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NRI Wins Tax Battle Over Cash for Father's Policy
28 Jul
Summary
- NRI's withdrawal of cash from NRE account was questioned by tax authorities.
- Father used cash to buy an insurance policy in the son's name.
- ITAT Mumbai ruled in favor of the NRI, accepting fund origin explanation.
An NRI residing in Hong Kong faced an income tax dispute concerning cash withdrawn from his NRE account, totaling Rs 5 lakh, which he gave to his father. His father then utilized these funds to purchase an insurance policy valued at Rs 8.45 lakh in the son's name, paying the premium in cash.
This transaction led the Income Tax Department to issue a notice for an 'unexplained cash credit.' The Assessing Officer (AO) and Dispute Resolution Panel (DRP) were unconvinced by the NRI's initial explanation, citing the use of cash for the premium when other payment methods were available and the father's bank account showing predominantly cheque transactions.
However, the Income Tax Appellate Tribunal (ITAT) Mumbai, on April 17, 2026, overturned the previous decisions. The tribunal accepted the documentary evidence presented, including bank statements showing the clear movement of funds from the NRI's NRE account to his father's bank account and subsequently towards the insurance premium payment.
ITAT Mumbai emphasized that when the source and movement of funds are demonstrably traceable through banking records, an addition under Section 69 of the Income Tax Act cannot be sustained. The tribunal ruled that the AO and DRP had not sufficiently considered the vital evidence provided by the NRI, ultimately allowing his appeal and directing the deletion of the addition.
