HARISH KUMAR,SHIMOGA vs. ACIT, CIRCLE-1, SHIVAMOGGA

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ITA 573/BANG/2026Status: DisposedITAT Bangalore13 October 2026AY 2017-201818 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal condoned the delay of 261 days in filing the appeal, accepting the assessee's explanation regarding his basic education, lack of technological savviness, business management responsibilities, and post-surgery health issues. Regarding the addition of Rs. 5,15,600/- under Section 68, the Tribunal noted that the AO had accepted the entire cash deposits made during the year as out of sale proceeds, given the declared sales of Rs. 18,98,21,779/-. However, the AO singled out the demonetization period deposits for further verification. The assessee contended that these deposits were from sales proceeds and the closing cash balance of Rs. 5,86,563/- as of November 8, 2016, as per audited books. The Tribunal, considering that the assessee's accounts were audited as per Section 44AB, found the cash deposited during the demonetization period to be fully explained. Therefore, the Tribunal directed the AO to delete the addition of Rs. 5,15,600/- made under Section 68 read with Section 115BBE. The appeal was allowed.

What were the facts?

The assessee, Harish Kumar, filed an appeal against the order of the Addl/JCIT(A), Patna, for Assessment Year 2017-18. The Assessing Officer (AO) determined the total income at Rs. 27,76,240/-, an increase from the returned income of Rs. 22,60,640/-. This increase was primarily due to an addition of Rs. 5,15,600/- representing unexplained cash credits in the assessee's bank account, invoking Section 68 of the Income Tax Act, 1961, and taxing it under Section 115BBE. The assessee contended that these deposits were from business activities and supported by audited books. The CIT(A) upheld the AO's addition. The assessee's appeal to the ITAT was filed with a delay of 261 days, for which condonation was sought.

What were the issues?

1. Whether the appellate order passed by the learned Commissioner of Income-tax [Appeals] is opposed to law, weight of evidence, probabilities, facts and circumstances of the Appellant’s case? (Ground 1) 2. Whether the assessee is liable to be assessed on a total income of Rs. 27,76,240/- as confirmed by the CIT(A), against the returned income of Rs. 22,60,640/-? (Ground 2) 3. Whether the CIT(A) was justified in confirming the addition of Rs. 5,15,600/- being deposits in the bank account as unexplained credits under Section 68 of the Act? (Ground 3) 4. Whether the CIT(A) and AO ought to have appreciated that the deposits were from business activities, supported by audited books under Section 44AB, and thus explainable? (Ground 4) 5. Whether the CIT(A) and AO failed to appreciate that during the demonetization period, genuine business transactions were not intended to be penalized, and the addition under Section 68 was mechanical? (Ground 5) 6. Whether the Specified Bank Notes [Cessation of Liabilities] Act, 2017, implies that Specified Bank Notes transacted before the appointed date remain legal tender? (Ground 6) 7. Whether the conditions for invoking Section 68 were complied with for the addition? (Ground 7) 8. Whether the CIT(A) and AO were justified in taxing the appellant as per special rates under Section 115BBE for deposits from known sources, especially during the demonetization period? (Ground 8) 9. Whether the CIT(A) erroneously held that the appellant had not filed details before the AO, contrary to facts where cash book, sales register, and debtor's ledger were submitted? (Ground 9) 10. Whether the ex-parte order passed by the CIT(A) violated principles of natural justice? (Ground 10) 11. Whether the levy of interest under Section 234B is bad in law due to indiscernible calculation? (Ground 11) Assessee's Contentions: The deposits were from business activities, supported by audited books under Section 44AB. The addition under Section 68 was mechanical and failed to consider the intent of demonetization legislation. Specified Bank Notes transacted before the appointed date remained legal tender. Details like cash book, sales register, and debtor's ledger were filed with the AO. The CIT(A)'s order was ex-parte and violated natural justice. Interest under Section 234B was wrongly levied. The cash deposited during demonetization was out of sales proceeds and closing cash balance of Rs. 5,86,563/- as per audited books. Revenue's Contentions: The revenue relied upon the orders of the authorities below. The DR vehemently objected to condonation of delay, stating the reasons cited demonstrated a careless attitude.

Which sections of the Income-tax Act were involved?

