Evidence required on NRI investments, a big lesson learned from the ITAT decision
The Income Tax Department had added tax on an NRI who purchased property in India, considering it an unexplained investment of ₹56.15 lakh. However, ITAT Ahmedabad, after finding the bank transaction records correct, cancelled the addition and granted relief.
If non-resident Indians (NRIs) purchase property in India and fail to provide accurate information about the source of the funds, the tax department can initiate an investigation. In one such case, the Income Tax Department considered an unexplained investment of ₹56.15 lakh from an NRI's property purchase.
According to the tax advisory platform TaxBuddy, the matter later reached the Income Tax Appellate Tribunal (ITAT) in Ahmedabad, where the taxpayer received relief after examining the entire fund trail.
Why questions arose about the tax department
This case involves an NRI named Vashdev Daryanomal Kalwani. He purchased a property in India. During the investigation, the Income Tax Department found that he had invested approximately ₹5,615,441,
but according to the department, the source of this money was not properly disclosed. Therefore, this amount was considered an unexplained investment and added to his income.
What clarification did the taxpayers give?
Kalwani stated that he has been living in the UAE since 1993 and is an NRI. His income in India primarily comes from interest earned on NRI bank accounts.
He said that the money to purchase the property came from his earnings in Dubai. This money was first transferred from his Dubai bank account to an Indian bank account, and then the property was paid for from that account.
What ITAT found
When the case reached the ITAT, Ahmedabad, the tribunal conducted a thorough investigation of the bank transactions.
The investigation found that the money was transferred from a Dubai bank account to an Indian bank account, and the property was paid for from that account. Since there was a complete record of the money's movement, the tribunal ruled that this investment could not be considered unexplained.
Final decision of ITAT
The ITAT held that the Assessing Officer's addition of ₹56,15,441 to income was without merit. Therefore, the Tribunal quashed the addition and allowed the taxpayer's appeal.
Lessons for taxpayers
This case highlights the importance of keeping all documents, especially when investing with NRIs, such as foreign and Indian bank statements, proof of remittance (SWIFT or TT advice), and clear records of family members who have contributed money.