Delay of 3 Years Condoned in Interest of Substantial Justice; Matter Remanded Subject to Cost of Rs. 5,000

Issue: Whether the delay of more than 3 years and one month in filing the appeal before the CIT(A) against penalty imposed under Section 271(1)(c) of the Income Tax Act should be condoned.

Fact: The assessee was subjected to a penalty order dated 16.03.2022 imposing penalty of Rs. 25,58,310 and filed an appeal before the CIT(A) with a delay of over 3 years and one month. The assessee attributed the delay to lack of professional guidance, limited legal knowledge, change of tax consultants, and delay in obtaining documents, along with belief that the penalty would not survive if quantum appeal succeeded. The CIT(A) refused to condone the delay and dismissed the appeal. On further appeal, the assessee sought condonation citing bona fide reasons.

Held: The Tribunal held that delay supported by sufficient and bona fide reasons should be construed liberally in the interest of substantial justice, relying on judicial principles laid down by the Supreme Court. Considering the circumstances, the delay was condoned subject to payment of cost of Rs. 5,000 to the Prime Minister National Relief Fund, and the matter was remanded to the CIT(A) for fresh adjudication on merits after providing opportunity of hearing to the assessee.

Delay of 142 Days Condoned and Matter Remanded for Fresh Adjudication in Interest of Substantial Justice

Issue: The issue was whether the delay of 142 days in filing the appeal before the CIT(A) could be condoned and whether dismissal of the appeal on the ground of delay in latches was justified.

Fact: The assessee’s income was assessed at Rs.21,76,46,514/- by order dated 24.12.2022 with certain additions. The assessee filed an appeal before the CIT(A) with a delay of 142 days, explaining that the delay occurred due to the negligence of the tax consultant who was busy with Income Tax and GST filings. The CIT(A) rejected this explanation as insufficient and dismissed the appeal on delay. The assessee then filed an appeal before the Tribunal, while no one appeared on behalf of the assessee during the hearing.

Held: The Tribunal held that delays supported by reasonable and bona fide cause should be liberally condoned in the interest of substantial justice, relying on judicial principles laid down by the Supreme Court. It condoned the delay of 142 days and remanded the matter back to the CIT(A) for fresh adjudication on merits after providing an opportunity of being heard to the assessee. The appeal was partly allowed for statistical purposes.

Delay condoned; ex-parte assessment set aside with Rs. 10,000 cost; matter remanded for final opportunity of hearing

ISSUE: Whether the ex-parte assessment under Section 144 and its confirmation by the CIT(A) without assessee’s participation violated principles of natural justice, and whether delay of 185 days in filing appeal and non-cooperation justified denial of relief or warranted a fresh opportunity.

FACTS: The assessee, an individual, failed to file return for A.Y. 2017–18 despite cash deposits of Rs. 49,23,120/- (including Rs. 16,13,500/- during demonetization). Notices under Section 142(1) were not complied with, leading to ex-parte assessment adding Rs. 1,61,00,699/- as unexplained income under Section 69A. The CIT(A), after granting multiple opportunities between 08.01.2021 and 22.08.2024, upheld the additions due to continued non-compliance. The assessee filed a delayed appeal before the Tribunal seeking another opportunity.

HELD: The Tribunal condoned the delay and set aside the orders of lower authorities in the interest of justice, subject to payment of cost of Rs. 10,000/- to the Department. The matter was remanded to the Jurisdictional Assessing Officer with direction to provide a final opportunity to the assessee to substantiate the case with evidence, failing which the matter may be decided on merits. The appeal was allowed for statistical purposes.

Reopening upheld; entire cash deposits not taxable—addition restricted to peak balance in accommodation entry case

ISSUE: Whether reassessment under sections 147/148 was valid based on information of cash deposits, and whether addition of Rs.78,29,905 as unexplained investment under section 69 was justified, or should be restricted (e.g., to commission/peak basis).