Section 68,Section 115BBE,Section 44AB,Section 250,Section 144,Section 133(6),Section 234B

AI-generated summary — verify with the full judgment below

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

Before: SHRI WASEEM AHMED & SHRI KESHAV DUBEY

Hearing: 15.07.2026Pronounced: 13.10.2026

PER KESHAV DUBEY, JUDICIAL MEMBER:

This appeal at the instance of the assessee is directed against the order of the ld. Addl/JCIT(A), Patna dated 21.03.2025 vide DIN & Order No. ITBA/APL/S/250/2024-25/1074816362(1) passed u/s 250 of the Income Tax Act, 1961 (in short “the Act”) for the assessment year 2017-18.

2.

The assessee has raised the following grounds of appeal:-

1.

The appellate order passed by the learned Commissioner of Income-tax [Appeals] NAFC, under Section 250 of the Act dated 21/03/2025, in so far as it is against the Appellant is opposed to law,

ITA No.573/Bang/2026 Harish Kumar, Shivamogga Page 2 of 18 weight of evidence, probabilities, facts and circumstances of the Appellant’s case, requires to be cancelled.

2.

The appellant denies himself liable to be assessed on a total income of Rs. 27,76,240/- determined by the learned assessing officer and confirmed by the learned Commissioner of Income-tax [Appeals], as against the income retuned / reported by the appellant of Rs. 22,60,640/-, on the facts and circumstances of the case.

3.

The learned Commissioner of Income-tax [Appeals] is not justified in confirming the addition made by the learned assessing officer to the extent of Rs. 5,15,600/- being the deposits in the bank account of the appellant as unexplained credits by invoking the provisions of section 68 of the Act, on the facts and circumstances of the case.

4.

The learned Commissioner of Income-tax [Appeals] and the learned assessing officer ought to have appreciated that the deposits made are all from the business activities carried by the appellant and the appellant having maintained the details and documents in support of the deposits made in the bank account and having been recorded in the books of account which are audited as per the provisions of section 44AB of the Act, consequently the deposits made are all from known and explainable sources and cannot be treated as unexplained credits as per the provisions of section 68 of the Act, on the facts and circumstances of the case.

5.

The learned Commissioner of Income-tax [Appeals] and the learned assessing officer failed to appreciate that the during the demonetization period the intent of the legislature was not to penalize the genuine business transactions as in the instant case, the learned Commissioner of Income-tax [Appeals] and the learned assessing officer without appreciating this fact has mechanically without applying their mind has made addition invoking the provisions of section 68 of the Act as unexplained credits, on the facts and circumstances of the case.

6.

Without Prejudice, the learned Commissioner of Income-tax [Appeals] and the learned assessing officer failed to appreciate that as per the Specified Bank Notes [Cessation of Liabilities] Act, 2017, the Central Government had withdrawn its guarantee on the Specified Bank Notes only from the appointed date which is 31/12/2016 and the Specified Bank Notes transacted before the appointed date remain to be legal tender, on the facts and circumstances of the case.

7.

The addition made by the learned Commissioner of Income-tax [Appeals], under section 68 of the Act is bad in law as the required conditions and the parameters to invoke the provision of section 68 of the Act have not been complied with and consequently no addition could have been made invoking the provisions of section 68 of the Act, on the facts and circumstances of the case.

ITA No.573/Bang/2026 Harish Kumar, Shivamogga Page 3 of 18 Without prejudice, the learned Commissioner of Income-tax 8. [Appeals] and the learned Assessing Officer were not justified in taxing the appellant as per special rates of taxes as per the provisions of section 115BBE of the Act for the amounts deposited by the appellant during the year from the known, available and explainable sources and more so for the amounts deposited by the appellant from 08/11/2016 to 14/12/2016, on the facts and circumstances of the case.

The learned Commissioner of Income-tax [Appeals] is not justified 9. in erroneously holding that the appellant had not filed the details before the learned assessing officer during the course of assessment proceedings which is contrary to the actual facts since the appellant on 11/10/2019, had in fact filed the cash book, Sales register out of Audited books along with debtor’s ledger which clearly establish and demonstrate the source of the deposits in the bank account of the appellant, consequently no addition could have been made as unexplained credits under section 68 of the Act, on the facts and circumstances of the case.

10.

