Rahulkumar Narshibhai Patel Vs ITO (ITAT Ahmedabad)
The Income Tax Appellate Tribunal (ITAT), Ahmedabad, partly allowed an appeal filed by a Non-Resident Indian (NRI) against the order of the Commissioner of Income Tax (Appeals) for Assessment Year 2019-20. The dispute concerned additions made under Section 69A of the Income-tax Act on the basis of balances reported through the Statement of Financial Transactions (SFT) system in the assessee’s NRE bank accounts.
The assessee, an individual employed in Kuwait, did not file an original return of income for the relevant assessment year. Based on SFT/Insight information showing balances of ₹2.49 crore with HDFC Bank, ₹1.09 crore with ICICI Bank, and ₹3.77 lakh with ICICI Prudential Life Insurance Company, reassessment proceedings were initiated. The assessee subsequently filed a return declaring nil income. During reassessment, the Assessing Officer (AO) sought details of bank accounts, deposits, and reconciliation of the SFT figures. According to the AO, the assessee failed to provide complete documentary evidence or reconcile the reported balances. Consequently, the AO treated the entire SFT-reported amount of ₹3.63 crore as unexplained money under Section 69A and taxed it under Section 115BBE.
Before the Commissioner (Appeals), the assessee contended that the balances represented capital accumulated from foreign salary earned in Kuwait and remitted to India through NRE accounts. The assessee also argued that the AO had relied mechanically on SFT data without furnishing the underlying working or bifurcation of the reported figures. Additional evidence, including foreign bank statements, salary records, NRE account statements, and supporting documents, was admitted under Rule 46A, and the matter was remanded to the AO for verification.
During the remand proceedings, the AO found that the assessee’s salary was credited to his account with the National Bank of Kuwait and subsequently remitted to NRE accounts maintained with ICICI Bank and HDFC Bank. The remand report accepted that ₹1.04 crore in the ICICI Bank account was explained through foreign remittances and fixed deposit transactions. It also clarified that the amount reported for ICICI Prudential represented only the policy value and not income. However, the HDFC Bank figure could not be reconciled because the bank did not respond to notices and the detailed SFT data was unavailable. The Commissioner (Appeals) accordingly deleted additions relating to the insurance policy and the explained portion of the ICICI Bank account but sustained additions of ₹2.49 crore relating to HDFC Bank and ₹5.52 lakh relating to the balance in the ICICI Bank account.
The Tribunal observed that it was undisputed that the assessee was an NRI earning salary in Kuwait and that the NRE accounts were funded through overseas remittances. It noted that the remand report itself accepted that a substantial portion of the ICICI Bank deposits originated from foreign salary remitted through normal banking channels. Regarding the remaining ₹5.52 lakh in the ICICI Bank account, the Tribunal held that it represented only a residual reconciliation difference and that there was no independent material to show it constituted unexplained income. Accordingly, the addition of ₹5.52 lakh was deleted.
With respect to the HDFC Bank addition of ₹2.49 crore, the Tribunal found that it was based solely on a cumulative SFT figure without transaction-wise analysis or supporting material. It also noted that neither the bank nor the AO could reconcile or verify the reported figure, while the assessee had explained that the account was funded through foreign salary remittances but had not furnished a complete one-to-one reconciliation. Considering these circumstances, the Tribunal set aside the addition and restored the matter to the AO for fresh adjudication. The AO was directed to obtain complete transaction-wise details directly from HDFC Bank, examine the assessee’s explanation in light of evidence of foreign remittances, and refrain from making any addition if the funds were found to represent overseas earnings or their redeployment. The appeal was partly allowed for statistical purposes.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
This appeal has been filed by the Assessee against the order passed by the Ld. Commissioner of Income Tax (Appeals)-13, (in short “Ld. CIT(A)”), Ahmedabad vide order dated 10.12.2025 passed for A.Y. 201920.
