Taxpayer Wins Forex Seizure Dispute After Rs 5.6 Lakh Found At Home

A Mumbai taxpayer has prevailed in a dispute with the Income Tax Department over the seizure of foreign currency worth roughly Rs 5.6 lakh, according to a recent report by The Economic Times, bringing fresh attention to how Indian authorities approach legitimately acquired forex kept at home.

The matter dates back to a search conducted at the individual’s residence. During the operation, officials discovered a mix of foreign notes, accumulated over several overseas trips taken by the taxpayer and family members, and treated the amount as unexplained money. The department sought to invoke Section 69A of the Income Tax Act, which permits additions to taxable income where assets are found without a satisfactory explanation of their source.

Tribunal Steps In After First Appeal

The taxpayer contested the move, producing documents showing that the currency had been obtained from authorised dealers and was linked to travel abroad. The record reportedly included passport pages, itineraries, purchase receipts, and other paperwork that traced the foreign notes to legitimate channels.

At the first stage, the Commissioner of Income Tax (appeals) accepted the explanation, holding that the acquisition had been proved and that simply storing the cash at home did not automatically make it suspect. Unsatisfied, the department escalated the matter to the Income Tax Appellate Tribunal (ITAT) in Mumbai.

The tribunal backed the appellate view. It noted that once the taxpayer had demonstrated how and when the cash was acquired, the burden shifted back to the department to establish that the money represented undisclosed income. Without that, additions under Section 69A could not stand. The order effectively reinforced that possession of foreign currency, in itself, is not a taxable offence when provenance can be documented.

Clarifying What Residents May Hold

The case has prompted renewed interest in the rules that govern foreign currency holdings. Under the Foreign Exchange Management Act (FEMA) norms, residents can retain foreign currency notes and traveller’s cheques up to USD 2,000 or equivalent without a time limit. Amounts above that ceiling are meant to be either converted into Indian currency or deposited in a resident foreign currency account. While these rules sit under the foreign exchange framework, income tax reporting adds another layer: for individuals above certain income thresholds, physical foreign currency may need to be reflected under the assets and liabilities schedule of the income tax return.

For many frequent travellers, the episode serves as a reminder that documentation matters. The forex amounts in question may not be large by the standards of regular international travel, yet without proof of origin, the cash could easily have been treated as unexplained. Tax practitioners say that in households where foreign currency gets accumulated, through holidays, business trips, or children studying overseas, it is wise to retain invoices from authorised dealers and keep track of withdrawals, conversions, and leftover notes.

The Mumbai order also nudges the department toward a more evidence-led approach in cash seizure cases. Instead of treating possession as presumptive wrongdoing, the adjudication underscores the need to examine facts: who travelled, how the notes were bought, and whether the currency was allowed to be retained under FEMA. For taxpayers, the lesson is straightforward: paper trails settle arguments faster than assumptions ever will.