The Income Tax Appellate Tribunal (ITAT), Mumbai, has delivered one of the most important NRI-taxation rulings in recent years by holding that Section 69 (unexplained investments) cannot be invoked to tax an amount that is undisputedly sourced from foreign income earned by a Non-Resident under Section 6, and therefore outside the scope of total income under Section 5(2) of the Income Tax Act.

This judgment, pronounced on 14 November 2025, deleted a ₹2,00,00,000 addition made on an NRI who had purchased a residential property in India using foreign salary savings from Dubai, duly remitted into his NRE account through authorised channels.

The ruling is a major tax relief and an important precedent for NRIs who:

• Invest in Indian property using foreign earnings
• Transfer savings into NRE/NRO accounts
• Receive reassessment notices under Section 148
• Are questioned about large NRE inflows
• Face additions under Section 69 despite having foreign-source funds

Why This Case Is Crucial: Section 5(2) Sets the Boundary for NRI Taxation — And Section 69 Cannot Cross It

The ITAT Mumbai has emphasised something that is often misunderstood by tax officers:

• For Non-Residents, taxable income is strictly limited to amounts received in India or accruing/arising in India.
• Foreign income earned abroad is outside Indian taxation.
• Section 69 cannot expand this scope.

This single principle can potentially settle hundreds of NRI reassessment disputes.

Case Background: NRI Living in Dubai Since 2001, Investing in India Through NRE Account

The assessee had:

• Lived and worked in Dubai since 2001
• Returned to India only in 2021
• Been employed as a General Manager since 2006 (as per UAE Ministry of Labour records)
• Earned a steady salary of AED 24,500 per month
• Maintained fully compliant RAK Bank accounts
• Had no income accruing or arising in India during AY 2016-17

During the relevant year, he paid ₹2 crore towards the purchase of a residential flat in India. The payments were made entirely from an Axis Bank NRE account.

Because NRIs are not required to file returns if they have no Indian income, he had not filed one.

Later, the tax department reopened the assessment under Section 147, issued a notice under Section 148, and made an addition of ₹2 crore under Section 69, alleging that the investment was unexplained.

Assessee Provided a Complete, Transparent, Verifiable Fund Trail of Foreign Income

The assessee produced comprehensive documentation, including:

1. RAK Bank Withdrawals (Dubai)

• AED 7,00,000 withdrawn on 02.09.2015
• AED 5,00,000 withdrawn on 03.09.2015 

2. Authorised Dealer Certificates (UAE Remittance Providers)

• AED 11,65,000 remitted to India through authorised channels
• Multiple certificates cross-matched with NRE credits 

3. Axis Bank NRE Account Credits (India)

• INR ₹2,00,52,630 credited from foreign remittances
• Exactly tallying with AED withdrawals and authorised dealer certificates 

4. Employment & Residency Proofs

• Employment contract from Dubai
• Salary details
• UAE residence visa
• Ministry of Labour employee listing showing long-term employment since 2006 

5. Property Documentation

• Agreement & bank transfer proof
• TDS @1% under Section 194-IA duly deposited
• Payments made directly from NRE account

The fund trail was airtight, consistent, and unrefuted.

ITAT’s Core Legal Finding: Section 69 Cannot Override Section 5(2)

The Tribunal’s most important holding is:

• For an NRI, if the source of investment is foreign salary earned outside India, such income is not taxable in India under Section 5(2).
• Therefore, Section 69 cannot be used to tax it indirectly.

This restores the hierarchy of the law:

• Section 5(2) → defines what is taxable for NRIs
• Section 69 → only applies to income that is taxable under the Act

Thus, foreign income cannot be imputed as Indian income through Section 69

This is a powerful clarification and will help NRIs in many similar disputes.

Other Key Findings of the ITAT

NRI Status Was Undisputed

The assessee lived abroad continuously for nearly 20 years, returning only in 2021.

Thus, he was unquestionably a Non-Resident.

Foreign Salary Is Not Taxable in India

Since the salary was earned abroad for services rendered outside India:

• It did not accrue/arise in India
• It was not received in India (first receipt outside India)

Therefore, Section 5(2) disallowed any taxation attempt.

No Independent Inquiry Was Made by the Department

Despite having powers under:

• Section 133(6)
• Information exchange treaties
• Embassy/consular channels

No verification was done.

Rejection was based merely on vague doubts like “employer credentials not verified,” which the Tribunal dismissed as speculative and baseless.

Fund Trail Was Complete and Unimpeachable

Every element was supported with:

• Bank statements
• Salary slips
• Visa records
• Remittance certificates

None of these were disputed.

Final Ruling: ₹2 Crore Addition Deleted; NRI Wins

The ITAT Mumbai concluded:

• The assessee’s explanation is credible and fully supported
• There is no evidence of any Indian-sourced income
• Section 69 was wrongly applied
• The entire addition of ₹2,00,00,000 is deleted

Appeal allowed in favour of the assessee 

Why This Judgment Is a Game-Changer for NRIs

This ruling strengthens core principles of NRI taxation:

• Foreign income of NRIs (salary/business/investments) is not taxable in India under Section 5(2)
• Section 69 cannot be misused to tax foreign remittances into NRE accounts
• Complete fund-trail = no unexplained investment
• NRIs need not file returns if they have no Indian income
• Property purchased from foreign savings is fully legitimate

This is an essential precedent for NRIs facing:

• Section 148 notices
• Scrutiny on property purchases
• Questions on NRE remittances
• Additions under Section 69

At Dinesh Aarjav & Associates, we specialise in:

• NRI & OCI taxation
• Foreign remittance documentation
• NRE/NRO fund trail preparation
• ITAT representation
• NRI property transactions
• Cross-border tax planning
• Returning NRI advisory