FACTS: The assessee filed return declaring Rs.3,41,140 for AY 2016–17. Assessment was reopened on information from Investigation Wing regarding cash deposits of Rs.78,29,905 in account with Renuka Mata Society. Assessee claimed he merely lent his account for routing third-party funds and earned negligible/ no commission, but failed to produce evidence such as identity of depositors or beneficiaries. AO treated entire deposits as unexplained u/s 69. CIT(A) upheld reopening and addition citing lack of proof and applicability of section 69.

HELD: Reopening was valid as it was based on tangible material indicating escapement of income. However, taxing entire deposits was excessive since bank pattern showed immediate withdrawals suggesting accommodation entries. In absence of proof, assessee could not escape tax entirely; therefore, AO was directed to compute and tax peak balance in the account instead of entire deposits. Appeal partly allowed.

Unilateral “Finality Clause” Cannot Oust Arbitration or Courts; Disputed Liability Must Be Adjudicated, Not Decided by Contracting Party

ISSUE: Whether Clause 3.20 of the contract, which grants finality to the administration’s decision and bars recourse to courts and arbitration, validly excludes arbitral jurisdiction; and whether disputes relating to alleged negligence and liability, when contested by the contractor, fall within the scope of arbitration under Clause 3.22.

FACTS: A manning agreement was executed for providing crew to vessels at agreed monthly charges. Following an incident involving damage to a vessel, the respondent unilaterally imposed and recovered Rs. 2,87,84,305 as penalty from the appellant’s dues. The appellant disputed liability and invoked arbitration. The arbitrator held Clause 3.20 void to the extent it barred remedies, assumed jurisdiction, and awarded refund with interest and costs. The Section 34 challenge failed, but the High Court under Section 37 set aside the award holding lack of jurisdiction due to “excepted matters.”

HELD: The Supreme Court held that Clause 3.20 cannot be interpreted to allow one party to unilaterally determine breach when liability is disputed, as it violates fundamental principles of rule of law and natural justice. The clause only applies to quantification in cases of admitted liability and cannot bar arbitration or legal remedies entirely, as such exclusion would be void under Section 28 of the Contract Act and contrary to the principle that every wrong must have a remedy. The dispute being arbitrable under the wide arbitration clause, the arbitrator had jurisdiction; hence, the High Court’s judgment was set aside and the arbitral award restoring Rs. 2,87,84,305 (with interest and costs) was upheld.

ITAT Deletes Rs. 46.74 Lakh Addition: Addition of Bank Deposits as Unexplained Income – Agricultural Source Accepted; Appeal Allowed

ISSUE: Whether the addition of Rs. 46,74,238/- made by the Assessing Officer under section 144, treating entire bank deposits and credits as unexplained income, was justified despite the assessee’s explanation that such deposits arose from agricultural income, KCC account transfers, past savings, and other explained sources.

FACTS: The assessee, an agriculturist, had bank credits comprising Rs. 24,00,000/- transferred from KCC account, Rs. 7,69,335/- from agricultural sales, Rs. 10,00,000/- cash deposits from past savings and withdrawals, Rs. 5,00,000/- loan repayment, Rs. 3,903/- bank interest, and Rs. 1,000/- from his son. The Assessing Officer treated the entire Rs. 46,74,238/- as unexplained income, which was upheld by CIT(A)/NFAC. The assessee contended that all deposits were supported by evidence such as land records, crop sale bills, bank statements, and confirmations, and no independent source of undisclosed income was established by the department.

HELD: The Tribunal held that the assessee had satisfactorily explained the sources of bank deposits through documentary evidence including agricultural income, KCC transfers, and past withdrawals. The authorities below erred in ignoring such evidence and making additions based on suspicion. In absence of any contrary material proving undisclosed income, the addition of Rs. 46,74,238/- was unjustified and deleted; appeal allowed.

Condonation of Delay Allowed and Matter Remanded for Fresh Adjudication under Sections 12AB and 80G(5)

ISSUE: Whether (i) delay of 262 days in filing appeal relating to approval under section 80G(5) should be condoned, and (ii) rejection of applications for final registration under section 12AB and approval under section 80G(5), along with cancellation of provisional benefits, by the CIT(E) was justified without granting adequate opportunity.