Without prejudice, the ex-parte order passed by the learned Commissioner of Income – tax [Appeals], is in grave violation of principles of natural justice, as the appellant was not afforded reasonable opportunity of being heard, consequently the impugned ex-parte order passed by the learned Commissioner of Income-tax [Appeals] requires to be cancelled in the interest of justice and equity, on the facts and circumstances of the case.

11.

Without prejudice, to the right to seek waiver of interest under section 234 of he Act, the Appellant denies himself liable to be charged to interest under section 234 B of the Act on the facts and circumstances of the case. The appellant contends that the levy of interest under section 234 B of the Act is also bad in law as the period, rate, quantum and method of calculation adopted by the learned assessing officer on which interest is levied are not discernible and are wrong on the facts of the case.

12.

The appellant craves leave to add, alter, amend, substitute or delete any or all of the grounds of appeal urged above.

13.

For the above and other grounds to be urged during the course of hearing of the appeal the Appellant prays that the appeal be allowed in the interest of equity and justice.

3.

At the outset, the ld. A.R. of the assessee submitted that there is a delay of 261days in filing the appeal before this Tribunal. The ld. A.R. of the assessee also drew our attention on application for condonation of delay dated 13.07.2026, filed along with an affidavit in original sworn before the notary public stating the

ITA No.573/Bang/2026 Harish Kumar, Shivamogga Page 4 of 18 reasons for the delay which are reproduced below for ease of reference and record:

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4.

On going through the above application for condonation, we find that the assessee could not file the appeal within the prescribed period for the reason that the assessee is from a mofussil area and has studied basic education upto 9th standard and is not a technology savvy. The assessee is not aware of the nuances of new income-tax proceedings nor the assessee is well versed with technology like using the internet, e-mails, etc. He is the only person who manages the business and in his absence at the business premises the close intimate of the assessee who

ITA No.573/Bang/2026 Harish Kumar, Shivamogga Page 12 of 18 supports and works for the assessee i.e. Smt. Sujatha S., handle the business of the assessee. The assessee in the month of July, 2023 had undergone bypass surgery and from there on the health of the assessee was not in good shape and quite often the assessee used to be absent from his active business activities and during such period Smt. Sujatha S., was handling the day-to-day business activities of the assessee. The assessee was under constant medical attention after his bypass surgery and was advised by the doctors not to take too much of stress. Due to this fact, the assessee was not completely active in his day to day business activities. This also contributed to the reason for not responding to the notices issued by the ld. AO. Hence, the ld. A.R. also submitted that the delay is unintentional and no benefit can be attributed to the assessee in filing the appeal belatedly. He thus prayed to condone the delay and requested to consider the issues raised by the assessee on merits.

5.

On the contrary, the ld. D.R. vehemently objected for granting the condonation of delay and submitted that the assessee reasons cited by the assessee clearly demonstrate the careless attitude of the assessee.

6.

We have perused the details filed by the assessee to justify the delay and we are satisfied that there is no malafide intention on the part of the assessee in filing the appeal belatedly before us. In our considered opinion, the assessee demonstrates sufficient cause in filing the appeal belatedly before us. It is to be noted that u/s 253(5) of the Act, the Tribunal may admit the appeal filed beyond the period of limitation where it has established that there exists a sufficient cause on the part of the assessee for not presenting the appeals within the prescribed time. The explanation therefore, becomes relevant to determine whether the same reflect sufficient

ITA No.573/Bang/2026 Harish Kumar, Shivamogga Page 13 of 18 and reasonable cause on the part of the assessee in not filing these appeals within the prescribed time. We have gone through the reasons explained by the assessee & found the reasons to be reasonable & bonafide.

6.1 While considering a similar issue the Apex Court in the case of Collector, Land Acquisition v. Mst. Katiji and Ors. (167 ITR 471) laid down six principles. For the purpose of convenience, the principles laid down by the Apex Court are reproduced hereunder:

(1) Ordinarily, a litigant does not stand to benefit by lodging an appeal late.

(2) Refusing to condone delay can result in a meritorious matter being thrown at the very threshold and cause of justice being defeated. As against this, when delay is condoned, the highest that can happen is that a cause would be decided on merits after hearing the parties. (3) 'Every day's delay must be explained' does not mean that a pedantic approach should be made. Why not every hour's delay, every second's delay? The doctrine must be applied in a rational, commonsense and pragmatic manner.

