Rajul Jayendra Shah Vs DCIT (ITAT Mumbai)
Explained LRS Remittances Can’t Be Taxed as Peak Credit: ITAT Mumbai Deletes s.68 Addition on Foreign Bank Balance
ITAT Mumbai (D Bench) in Rajul Jayendra Shah vs DCIT (ITA No. 6512/Mum/2025, AY 2017-18, order dated 24.12.2025) has allowed the assessee’s appeal, deleting the addition of ₹1.72 crore u/s 68 made on account of alleged unexplained peak balance in a foreign bank account.
The Assessee had two Wells Fargo (USA) bank accounts, which were scrutinised under CASS. The AO added the combined peak balance of ₹3.47 crore, alleging lack of explanation. On appeal, CIT(A) accepted that one account was funded merely by inter-bank transfers between the Assessee’s own accounts and deleted the related addition, but sustained ₹1.72 crore pertaining to the principal account.
Before ITAT, the Assessee demonstrated that:
- The opening balance was brought forward from the earlier year, hence not taxable in the current year
- Funds were remitted under the Liberalised Remittance Scheme (LRS) from the Assessee’s Indian bank account through proper banking channels
- Part of the funds originated from gifts received from the father, duly reflected in bank statements
- Interest income earned on a foreign loan (to OVKS LLC) was fully offered to tax in India
- All transactions were supported by bank statements, promissory note and repayment evidence
ITAT held that explained opening balances and LRS remittances cannot be treated as unexplained cash credits, and that peak-credit theory cannot be applied mechanically when the source is fully established. The Tribunal found the doubts raised by CIT(A) to be presumptive and unsupported by evidence, and noted that no addition can be made in the current year for balances originating in earlier years.
Accordingly, ITAT deleted the entire sustained addition u/s 68.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