FACTS: The assessee filed two appeals against a composite order dated 28.12.2024 passed by the CIT(E), Bhopal rejecting applications for final registration under section 12AB and approval under section 80G(5), and cancelling earlier provisional registration/approval. The appeal for section 12AB was filed within time, whereas the appeal for section 80G(5) was delayed by 262 days due to the assessee’s belief that a single appeal sufficed against a composite order. The assessee later filed a second appeal with a condonation application explaining the delay. On merits, the CIT(E) rejected applications citing non-submission of complete documents, while the assessee contended that all required documents were furnished and sought another opportunity. The Department did not oppose remand but requested avoidance of unnecessary adjournments.

HELD: The delay of 262 days was condoned considering existence of “sufficient cause” and absence of mala fide or negligence, following the principle that substantial justice prevails over technicalities. On merits, the matter was remanded to the CIT(E) for fresh adjudication with direction to provide adequate opportunity of hearing. The assessee was directed to cooperate and avoid unnecessary adjournments, failing which the CIT(E) may decide as per law. The appeals were allowed for statistical purposes.

Appeal dismissed due to non-condonation of unexplained 692-day delay; merits not examined

ISSUE: Whether the delay of 692 days in filing the appeal before the Tribunal could be condoned, and consequently, whether the addition of Rs.16,82,555/- under section 69A based on unexplained bank credits was sustainable.

FACTS: The assessee failed to file a return of income and did not respond to notices issued under section 142(1). The Assessing Officer completed a best judgment assessment under section 144 and treated total bank credits of Rs.16,82,555/- (including cash deposits during demonetization) as unexplained money under section 69A. The CIT(A) upheld the assessment. The assessee filed a delayed appeal before the Tribunal with a delay of 692 days, citing reasons such as business closure, financial constraints, lack of professional assistance, and late receipt of the assessment order. However, the assessee neither appeared nor pursued the appeal proceedings before the Tribunal.

HELD: The Tribunal held that the assessee failed to substantiate the reasons for the inordinate delay of 692 days and had shown lack of diligence throughout the proceedings. It refused to condone the delay, observing that liberal interpretation cannot extend to unsubstantiated and excessive delays. Accordingly, the appeal was dismissed on the ground of limitation without adjudicating the merits of the addition.

ITAT remands TDS default matters to AO for de novo adjudication following earlier order; appeals allowed for statistical purposes

ISSUE: Whether the impugned orders passed by the CIT(A) for AY 2013-14 and AY 2016-17, arising from orders under section 201(1)/201(1A) of the Act, should be sustained or set aside and remanded to the AO for fresh adjudication in line with earlier Tribunal directions in assessee’s own case.

FACTS: The assessee filed two appeals against separate appellate orders dated 02.05.2025 passed by CIT(A), Panchkula, which upheld orders of the AO dated 15.03.2019 and 17.03.2023 under section 201(1)/201(1A). Both parties agreed that identical issues had already been remanded by the Tribunal in earlier years (AYs 2012-13, 2014-15, 2015-16) vide order dated 28.11.2025. In those proceedings, considering the nature of the assessee as a government department and lack of proper representation earlier, the Tribunal had set aside the orders and remanded the matters to the AO for de novo adjudication with a direction for full cooperation by the assessee.

HELD: The Tribunal, noting consensus between both parties and similarity with earlier years, set aside the impugned orders and remanded the matters to the AO for fresh adjudication on a de novo basis in terms consistent with its earlier order dated 28.11.2025. The assessee was directed to cooperate fully without seeking unwarranted adjournments. Accordingly, both appeals were allowed for statistical purposes.

