Reopening Notice Quashed: NRI’s Property Investment Source Explained Through Banking Channel from USA

By | June 4, 2025
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Reopening Notice Quashed: NRI’s Property Investment Source Explained Through Banking Channel from USA

Issue:

Whether an Assessing Officer (AO) has a valid basis to issue a reopening notice under Sections 147 and 148 of the Income-tax Act, 1961, alleging unexplained investment under Section 69, when an NRI assessee purchases immovable property in India, but fully explains the source of investment as funds transferred through banking channels from foreign bank accounts.

Facts:

For the assessment year 2016-17, the assessee, a Non-Resident Indian (NRI), purchased immovable property in India. The Assessing Officer (AO) subsequently issued a reopening notice, asserting that the assessee had not filed any return of income and that it was a case of income escaping assessment. The assessee, in response, submitted that the money for the property purchase was transferred from the USA through proper banking channels, and the source of the investment was duly explained. To substantiate this, the assessee annexed details and statements of two bank accounts in the USA. These statements corresponded to the NRE (Non-Resident External) account from which the purchase consideration was paid to the seller. The assessee had consistently maintained that since 2004-05, she had not earned any income in India and, therefore, had no requirement to file an income-tax return in India.

Decision:

Yes, the impugned reopening notice was quashed. The court held that once the source of investment was duly explained and it was established that the funds originated in a foreign country and were transferred through banking channels, there was no basis for the Assessing Officer to proceed under Section 148.

Key Takeaways:

  • “Reason to Believe” for Reopening: For a valid reopening under Section 147, the AO must have a “reason to believe” that income has escaped assessment. This belief must be based on tangible information and not mere suspicion or lack of return filing if the income itself is exempt or not taxable in India.
  • Source of Funds from Abroad: When an NRI invests in India, and the source of funds is clearly established as legitimate foreign income or savings transferred through official banking channels (like NRE accounts), the investment cannot be deemed “unexplained” under Section 69.
  • Onus Discharged by Assessee: The assessee discharged her initial onus under Section 69 by providing bank statements and demonstrating the foreign origin and legitimate transfer of funds. The AO cannot proceed with reopening if the explanation is satisfactory.
  • NRI’s Tax Liability: An NRI is generally taxable in India only on income accrued or arisen in India, or income deemed to accrue or arise in India. If the source of investment is foreign income, and there’s no taxable income in India requiring a return, the mere purchase of property does not automatically trigger escaped income.
  • Quashing of Notice: If the basic jurisdictional condition for reopening (i.e., “reason to believe” based on concrete evidence of escaped income) is not met, the reassessment notice itself is liable to be quashed.
HIGH COURT OF RAJASTHAN
Namrata Jain
v.
Income-tax Officer
Avneesh Jhingan and Maneesh Sharma, JJ.
D.B. Civil Writ Petition No. 7665 of 2023
MARCH  20, 2025
Siddharth Ranka, Rohan Chatter for the Petitioner. Shantanu Sharma, Aditya Doda, Parth Vashishtha for the Respondent.
ORDER
Avneesh Jhingan, J. – This petition is filed assailing order dated 14.04.2023 passed under Section 148A(d) of Income Tax Act, 1961 (for short ‘the Act’).
2. The brief facts are that the petitioner is a Non-Resident Indian (for short ‘NRI’) residing in USA for more than fifteen years. During assessment year 2016-2017, the petitioner purchased in India an immovable property worth Rs.95,00,000/-. The department on the basis of an information received, issued notice dated 23.02.2023 under Section 148A(b). The reply to the notice was filed on 09.03.2023. Exercising power u/s 127 the proceedings were transferred to Assistant Commissioner (International Taxation) as the petitioner is an NRI. The impugned order was passed on 14.04.2023 and notice under Section 148 of the Act was issued.
3. Learned counsel for the petitioner submits that there was no information with the department with regard to income escaping tax in India. The contention is that the petitioner had given the details of two bank accounts in USA and NRE account of CITI Bank at Jaipur. It was shown that the money from USA was transferred through banking channel to India for purchasing the property. It is contended that in absence of income in India there was no requirement to file income-tax return.
4. Learned counsel for the respondent submits that the assessing office was not satisfied with regard to the source of earning in USA and the assessee failed to establish that the investment was of foreign income.
5. Section 147 empowers the assessing officer to assess or reassess the escaped income chargeable to tax. It goes without saying that ‘income chargeable to tax’ means chargeable under the Act.
6. The flagging of the case of the petitioner as a high risk case in the inside portal according to the risk management strategy, itself cannot form basis to proceed under Section 147 of the Act. The information of an NRI having purchased the property and not filed the return for the relevant years was the reason for issuance of notice under Section 148A(b) of the Act. A perusal of the reply and the documents annexed thereto shows that the two bank accounts details of the petitioner in USA along with the statement were annexed. These statements corresponded to the NRE account opened at Jaipur with CITI Bank wherefrom the purchase consideration was paid to the seller. Not only this, the petitioner had taken specific stand that since 2004-2005 she had not earned income in India and there was no requirement to file income-tax return. The USA Citizenship card, cancelled Indian Passport, Overseas citizen of India card, copy of sale deed dated 05.10.2015, the proof of deduction of TDS from sale consideration and the identification number of US were annexed with the reply. The documents produced by the petitioner were not doubted but reply was rejected stating that the account books relating to the income earned in USA were not produced.
7. The Supreme Court in the case of Chhugamal Rajpal v. S.P. Chaliha and Ors. reported in [1971] 79 ITR 603 (SC) held that the AO must have a prima-facie ground for taking action under Section 148 of the Act and a need for further enquiry cannot be equated for reason for issuing notice under Section 148. 8. Apart from the information of petitioner having purchased an immovable property in India during the relevant year, there is no information with the department to suggest that the income having been earned by petitioner in India or liable to be taxed under the Act had escaped assessment. No such averment is there either in the show cause notice or in the impugned order. It is clear that preliminary inquiry can be held by AO prior to issuance of notice under Section 148A(b). Rather the AO while acting under the Act wanted to verify the source of income in USA. Once the source of investment was duly explained and it was established that it originated in foreign country there was no basis for the AO to proceed under Section 148.
9. The impugned order and the proceedings consequent thereto be quashed.
10. The writ petition is allowed.