(4) When substantial justice and technical consideration are pitted against each other, the cause of substantial justice deserves to be preferred, for the other side cannot claim to have vested right in injustice being done because of a nondeliberate delay. (5) There is no presumption that delay is occasioned deliberately, or on account of culpable negligence, or on account of mala fides. A litigant does not stand to benefit by resorting to delay. In fact, he runs a serious risk. (6) It must be grasped that the judiciary is respected not on account of its power to legalise injustice on technical grounds but because it is capable of removing injustice and is expected to do so.

6.2 When substantial justice and technical consideration are pitted against each other, the cause of substantial justice deserves to be preferred, for the other side cannot claim to have vested right for injustice being done because of nondeliberate delay. Therefore, we have to prefer substantial justice rather than technicality in deciding the issue. As observed by Apex Court, if the application of

ITA No.573/Bang/2026 Harish Kumar, Shivamogga Page 14 of 18 the assessee for condoning the delay is rejected, it would amount to legalize injustice on technical ground when the Tribunal is capable of removing injustice and to do justice. Therefore, this Tribunal is bound to remove the injustice by condoning the delay on technicalities. If the delay is not condoned, it would amount to legalizing an illegal order which would result in unjust enrichment on the part of the State by retaining the tax relatable thereto. Under the scheme of Constitution, the Government cannot retain even a single pie of the individual citizen as tax, when it is not authorized by an authority of law. Therefore, if we refuse to condone the delay, that would amount to legalize an illegal and unconstitutional order passed by the lower authority.

6.3 Further, in the case of People Education & Economic Development Society Vs/ ITO reported in 100 ITD 87 (TM) (Chen), wherein held that “when substantial justice and technical consultation are pitted against each other, the cause of substantial justice deserves to be preferred for the other side cannot claim to have vested right in injustice being done because of non-deliberate delay”.

6.4 The next question may arise whether delay was excessive or inordinate. There is no question of any excessive or inordinate when the reason stated by the assessee was a reasonable cause for not filing the appeal. We have to see the cause for the delay. When there was a reasonable cause, the period of delay may not be relevant factor. In fact, the Madras High Court in the case of CIT vs. K.S.P. Shanmugavel Nadai and Ors. (153 ITR 596) considered the condonation of delay and held that there was sufficient and reasonable cause on the part of the assessee for not filing the appeal within the period of limitation. Accordingly, the Madras High Court condoned nearly 21 years of delay in filing the appeal. When

ITA No.573/Bang/2026 Harish Kumar, Shivamogga Page 15 of 18 compared to 21 years, 261 days cannot be considered to be inordinate or excessive. Furthermore, the Chennai Tribunal by majority opinion in the case of People Education and Economic Development Society (PEEDS) v. ITO (100 ITD 87) (Chennai) (TM) condoned more than six hundred days delay. Therefore, in our opinion, by preferring the substantial justice, the delay of 261 days has to be condoned and accordingly we condone the delay and admit the appeal for adjudication.

7.

The brief facts of the case are that, the assessee filed his return of income for the A.Y.2017-18 on 14.10.2017 declaring total income of Rs. 22,60,640/-. Thereafter, the case of the assessee was selected for limited scrutiny and accordingly notices u/s 143(2) of the Act and 142(1) of the Act were issued to the assessee asking to furnish various details. The assessee was afforded six opportunities, however, the assessee had not responded for five opportunities and in the last and final opportunity only submitted the ledger extracts in respect of the debtors which was in fact not called for. During the course of assessment proceedings, vide letters dated 04.09.2019 and 24.09.2019, the assessee had been specifically intimated that in case of failure to furnish the details and supporting evidences for cash deposits made, the entire cash deposits in the bank accounts amounting to Rs.1,96,16,720/- would be brought to tax as unexplained cash credit u/s 68 r.w.s 115BBE of the Act. The assessee in his reply submitted only the profit and loss A/c and balance sheet without furnishing the sources for cash deposits with material evidences. Further, the details obtained from the bank u/s 133(6) of the Act reveals that the assessee had made cash deposits during the relevant A.Y.2017-18 in Canara Bank amounting to Rs.87,86,520/-. The assessee did not file the sources for cash deposits with material evidences during the entire course of assessment proceedings.

