The Commissioner of Income Tax (Appeals), Delhi, has deleted an addition of ₹1.33 crore made against a non-resident taxpayer under Section 69 of the Income Tax Act, 1961, holding that foreign salary remitted through normal banking channels to an NRE account cannot be treated as an unexplained investment merely on the basis of aggregate information appearing on the Income Tax Department’s Insight portal.
CIT(A) Baljeet Kaur observed that Statement of Financial Transactions (SFT) information constitutes only a starting point for verification and cannot be regarded as conclusive evidence of an unexplained investment when it is not reconciled with the underlying banking records.
The appeal concerned Assessment Year 2017-18 and arose from a reassessment order dated April 30, 2025, passed by the Assistant Commissioner of Income Tax, Circle (International Taxation) 1(1)(1), Delhi, under Section 147 read with Section 144C(3) of the Act.
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The Assessing Officer had assessed the taxpayer’s income at ₹1,33,66,605 and raised a tax, interest and penalty demand of ₹2,87,05,449.
The reassessment proceedings were founded on information concerning time deposits allegedly made by the taxpayer during the relevant financial year.
The Assessing Officer treated the entire amount of ₹1,33,66,605 as an unexplained investment under Section 69 and subjected it to tax under Section 115BBE.
However, the CIT(A) noted that the assessment order did not provide any specific information about the disputed time deposits. It neither identified the bank concerned nor furnished a date-wise or amount-wise breakup of the deposits.
The order passed under Section 148A(d) on March 23, 2024, stated that the deposits related to Corporation Bank and that the corresponding information was available on the Department’s Insight portal.
During the appellate proceedings, the CIT(A) independently examined the Insight portal information, the taxpayer’s bank statements, bank confirmations and other supporting documents.
The taxpayer contended that he was a non-resident during the relevant year and was employed in Nigeria.
According to the documents furnished in the appeal, he was present in India for only 48 days during Financial Year 2016-17 and stayed in Nigeria for 317 days. His aggregate stay in India during the four preceding financial years was stated to be only 180 days.
The taxpayer relied upon his passport and visa records, proof of residence in Nigeria, an employment offer letter issued by his Nigerian employer and a Nigerian taxpayer identification document.
He argued that the money used to create the fixed deposits represented salary earned from employment outside India. The foreign earnings were remitted to his NRE bank account through recognised banking channels and subsequently used to create fixed deposits.
The taxpayer produced additional documents during the appellate proceedings, including bank statements, bank confirmations and material relating to his foreign employment and residential status.
The CIT(A) admitted the documents under clauses (b) and (c) of Rule 46A(1) of the Income Tax Rules, 1962, after finding that the taxpayer had been prevented by sufficient cause from producing the necessary evidence before the Assessing Officer.
The additional evidence was forwarded to the Assessing Officer, who was given an opportunity to examine it and submit a remand report. The Assessing Officer furnished the remand report on July 13, 2026, while the taxpayer filed a rejoinder on August 10, 2026.
The appellate authority consequently held that the procedural requirement of granting the Assessing Officer an opportunity to examine the additional evidence had been satisfied.
On examining the banking documents, the CIT(A) found that the actual fixed deposits made during the relevant financial year amounted to ₹78.50 lakh—not ₹1,33,66,605 as reflected in the aggregate SFT information.
The bank had specifically identified and confirmed fixed deposits totalling ₹78.50 lakh. The Department, on the other hand, failed to produce any material establishing that the taxpayer had made investments exceeding that amount.
The CIT(A) noted that the taxpayer had established the NRE status of the bank account, his foreign employment, the source of the credits appearing in that account and the subsequent utilisation of those funds for creating fixed deposits.
The explanation was, therefore, supported by an “interlinked body of documentary evidence” and was not merely an unsupported assertion.
The appellate authority found that neither during the assessment proceedings nor at the remand stage had the Assessing Officer produced any evidence indicating that the credits in the NRE account represented undisclosed income generated in India.
There was also no evidence to show that the explanation concerning foreign salary was false or that the credits had originated from a source other than the taxpayer’s foreign employment and overseas remittances.
The CIT(A) stated that after the taxpayer produced bank statements, confirmations and employment documents establishing the foreign source of the funds, the burden shifted to the Department to bring positive evidence contradicting that explanation.
The remand report did not identify any particular credit in the NRE account that remained unexplained. It also failed to identify any fixed deposit whose source was different from the money available in the NRE account.
The CIT(A) further held that the subsequent remittance of income earned outside India to an NRE account does not alter the character or situs of the original income.
The taxpayer’s non-resident status was undisputed. In fact, the Assessing Officer had followed the procedure prescribed under Section 144C for non-residents while passing the assessment order.
The funds represented income arising from employment performed outside India. Consequently, their later remittance to India through normal banking channels did not make the underlying foreign income taxable under Section 5(2) merely because it was credited to an Indian bank account.
The appellate authority relied on CBDT Circular No. 13/2017 dated April 11, 2017. The circular clarifies that salary earned by a non-resident for services rendered outside India does not become taxable merely because it is credited to an NRE account maintained with an Indian bank.
Although the circular was issued in the context of non-resident seafarers, the CIT(A) held that the principle underlying the clarification was applicable to the present case.
The CIT(A) rejected the Assessing Officer’s exclusive reliance on the Insight portal and SFT information.
It observed that such information may trigger an inquiry, but it cannot override primary banking evidence produced and examined during appellate proceedings.
The aggregate figure appearing in the SFT information had not been reconciled with the underlying bank records. In contrast, the bank had specifically confirmed that the actual fixed deposits created during the year amounted to ₹78.50 lakh.
The appellate authority held that the factual basis of the ₹1.33 crore addition had consequently not been established.
The CIT(A) explained that Section 69 is a deeming provision that can be invoked only where an investment is found to exist and the taxpayer either fails to explain its nature and source or provides an explanation that is considered unsatisfactory.
In the present case, the taxpayer gave a specific explanation supported by contemporaneous documentary evidence. The bank records traced the movement of foreign salary remittances into the NRE account and the subsequent use of those funds for making fixed deposits.
Since the Department failed to produce any evidence rebutting that explanation, the statutory conditions necessary for treating the deposits as unexplained investments were not fulfilled.
Accordingly, the CIT(A) held that the fixed deposits could not be characterised as unexplained investments and deleted the entire addition of ₹1,33,66,605 made under Section 69 read with Section 115BBE.
Having granted relief on merits, the CIT(A) did not separately decide the taxpayer’s objections concerning the jurisdiction of the reassessment proceedings, the alleged absence of a valid transfer order under Section 127, violation of natural justice and other procedural issues. Those grounds were treated as academic and infructuous.
The grounds concerning consequential interest and penalty were also disposed of in view of the deletion of the substantive addition.
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