INCOME TAX OFFICER, WARD-1, DIMAPUR, DIMAPUR vs. KRISHNA RAMAULI THAPA, PHEK

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ITA 19/GTY/2026Status: DisposedITAT Guwahati01 June 2026AY 2017-1810 pages
AI SummaryRemanded

What did the Tribunal hold?

The Tribunal found that the CIT(A)'s order was contradictory as it applied Section 69A for unexplained deposits but then estimated profit, which was not justified. Therefore, the Tribunal set aside the CIT(A)'s order.

What were the facts?

The Revenue appealed against the CIT(A)'s order which partly allowed the assessee's appeal by estimating profit at 20% of cash deposits instead of treating the entire amount as unexplained income. The assessee had made substantial cash deposits without filing a return and failed to provide satisfactory explanations or documentary evidence.

What were the issues?

Whether the CIT(A) erred in estimating profit on unexplained cash deposits instead of upholding the addition of the entire amount as per Section 69A, and whether the CIT(A)'s order lacked proper reasoning.

Which sections of the Income-tax Act were involved?

Section 69A,Section 147,Section 115BBE,Section 271A,Section 44AB,Section 271B

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, GUWAHATI ‘DB’ BENCH AT KOLKATA

Before: SHRI SONJOY SARMA & SHRI RAKESH MISHRA

PER RAKESH MISHRA, ACCOUNTANT MEMBER:

This appeal filed by the Revenue is against the order of the Commissioner of Income Tax (Appeals)-NFAC, Delhi [hereinafter referred to as Ld. 'CIT(A)'] passed u/s 250 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) for AY 2017-18 dated 21.08.2025. 1.1 The Registry has informed that the appeal is barred by limitation by 69 days. The Revenue has filed a petition for condonation of delay explaining the reasons that during the relevant period, key technical staff was on sanctioned leave due to personal exigencies. The Juri ictional Assessing Officer (AO) was stationed at Dimapur, the Range Head was stationed at Jorhat and the Approving Authority was stationed at Guwahati. Therefore, there was an inadvertent delay on account of internal communication between the Assessing Officer (AO) and the authority approving the filing of the appeal. It was also ITA No(s). 19/GTY/2026 Assessment Year(s) 2017-18 submitted that the office was simultaneously engaged in the preparation and submission of various time-barring reports and other statutory mandates and penalty proceedings which required the immediate and undivided attention of the available officers. It has been requested that since the delay was neither intentional nor deliberate therefore, the same may be condoned. After perusing the same, we are satisfied that the Revenue had a reasonable and sufficient cause and was prevented from filing the instant appeal within the statutory time limit. We, therefore, condone the delay and admit the appeal for adjudication.

2.

The Revenue is in appeal before the Tribunal raising the following grounds of appeal:

“1. The learned CIT(A) erred in law and on facts by directing the Assessing Officer (AO) to estimate the profit at 20% of the total cash deposits instead of upholding the addition of the entire unexplained cash deposit of Rs. 1,27,20,740/- u/s 69A of the Income Tax Act, 19611. The CIT(A) failed to appreciate that once the source of cash deposits is not satisfactorily explained, the entire credit must be treated as unexplained money u/s 69A rather than being treated as "business turnover".

2.

The learned CIT(A) erred by partially allowing the appeal on an estimate basis without having regard to the findings that the assessee was "not engaged in any real business activity" and was "merely depositing and withdrawing cash, possibly to create a facade of business". Having upheld the AO's conclusion that the business was not genuine, the CIT(A) had no basis to treat the deposits as turnover and apply a profit rate.

3.

The learned CIT(A) erred in adopting a profit rate of 20% without any material facts, precedence, or corroborative evidence, especially after acknowledging that the assessee had failed to produce any books of accounts, bills, or vouchers during the assessment proceedings.

4.

The Appellant craves leave to add, alter, modify, or amend any of the above grounds of appeal at or before the time of the hearing.”

3.

