Inquiry from an NRI Regarding Income Tax Assessment

An NRI recently discovered that an ex parte income tax assessment had been made against them in India. Additions were made under Section 69 of the Income Tax Act concerning deposits in NRE and FCNR accounts. They stated they have no taxable income in India and have never accessed the income tax website, nor received any communication from the department. They are seeking guidance on their options.

The Assessing Officer seems to have issued a best judgment assessment under Section 144 of the Income Tax Act, 1961, without any participation from the individual. The lack of notification may stem from the fact that the individual’s PAN still reflects an old Indian address, leading authorities to communicate based on outdated information.

Before contesting the order, there are a few immediate steps to take. It’s essential to register on the Income Tax e-filing portal using your PAN, update your email, and revise your address to reflect your current foreign residence. You should also change your tax status to non-resident. Appointing an Indian chartered accountant or lawyer can enable them to represent you without needing to be in India.

The primary route to challenge the decision is to file an appeal with the Commissioner of Income Tax under Section 246A of the Income Tax Act. If the usual 30-day window has lapsed, an appeal may still be made by requesting condonation of delay—essentially explaining that you did not receive the notice due to the outdated address.

One benefit of the appeal process is that you can introduce new documentation, like bank statements and records of domestic transfers, even if these weren’t presented during the initial assessment.

From a legal standpoint, the addition under Section 69 regarding NRE and FCNR deposits doesn’t seem justified. This section is typically invoked for unaccounted investments, yet these deposits are recognized as legitimate bank offerings for NRIs to manage their foreign earnings in India via proper banking methods.

Hence, the funds should be traceable and backed by proper documentation. Moreover, NRIs are only taxed in India on income that’s received or accrued domestically, whereas the foreign earnings in NRE and FCNR accounts fall outside this purview. Obtaining foreign bank statements, proof of income, statements from NRE and FCNR accounts, and SWIFT remittance records can help demonstrate the genuine source of these deposits.

If appealing isn’t viable, there are two alternatives. You can file a revision petition under Section 264 with the Commissioner of Income Tax, or file a writ petition in the High Court arguing that the notice was improperly served. Additionally, if a tax claim has been initiated, seeking an injunction under Article 220(6) would be advisable to halt any recovery efforts until the appeal is resolved.