I am an NRI and recently discovered that an ex-parte income tax assessment order has been passed against me in India, with additions under Section 69 of the Income-Tax Act in respect of deposits in my NRE and FCNR accounts. I have no taxable income in India and have never logged in to the income tax website. I never received any notice from the department. What are my options?
– Name withheld on request
It appears that the assessing officer (AO) has passed a best judgment assessment under Section 144 of the Income-tax Act, 1961 (ITA) on an ex parte basis, meaning the order was passed without your participation. The non-receipt of notices may have been due to your PAN continuing to reflect your earlier Indian address, and the department may have served communications there without being aware of your foreign residence.
Before challenging the order on merits, certain immediate steps should be taken. You should register on the income tax e-filing portal using your PAN, add your email ID, and update your address to your current foreign residence. Change the tax status to non-resident. Appoint a chartered accountant or advocate in India as your authorized representative, who can represent you without requiring your physical presence in India.
The primary remedy is to file an appeal before the Commissioner of Income Tax (Appeals) under Section 246A of the ITA. If the normal 30-day time limit has expired, the appeal can still be filed with a request for condonation of delay, that is, a formal explanation for missing the deadline, citing non-receipt of notices due to the outdated address on record.
A key advantage of the appeal stage is that you can submit fresh supporting documents, such as bank statements and inward records, even if these were not produced before the AO.
On merits, the Section 69 additions in respect of non-resident external (NRE) and foreign currency non-resident (FCNR) deposits appear unsustainable. Section 69 applies where an investment is unexplained, but these deposits are recognized banking facilities for to place foreign earnings in India through normal banking channels.
The funds are therefore generally identifiable and supported by records. Further, an NRI is taxable in India only on income received or accruing in India, whereas foreign earnings remitted into NRE and FCNR accounts fall outside that scope. Accordingly, foreign bank statements, proof of overseas income, and FCNR statements, and SWIFT remittance records should help establish the legitimate source of the deposits.
If an appeal cannot be filed, two alternatives remain. A revision petition under Section 264 may be filed before the Principal Commissioner of Income Tax, or a writ petition may be filed before the high court on the ground that you were not properly served with notice. If a tax demand has been raised, you should also seek a stay under Section 220(6) to prevent recovery action until the appeal is decided.
Harshal Bhuta is partner at P. R. Bhuta & Co. CAs