CIT(A) Cannot Dismiss Appeal for Non-Prosecution; Must Decide on Merits – Matter Remanded for Fresh Adjudication

ISSUE: Whether the order of the CIT(A) dismissing the assessee’s appeals ex-parte for non-prosecution without adjudicating the issues on merits is valid in law, particularly in light of the statutory mandate under section 250(6) of the Income-tax Act, 1961, and whether such dismissal justifies remand for fresh adjudication.

FACTS: The assessee filed appeals for AYs 2019–20 and 2020–21 against reassessment orders passed under section 153C, wherein additions of Rs.1,82,84,253/- and Rs.7,24,11,246/- were made as unexplained expenditure under section 69C based on alleged bogus transactions. The Assessing Officer proceeded ex-parte due to non-compliance by the assessee. Subsequently, the CIT(A) also dismissed the appeals in limine for non-prosecution without addressing the grounds on merits. Before the Tribunal, no representation was made by the assessee, while the Department argued that adequate opportunities had been provided, though it conceded to remand upon query.

HELD: The Tribunal held that the CIT(A) is statutorily obligated under section 250(6) to pass a reasoned order on each issue and cannot dismiss an appeal solely for non-prosecution. Since the CIT(A) failed to adjudicate the issues on merits and did not provide reasons, the impugned orders were set aside. The matters were remanded back to the CIT(A) for fresh de novo adjudication after granting adequate opportunity to the assessee. Accordingly, both appeals were allowed for statistical purposes.

Delay Condoned; SLP Dismissed; No Interference with High Court Order

Interest Disallowance u/s 36(1)(iii) Deleted as Advances Presumed from Interest-Free Funds - Interest Disallowance Deleted Where Capital Advances Were Covered by Sufficient Own Funds and Internal Accruals

ISSUE: Whether disallowance of interest amounting to Rs. 68,14,949/- under section 36(1)(iii) of the Income-tax Act, 1961 was justified on the ground that interest-bearing funds were allegedly diverted towards capital advances given for purchase of capital assets, and whether such advances lacked commercial expediency.

FACTS: The assessee, engaged in manufacturing and export of speciality chemicals, filed return declaring income of Rs. 34,71,14,410/-. During scrutiny, the Assessing Officer noted capital advances of Rs. 6,53,87,800/- alongside borrowings of Rs. 60,70,53,313/- and interest expenditure of about Rs. 6.57 crores, and concluded that interest-bearing funds were diverted, resulting in disallowance of Rs. 68,14,949/-. The assessee contended that advances were for business purposes (purchase of plant and machinery), funded from internal accruals and interest-free funds (Rs. 12,856.52 lacs), supported by profits and cash flow. However, the CIT(A) upheld the disallowance citing lack of documentary evidence and failure to establish nexus. Before the Tribunal, the assessee demonstrated availability of substantial own funds exceeding advances and absence of nexus with borrowings.

HELD: The Tribunal held that where sufficient interest-free funds are available, a presumption arises that advances are made from such funds, as laid down by the Supreme Court in Reliance Industries Ltd. Since the assessee’s interest-free funds far exceeded the advances and no nexus with borrowed funds was established by the Revenue, the disallowance was based on mere presumption and unsustainable. Further, the advances were for business purposes, and commercial expediency was not disproved. Accordingly, the disallowance of Rs. 68,14,949/- was deleted and the appeal was allowed.

Reopening Valid if Notice Issued Within Limitation; Section 68 Addition Remanded for Fresh Verification of Share Sale Transactions

ISSUE: Whether reassessment u/s 147 is valid when notice u/s 148 was allegedly not served within time, and whether addition of Rs. 81,50,000/- u/s 68 (as unexplained cash credit) is justified despite the assessee claiming it represents sale proceeds of investments routed through banking channels.

FACTS: The assessee, a company engaged in share trading, filed return declaring income of Rs. 375/-. Based on Investigation Wing information, assessment was reopened and Rs. 81,50,000/- was added u/s 68 due to failure to establish identity, genuineness, and creditworthiness of parties. The assessee contended that the amount represented sale proceeds of shares reinvested through banking channels but failed to provide PAN and addresses of parties. CIT(A) upheld reopening and addition but allowed rectification of clerical errors. Before the Tribunal, the assessee also challenged non-service of notice and sought deletion or remand.

