VATJAT PHARMA FOODS PRIVATE LIMITED,KUMTA vs. DCIT, CIRCLE 7(1)(1), BENGALURU

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ITA 698/BANG/2026Status: DisposedITAT Bangalore23 October 2026AY 2022-2312 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal condoned the delay of 78 days in filing the appeal before the CIT(A)/NFAC, finding the assessee's explanation of the director's severe medical crisis to be plausible and a sufficient cause. The Tribunal acknowledged that the assessee could not represent its case properly before the AO, leading to an ex-parte order. Consequently, the Tribunal decided to remit the quantum appeal (ITA No. 698/Bang/2026) back to the AO for a fresh adjudication on merits, granting the assessee a reasonable opportunity of being heard. The Tribunal also remitted penalty proceedings under Section 270A (ITA No. 700/Bang/2026) to the AO for fresh consideration, as penalty proceedings based on an assessment order that is set aside cannot sustain. Regarding the penalty under Section 271DA (ITA No. 699/Bang/2026), the Tribunal found good and sufficient reason to delete the penalty. The Tribunal reasoned that the assessee had no control over its customer, a farmer from a remote location, who deposited cash directly into the assessee's bank account without the assessee's consent or direction, and this was against a total sales volume of Rs. 9,48,23,828/-. Therefore, the penalty was deleted. The issue of the AO rejecting books of accounts, additions on unaccounted purchases, unexplained expenditure, ad hoc additions, and unexplained credits were implicitly remitted to the AO for fresh adjudication.

What were the facts?

The assessee, M/s. Vatjat Pharma Foods Pvt. Ltd., filed appeals before the Income Tax Appellate Tribunal (ITAT) for assessment year 2022-23. The appeals challenged orders passed by the CIT(A)/NFAC. The assessee's initial appeal before the CIT(A)/NFAC was dismissed in limine for a delay of 78 days. The assessee contended this delay was due to the severe illness of its director, supported by medical records. The ITAT condoned this delay. The assessee also argued that the Assessing Officer (AO) passed an ex-parte order under Section 144 due to the director's illness hindering responses to notices. The ITAT noted that the assessee could not represent its case properly before the AO and the CIT(A)/NFAC had dismissed the appeal without delving into merits.

What were the issues?

1. Whether the delay of 78 days in filing the appeal before the CIT(A)/NFAC should be condoned, considering the assessee's submission of bona fide medical reasons for the delay, as argued by the assessee. The revenue did not present arguments on this point. 2. Whether the AO erred in rejecting the assessee's books of accounts under Section 145(3) on the incorrect presumption of non-compliance with Section 44AB, when the assessee claims to have complied with tax audit requirements and filed the report within time, as argued by the assessee. The revenue did not present arguments on this point. 3. Whether the addition of Rs.16,60,746/- on account of unaccounted purchases, applying a 12.5% gross profit margin, was erroneous, stemming from a misclassification of sales as purchases, as argued by the assessee. The revenue did not present arguments on this point. 4. Whether the addition of Rs. 2,343/- under Section 69C as unexplained expenditure is justified given its minor nature, as argued by the assessee. The revenue did not present arguments on this point. 5. Whether the ad hoc addition of Rs. 37,26,166/- under Section 37(1) by disallowing 30% of major expenses due to alleged insufficient documentary evidence was arbitrary, and whether the assessee should be granted an opportunity to provide additional evidence, as argued by the assessee. The revenue did not present arguments on this point. 6. Whether the addition of Rs.1,03,80,869/- under Section 68 as unexplained credits is erroneous, particularly when the AO failed to obtain responses from creditors, and whether the assessee should be given an opportunity to submit substantiating details, as argued by the assessee. The revenue did not present arguments on this point. 7. Whether the penalty of Rs. 5,29,100/- levied under Section 271DA for accepting cash in contravention of Section 269ST is justified, with the assessee arguing the cash was deposited directly by a customer without the assessee's consent, and the revenue relying on the order of the authorities below, as argued by both parties.

Which sections of the Income-tax Act were involved?

