MRS. SHOBH RANI ,MUMBAI vs. ITO WARD 2(2), KALYAN

IN THE INCOME TAX APPELLATE TRIBUNAL “H (SMC)” BENCH, MUMBAI BEFORE MS. KAVITHA RAJAGOPAL, JM AND SHRI MAKARAND VASANT MAHADEOKAR, AM ITA No.608/Mum/2026 (Assessment Year: 2017-18)

Mrs. Shobha Rani, Income Tax Officer, 608, Kaveri Apartment, Ward -(2)(2) Kailash Nagar, Vs. Khadakpada, Badlapur, Kalyan-421306 Thane-421503 PAN:AFKPR9326R (Appellant) : (Respondent)

Assessee by : Mr. KalimDhalani, AR : ShriAjay Chandra, CIT-DR & Respondent by ShriPravin Salunkhe, Sr. DR

Date of Hearing : 28.04.2026 Date of Pronouncement : 30.04.2026

O R D E R Per Kavitha Rajagopal, JM:

This appeal is filed by the assessee challenging the order of the Learned

Commissioner of Income Tax (Appeals) [‘Ld. CIT(A)’ for short], National Faceless Appeal Centre (‘NFAC’ for short) passed u/s 250 of the Income Tax Act, 1961 (“the Act” for short) relevant to assessment year (“AY” for short) 2017-18.

ITA No.608/Mum/2026 Mrs. Shobha Rani condone the delay as there being “sufficient cause” explained by the assessee for the delay

in filing the appeal beyond the period of limitation. Accordingly, the delay is condoned.

“1. The learned CITA has erred in holding the appeal to be barred by limitation, ignoring the fact that the impugned order was received by the appellant only on 23rd January 2024, from which date the limitation rightfully commences.

The Appellant respectfully submits that he was not in receipt of the impugned order passed by the learned Income Tax Officer (ITO) within the customary course of communication. It was only upon making a specific application to the Hon'ble Prime Minister's Office (PMO) that the certified copy of the said order was furnished to the appellant on 23rd January 2024. Consequently, in accordance with the principles of natural justice and the provisions of the Income Tax Act, 1961, the statutory period of 30 days for filing the appeal before the learned Commissioner of Income Tax (Appeals) commenced only from the date of actual receipt of the order, i.e., 23rd January 2024. The appeal was thereafter filed by the Appellant on 21st February 2024, which is well within the prescribed period of limitation computed from the date of receipt. In support of the above submissions and to explain the bona fide delay, if any, an affidavit detailing the complete chain of events leading to the delayed filing is enclosed herewith as Annexure A.

The Learned Income Tax Officer (ITO) has erred in law and on facts by making an addition of ₹12,77,880 as unexplained cash deposit, solely on the basis that the amount represented demonetised currency deposited during the specified period from 9th November 2016 to 31st December 2016.

The said cash receipts were not the Appellant's own undisclosed income, but constituted client funds received in the ordinary course of her Domestic Money Transfer (DMT) business. In this line of business, the Appellant acts as an intermediary for unbanked customers-primarily hawkers and small-scale vendors- who require funds to be transferred electronically. The business model necessitates receiving physical cash from such customers, depositing it into the Appellant's current account, and subsequently remitting the equivalent amount to the beneficiary account nominated by the customer, for a nominal service fee of approximately 1%.

ITA No.608/Mum/2026 Mrs. Shobha Rani During the demonetisation period, the Appellant received a total of 13,45,546 in cash from customers for onward transfer. Out of this, a sum of ₹13,32,718 was deposited into her bank account purely for the purpose of facilitating the required bank transfers. Refusing to accept demonetised currency during this period would have forced the Appellant to cease operations entirely, causing severe business disruption. Therefore, the handling of such currency was a practical business compulsion and not indicative of any unexplained income.

In support of this explanation, the following documentary evidence is submitted:

Annexure D: A detailed list of all bank transfers made on behalf of customers during the year, totaling ₹75,24,265, which includes the period-specific transfers of ₹13,32,718 made between 9th November 2016 and 31st December 2016, complete with customer particulars.

Annexure E: Relevant extracts of the Appellant's current account bank statements, evidencing the outward remittances corresponding to the cash deposits.