2. The assessee has raised the following grounds of appeal:
“1.1 The order passed by U/s.250 passed on 10-12-2025 for AY 2019-20 by CIT(A)Ahmedabad-13 (for short CIT(A)” upholding the additions to the extent of Rs. 2,55,27,512/- made by A.O. is wholly illegal, unlawful and against the principles of natural justice.
2.1 The ld. CIT(A), has grievously erred in law and or on facts in not appreciating that as repeatedly pointed out by the appellant, when the break-up of the value reported by both HDFC Bank and ICICI Bank could not be supplied by both the AO as well as said two parties, it was great injustice to confirm the impugned additions to the extent of Rs. 2,55,27,512/-. Therefore, the appellant was not in position to fully reconcile the said figures.
2.2 That in the facts and circumstances of the case, it is apparent that both the lower authorities have passed order without calling necessary information/details from the respective source, which was the onus cast on the revenue to furnish the same. Thus, a non-speaking and cryptic order has been passed in a casual manner, in total disregard to the important fact that the appellant was an NRI and had made foreign remittances in his NRE account.
3.1 The ld. CIT(A) has grievously erred in law and or on facts in upholding the additions made by AO as under:
| S. No. | Ground of appeal | Amount Rs. |
| 1. | Balance/value reported in HDFC Bank Ltd. | 2,49,75,347 |
| 2. | Credits in ICICI Bank NRE A/c. | 5,52,165 |
3.2 That the in the facts and circumstances of the ld. CIT(A). ought not to have upheld the above said additions amounting to Rs. 2,55,27,512/-.
3.3 The observations made and conclusion reached by CIT(A) to confirm the above said additions are not admitted and the same are contrary to the evidence on record.”
3. The brief facts of the case are that the assessee is an individual NRI, stated to be employed in Kuwait, whose case was reopened under section 147 of the Income-tax Act, 1961 (“the Act”) on the basis of information received through the SFT/Insight system indicating substantial financial balances in India. The information, as available with the Department, reflected balances/values as on 31.12.2018 in three financial instruments, namely ₹2,49,75,347/- with HDFC Bank, ₹1,09,63,510/- with ICICI Bank and ₹3,77,711/- with ICICI Prudential Life Insurance Company. Since the assessee had not filed the original return of income for the relevant assessment year despite such significant financial activity, proceedings were initiated under section 148A followed by issuance of notice under section 148 of the Act.
4. In response, the assessee filed a return of income declaring nil income. During the course of reassessment proceedings, the assessee was asked to furnish complete details viz. bank account statements (both NRE and NRO), details of time deposits, explanation of SFT-reported figures and reconciliation thereof. However, the assessee did not effectively comply with these notices and furnished only limited information, primarily the NRE account statement, without furnishing complete documentary evidence explaining the nature and source of the reported balances. There was no reconciliation of SFT data nor was any explanation furnished regarding how the cumulative figures reported by banks were derived. In the absence of satisfactory explanation and considering the non-compliance, the Assessing Officer proceeded to complete the assessment under section 147 read with sections 143(3) and 144C on the basis of material available on record.
5. The Assessing Officer treated the entire balances reported under SFT, amounting to ₹3,63,16,568/-, as unexplained money under section 69A of the Act. The reasoning adopted by the AO was that the assessee had failed to discharge the primary onus cast upon him to explain the nature and source of these amounts. Since no documentary evidence was furnished to establish that the amounts denoted described sources such as foreign remittances or accumulated savings, the AO invoked section 69A of the Act and taxed the same under section 115BBE of the Act at the applicable rate. Thus, the assessed income was thus determined at ₹3,63,16,568/-.
6. Aggrieved by the assessment order, the assessee preferred an appeal before the CIT(Appeals) challenging the additions primarily on the ground that the AO had erroneously treated cumulative balances as income of the year without appreciating that these were capital receipts accumulated over time and sourced from foreign salary income earned abroad. The assessee contended that being an NRI, all credits in the NRE accounts represented foreign remittances which are not taxable in India. The assessee also contended that the AO had not provided any working or bifurcation of the figures and had mechanically adopted SFT data without proper verification.