Section 145(3),Section 69C,Section 37(1),Section 68,Section 271DA,Section 269ST,Section 270A,Section 144,Section 44AB,Section 250

AI-generated summary — verify with the full judgment below

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

Before: SHRI PRASHANT MAHARISHI & SHRI KESHAV DUBEY

For Appellant: CA Akshaya K.S., A.R
Hearing: 28.07.2026Pronounced: 23.10.2026

ITA Nos.698, 699 & 700/Bang/2026 M/s. Vatjat Pharma Foods Pvt. Ltd., Bengaluru

IN THE INCOME TAX APPELLATE TRIBUNAL “B’’BENCH: BANGALORE BEFORE SHRI PRASHANT MAHARISHI, VICE PRESIDENT AND SHRI KESHAV DUBEY, JUDICIAL MEMBER

ITA Nos. 698 to 700/Bang/2026 Assessment Year: 2022-23

M/s. Vatjat Pharma Foods Pvt. Ltd. R-50, Hegde Road Industrial Area DCIT Kumta Vs. Circle 7(1)(1) Karnataka 581 313 Bengaluru PAN: AAGCV2862A APPELLANT RESPONDENT

Appellant by : CA Akshaya K.S., A.R. Respondent by : Sri Pradeep S., Addl. CIT-DR

Date of Hearing : 28.07.2026 Date of Pronouncement : 23.10.2026

O R D E R PER KESHAV DUBEY, JUDICIAL MEMBER:

These appeals at the instance of the assessee company are directed against the separate orders of the ld. CIT(A)/NFAC all dated 11.12.2025 vide DIN & Order No. ITBA/NFAC/S/250/2025- 26/1083584255(1), vide DIN & Order No. ITBA/NFAC/S/250/2025 - 26/1083585858(1) & vide DIN & Order No. ITBA/NFAC/S/250/ 2025-26/1083585443(1) for the assessment year 2022-23 passed u/s 250 of the Income Tax Act, 1961 (in short, “the Act”). Since the issues in all these appeals of the same assessee are arising out of the findings in the same assessment order, these are clubbed together, heard

ITA Nos.698, 699 & 700/Bang/2026 M/s. Vatjat Pharma Foods Pvt. Ltd., Bengaluru Page 2 of 12 together and disposed of by this common order for the sake of convenience and brevity.

2.

The assessee has raised the following grounds of appeal in ITA No.698/Bang/2026:

1.

Dismissal of appeal in Limine The learned Commissioner of Income-tax (Appeals) erred in law and on facts in refusing to condone the delay of 78 days in filing the appeal and in dismissing the appeal in limine, without appreciating that the delay was occasioned due to bona fide and reasonable causes, thereby defeating the substantive rights of the appellant.

2.

Erroneous Rejection of Books of Accounts Under. Section 145(3)

The learned Assessing Officer erred in rejecting the books of accounts under Section 145(3) of the Income Tax Act, 1961, predicated on the incorrect presumption that the appellant had not subjected its books to a tax audit in accordance with Section 44AB. Contrarily, the appellant had duly subjected its books of accounts to a tax audit, and the corresponding tax audit report was filed within the prescribed statutory time limit. This erroneous assumption resulted in an unjustified rejection of the appellant's books of accounts. 3. Erroneous Additions on Account of Unaccounted Purchases The learned Assessing Officer erroneously added Rs.16,60,746/- by applying a gross profit margin of 12.5% on the alleged discrepancy in purchase amounts. The primary discrepancy arose from the erroneous classification of certain sales transactions as purchases. This mis-characterization has resulted in an unwarranted and incorrect addition to the appellant's taxable income. 4. Unjustified Addition of Minor Discrepancy Under Section 69C The addition Of Rs. 2,343/- under Section 69C as Unexplained Expenditure is unjustified, given the minor nature of the discrepancy between the appellant's accounted purchases and

ITA Nos.698, 699 & 700/Bang/2026 M/s. Vatjat Pharma Foods Pvt. Ltd., Bengaluru Page 3 of 12 the corresponding ledger extracts. Such a negligible difference does not warrant the imposition of a special rate of tax under Section115BBE. 5. Arbitrary Ad hoc Additions Under Section 37(1) The learned Assessing Officer arbitrarily made an ad hoc addition of Rs. 37,26,166/- under Section 37(1) by disallowing 30% of the appellant's major expenses, citing insufficient documentary evidence. Any disallowance should be based on the identification of actual discrepancies in the documents rather than on arbitrary disallowance. The appellant respectfully submits that an opportunity should be granted to provide additional evidence to substantiate these expenses, ensuring a fair and just assessment.

6.

Unsupported Additions Under Section 68 as Unexplained Credits The addition of Rs.1,03,80,869/- under Section 68 as unexplained credits was erroneous. The failure of the Assessing Officer to obtain responses from the creditors does not justify treating these amounts as unexplained credits. The appellant respectfully submits that an opportunity should be provided to submit the required details to substantiate these credits, ensuring a fair and just assessment. 7. Opportunity to Submit Additional Evidence

The appellant respectfully requests the opportunity to submit additional documentary evidence to substantiate its claims and contentions, which were previously hindered due to the unforeseen hospitalization and continued ill health of the appellant's director. In accordance with Rule 46A of the Income Tax Rules, 1962, the appellant seeks permission to present the additional evidence to ensure a comprehensive and just assessment of the case. The appellant craves leave to add, amend, alter, omit or substitute any of the grounds of appeal before the appeal is finally heard or disposed of.