Brief facts of the case are that the assessee the assessee had not filed his return of income for the relevant assessment year within the prescribed period. During the year, the assessee made cash deposits of ITA No(s). 19/GTY/2026 Assessment Year(s) 2017-18 ₹1,23,35,240/- and ₹3,85,500/- in two bank accounts in SBI. Based on this information, the Assessing Officer (hereinafter referred to as Ld. 'AO') reopened the assessment u/s 147 of the Act and treated the total amount of ₹1,27,20,740/- as unexplained income u/s 69A of the Act and taxed the same u/s 115BBE of the Act. The Ld. AO noted that the assessee had failed to provide adequate documentary evidence such as bills, stock registers, cash books, or evidence for statutory compliance like VAT registration and tax audit, and the source of cash deposited in the bank accounts was also not satisfactorily explained. The assessee had filed his return of income showing total income of ₹2,03,240/- in response to the notice u/s 148 of the Act against which the Ld. AO assessed the total income of the assessee at ₹1,29,23,980/- u/s 147 r.w.s. 144B of the Act and treated the deposits in the bank accounts as unexplained. Aggrieved with the assessment order, the assessee filed an appeal before the Ld. CIT(A) who partly allowed the appeal of the assessee as per his finding as under:

“8. Ground no 1, 2 & 4: The, Assessing Officer, during the assessment proceedings, - reopened the case of the assessee under Section 147 of the Income Tax Act, 1961, based on information regarding cash deposits in the assessee's bank accounts amounting to Rs. 1,23,35,240/- in account No. 11842622955 and Rs. 3,85,500/- in account No. 11842627748 held with State Bank of India. Notices under Sections 148 and 143(2) of the Act were duly issued and served electronically to the assessee, who filed his return in response. The AO examined the facts, including the non-filing of the return within the prescribed period, and after considering the materials on record, treated the deposits as income assessable under the relevant provisions of the Act. The assessee contended that the reopening of assessment was void ab initio as it was based on suspicion and guesswork without corroborative material. He further argued that the AO erred in assuming willful concealment of income for non-filing of the return and burdening him unnecessarily under Section 139, despite being below the taxable limit. The assessee maintained that all cash deposits represented genuine business turnover and that the ITA No(s). 19/GTY/2026 Assessment Year(s) 2017-18 non-filing of return was due to his bonafide belief and lack of knowledge regarding statutory requirements. During appellate proceedings, the assessee submitted that he was a small businessman operating in Pfutsero, Nagaland, where cash sales were a common practice, and no bills were usually issued. He argued that all bank deposits were from genuine business receipts, and payments made through NEFT or cheques to suppliers were necessitated by the hilly and insecure geographical location. He also claimed that notices and documentary requirements were burdensome, and all necessary explanations were provided, including cash flow summaries and ledger details. The assessee relied on case law to support his contentions regarding treatment of cash deposits and non-filing of returns. Upon careful consideration, it is observed that the AO's action is in accordance with law. The reopening was based on specific information regarding substantial cash deposits, which the assessee had not reported in a timely filed return. The AO provided multiple opportunities to furnish evidence and explanations, which were considered but found insufficient to establish that the deposits were properly accounted as turnover. The reliance on general case law cited by the assessee is not relevant, as the facts of those cases are distinguishable from the present scenario, particularly with regard to quantum of deposits, failure to file return, and lack of corroborative evidence for claimed turnover. In view of the above, the submissions of the assessee do not warrant interference with the AO's action. The AO correctly exercised his powers under Sections 147, 148, and relevant provisions for assessing unexplained cash deposits, and rightly concluded that the non-filing of return and cash deposits warranted assessment of income. Accordingly, the appeal filed by the assessee on grounds 1, 2, and 4 is dismissed.

9.

