NRI buys ₹79 lakh Mumbai flat using NRE funds, gets ‘unexplained cash’ tax notice; here’s what happened next

A non-resident Indian (NRI) and US citizen, who has been living in America since April 2002, received an income tax notice over the source of funds used to purchase a residential flat in Kandivali West, Mumbai.

He booked the property in 2011 for a consideration of ₹79.9 lakh from a Mumbai-based builder. The sale agreement with the builder was executed on July 20, 2015, and he made payments towards his flat between 2011 to 2018.

Most of these payments were made by the NRI man through his NRE/NRO account with HDFC Bank. Some payments towards the property were also made by his brother, who is an NRI as well.

However, he did not file an income tax return (ITR), thus the tax department reopened his case and issued a notice under Section 148 on March 23, 2023, questioning the source of the funds.

The matter eventually reached the Income Tax Appellate Tribunal (ITAT) Ahmedabad, which gave the NRI man relief, ruling that he had adequately explained the source of the funds, including the cash payments made to the builder, according to a news report by The Economic Times.

How did the case reach ITAT?

In response to the said tax notice, the NRI homebuyer filed a belated tax return (ITR), which was considered invalid by the income tax department. Subsequently, the assessing officer issued a draft assessment order dated March 26, 2024 under Section 144C proposing to assess his total income as ₹57,24,172.

The NRI challenged the additions made in the draft assessment order and raised his objections before the Dispute Resolution Panel (DRP) of the Income Tax.

The DRP asked for a remand report from the tax assessing officer and said that the NRI man had satisfactorily explained ₹51.9 lakh of the amount. It therefore directed that this amount be deleted from the assessment.

The DRP observed that he submitted documentary evidence for his investments and remaining amount of ₹1 lakh cash deposit and ₹4 lakh being registration charges and stamp duty of ₹32,280 remained unexplained, and therefore confirmed the same, as per the news report.

The complainant was dissatisfied by DRP’s order as they had not fully removed all the unexplained cash amounts so he filed an appeal with ITAT Ahmedabad.

ITAT Ahmedabad gives relief to the complainant

Before the ITAT Ahmedabad, the NRI man explained that his bank statements from 2015 show that cash was deposited in his HDFC Bank account to the tune of ₹1 lakh and the same was utilised for advance booking for the flat.

He also explained that the source of cash withdrawal from his NRE account aggregating to ₹1.08 lakh during March 5, 2009 to March 25, 2009 and relevant NRE bank account details were also placed on record.

After taking the proof and his arguments into consideration, ITAT Ahmedabad directed the addition of ₹1 lakh to be deleted.

The NRI man also argued that he had paid stamp duty of ₹4 lakh and registration charges of ₹32,280 to the builder and in his support submitted a copy of the bank challan for the same. He also submitted several other documents which confirmed that the payment made by him towards the purchase of flat.

Thereby, ITAT Ahmedabad said in its judgement: “Though this affidavit is a new document but supported with the registered documents of May, 2015. We therefore hereby direct the assessing officer to delete the above additions of ₹4,32,280 on these counts”