3.

At the outset, the ld. AR of the assessee drew our attention to the order of ld. CIT(A) / NFAC and vehemently submitted that the ld. CIT(A)/NFAC dismissed the appeal of the assessee by not condoning the delay of approximately 78 days in filing the appeal. Further, the ld.

ITA Nos.698, 699 & 700/Bang/2026 M/s. Vatjat Pharma Foods Pvt. Ltd., Bengaluru Page 4 of 12 AR of the assessee also drew our attention to an affidavit in original of the director of the assessee company dated 22.07.2026 filed before us along with the medical records (placed at pages 2-58 of paper book vol. 1) stating that he was suffering from severe coronary artery disease (CAD)-double vessel disease, with a history of primary PTCA (Angioplasty and Coronary stenting) and he is under continuous administration of life saving cardio vascular medications and have been strictly clinically advised by medical professionals against operating under high stress and occupational workloads to prevent recurrent cardiac emergencies. Further, it is submitted that during the crucial period of April, 2024, the director was suffering from a severe and acute metabolic crisis as evidenced by bio chemical laboratory reports submitted along with the affidavits. Owing to this severe illness, the director was unable to coordinate with the authorized representative and compile the necessary case records or execute the appeal documentation within the statutory period. Lastly, it is submitted that the aforementioned medical emergencies resulted in a delay of approximately 78 days in presenting the appeal before the ld. CIT(A)/NFAC which was neither willful, intentional nor deliberate but was entirely due to a bonafide medical crisis beyond the control of the assessee company.

3.1 Having perused the records and heard the ld. counsel for the assessee company as well as the ld. DR, it is perceived that the explanation offered by the assessee company is plausible and sufficient cause has been demonstrated by the assessee in filing the appeal belatedly before the ld. CIT(A)/NFAC. Therefore, we are inclined to

ITA Nos.698, 699 & 700/Bang/2026 M/s. Vatjat Pharma Foods Pvt. Ltd., Bengaluru Page 5 of 12 condone the delay of 78 days in filing the appeal before the ld. CIT(A)/NFAC and admit the appeal for adjudication.

4.

Now having condoned the delay in filing the appeal before the ld. CIT(A) / NFAC, before us, both the parties fairly conceded that the assessee company also could not represent its case properly before the AO and accordingly the AO had passed an ex-parte order u/s 144 of the Act. Further, it is observed that the ld. CIT(A)/NFAC, without going into the merit of the case, dismissed the appeal of the assessee by not condoning the delay. Before us, the ld. AR of the assessee vehemently submitted that the assessee is a private limited company engaged in the business of manufacturing, packaging, trading and retailing of basic chemicals and fertilizers. For the impugned year, the assessee recorded a turnover of Rs. 9,48,23,828/-. The books of accounts of the assessee were audited in compliance with the Companies Act and additionally, the tax audit was also conducted as per the provisions contained in Sec. 44AB of the Act. Further, the tax audit report was duly filed electronically within the prescribed time limit. It is also submitted that during the assessment proceedings, the assessee company was unable to respond to the majority of the notices issued u/s. 142(1) as well as show cause notice due to the unforeseen circumstances involving the hospitalization and subsequent ill health of the Director Mr. Shivanand M.K. who was responsible for managing the company’s account and financial operations. This unfortunate situation hindered the company’s ability to respond promptly. This being so, in the interest of justice, equity and fair play and as requested by the ld. AR of the assessee, we deem it fit and proper to remit the entire issue in dispute to the file of AO to decide afresh in accordance

ITA Nos.698, 699 & 700/Bang/2026 M/s. Vatjat Pharma Foods Pvt. Ltd., Bengaluru Page 6 of 12 with law. Needless to say, reasonable opportunity of being heard must be granted to the assessee. The assessee is also directed to cooperate with the AO and produce all the necessary documents/ records/accounts/information in order to substantiate its claim or as may be directed by the AO for the completion of the assessment. We make it clear that in case of further default, the assessee company shall not be entitled for any leniency. It is ordered accordingly.

5.

In the result, the appeal filed in ITA No. 698/Bang/2026 is partly allowed for statistical purposes.

6.