Ground no 3, 5, 6, 7 & 8: Upon examination, it is observed that the AO’s action is consistent with law and based on a detailed analysis of the facts. The AO rightly invoked Section 69A because the assessee failed to provide adequate corroborative evidence for the large cash deposits, and the explanation provided was not sufficient to establish that the entirety of the deposits represented taxable or exempt turnover. There are several critical factors that support the AO’s conclusion. Firstly, the assessee did not maintain any books of accounts for the year under consideration, and the records that wore later submitted during the proceedings appear to be afterthoughts rather than genuine contemporaneous business records. Secondly, the assessee had not filed any return of income within the prescribed time limit, which indicates non- compliance with statutory requirements and raises doubts about the ITA No(s). 19/GTY/2026 Assessment Year(s) 2017-18 veracity of the claimed business activity. Thirdly, there were no bills, vouchers, or documentary proof to substantiate the purchases, sales, or expenditures claimed by the assessee, leaving the AO without any verifiable material to confirm that the deposits represented legitimate business turnover. Furthermore, the expenditures that were reported were very small, rounded- off amounts, and not commensurate with the alleged turnover, which casts further doubt on the genuineness of the business activity. The AO also observed that the books of accounts, even if later produced, were not audited, which is a statutory requirement under Sections 44AB/44AA for a business of such scale. Other findings by the AO, including the pattern and frequency of cash deposits and withdrawals, suggest that the assessee was primarily benefiting from cash transactions rather than running a genuine business operation. Considering all these shortfalls, it can be concluded that the assessee was not engaged in any real business activity but was, merely depositing and withdrawing cash, possibly to create a facade of business. The AO considered the cash flow statements and other submissions made by the assessee, but these were not sufficient to establish the source of the deposits convincingly. The case law relied upon by the assessee is not relevant to the present facts, as it pertains to situations involving documented business practices, smaller quantum of deposits, or audited accounts, which are not applicable here. The AO correctly applied the provisions of Section 69A to determine the nature and source of the deposits and to estimate the profit element. While in a genuine business, an income margin of around 8% could be considered reasonable, in this case, given the absence of substantive business operations, the actual profit or benefit is likely to be much higher Based on the nature of the activity and the nature of the deposits, it would be reasonable to estimated the profit at around 20% of the total cash deposited, reflecting the actual economic benefit derived by the assessee. The action of the Assessing Officer in treating the deposits as unexplained is correct however, it is directed to take profit at 20% for assessment purposes is workout as discussed above. In view of the above, the appeal of the assessee on grounds 3, 5, 6, 7, and 8 is partly allowed.

10.

Ground no 9 & 10: The AO, in the assessment proceedings, charged interest under Sections 234A and 234B for default in filing return of income and for non-payment/short payment of advance tax. Specifically, interest under Section 234A of Rs. 40,07,475 and under Section 234B of Rs. 53,43,300 was levied, as the assessee had not filed his return within the prescribed time under Section 139(1) and had also not paid advance tax, leading to a shortfall in tax compliance. The AO's action was in accordance Assessment Year(s) 2017-18 with the provisions of the Income Tax Act and was based on factual non- compliance by the assessee. The assessee, in grounds 9 and 10 of the appeal, contended that the interest levied under Sections 234A and 234B was not justified, arguing that the delay in filing the return and the consequent shortfall in tax was due to his belief that he was not required to file a return, given the nature of his business and turnover, which was modest. The assessee further submitted that the interest should be cancelled considering his bonafide belief and lack of knowledge regarding statutory obligations. During appellate proceedings, the assessee reiterated that he had not filed return of income for the relevant year within the prescribed time, attributing it to lack of knowledge and the nature of his business. He also referred to general business practices in his area, claiming that the statutory provisions requiring timely filing were not applicable to him, and therefore, interest levied under Sections 234A and 234B should be set aside. Upon careful examination, it is observed that the AO's action is fully justified the law under Sections 234A and 234B prescribes levy of interest for delay in filing return and non-payment/short payment of advance tax, irrespective of the reason for default. The fact that the assessee had a bonafide belief or limited knowledge does not absolve him from statutory obligations. The case law relied upon by the assessee is not relevant, as it deals with different factual situations where either tax liability was nil or statutory compliance was demonstrably satisfied, which is not the case here. The assessee had not filed any return on time and had also not discharged his advance tax liability, resulting in automatic applicability of interest provisions. In view of the above, the appeal of the assessee on grounds 9 and 10 is dismissed.

Ground no 11 & 12: The AO, In the assessment proceedings, initiated penalty proceedings under Sections 271A and 271B of the Income Tax Act. Penalty under Section 271A was invoked for failure to maintain regular books of accounts, and penalty under Section 271B was invoked for non- compliance with tax audit requirements under Section 44AB. The AO observed that the assessee did not maintain proper books, did not file audited accounts, and did not provide adequate documentary evidence to substantiate the cash deposits and business transactions. The AO's action was consistent with the law and based on statutory provisions applicable to all assessees. The assessee, in grounds 11 and 12, contended that the initiation of penalty proceedings was unjustified. He claimed that he was under a bonafide belief that maintenance of books of account and tax audit compliance were ITA No(s). 19/GTY/2026 Assessment Year(s) 2017-18 not applicable to him due to the nature and scale of his business. The assessee submitted that he had limited education, was running a small grocery business in a remote location, and hence, the penalty should not be levied. During appellate proceedings, the assessee reiterated that he was unaware of the statutory obligations regarding accounting and audit requirements. He also submitted that he had attempted to provide some details and summaries after notices were issued, which should be considered in mitigation of penalty. The assessee argued that the penalties were harsh and not warranted considering the small-scale nature of his business and his bonafide belief. Upon examination, it is observed that the AO’s action is correct and in accordance with law. The Income Tax Act mandates maintenance of books of accounts for assessees engaged in business, and failure to maintain such accounts attracts penalty under Section 271A. Similarly, for assessees meeting the prescribed threshold, compliance with tax audit requirements under Section 44AB is mandatory, and failure to comply attracts penalty under Section 271B. The bonafide belief of the assessee or the scale of his business does not exempt him from statutory obligations. The case law cited by the assessee is not relevant, as it pertains to different factual situations where statutory thresholds were not met or compliance was demonstrably adequate. In the present case, there was no proper maintenance of books, no audit conducted, and statutory requirements were not fulfilled. The action of the AO in initiating and confirming penalty proceedings under Sections 271A and 271B is upheld, and there is no merit in the submissions made by the assessee. In view of the above, the appeal of the assessee on grounds 11 and 12 is dismissed.

