ITAT Deletes Unexplained Investment Addition for NRI’s Dubai Earnings

The appellant, Vashdev Darianomal Kalwani, an individual residing in Dubai, challenged an assessment order for the Assessment Year 2015-16. The Income Tax authorities had made an addition to his income, treating an investment in an Indian property as an “unexplained investment.” The lower authorities questioned the source of the funds used for the purchase.

The appellant contended that the funds were sourced from his legitimate earnings in Dubai, which were accumulated in his Dubai bank account and later transferred to his bank account in India to facilitate the property transaction.

Issue Before Tribunal: Whether the investment made in the property by an NRI can be treated as “unexplained” under the Income-tax Act when the funds are shown to be transferred from the assessee’s overseas bank accounts representing foreign earnings.

ITAT’s Ruling: The ITAT ruled in favor of the assessee and ordered the deletion of the impugned addition. The Tribunal noted that the appellant’s counsel successfully demonstrated the money trail, showing that the funds originated from the assessee’s and his son’s bank accounts in Dubai. These amounts were transferred to the assessee’s Indian bank account specifically for the property investment.

The Bench held that since the source of the investment was clearly linked to the income earned and held in Dubai (which is not taxable in India for a non-resident), there was no justification for the lower authorities to treat the amount as unexplained.

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