BHIMARAYA SUNAGAR,VIJAYAPURA vs. ITO WARD 1 & TPS, VIJAYAPURA, VIJAYAPURA

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ITA 413/BANG/2026Status: DisposedITAT Bangalore23 July 2026AY 2015-1614 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal held that the entire amount of ₹42,80,545/- represented maturity proceeds of NSCs. Only the interest component of ₹11,07,145/- was liable to be taxed as income from other sources.

What were the facts?

The Assessing Officer (AO) treated an amount of ₹42,80,545/- as undisclosed contract receipts. The assessee contended that this amount represented maturity proceeds of National Savings Certificates (NSCs) and submitted additional evidence to support this claim.

What were the issues?

Whether the maturity proceeds of NSCs can be treated as undisclosed contract receipts, and whether only the interest component is taxable.

Which sections of the Income-tax Act were involved?

Section 143(3),Section 263,Section 144B,Section 250

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “A’’ BENCH: BANGALORE

Before: SHRI PRASHANT MAHARISHI & SHRI KESHAV DUBEY

For Appellant: Shri Tirumala Naidu, A.R
For Respondent: Shri Shivanand H. Kalkere, D.R
Hearing: 30.04.2026Pronounced: 23.07.2026

PER KESHAV DUBEY, JUDICIAL MEMBER:

This appeal at the instance of the assessee is directed against the order of the ld. CIT(A)/NFAC dated 27.11.2025 vide DIN & Order No. ITBA/NFAC/S/250/2025-26/1083066777(1) passed u/s 250 of the Income Tax Act, 1961 (in short “the Act”) for the assessment year 2015-16.

2.

The assessee has raised the following grounds of appeal:-

1.

General Ground The order passed by the learned Commissioner of Income-tax (Appeals), National Faceless Appeal Centre, Delhi, dated 27.11.2025, confirming the assessment order passed under section 143(3) r.w.s. 263 r.w.s. 144B of the Income-tax Act, 1961, is bad in law, contrary to facts, and opposed to settled principles of taxation, and is liable to be quashed.

ITA No.413/Bang/2026 Bhimaraya Sunagar, Bengaluru Page 2 of 14 2. Erroneous Treatment of NSC Maturity Proceeds as Contract Receipts The learned Assessing Officer and the learned CIT(A) erred in treating an amount of ₹42,80,545/- as undisclosed contract receipts, without appreciating that the said amount represents maturity proceeds of National Savings Certificates (NSCs) received from the Post Office, and not business or contract income. 3. Taxing Gross Receipts Instead of Real Income The authorities below erred in taxing the entire gross receipt of ₹42,80,545, ignoring the settled principle that only real income can be brought to tax, and that return of capital cannot be assessed as income. 4. Failure to Segregate Principal and Interest Components The learned lower authorities failed to segregate the principal component and interest component embedded in the NSC maturity proceeds, and mechanically assessed the entire receipt as income, which is legally untenable and arbitrary. 5. Interest Income Belonging to Deceased Mother Not Taxable in Appellant’s Hands The learned authorities erred in taxing interest of ₹1,23,400/- pertaining to NSCs belonging to the Appellant’s late mother, which was credited to the Appellant’s bank account only in his capacity as nominee, and which does not constitute income of the Appellant under the Income-tax Act, 1961. 6. Taxability Limited Only to Interest of ₹11,07,145/- Without prejudice, the authorities below failed to appreciate that at the highest, only interest income of ₹11,07,145/-, belonging to the Appellant, could be assessed under the head “Income from Other Sources”, and the balance amount was not chargeable to tax. 7. Violation of Settled Judicial Principles The impugned order is contrary to settled judicial principles, including the decision of the Hon’ble ITAT in Rajesh Gupta v. ITO (ITA No. 446/JP/2022), wherein it has been held that FD/NSC maturity proceeds cannot be taxed in entirety, and only the interest component is chargeable to tax. 8. Incorrect Reliance on Earlier Erroneous Submission The learned authorities erred in placing undue reliance on an earlier mistaken submission, without examining the true nature and source of the receipt, despite documentary evidence being capable of establishing that the receipt was from Post Office NSC maturity. 9. Non-adjudication on Merits by CIT(A) The learned CIT(A) erred in dismissing the appeal without adjudicating the issue on merits, despite the addition being unsustainable on facts and law, thereby violating the principles of natural justice.

ITA No.413/Bang/2026 Bhimaraya Sunagar, Bengaluru Page 3 of 14 10. Addition Based on Presumptions and Surmises The impugned addition of ₹42,80,545/- is based purely on presumptions, conjectures, and surmises, without any material evidence to establish that the said amount constituted undisclosed contract income. 11. Without Prejudice – Excessive and Unreasonable Assessment Without prejudice to the above grounds, the assessment of the entire receipt as business income is grossly excessive, unreasonable, and disproportionate, and liable to be deleted. 12. Prayer for Relief The Appellant prays that the Hon’ble Tribunal may kindly: a. delete the addition of ₹42,80,545/- in full, or b. alternatively, restrict the taxable income only to ₹11,07,145/-, being interest income belonging to the Appellant, and c. grant such other reliefs as the Hon’ble Tribunal may deem fit in the interest of justice. 13. Leave to Add / Amend Grounds The Appellant craves leave of the Hon’ble Tribunal to add, alter, amend, or withdraw any of the above grounds at the time of hearing. (Total tax effect: Rs. 21,24,267/-) On the basis of the above grounds and other grounds which may be urged at the time of hearing with the consent of the Honorable Tribunal, it is prayed that the order passed under section 143(3)/250, to the extent it is against the Appellant, be quashed and the relief sought be granted.