HELD: The Tribunal held that issuance of notice within limitation is sufficient for validity of reassessment, irrespective of service timing; hence reopening is valid. However, since the assessee’s claim regarding sale of investments was not properly examined, the order of CIT(A) was set aside and the matter remanded to the AO for fresh adjudication after giving opportunity to the assessee. The appeal was partly allowed for statistical purposes.

Rebate u/s 87A Allowed on STCG u/s 111A under New Regime (A.Y. 2024–25); CPC Denial Held Invalid

ISSUE: Whether a resident individual opting for the new tax regime under section 115BAC(1A), with total income not exceeding Rs.7,00,000, is entitled to rebate under section 87A against tax payable on short-term capital gains under section 111A, despite denial by CPC and affirmation by CIT(A).

FACTS: The assessee filed return for A.Y. 2024–25 declaring income below Rs.7,00,000, including STCG taxable under section 111A, and opted for section 115BAC(1A). CPC, while processing under section 143(1), denied rebate under section 87A, creating demand. CIT(A) upheld denial relying on section 115BAC interplay and Finance Bill 2025 memorandum. The assessee relied on ITAT Ahmedabad decision in Jayshreeben Jayantibhai Palsana, which held that no statutory bar existed for allowing rebate on such STCG for A.Y. 2024–25.

HELD: The Tribunal allowed the appeal, holding that section 87A contains no express restriction denying rebate on STCG under section 111A for A.Y. 2024–25, and section 115BAC(1A) does not override rebate provisions. The Finance Bill 2025 amendment is prospective and supports the assessee’s claim. Accordingly, denial by CPC was system-driven and unsustainable; rebate was allowed and demand deleted.

Partial Relief Granted: Only 10% of Demonetisation Cash Deposits Taxable at Normal Rates, Not u/s 115BBE

ISSUE: Whether the addition of Rs. 9,27,500/- made by the Assessing Officer under section 69A for cash deposits during the demonetization period, and its confirmation by the CIT(A), was justified in law and on facts, particularly when the assessee claimed that such deposits were out of business cash sales and already offered to tax.

FACTS: The assessee, an individual engaged in trading, filed return declaring income of Rs. 4,46,640/-. During scrutiny, the Assessing Officer observed cash deposits of Rs. 9,27,500/- (old currency) during demonetization and sought explanation. The assessee failed to produce a proper cash book and evidence of cash balance as on 08-11-2016, but furnished sales details, VAT returns, and stock records, claiming deposits were from business receipts. The Assessing Officer, noting abnormal rise in cash sales and lack of proper substantiation, treated the amount as unexplained income under section 69A and taxed it under section 115BBE, which was upheld by the CIT(A).

HELD: The Tribunal held that the assessee, being a small trader dealing largely in cash, had plausibly explained that deposits were from business receipts, though supporting evidence was incomplete and partly self-serving. Considering partial compliance and deficiencies, full addition was not justified; instead, an estimation of 10% of Rs. 9,27,500/- (i.e., Rs. 92,750/-) was sustained as income. Further, such addition was directed to be taxed at normal rates and not under section 115BBE. Accordingly, the appeal was partly allowed.

DDT Not Covered by DTAA; Refund Claim Invalid Without Filing Return u/s 239 — Appeals Dismissed

ISSUE: Whether the assessee is entitled to a refund of excess Dividend Distribution Tax (DDT) by invoking the India–Netherlands DTAA, and whether such claim is maintainable without filing a return of income as required under the Income-tax Act, 1961.