7. During the appellate proceedings, the assessee filed an application under Rule 46A seeking admission of additional evidence. The additional evidence included foreign bank account statements (National Bank of Kuwait), salary details from employer (Mina Al-Ahmadi, KNPC), Indian NRE bank statements and other supporting documents to establish the trail of funds from foreign earnings to Indian accounts. The CIT(Appeals), considering that the assessee was prevented by sufficient cause from producing these evidences during assessment proceedings and that these were crucial for adjudication of the issue, admitted the additional evidence in the interest of natural justice and called for a remand report from the AO under section 250(4) of the Act.
8. In the remand proceedings, the AO examined the additional evidence and also issued notices under section 133(6) of the Act to ICICI Bank, HDFC Bank and ICICI Prudential Life Insurance Company to verify the SFT-reported figures. The remand report brought out significant factual aspects. It was observed that the assessee had been earning salary in Kuwait, which was credited in his account with National Bank of Kuwait and subsequently remitted to India through proper banking channels into his NRE accounts with ICICI Bank and HDFC Bank. To that extent, the source of certain deposits, particularly fixed deposits with ICICI Bank, stood explained.
9. However, the remand report also highlighted certain gaps. Firstly, the figures reported under SFT could not be reconciled with the actual bank statements. In the case of ICICI Bank, although statements and FD details were furnished and an amount of ₹1,04,11,345/- was verified as explained through foreign remittances and FD rollovers, the remaining balance could not be correlated. In the case of ICICI Prudential, it was clarified that the amount of ₹3,77,711/- represented only the policy value as on a particular date and not any income event. In the case of HDFC Bank, despite issuance of notices, no response was received from the bank, and the assessee also failed to provide a clear reconciliation or break-up of the SFT-reported figure of ₹2,49,75,347/-. The remand report also recorded that the Insight portal no longer contained detailed underlying data for these figures, further complicating verification.
10. The assessee, in rejoinder, contended that the AO himself was unable to reconcile the figures and therefore it was unjust to expect the assessee to do so. It was reiterated that all credits in NRE accounts were sourced from foreign earnings and that no Indian income was involved. It was further argued that cumulative balances cannot be taxed as income under section 69A of the Act.
11. The CIT(Appeals), after detailed consideration of the assessment order, additional evidence, remand report and rejoinder, adjudicated the issues before him. In respect of the ICICI Prudential amount of ₹3,77,711/-, the CIT(Appeals) held that this denoted merely the valuation of an insurance policy and not income accrued or received during the year, and therefore the addition was deleted.
12. In respect of the ICICI Bank amount of ₹1,09,63,510/-, the CIT(A) accepted the remand findings to the extent that ₹1,04,11,345/- stood explained as foreign remittances and FD transactions, and accordingly deleted the addition to that extent. However, the balance of ₹5,52,165/- remained unexplained and was confirmed as addition under section 69A of the Act.
13. In respect of the HDFC Bank amount of ₹2,49,75,347/-, the CIT(A) upheld the addition in full. The CIT(Appeals) observed that despite multiple opportunities, neither the assessee nor the bank could provide any reconciliation or documentary evidence explaining the exact nature and source of the SFT-reported amount. The general explanation of foreign remittances was held to be insufficient in absence of specific correlation. Relying on settled legal principles laid down by the Hon’ble Supreme Court in Kale Khan Mohammad Hanif v. CIT and A. Govindarajulu Mudaliar v. CIT, the CIT(A) held that the burden of proof lies on the assessee to satisfactorily explain the source of sums found credited, failing which such sums are liable to be taxed as income.
14. Accordingly, the CIT(A) partly allowed the appeal by deleting additions aggregating to ₹1,07,89,056/- (ICICI Prudential and part of ICICI Bank) and sustaining additions of ₹2,55,27,512/- (HDFC Bank and balance ICICI Bank). The tax liability was directed to be recomputed accordingly, while interest was treated as consequential and penalty ground was dismissed as premature.
