income Tax Appellate Tribunal (ITAT) Jaipur.
Why did the woman win the case in ITAT?
ITAT Jaipur noted 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. In its response, the bank confirmed the transactions and provided details of the source of the funds.The tribunal observed that the relevant information was therefore already available with the Income Tax Assessing Officer (AO).
It also noted that the department had neither challenged the authenticity of the bank statements nor disputed the correctness of the assessment made in the woman’s husband's case.Also Read | Man worked in South Korea and received salary in US dollars in NRE account, income tax department sent notice; ITAT Bangalore sets aside assessment and orders fresh reviewITAT Jaipur identified a significant error in the AO's assessment. The officer had mistakenly interpreted the amounts recorded in Japanese yen (JPY) as figures in Indian rupees.Pointing out the discrepancy, the tribunal said the combined principal of the two deposits was JPY 3.384 crore, comprising JPY 1.726 crore and JPY 1.658 crore.
However, the equivalent amount invested in Indian currency was Rs 2 crore. The addition of Rs 3.41 crore made by the AO did not correspond to any amount in rupees found in the woman’s possession.The tribunal examined the bank statements and found that both FCNR deposits had been funded through debits from a jointly held NRE savings account. Before each debit, the account had received a credit of Rs 1 crore through the banking channel.
The transaction narration carried the name of the woman’s husband and the first holder of the deposits.The 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.”The tribunal explained that Section 69A applies when a person is found to own money but fails to provide an explanation, or offers an explanation that is not satisfactory, regarding its nature and source.Also Read | Man had Rs 2 crore bank deposit and didn’t file ITR, faced Rs 2.51 crore tax addition; ITAT Chennai quashes reassessment after Income Tax Department missed 6-year deadline by 5 daysIn this case, however, the woman was the second holder of the FCNR deposits, while her husband was the first holder. Since the source of the money in the deposits had been explained by her husband, the tribunal found that the same funds could not be treated as unexplained money in the hands of the woman merely because she was the second holder.ITAT Jaipur also considered the discrepancy in the records concerning the woman’s residential status.
The CIT(A) had recorded her status as a non-resident, which was consistent with her Dubai address and the NRE and FCNR accounts reflected in the bank statements.However, the AO's assessment order classified her as a resident without recording any finding to support that conclusion. The tribunal therefore treated the woman as a non-resident.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, or is deemed to accrue or arise, in the country.
ITAT Jaipur observed that the department had not identified any income meeting these conditions in the woman’s case.Rahul Jain, Partner at Khaitan & Co, explained to ET 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.Also Read | Sisters sought share in parents’ properties under Hindu Succession law; Madras HC rules for brother over mother’s land on ouster, father’s estate over missing partiesSection 69A deals with money, bullion, jewellery or other valuable articles owned by a taxpayer for which the person either fails to explain the nature and source of acquisition or provides an explanation that the tax authorities do not find satisfactory.During the appeal, the woman explained that her husband was the first holder of the disputed FCNR deposits and that the money had come from another jointly held NRE account with the same bank. She also submitted the relevant bank statements to support her explanation.Another significant factor was that the same jurisdictional tax officer had examined her husband's explanation concerning the very same deposits and accepted it.
Taking these circumstances into account, the CIT(A) ruled in the woman’s favour and deleted the additions made by the tax officer.The matter subsequently came before the ITAT Jaipur, which observed that the tax authorities had not challenged the authenticity of the bank statements submitted by the woman.ITAT Jaipur consequently upheld the CIT(A)'s order in her favour, confirming the deletion of the tax addition relating to the alleged unexplained money.