FACTS: The assessee, a subsidiary of a Netherlands-based company, declared dividends and paid DDT under section 115-O. It later claimed a refund of excess DDT on the ground that DTAA rates should apply, along with interest under section 244A. The Assessing Officer rejected the claim via section 154 proceedings, and the Commissioner (Appeals) upheld the rejection relying on the Special Bench ruling in DCIT v. Tata Oil India Pvt. Ltd., holding DDT as a tax on the company’s profits, not on shareholders, and thus outside DTAA scope. Additionally, no return of income was filed to claim the refund as required under section 239.

HELD: The Tribunal held that DDT is a tax on distributed profits of the company and not on shareholder income; hence, DTAA provisions are not applicable. Further, the refund claim was not maintainable due to non-compliance with section 239, as no return of income was filed. Accordingly, the appeals were dismissed and the order of the CIT(A) was upheld.

ITAT sets aside arbitrary 21.67% profit estimation and remands 69A addition due to improper rejection of additional evidence - Assessee gets relief as ITAT quashes arbitrary profit estimation and remands Rs. 74,76,720 addition for fresh consideration

ISSUE: Whether (i) estimation of business income by applying net profit @21.67% on alleged turnover of Rs. 41,52,525, and (ii) addition of Rs. 74,76,720 under section 69A as unexplained money, along with refusal to admit additional evidence by CIT(A), were justified in law.

FACTS: The assessee filed return declaring income of Rs. 1,78,770, but assessment was reopened and completed ex-parte due to non-compliance. The AO, based on third-party information, estimated turnover at Rs. 41,52,525 and applied profit rate of 21.67%, and further added Rs. 74,76,720 as unexplained bank credits under section 69A. The CIT(A) upheld additions and rejected additional evidence citing lack of earlier compliance and contradictions.

HELD: The Tribunal held that the profit rate of 21.67% was arbitrary and unsupported by comparables or past history, and that CIT(A) unjustifiably refused to admit additional evidence. The matter was set aside and remanded to CIT(A) for fresh adjudication after admitting evidence and providing opportunity of hearing; appeal allowed for statistical purposes.

10% Tolerance Limit under Section 56(2)(x) Held Retrospective; Addition Deleted Where Variation Below Threshold

ISSUE: Whether addition under Section 56(2)(x) of the Income Tax Act, 1961 can be sustained where the difference between purchase consideration and stamp duty value of immovable property is less than 10%, and whether the enhanced tolerance limit of 10% (introduced by Finance Act, 2020) applies retrospectively.

FACTS: The assessee purchased immovable property for Rs.83,66,400, while the stamp duty valuation was Rs.90,77,000, resulting in a difference of Rs.7,10,600. The Assessing Officer made an addition under Section 56(2)(x) on the ground that the difference exceeded the then applicable 5% limit. The assessee contended that the difference was less than 10% and hence no addition was warranted. Reliance was placed on judicial precedents holding that the amendment increasing tolerance to 10% is curative and retrospective. The CIT(A) upheld the addition without adjudicating this contention.

HELD: The Tribunal held that the amendment increasing the tolerance limit to 10% is curative in nature and applies retrospectively. Since the difference between the actual consideration and stamp duty value was less than 10%, the provisions of Section 56(2)(x) were not attracted. Accordingly, the addition of Rs.7,10,600 was deleted and the appeal of the assessee was allowed.

Draft Assessment Order Cannot Create Enforceable Demand; Failure to Pass Final Order Within Section 144C(13) Time Limit Extinguishes Jurisdiction

ISSUE: The issue before the Court was whether, under Section 144C of the Income Tax Act, 1961, any enforceable tax demand can exist when the Assessing Officer fails to pass a final assessment order within the mandatory time limit prescribed under Section 144C(13) after receiving directions from the Dispute Resolution Panel, and whether such failure extinguishes the jurisdiction of the authority.

FACT: The petitioner filed its return for AY 2017–18 declaring nil income and book loss of Rs.21,34,14,840/-. A transfer pricing adjustment of Rs.41,13,22,617/- was proposed, leading to issuance of a draft assessment order along with a demand notice on March 16, 2021. The petitioner filed objections before the Dispute Resolution Panel, which issued directions on August 31, 2021. These were received in September 2021, and the Transfer Pricing Officer revised the adjustment to Rs.29,94,72,101/-. However, no final assessment order was passed by the Assessing Officer within the statutory deadline of October 31, 2021 under Section 144C(13). Despite this, the department attempted to recover the demand and even adjusted Rs.74,970/- against refunds due, prompting the petitioner to file the writ petition.