3.

The assessee has also filed an application for admission of additional evidence as per Rule 29 of the Income Tax Appellate Tribunal Rules, 1963 which are reproduced below for ease of reference and convenience:

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ITA No.413/Bang/2026 Bhimaraya Sunagar, Bengaluru Page 5 of 14

3.1 The assessee had also filed an affidavit stating that the addition of Rs.42,80,545/- by treating as undisclosed contract receipts were represents the maturity proceeds of National Saving Certificate (NSC). The copy of the affidavit filed before us is reproduced below for ease of reference and convenience:

ITA No.413/Bang/2026 Bhimaraya Sunagar, Bengaluru Page 6 of 14

ITA No.413/Bang/2026 Bhimaraya Sunagar, Bengaluru Page 7 of 14

ITA No.413/Bang/2026 Bhimaraya Sunagar, Bengaluru Page 8 of 14

3.2 According to Rule 29 of the I.T. Rules, 1963¸ generally the parties to the appeal shall not be entitled to produce additional evidence either oral or documentary before the Tribunal but if the Tribunal requires any document to be produced to enable it to pass orders or for any other substantial cause, or, if the income tax authorities have decided the case without giving sufficient opportunity to the assessee to adduce evidence either on points specified by them or not specified by them, the Tribunal for reasons to be recorded, may allow such document to be produced or may

ITA No.413/Bang/2026 Bhimaraya Sunagar, Bengaluru Page 9 of 14 allow such evidence to be adduced. In the present case, the assessee by way of an affidavit submitted that he had inadvertently made an incorrect statement regarding the nature of the bank credit due to lack of proper legal advice and a complete misunderstanding. Before us, the ld. A.R. of the assessee vehemently submitted that this additional evidence is crucial for deciding the issue on merits i.e. whether the bank receipts constitutes undisclosed contract receipts or not? This being so, we find good and sufficient reason in not submitting the additional evidence before the lower authorities. Accordingly, we admit these additional evidences as in our opinion these are essential for adjudication of the issue in the present appeal.

4.

Thus, in the present case, the AO while passing the order u/s 143(3) r.w.s. 263 of the Act dated 27.09.2021 had added Rs.42,80,545/- on the alleged ground that the assessee had received contract receipts which were not credited to the profit & loss account rather it was kept secretly in the capital account. During the course of assessment proceeding, it was stated that these receipts were attributed to the completed work but were not routed through the books of accounts due to clerical mistakes. Now before us, the ld. A.R. of the assessee by submitting the additional evidences contended that the AO treated the entire bank receipts as business income based on an inadvertent statement made during the initial proceeding.

4.1 Before us, the ld. A.R. of the assessee contended that the sum of Rs.42,80,545/- credited to the assessee’s bank account is nothing but maturity proceeds of National Saving Certificate (NSC) and therefore, the AO had wrongly treated the same as undisclosed contract receipt. Further, in support of his claim, the assessee has also produced copies of the cheque receipts issued by the Sub-Post

ITA No.413/Bang/2026 Bhimaraya Sunagar, Bengaluru Page 10 of 14 Master, Sindagi along with the copy of banking trail placed at page nos.5 to 7 of the paper book, which are reproduced below for ease of reference and convenience:

ITA No.413/Bang/2026 Bhimaraya Sunagar, Bengaluru Page 11 of 14

ITA No.413/Bang/2026 Bhimaraya Sunagar, Bengaluru Page 12 of 14

5.

The ld. D.R. on the other hand, vehemently submitted that the issue in dispute may be remitted back to the file of AO to examine

ITA No.413/Bang/2026 Bhimaraya Sunagar, Bengaluru Page 13 of 14 the claim of the assessee now submitted before this Tribunal by way of additional evidences.

6.

We have heard the rival submissions and perused the materials available on record. In the present case, the assessee has raised all the grounds related to the gross receipts of Rs.42,80,545/- treated as undisclosed contract receipt by the AO whereas, the claim of the assessee is that the said amount represents maturity proceeds of National Saving Certificate (NSC) received from the Post Office. In support of his claim, the assessee has also produced the copies of Cheque receipts issued by the sub-post master, Sindagi, bank statements, where the NSC proceeds were credited and copy of the affidavit, which were already reproduced above. Therefore, we have no hesitation to hold that the entire gross receipts of Rs.42,80,545/- constitutes maturity proceeds from NSC as clearly demonstrated by the assessee. While holding so, we are also of the opinion that the interest component of the maturity of the NSC amounting to Rs.11,07,145/- is only liable to be taxed under the head income from other sources. In view of the above, we direct the AO to delete the balance addition of Rs.31,73,400/- [ Rs.42,80,545/- (-) Rs.11,07,145/-].

7.

In the result, appeal filed by the assessee is partly allowed.

Order pronounced in the open court on 23rd July, 2026

Sd/- Sd/- (Prashant Maharishi) (Keshav Dubey) Vice President Judicial Member

Bangalore, Dated 23rd July, 2026. VG/SPS

ITA No.413/Bang/2026 Bhimaraya Sunagar, Bengaluru Page 14 of 14

Copy to:

1.

The Applicant 2. The Respondent 3. The CIT 4. The DR, ITAT, Bangalore. 5 Guard file By order

Asst. Registrar, ITAT, Bangalore.

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