Thus, the cash deposited was directly and wholly utilised for legitimate business transactions, leaving no residual unexplained amount. The addition made by the ITO, and upheld by the Learned CIT(A) without due examination of these merits, is therefore unsustainable, contrary to evidence on record, and liable to be deleted in full.

The learned CIT(A) erred in law by not deciding the appeal on merits, having dismissed it exclusively on the ground of alleged delay in filing.

The Learned Income Tax Officer (ITO) has grossly erred in fact and law in holding, at para 2 of the impugned order, that the assessee had not filed her return of income for the year under consideration. This finding is patently incorrect and directly contradicted by the ITO's own subsequent observations within the same order.

The Appellant had duly filed her return for A.Y. 2015-16 in response to a notice issued under Section 142(1) of the Income Tax Act, 1961. In support of this submission, the Return Acknowledgement and a copy of the ITR-4 are enclosed as Annexure C.

Significantly, at para 9 of the same assessment order, the ITO himself notes that *"on verification of records available with the Income Tax Department it is 3

ITA No.608/Mum/2026 Mrs. Shobha Rani observed that the assessee had filed an Income Tax Return upto A.Y. 2017-18, 2018-19 and 2019-20 only."* This statement conclusively demonstrates that the Appellant's return filing history was available on the Department's records at the time of passing the order.

The ITO has thus committed a manifest error by failing to conduct even a basic verification of the available records, leading to a contradictory and unsustainable finding. The assertion of non-filing in para 2 is vitiated by a clear non-application of mind, as the very records cited in para 9 would have revealed the filed return for the year under appeal. Such an internal contradiction renders the impugned finding arbitrary and liable to be set aside.

The learned CIT(A) erred in law by not deciding the appeal on merits, having dismissed it exclusively on the ground of alleged delay in filing.

The Learned Income Tax Officer (ITO) has grossly erred in law and on facts by estimating the Appellant's business income at 20% of net bank receipts amounting to ₹13,44,157. This arbitrary estimation is based on a fundamentally incorrect assumption that all bank credits constitute the Appellant's own business receipts, disregarding their true character as customer funds held in trust.

The ITO erroneously considered total bank credits of 79,98,667, reduced cash deposits during demonetisation of 12,77,880, and arrived at net receipts of ₹67,20,787 for estimation. As evidenced in Annexure D, a sum of ₹75,24,265 out of the total cash deposits of ₹83,57,881 during the year represents monies received from customers for onward Domestic Money Transfer (DMT), which do not constitute the Appellant's income.

The difference between total cash deposits (₹83,57,881) and DMT transfers (₹75,24,265) is ₹8,33,616. This amount represents the Appellant's genuine business receipts from:

• Fees earned on Domestic Money Transfer services • Income from lamination, photocopying, and mobile recharge/repair services • Consulting fees for Domicile and Gazette certificates

The Appellant has duly declared these receipts as her turnover in the Income Tax Return. Under the presumptive taxation scheme, the Appellant declared gross receipts of ₹8,78,454 and offered a business profit of ₹2,34,787 – effectively a

ITA No.608/Mum/2026 Mrs. Shobha Rani profit rate of 26.73%, which substantially exceeds the prescribed presumptive rate of 6% / 8%.

The Appellant filed her return under Section 44AD, thereby being exempt from maintaining books of account. The bank receipts predominantly represent customer funds held in fiduciary capacity, not assessable as business income. The DMT business operates on a thin margin of approximately 1% (₹1,000 per ₹1,00,000 transferred), as explained earlier and reflected in the bank statements enclosed as Annexure E.

The learned CIT(A) erred in law by not deciding the appeal on merits, having dismissed it exclusively on the ground of alleged delay in filing.

The Learned Income Tax Officer (ITO) has erred both in law and on facts in initiating penalty proceedings against the Appellant. The initiation is without any legal basis as there is no instance of concealment of income or furnishing of inaccurate particulars by the Appellant.

The entire basis of the penalty proceedings rests on the erroneous addition of ₹13,44,157, being 20% of the net bank credits amounting to ₹67,20,787. As substantiated in Ground 4, these bank credits predominantly represent customer funds held in a fiduciary capacity for Domestic Money Transfer services and do not constitute the Appellant's own taxable income. The actual business turnover, comprising fees and contract receipts, has been fully and accurately disclosed by the Appellant.

