ITAT Overturns ₹3.41 Crore Tax Addition Due to Currency Miscalculation
Tribunal rules tax officer incorrectly treated Japanese yen deposits as Indian rupee amounts.
1Tribunal Corrects Currency Error
The Income Tax Appellate Tribunal in Jaipur recently deleted a ₹3.41 crore addition to Kavita Khanwani’s income. The assessing officer had incorrectly treated Japanese yen figures as Indian rupees. This fundamental calculation error led to an unjustified claim of unexplained money under Section 69A of the Income-tax Act, 1961.
2Disputed FCNR Deposit Details
Khanwani held two FCNR term deposits jointly with her husband, Kishan Chand. The deposits were denominated in Japanese yen, totaling approximately 3.38 crore yen. The actual rupee investment was roughly ₹2 crore, yet the tax department erroneously added ₹3.41 crore to her taxable income for the 2018-19 assessment year.
3Evidence from Banking Channels
The tribunal examined statements for the joint NRE savings account used to fund these deposits. Records confirmed that each deposit was funded by a ₹1 crore debit, preceded by corresponding credits. IndusInd Bank verified these transactions under Section 133(6), confirming the funds originated from legitimate banking channels for the account holders.
4Consistency with Husband's Assessment
The tax department had already accepted the explanation for these exact deposits during the husband's assessment proceedings. Because Kishan Chand was the first holder and had successfully established the source of funds, the tribunal ruled that the same money could not be classified as unexplained in the second holder's hands.
5Legal Basis for Relief
Section 69A applies when a taxpayer fails to explain the nature and source of money found in their possession. In this case, the tribunal found the source was clearly identified through bank records. The department failed to dispute the authenticity of these documents or challenge the husband's previously accepted financial explanation.
6Non-Resident Tax Implications
Khanwani, a Dubai-based NRI, maintained NRE and FCNR accounts consistent with her residency status. Under Section 5(2), non-resident income is taxable in India only if it accrues or is received within the country. The tribunal found no evidence of such income that would justify the disputed tax addition in this case.
7Procedural Oversight by Department
The assessing officer’s failure to distinguish between foreign currency units and domestic currency led to a significant administrative error. By treating 3.38 crore yen as ₹3.41 crore, the department ignored the actual financial reality of the taxpayer. This oversight necessitated the intervention of the Commissioner of Income Tax and the ITAT.
8Significance of Tribunal Ruling
The September 2026 order reinforces the necessity for accuracy in tax assessments involving foreign currency transactions. By upholding the deletion of the addition, the tribunal protected the taxpayer from arbitrary tax demands. This case highlights the importance of verifying financial data against original bank records before initiating Section 69A proceedings.