HELD: The Court held that the time limit prescribed under Section 144C(13) is mandatory, and failure to pass the final assessment order within the stipulated period renders the Assessing Officer functus officio, thereby extinguishing jurisdiction. A draft assessment order cannot create any enforceable tax liability, and the demand notice issued along with it is invalid in law. Technical glitches or administrative reasons cannot extend statutory limitation. Consequently, the impugned demand and penalty notices were quashed, the petitioner’s return was treated as accepted, and the amount of Rs.74,970/- was directed to be refunded with applicable interest.

Remand Ordered for Admission of Additional Evidence Due to Lack of Cogent Reasons by CIT(A)/NFAC

ISSUE: Whether the rejection of additional evidence by the CIT(A)/NFAC under Rule 46A without adequate reasoning was justified, and whether the matter required remand for fresh adjudication including consideration of such evidence and consequential penalty appeal.

FACTS: The assessee filed appeals against orders dated 13.11.2025 and 14.11.2025 for A.Y. 2018–19. The CIT(A)/NFAC rejected additional evidence of Rs. 21,49,846 on the ground that sufficient opportunity was available during assessment and that change of counsel was not a valid reason under Rule 46A. The assessee contended that all relevant evidence must be considered by a quasi-judicial authority and sought restoration under Rule 46A(3). The Departmental Representative did not object to this request.

HELD: The Tribunal held that the CIT(A)/NFAC failed to provide cogent reasons for rejecting additional evidence and did not properly discharge its quasi-judicial duty. The order was set aside and the matter remanded with directions to admit and examine the additional evidence and pass a speaking order in accordance with Section 250(4) and (6) and principles of natural justice. Both the quantum and penalty appeals were restored and allowed for statistical purposes.

The Cash Deposits Consistent with Presumptive Business Receipts Cannot Be Treated as Unexplained Income under Section 69A

Issue: The issue was whether cash deposits of Rs.15,10,000 in the assessee’s bank account could be treated as unexplained income under Section 69A of the Income Tax Act, 1961, despite the assessee declaring income on a presumptive basis under Section 44AD, and whether such deposits could be considered as business receipts.

Fact: The assessee, a vegetable hawker, declared income of Rs.1,26,444 under Section 44AD on gross receipts of Rs.15,80,550. The Assessing Officer accepted the business activity and presumptive income but treated cash deposits of Rs.15,10,000 in the bank as unexplained income. The assessee contended that these deposits represented business receipts, consistent with the nature of the cash-based vegetable trade. The CIT(A) passed an ex parte order without adjudicating properly.

Held: The tribunal held that since the Assessing Officer had already accepted the assessee’s business and gross receipts under Section 44AD, the cash deposits, being commensurate with such receipts and typical of a cash-based business, could not be treated as unexplained income. The addition of Rs.15,10,000 under Section 69A was unjustified and was directed to be deleted, and the appeal of the assessee was allowed.

Ex-Parte Order Set Aside; Matter Remanded for Fresh Adjudication Ensuring Natural Justice

Issue: Whether the ex-parte order passed by the Ld. CIT(Appeals)/NFAC without granting sufficient opportunity of being heard to the assessee is violative of principles of natural justice and liable to be set aside.

Fact: The assessee filed an appeal against the order of the Ld. CIT(Appeals)/NFAC for AY 2018-19, contending that the appeal was dismissed ex-parte without proper opportunity. It was observed that despite multiple opportunities, there was non-compliance by the assessee before the first appellate authority. The Tribunal noted that similar issues had been considered in earlier decisions where ex-parte orders were passed due to non-compliance, and such matters were remanded back for fresh adjudication. The record showed absence of submissions and supporting evidence from the assessee, resulting in adjudication without merits at the appellate stage.