Penalty proceedings necessitate the presence of a deliberate act of concealment or furnishing of inaccurate particulars. In the present case, the Appellant has acted in a bona fide manner, disclosed all material facts, and computed income in accordance with the provisions of the Act. The addition made by the ITO is a mere difference of opinion on a legal interpretation of bank credits and does not, in any manner, establish fraud or willful neglect on the part of the Appellant. Therefore, in the absence of any escapement of income, and given the Appellant's full compliance with the tax laws, the initiation of penalty proceedings is unjustified, arbitrary, and liable to be quashed.

The Learned Income Tax Officer (ITO) has incorrectly charged interest under Sections 234A, 234B, 234C, and 234D of the Income Tax Act, 1961. Such interest is leviable only where there is a default in payment of advance tax or a shortfall in tax liability upon assessment. Since there is no additional tax payable pursuant to the 5

ITA No.608/Mum/2026 Mrs. Shobha Rani assessment as the addition made by the ITO is untenable and is contested in the preceding grounds-the levy of interest is without any legal basis and is liable to be deleted.

The imposition of penalties under Sections 271AAC, 270A, and 271F is wholly unjustified. These penalties presuppose either under-reporting or misreporting of income, non-payment of tax on undisclosed income, or failure to furnish a return of income. The Appellant has fully and correctly disclosed all income under the applicable presumptive taxation scheme, and no escapement of income has occurred. Consequently, the very foundation for levying these penalties is absent, rendering their imposition erroneous, arbitrary, and liable to be set aside.

The ITO has further erred in levying a penalty under Section 272A(1)(d) for alleged failure to comply with the notice issued under Section 142(1). This levy is factually incorrect, as a return of income was duly filed pursuant to it. The penalty, therefore, is based on an incorrect appreciation of facts and is unsustainable in law.”

return of income for the year under consideration. The assessee’s case was selected in

AIMS data for cash deposit in bank account of specified bank currency during

demonetisation period amounting to Rs.67,20,787/-. The assessee was non-compliant

during the assessment proceeding and the Ld. Assessing Officer (“Ld. AO” for short)

passed the assessment order dated 16.12.2019 u/s 144 of the Act being best judgement

assessment determining the total income at Rs.13,44,157/- being 20% of the total

receipts/credits recorded in the bank account of the assessee.

order dated 17.10.2024 dismissed the appeal filed by the assessee in limine without

condoning the delay of 783 days in filing the first appeal.

CIT(A). 6

ITA No.608/Mum/2026 Mrs. Shobha Rani

that the assessee is not a highly educated person and is a proprietor of a small business in

the name and style M/s. Shobha Novelty. Due to the reason that the assessee has not

received the assessment order nor was it available in the income tax portal the assessee

was not aware of the passing of the assessment order dated 16.12.2019. Further, it is

argued that the assessee had lodged a grievance on the CPGRAMS portal on 28.12.2013

and thereafter the assessee had received the assessment order on 23.12.2024. The Ld. AR

contended that the assessee was neither negligent nor wanton in filing the first appeal

belatedly as there was genuine hardship caused to the assessee due to which the first

appeal was filed belatedly.

vehemently opposed to condoning the delay in filing the first appeal.

the file of the Ld. AO in order to extend the assessee with one more opportunity to present

her case before the Ld. AO, by adhering to the principles of natural justice and in the

interest of justice dispensation. The assessee is directed to strictly comply with the

proceeding before the Ld. AO without any undue delay from her side along with all

supporting documentary evidences. The Ld. AO is directed to pass a denovo assessment

on the basis of the submission made by the assessee and the documentary evidences, if any

filed in support of her claim on the merits of the case and in accordance with law.

ITA No.608/Mum/2026 Mrs. Shobha Rani 11. In the result, the appeal filed by the assessee is allowed for statistical purpose.

Order pronounced in the open court on 30.04.2026

Sd/- Sd/- (MAKARAND VASANT MAHADEOKAR) (KAVITHA RAJAGOPAL) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai; Dated: 30.04.2026 * Kishore, Sr. P.S. Copy of the Order forwarded to: 1. The Appellant 2. The Respondent 3. CIT- concerned 4. DR, ITAT, Mumbai 5. Guard File BY ORDER,

(Dy./Asstt.Registrar) ITAT, Mumbai