If you’re an NRI (Non-Resident Indian), you need to file an income tax return for any income earned in India. Often, when people move out of India, they transfer all their investments to another country for convenience. However, sometimes NRIs do not redeem their investments in India, such as fixed deposits, shares, mutual funds, or other income sources. In such cases, when a person becomes an NRI, any income earned in India becomes taxable, and also they’re required to file an income tax return.
What’s happening now is that many NRIs are earning income in India but are not aware that they need to file an income tax return. Consequently, the income tax department is sending notices to NRIs for not filing their returns and scrutinizing their assessments under section 148. These notices can trouble NRIs because initially, they might not realize they had any income source in India. But later, when they receive the notice, they remember that there was some nominal income, although not significant. Since TDS (Tax Deducted at Source) was deducted, the department wants clarification for not filing the income tax return, even if the NRIs’ income is below the exemption limit.
Currently, NRIs are frequently receiving income tax notices under section 148A, which may lead to cases being opened under section 148 if the assessing officer deems it necessary for scrutiny. It has been observed that NRIs often overlook these notices under section 148A and fail to respond within the specified period. Consequently, the income tax department initiates income tax proceedings under section 148.
In these proceedings, NRIs are required to provide comprehensive evidence and details within the given timeframe. It’s crucial to respond to these notices within time. If the assessing officer is satisfied with the provided information and evidence, they issue a favorable order. However, if the officer finds the reply and evidence unsatisfactory, they may issue a draft assessment order under sections 144C.
If you’re an NRI and an order is passed by international taxation authorities under section 144C, you can the Dispute Resolution Panel (DRP). However, the reality is that the DRP often doesn’t provide relief to NRIs. Even if you make strong submissions, the draft order is typically confirmed in favor of the income tax department in most cases. Therefore, NRIs often don’t receive any relief from the DRP. Nonetheless, it’s essential to make strong submissions to the DRP as it may help you in the tribunal ITAT (Income Tax Appellate Tribunal). It’s common for ITAT to set aside the DRP’s order and remand the matter back to the authorities for reconsideration.
As mentioned earlier, the Commissioner’s panel is appointed to hear cases, but these officials are government-appointed and not independent authorities. This lack of independence can undermine the purpose of delivering speedy justice. Therefore, most matters end up going to the ITAT tribunal.
When NRIs receive a draft order, they must file their objections to the order within 30 days to both the DRP and the assessing officer. If there’s no response within this timeframe, the assessing officer will finalize the assessment based on the draft assessment order within a month.
The Dispute Resolution Panel will issue directions after considering various factors, including:
- The draft order
- Objections filed by the assessee (the NRI)
- Evidence provided by the assessee
- Reports from assessing officers or other relevant authorities
- Records related to the draft order
- Evidence collected by the DRP or any inquiries made by them.
These considerations help the DRP make informed decisions regarding the case.
It’s worth noting that the Dispute Resolution Panel has the authority to confirm, reduce, or increase the variations proposed in the draft order. However, they cannot set aside any proposed variation or issue directives for further investigation and the issuance of the assessment order.
Conclusion: As an NRI, you can you approach the Dispute Resolution Panel for swift justice, Given that the order passed by the assessing officer is a draft assessment order. Recently, we’ve become aware of a few cases where NRIs are receiving income tax notices related to the selling of cryptocurrencies like Bitcoin or Ethereum. Cryptocurrency transactions have gained significant attention, prompting the income tax department to take action. NRIs dealing in cryptocurrencies are receiving notices from the income tax department. Therefore, it’s essential for NRIs to respond carefully to these notices or seek assistance from professionals like chartered accountants.
Relevant Case Laws relating to DRP
It is important to note that the AO cannot pass the final assessment order without passing a draft assessment order, even in case remanded by tribunal. (JCB India Limited vs DCIT 398 ITR 189, Ptryker Inia Private Limited vs ACIT 103 taxmann.com 267).
Also AO cannot introduced any new additional/disallowance which was not proposed in the draft assessment order, while passing the final order (CIT vs Sanmina SCI India Pvt Ltd).