The assessee has raised the following grounds of appeal in ITA No.699/Bang/2026: 1. Absence of deliberate or conscious violation warranting the levy of a penalty The Learned CIT(A) and the AO failed to appreciate that the provisions of Section 269ST were not attracted to the facts of the present case, as the impugned amount was not received by the appellant in cash from any person, but was directly deposited by a customer into the appellant's bank account, a mode of receipt over which the appellant had no control or discretion. The Levy of penalty u/s 27 IDA without recording any finding of deliberate, conscious, or intentional violation on the part of the appellant is unjustified and unsustainable in law.

2.

Bona fide business receipts duly recorded, disclosed and subjected to tax The Learned CIT(A) and the AO failed to consider that the impugned cash deposits represented bona fide business receipts arising in the ordinary course of trade, duly supported by GSTtax invoices, properly recorded in the regular books of account, and that the corresponding income was fully disclosed and offered to tax. In the absence of any material to suggest an attempt to evade tax, the levy of a penalty is wholly unwarranted.

3.

Payer to grant immunity under section 273B The appellant respectfully prays that this Hon'ble Tribunal may appreciate and apply the provisions of section 273B,

ITA Nos.698, 699 & 700/Bang/2026 M/s. Vatjat Pharma Foods Pvt. Ltd., Bengaluru Page 7 of 12 which expressly provide that no penalty shall be imposable under section 27 IDA where the assessee establishes the existence of reasonable cause for the alleged failure. In the present case, the impugned cash was deposited directly by the customer into the appellant's bank account, without any intent or volition on the part of the appellant to contravene the provisions of section269ST, thereby entitling the appellant to immunity from the levy of penalty. The appellant craves leave to add, amend, alter, omit or substitute any of the grounds of appeal before the appeal is finally heard or disposed of.

7.

The brief facts of the case are that during the course of assessment proceedings, on perusal of the bank accounts of the assessee maintained with Axis Bank Limited, the AO observed that the following cash deposits for more than Rs. 2,00,000/- had been made during the year under consideration as below: Bank Date of Transactions Amount (In Rs.) Axis Bank A/c. 19.06.2021 3,28,500/- 921030011568998 04.02.2022 2,00,600/- Total 5,29,100/-

Regarding the above cash deposits, the assessee submitted that the above amounts were deposited in cash by a customer of the assessee who happens to be a farmer based at the remote location of Ankola, Maharashtra against the sale of goods (trade receivables). Further the assessee furnished copy of the bill / invoices along with the details of the cash deposited by the assessee in the bank accounts. The amount has been deposited by one customer namely Neeta Harish Nayak against bill of Rs. 3,28,483/- dated 26.05.2021 and bill of Rs. 2,00,600/- dated 30.12.2021.

ITA Nos.698, 699 & 700/Bang/2026 M/s. Vatjat Pharma Foods Pvt. Ltd., Bengaluru Page 8 of 12 7.1 During the course of penalty proceedings, the assessee stated to had preferred an appeal against the assessment order which was pending before the ld. CIT(A)/NFAC and accordingly requested to keep the penalty proceedings in abeyance. However, in response to the show cause notice, the assessee did not submit any explanation about the said transactions. Accordingly, the AO held that the assessee has nothing to say in this matter and has no valid explanation regarding the said transaction. The assessee by receiving the amount of Rs. 5,29,100/- in cash (which is more than 2,00,000) has violated the provisions of Sec. 269ST of the Act and hence the assessee is liable for levy of equal amount of penalty as per provisions of sec. 271DA of the Act for the AY 2022-23.

7.2 The ld. CIT(A)/NFAC dismissed the appeal of the assessee by holding that the assessee has not brought any cogent material on record to rebut the findings of the AO or to establish that there existed “good and sufficient reasons” for accepting such cash as required u/s. 271DA of the Act. The assessee has neither challenged the factual findings of cash receipts exceeding the statutory limit nor furnished any explanation justifying the acceptance of such cash. Thus, in the absence of any evidence or reasonable cause being established by the assessee, the levy of penalty u/s. 271DA is justified.

8.

Aggrieved by the order of ld. CIT(A)/NFAC, the assessee has filed the present appeal before this Tribunal.

9.

Before us, the ld. AR of the assessee vehemently submitted that the cash was deposited directly in to the bank account of the assessee

ITA Nos.698, 699 & 700/Bang/2026 M/s. Vatjat Pharma Foods Pvt. Ltd., Bengaluru Page 9 of 12 by a customer who is a farmer stationed at the remote location of Ankola, Maharashtra against two sales invoices issued dated 26.05.2021 and 30.12.2021. Further the ld. AR submitted that the transactions are genuine and the customer of the assessee had deposited cash directly without the consent of the assessee company and accordingly prayed that the penalty levied may be deleted.