Ground no 13 & 14: The AO, in the assessment proceedings, passed the order under Sections 147 read with 144B, addressing all issues including unexplained cash deposits, failure to file return, and non-maintenance of proper books of account. The AO acted within his powers as per the provisions of the Income Tax Act and applied the relevant sections appropriately.

12.

The assessee contended in grounds 13 and 14 that the AO's order should be quashed for reasons of alleged unfairness and requested liberty to amend or vary grounds of appeal at the hearing. The assessee argued that the AO acted arbitrarily and invoked deeming provisions without proper basis. Upon review, the AO’s actions are consistent with law. Reassessment under Section 147 is valid when there is material suggesting escapement of ITA No(s). 19/GTY/2026 Assessment Year(s) 2017-18 income, and the assessee failed to provide adequate evidence to contradict the AO’s findings. The case law relied upon by the assessee is not applicable as it deals with different factual circumstances and statutory compliance, whereas in this case, statutory requirements were not met, and the AO correctly applied the law. The AO's order under Sections 147 read with 144B is upheld, and the assessee's arguments lack merit. Accordingly, the appeal on grounds 13 and 14 is dismissed.

13.

In the result, the appellant's appeal is partly allowed.”

4.

Aggrieved with the order of the Ld. CIT(A), the Revenue has filed the appeal before the Tribunal.

5.

None appeared on behalf of the assessee and the case was heard with the assistance of the Ld. DR. The Ld. DR relied upon the order of the Ld. AO and requested that the same may be upheld as the appeal order was contradictory in nature as the Ld. CIT(A) on one hand had agreed with the finding of the Ld. AO that the provision of section 69A of the Act were correctly applied yet restricted the addition to 20% of the total cash deposited without any basis. It was requested that the order of the Ld. CIT(A) may be set aside and that of the AO may be restored.

6.

We have considered the submissions made, gone through the facts of the case and perused the record and the order of the Ld. CIT(A). The Bench was of the view that no proper finding has been given by the Ld. CIT(A) and the restriction of the profit to 20% of the cash deposit was contradictory to the finding that the provisions of section 69A of the Act were applicable as the deposits were unexplained and there was no justification for applying any profit rate on the same. Therefore, the order of the Ld. CIT(A) is hereby set aside and the appeal is remanded to him to pass a speaking order. Needless to say, the assessee as well as the Ld. AO, both shall be given a reasonable opportunity of being Assessment Year(s) 2017-18 heard to make any further submission they want to make and shall not seek unnecessary adjournments and rule 46A of the I.T. Rules, 1962 shall also be followed. Accordingly, the grounds taken by the Revenue in its appeal are partly allowed for statistical purposes.

7.

In the result, the appeal filed by the Revenue is partly allowed for statistical purposes. Order pronounced in the open Court on 1st June, 2026. [Sonjoy Sarma] [Rakesh Mishra] Judicial Member Accountant Member Dated: 01.06.2026 Bidhan (Sr. P.S.)

Assessment Year(s) 2017-18 Copy of the order forwarded to:

1.

ITO, Ward-1, Dimapur, Aayakar Bhawan, Purana Bazar, New Colony, Dimapur, Nagaland, 797116. 2. Krishna Ramauli Thapa, Chikri Nasa, Phek, Kohima, Nagaland, 797107. 3. CIT(A)-NFAC, Delhi.

4.

CIT-

5.

CIT(DR), Guwahati Benches, Guwahati.

6.

Guard File. //// By order

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