Matter Remanded to Assessing Officer for De Novo Adjudication

Matter Remanded to Assessing Officer for De Novo Adjudication Due to Lack of Opportunity to Explain NRI Investments

Issue

Whether an ex-parte assessment order treating time deposits, foreign currency purchases, and bank interest as unexplained investments and cash credits should be set aside and remanded to the Assessing Officer for fresh adjudication if the NRI assessee failed to explain the financial sources during the initial proceedings but was deprived of a comprehensive hearing on merits.

Facts

Non-Filing by NRI: The assessee is a Non-Resident Indian (NRI) residing in the USA who did not file an income tax return for the Assessment Year 2017-18.
Data Flagging: Based on system insights from the Income Tax Business Application (ITBA) and Insight portal, the Assessing Officer (AO) flagged time deposits worth approximately ₹30 lakhs and foreign currency purchases of about ₹38.34 lakhs made during the financial year.
Ex-Parte Assessment: The AO reopened the assessment and, due to non-compliance, finalized the order ex-parte under Section 144. The time deposits and currency purchases were taxed as unexplained investments under Section 69, while the bank interest was added as an unexplained cash credit under Section 68.
DRP Stage: The assessee challenged the action before the Dispute Resolution Panel (DRP) but raised only technical/jurisdictional grounds instead of explaining the financial merits. The DRP subsequently rejected the objections.
Appellate Request: The assessee sought a fair opportunity to present the actual sources of funds, admitting that the merits of the cross-border investments had not been systematically explained before the lower authorities.

Decision

Held, matter remanded to the AO: The impugned ex-parte assessment order was set aside, and the entire matter was restored to the file of the Assessing Officer for a de novo (fresh) adjudication.
Reasonable Opportunity Mandate: Since the transaction involves an NRI and foreign funds, the true source of the investments could not be conclusively determined without looking at substantive financial evidence.
Conditional Restructuring: The revenue authorities must provide a reasonable, clear, and realistic opportunity of being heard to the assessee to produce relevant foreign bank trails, income proofs, or remittance certificates before passing a final order.

Key Takeaways

Preference for Merits Over Technical Defaults: Even in cases of non-cooperation or purely technical appeals, the judiciary prefers that tax assessments be decided on true financial merits rather than through mechanical ex-parte additions.

Onus on NRIs to Track Portals: NRIs holding assets or bank accounts in India must actively monitor their ITBA/Insight communication channels, as flagged high-value transactions automatically trigger automated re-assessments.

De Novo Scope: A de novo remand gives both sides a clean slate; the taxpayer can introduce fresh documentary evidence (like foreign source validation), and the AO is free to fully re-verify the legitimacy of the investments.

IN THE ITAT MUMBAI BENCH ‘I’

Sonepal Singh Kohli

Income-tax Officer (Int-Tax)^*

SAKTIJIT DEY, Vice President
and Prabhash Shankar, Accountant Member

IT Appeal No. 8825 (Mum) OF 2025
[Assessment year 2017-18]

JUNE 8, 2026

Vijay Shah for the Appellant. Krishna Kumar, Sr. DR for the Respondent.

ORDER

Saktijit Dey, Vice President.- This is an appeal by the assessee challenging the final assessment order passed under section 144 read with section 144C(13) of the Income Tax Act, 1961 (in short ‘the Act’) for the Assessment Year 2017-18, in pursuance to the directions of learned Dispute Resolution Panel (‘DRP’).

2. The grounds raised by the assessee are as under:

“1.

On the facts and circumstances of the case the Ld. DRP and Ld. AO has not given proper opportunity of being heard to the appellant.

On the facts and circumstances of the case the Ld. DRP has erred in law and fact in confirming the assessment proceedings even though the assessment order is showing the status as a resident even though the assessee is a non-resident.

On the facts and circumstances of the case the Ld. DRP has erred in law and fact in also not deleting the closing balance of Rs. 13,35,899.88 as on 31.03.2016 in HDFC Bank NRO account so it cannot be treated as the income for the assessment year 201718.

On the facts and circumstances of the case the Ld. DRP has erred in law and fact in also not deleting the closing balance of Rs.21,687.15 as on 31.03.2016 in HDFC Bank NRE account so it cannot be treated as the income for the assessment year 201718.

On the facts and circumstances of the case the Ld. DRP has erred in law and fact in confirming the addition of Rs.68,33,956/- as Unexplained investment u/s 69 even though the bank statement itself is self-explanatory.

On the facts and circumstances of the case the Ld. DRP has erred in law and fact that the appellant bank statement is showing the amount is credited from premature NRE STD (Non-Resident External (NRE) Special Term Deposit) account, which is a type of fixed deposit account offered by banks in India to NonResident Indians (NRIs).