15. The assessee is in appeal before us against the order passed by CIT(Appeals) dismissing the appeal of the assessee.
16. We have heard the rival contentions and perused the material on record. The core issue for adjudication in the present appeal is the sustainability of addition of ₹2,49,75,347/- in respect of the HDFC Bank NRE account and ₹5,52,165/- relating to ICICI Bank, sustained by the CIT(Appeals) under section 69A of the Act.
17. At the outset, it is an admitted and undisputed position that the assessee is a Non-Resident Indian working in Kuwait and earning salary income abroad. The existence of NRE accounts with ICICI Bank and HDFC Bank is also not in dispute. The assessee has consistently explained that the credits in these accounts represent foreign remittances of salary income earned overseas and transferred through normal banking channels. This position is substantially corroborated by the remand report, wherein the Assessing Officer has accepted that the major portion of funds in the ICICI Bank account, amounting to ₹1,04,11,345/-, stands duly explained as arising from foreign salary remittances routed through National Bank of Kuwait and further deployed in fixed deposits.
18. In so far as the addition of ₹5,52,165/- relating to ICICI Bank is concerned, we find that the same represents only a minor residual difference arising on account of inability to reconcile the cumulative SFT figure with bank records. There is no independent material brought on record by the Revenue to show that this amount represents any unexplained income or undisclosed source. When the substantial portion of the very same account has been accepted as explained and the nature of the account itself is an NRE account fed by foreign remittances, there is no justification to isolate a small residual figure and treat it as unexplained merely on account of reconciliation differences.
19. In this context, the legal position laid down by the Hon’ble Gujarat High Court in Anilkumar Ramabhai Patel v. ITO [2025] 178 com 634 (Guj.) squarely applies, wherein it has been held that once the source of funds in NRE account is established as foreign earnings, no addition is warranted. Similar view has been taken in Nitin Mavji Vekariya v. ITO [461 ITR 18 (Guj.), holding that funds received from non-resident external accounts are outside the ambit of taxation and cannot be treated as unexplained. Applying the ratio of these binding precedents, we are of the considered view that the addition of ₹5,52,165/- cannot be sustained and deserves to be deleted.
20. Coming to the addition of ₹2,49,75,347/- relating to HDFC Bank, we find that the addition has been made solely on the basis of a cumulative SFT-reported figure as on 31.12.2018 without any transaction-wise analysis or supporting material. The remand report clearly records that despite issuance of notices under section 133(6), HDFC Bank did not furnish any details and even the AO was unable to reconcile or verify the basis of such figure. Thus, the very foundation of the addition remains unverified.
21. At the same time, it is also a matter of record that the assessee has not been able to furnish a complete one-to-one reconciliation of the exact SFT figure with documentary evidence, though he has demonstrated that funds in NRE accounts originate from foreign salary income. In such a situation, where the Revenue has failed to substantiate the basis of addition and the assessee has explained the broad source but precise reconciliation is lacking, the issue cannot be conclusively decided one way or the other without proper verification.
22. Accordingly, in the interest of justice, we deem it appropriate to set aside the addition of ₹2,49,75,347/- to the file of the Assessing Officer for fresh adjudication. The AO is directed to obtain complete details directly from HDFC Bank, including transaction-wise statements and basis of SFT reporting, and thereafter examine the explanation of the assessee in light of evidences of foreign remittances. If it is found that the funds represent remittances from overseas income or redeployment thereof, no addition shall be made in view of the binding judicial precedents referred above. The assessee shall also extend full cooperation and furnish necessary details.
23. In view of the above, the addition of Z5,52,165/- relating to ICICI Bank is deleted, whereas the issue relating to addition of Z2,49,75,347/-pertaining to HDFC Bank is restored to the file of the Assessing Officer for fresh consideration.
24. In the result, the appeal of the assessee is partly allowed for statistical purposes.
This Order pronounced in Open Court on 24/04/2026
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