Dubai NRI’s 3.41 crore FCNR deposits get tax notice; ITAT spots yen-rupee error
A woman, who originally hails from Beawar, and now resides in Dubai, United Arab Emirates (UAE), decided to put money into investments in India. She along with her husband invested Rs 3.41 crore in two Foreign Currency Non-Resident (FCNR) term deposits. The husband’s name appeared as the first holder of both deposits, with the woman listed as the second holder.
A woman from Beawar, India, living in Dubai, received tax notices for unexplained income totaling Rs 3.41 crore. She and her husband jointly invested this sum in two FCNR term deposits in India, with her husband listed as the first holder. The investments were made in Japanese yen (JPY), totaling JPY 3.384 crore. The husband chose to hold the deposits in JPY, while the woman was the second holder.
The Income Tax Department issued tax notices to the bank, alleging unexplained income under Section 69A of the Income Tax Act, based on the husband's holdings. However, the Income Tax Appellate Tribunal (ITAT) in Jaipur ruled against the tax notices on September 22, 2026. The tribunal identified a significant error in the Income Tax Department's assessment, noting that the husband's deposits were correctly recorded in JPY.
The ITAT found that the husband had provided sufficient explanation for the funds' origin through his NRE account, which received regular credits from the jointly held account. Since the woman was the second holder, she could not be treated as owning unexplained money solely based on her holdings. The tribunal also clarified that the tax liability of a non-resident Indian is limited to income earned or arising in India, and the interest earned on funds held in an NRE account is exempt from Indian income tax.
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