On the facts and circumstances of the case the Ld. DRP has erred in law and fact in confirming addition of Rs.2,86,782/- as TDS Statement Payment made to non-residents (Section 195) as against appellant is a recipient of the TDS on the fixed deposit interest kept as a special term deposit.

The Appellant craves leave to add, alter or amend the grounds of appeal at or before the hearing of the appeal.”

3. Briefly, the facts are, the assessee is a non-resident Indian (‘NRI’) and stated to be residing in the USA since 2012. For the assessment year under dispute, assessee did not file any return of income voluntarily under Section 139(1) of the Act. From the information available in the ITBA/Insight Portal of the Department, the Assessing Officer found that during the year under consideration, the assessee had following transactions: (i) Payment made to non-residents of Rs. 2,86,782/-. (ii) Payment deposits should be Rs.30,00,000/. (iii) Purchase of foreign currency Rs. 38,33,956/-. Since the assessee had not filed any return of income, the Assessing Officer, having reason to believe that income is chargeable to tax have escaped assessment, reopened the assessment under Section 147 of the Act. As observed by the Assessing Officer, though show cause notice under Section 148A(b) of the Act was issued to the assessee, however, the assessee did not file any objection. Therefore, the Assessing Officer proceeded to pass an order under Section 148A(d) of the Act and issued a notice under Section 148 of the Act. Even, in response to the notice issued under Section 148 of the Act, the assessee did not file any return of income. The notices issued subsequently in course of assessment proceedings were also not responded to by the assessee. Thus, in absence of any response from the assessee, the Assessing Officer proceeded to complete the assessment ex-parte to the best of his judgment by invoking the provisions of Section 144 of the Act. While doing so, in absence of any information received from the assessee regarding the source of investment in time deposits and purchase of foreign currency an amount of Rs.38,33,956/- was treated as unexplained investment under Section 69 of the Act. Further, the interest credited to the bank account was treated as unexplained cash credit. Thus, the Assessing Officer made total addition of Rs.71,20,738/-, while framing the draft assessment order. Against the draft assessment order, the assessee raised objections before learned DRP. While considering the objections raised by the assessee, learned DRP found that the assessee has not challenged the variations made in the draft assessment order on merits. Rather, the assessee had raised certain technical grounds. Stating that the role of the DRP is limited only to look into assessee’s objections against the variations proposed in the draft assessment order and not to any other issue, learned DRP rejected the objections of the assessee. Accordingly, the final assessment order was passed.

4. Before us, learned counsel appearing for the assessee submitted that since the Assessing Officer has treated the status of the assessee as a resident, he could not have proceeded to pass draft assessment order under the provisions of Section 144C(1) of the Act. Without prejudice, he submitted that neither the Assessing Officer nor learned DRP have afforded reasonable opportunity of being heard to the assessee. He submitted, even the DRP has not examined the merits of the additions made by the Assessing Officer. Learned DR submitted that since the assessee did not participate in the assessment proceedings or even before learned DRP, there was no other way out for the Departmental Authorities to complete the proceedings except proceeding ex-parte. He submitted, even before learned DRP, the assessee had not raised any grounds on merit. Therefore, the DRP was justified in rejecting the technical objections raised by the assessee.

5. We have considered rival submissions and perused the materials on record. Insofar as assessee’s contention that the Assessing Officer could not have proceeded to frame the draft assessment order under section 144C(1), we are not impressed. It is a fact on record that the assessee is an NRI and not a resident in India. Therefore, the Assessing Officer was justified in proceeding under Section 144C(1) of the Act.

6. Insofar as the second contention of the assessee regarding lack of opportunity to represent the case, it is observed, the assessee failed to respond to various notices issued by the Assessing Officer in course of assessment proceedings. Therefore, the Assessing Officer was compelled to proceed ex-parte and complete the assessment to the best of his judgment. Even before learned DRP, assessee failed to represent properly. In fact, as rightly observed by learned DRP, no objection challenging the variations made by the Assessing Officer was made. The assessee simply raised technical issue regarding ex-parte assessment orders and difficulty faced by him in representing before the Assessing Officer.

7. Be that as it may, before us learned counsel appearing for the assessee has submitted that non-participation of the assessee before the Assessing Officer was due to bona fide reasons. Having gone through the factual position and all relevant factors, we are of the view that for whatever may be the reason, the assessee was unable to explain the source of the investments made in time deposit and purchase of foreign currency, either before the Assessing Officer or before learned DRP. Therefore, to enable the assessee to explain the source of the investments made, we are inclined to set aside the impugned assessment order and restore the issues to the Assessing Officer for de novo adjudication after providing reasonable opportunity of being heard to the assessee. The assessee is directed to comply with the notices to be issued by the Assessing Officer and to effectively participate in the assessment proceedings. In case of further non-compliance by the assessee, the Assessing Officer is free to proceed in accordance with law.

8. In the result, appeal is allowed for statistical purposes.