What is not taxable under section 5(2) cannot be brought to tax indirectly through a deeming fiction under section 69.

 

Recently, an ITAT has held that, what is not taxable under section 5(2) cannot be brought to tax indirectly through a deeming fiction under section 69.

 

Facts and action of Assessing Officer
Assessee, a NRI living and working in Dubai since 2001, invested ₹2 crore during AY 2016–17 toward an Indian residential property (total cost ₹3.25 crore). He had not filed an Indian return, claiming all income was foreign salary with no Indian-source income. Based on this property investment, the AO reopened the assessment under section 147 and treated the ₹2 crore as unexplained investment under section 69.

The assessee furnished a complete fund trail showing that the entire amount came from Dubai salary savings: RAK Bank withdrawals and authorised dealer remittances certificate demonstrating matching credits  in his Axis Bank NRE account, from which the property payment was made. Further, submitted Employment records, UAE visa, and official labour documentation corroborated long-term Dubai employment.

Finding of Tribunal:
The Tribunal held that his NRI status and absence of Indian income were undisputed and that the documentation established a credible, unbroken fund trail. The Revenue produced no rebuttal or independent verification. Further held as per section 5(2) r.w.s only income received or accruing in India is taxable.

Key observation from decision:
What is not taxable under section 5(2) cannot be brought to tax indirectly through a deeming fiction under section 69.

The copy of the order is as under:

1763118876-uN5rvp-1-TO