Held: The Tribunal held that although there was non-compliance by the assessee, principles of natural justice require that a fair opportunity of hearing be granted. Following earlier precedents, the ex-parte order was set aside and the matter remanded back to the Ld. CIT(Appeals)/NFAC for de novo adjudication with a direction to provide one final opportunity to the assessee. The assessee was also directed to comply with hearing notices, and the appeal was allowed for statistical purposes.

Denial of Opportunity of Hearing Violates Natural Justice; Assessment Set Aside and Remanded for Fresh Adjudication

Issue: Whether the disallowance of deduction u/s 80P(2) amounting to Rs. 20,41,216 and addition of Rs. 8,657 on account of interest u/s 244A, along with rejection of additional evidence under Rule 46A, were valid when the assessee was not provided an opportunity of hearing, thereby violating principles of natural justice.

Facts: The assessee, a credit co-operative society, filed its return declaring income of Rs. 8,790. The case was selected for scrutiny due to low income and high deductions. The Assessing Officer disallowed deduction u/s 80P(2) for lack of evidence and added Rs. 8,657 as interest on refund. The CIT(A) upheld the additions and rejected additional evidence under Rule 46A stating no sufficient cause. The assessee contended that notices were not received, hence no opportunity to present evidence, and that deduction had been consistently allowed in other years.

Held: The Tribunal held that both the AO and CIT(A) passed orders without giving the assessee an opportunity of hearing, violating principles of natural justice. Since additions were made and confirmed without hearing and considering evidence, the orders were unsustainable. The matter was remanded to the AO for fresh assessment after providing proper opportunity to the assessee, and the appeal was allowed for statistical purposes.

Partial allowance of car expenses at 60% for business use and deletion of agricultural income addition based on consistent past records and land ownership evidence

ISSUE: Whether disallowance of Rs. 4,50,010 towards car depreciation, loan interest, and insurance on the ground of personal use was justified, and whether agricultural income of Rs. 1,75,200 was rightly treated as income from other sources due to lack of substantiation.

FACTS: The assessee, an individual, earned income from a partnership firm taxable under Section 28(v) and claimed vehicle-related expenses (Rs. 3,48,737 depreciation, Rs. 74,650 interest, Rs. 26,623 insurance) against such income. The AO disallowed the claim citing absence of independent business activity, and the CIT(A) upheld it. Additionally, agricultural income of Rs. 1,75,200 was treated as income from other sources due to inadequate proof, despite the assessee submitting land ownership records and showing similar income in earlier years, claiming the land was leased for cultivation.

HELD: The Tribunal held that although exclusive business use of the car was not proven, partial business use could be reasonably inferred; hence, 60% of the vehicle-related expenses were allowed and 40% disallowed. Regarding agricultural income, considering consistent past disclosures and ownership of agricultural land, the addition was unjustified and directed to be deleted. The appeal was partly allowed.

Penalty under Section 271(1)(c) deleted as quantum addition forming its basis was already set aside by ITAT

Issue: Whether penalty under Section 271(1)(c) of the Income Tax Act, 1961 can be sustained when the addition on which such penalty was based has been subsequently deleted in quantum proceedings.

Fact: The assessee filed an appeal against the order of the CIT(A), NFAC dated 14.11.2025 confirming penalty of Rs.8,39,438/- levied for concealment of income relating to A.Y. 2012-13. The penalty was imposed due to addition of Rs.29,31,364/- being unexplained cash deposits in the assessee’s bank account. However, the ITAT, vide order dated 23.01.2026, deleted the said addition in quantum proceedings. The Departmental Representative also admitted this fact.

Held: Since the very addition forming the basis of penalty under Section 271(1)(c) stood deleted by the ITAT, there remained no concealment or furnishing of inaccurate particulars of income. Consequently, the penalty had no basis and was directed to be deleted. The appeal of the assessee was allowed.