10.

The ld. DR on the other hand relied on the order of the authorities below and vehemently submitted that the assessee company has received sum of Rs. 5,29,100/- in contravention of the provisions of sec. 269ST of the Act and therefore, the assessee is liable to pay by way of penalty a sum equal to the amount of such receipt.

11.

We have heard the rival submission and perused the material available on record. Undisputedly, the assessee is a private limited company engaged in the business of manufacturing, packaging, trading and retailing of basic chemicals and fertilizers. It is also an undisputed fact that the assessee company had issued two separate GST invoices one dated 26.05.2021 amounting to Rs. 3,28,483/- and another invoice dated 30.12.2021 amounting to Rs. 2,00,600/- to the same customer named Neeta Harish Nayak. The assessee company contended before the AO that the amount of Rs. 5,29,100/- was directly deposited in the bank account of the assessee company by the customer of the assessee, who happens to be a farmer and was stationed at a remote location of Ankola, Maharashtra. Even before us, the ld. AR of the assessee submitted that the amount of Rs. 5,29,100/- was directly deposited by the customer of the assessee without the consent of the assessee company. It is submitted that in fact the assessee company has not

ITA Nos.698, 699 & 700/Bang/2026 M/s. Vatjat Pharma Foods Pvt. Ltd., Bengaluru Page 10 of 12 accepted the cash in contravention of the provision of sec. 269ST of the Act. We are of the considered opinion that there exist a good and sufficient reason in terms of proviso to section 271DA(1) of the Act for deleting the penalty of Rs. 5,29,100/- imposed by the AO. We are of the considered opinion that the assessee company has no control over its customer and it is not a case of the Revenue that the assessee company had directed its customer to pay / given its consent to accept cash against the sale bills dated 26.05.2021 and 30.12.2021. In fact, the customer of the assessee who happens to be a farmer and was stationed at a remote location of Ankola, Maharashtra had directly deposited in the bank account of the assessee company that too without the consent of the assessee company. In view of the above, considering the nature of the business of the assessee as well as considering the cash deposited amounting to Rs. 5,29,100/- by a single party who is a farmer that too from a remote location of Ankola, Maharashtra against a total sales volume of Rs. 9,48,23,828/- by the assessee company, we direct the AO to delete the entire penalty imposed u/s. 271DA of the Act.

12.

In the result, the appeal filed by the assessee company in ITA No. 699/Bang/2026 is allowed.

13.

The assessee has raised the following grounds of appeal in ITA No.700/Bang/2026:

I. Prayer for Remand and De Novo adjudication of Penalty proceedings The appellant humbly submits that, in the interests of justice, equity, and fair play, the impugned matter deserves to be restored to the file of the learned Assessing Officer, with a

ITA Nos.698, 699 & 700/Bang/2026 M/s. Vatjat Pharma Foods Pvt. Ltd., Bengaluru Page 11 of 12 specific direction to undertake a de novo examination and redetermination of the penalty proceedings strictly in accordance with the provisions of law, only upon the quantum additions attaining finality, and after granting the appellant a due, reasonable, and effective opportunity of being heard in accordance with the principles of natural justice. The appellant craves leave to add, amend, alter, omit or substitute any of the grounds of appeal before the appeal is finally heard or disposed of. 14. We have heard the rival submissions and perused the material available on record. Since we have remitted the quantum appeal filed by the assessee company in ITA No. 698/Bang/2026 to the file of the AO to decide afresh and in accordance with the law, we are of the considered opinion that the penalty proceedings based on the same quantum assessment cannot sustain. In our opinion, if an order of assessment / reassessment which forms the basis for the penalty is set aside, then the penalty cannot stand by itself and is liable to be set aside. Accordingly, the penalty proceeding u/s 270A of the Act is also remitted back to the file of the AO for fresh consideration in accordance with the law. Needless to say, a reasonable opportunity of being heard must be granted to the assessee.

15.

In the result, the appeal filed in ITA No. 700/Bang/2026 is partly allowed for statistical purposes.

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

Sd/- Sd/- (Prashant Maharishi) (Keshav Dubey) Vice President Judicial Member Bangalore, Dated: 23rd Oct, 2026. VG/SPS

ITA Nos.698, 699 & 700/Bang/2026 M/s. Vatjat Pharma Foods Pvt. Ltd., Bengaluru Page 12 of 12

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.

Digitally signed P G by P G RAJANI Date: RAJANI 2026.10.30 16:25:02 +05'30'

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