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7.1 On verification of the bank statement, the AO observed that the assessee had made cash deposit during the demonetisation period to the tune of Rs.5,15,600/-. Further, on verification of Profit and Loss A/c, the AO seen that the assessee had admitted sales to the tune of Rs.18,98,21,779/-. The AO considered the cash deposits made during the year under consideration were out of the sale proceeds however, the cash deposits made during the demonetisation period amounting to Rs.5,15,600/- was held to be crucial one and requires thorough verification. As the assessee had failed to substantiate the cash deposits made during the demonetisation period with all the material evidences and cash book, the AO finally held that the cash deposits made during the demonetisation period amounting to Rs.5,15,600/- was out of unexplained cash u/s 68 r.w.s 115BBE of the Act and accordingly brought to tax under the head income from other sources. The AO completed the assessment proceedings on a total assessed income of Rs. 27,76,240/- u/s 144 of the Act dated 21.10.2019.

8.

Aggrieved by the assessment completed u/s 144 of the Act dated 21.10.2019, the assessee preferred an appeal before this the ld. ADDL/JCIT(A)/CIT(A)/NFAC.

9.

The ld. ADDL/JCIT(A), Patna dismissed the appeal of the assessee by holding that the assessee even at the appellate stage did not produce any documentary evidences explaining the source and nature of cash deposits made during the demonetisation period. The assessee had neither uploaded the cash book nor any other documentary evidences to support his claims. Further, during the appellate proceedings, the assessee had not submitted any documentary evidence to prove that he had submitted the sales register, cash book and bank particulars to the AO at the time of

ITA No.573/Bang/2026 Harish Kumar, Shivamogga Page 17 of 18 assessment proceedings. There is nothing on record to support the contention of the assessee and accordingly the grounds of appeal raised by the assessee was dismissed.

10.

Again, aggrieved by the order of ld. ADDL/JCIT(A), Patna dated 21.03.2025, the assessee has fled the present appeal before this Tribunal. The assessee has also filed a paper book comprising 71 pages containing therein various documents/record/financials/ return relied upon by the assessee.

11.

Before us, the ld. AR of the assessee vehemently submitted that the books of accounts of the assessee are audited as per the provisions contained in the section 44AB of the Act. The assessee had declared total sales of Rs.18,98,21,779/- and accordingly the AO had admitted the entire cash deposits made during the year were out of the sales proceeds, however, did not accept the meager cash deposits made during the demonetisation period based on surmises and conjectures. Further, the ld.AR of the assessee drew our attention to the extract of cash book for the period 01.04.2016 till 31.03.2017 placed on pages 49-58 of the paper book and submitted that the assessee had a closing cash balance of Rs.5,86,563.38 as on close of 08.11.2016 and therefore, the AO had grossly erred in making addition of Rs.5,15,600/- as unexplained cash credit u/s 68 of the Act.

12.

The ld. DR on the other hand relied upon the orders of the authorities below.

13.

We have heard the rival submissions and perused the material available on record. On perusal of the assessment order, we observed that the AO after noting that the assessee had declared sales to the tune of Rs.18,98,21,779/- accepted the cash deposits

ITA No.573/Bang/2026 Harish Kumar, Shivamogga Page 18 of 18 made during the entire year under consideration to be out of the sale proceeds of the assessee. However, the meager cash deposits made during the demonetisation period amounting to Rs.5,15,600/- was not accepted by the AO by holding to be a crucial one and requires thorough verification. Before us, the contention of the ld. AR of the assessee is that the cash deposited during the demonetisation period were out of the sale proceeds and the collection from the debtors available at the close of 08.11.2016 amounting to Rs.5,86,563/- as per the audited books of account. Therefore, in our considered opinion the cash deposited by the assessee during the demonetisation period amounting to Rs.5,15,600/- is fully explained by the assessee considering the accounts of the assessee are audited by Chartered Accountant as per the provisions contained in section 44AB of the Act. In view of the above, we direct the AO to delete the addition of Rs.5,15,600/- made u/s 68 r.w.s 115BBE of the Act.

14.

In the result the appeal filed by the assessee is allowed. Order pronounced in the open court on 13th Oct, 2026

Sd/- Sd/- (Waseem Ahmed) (Keshav Dubey) Accountant Member Judicial Member

Bangalore, Dated 13th Oct, 2026. VG/SPS 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. P G Digitally signed by P G RAJANI RAJA Date: 2026.10.21 NI 12:16:08 +05'30'

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