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Facts
The assessee, engaged in real estate, did not file a return for AY 2017-18. The AO reopened the assessment under Section 147 due to an Income Disclosure Scheme declaration of Rs. 2,18,23,000. The AO treated this as unexplained money under Section 69A. The assessee's appeal to CIT(A) was dismissed due to a 1064-day delay.
Held
The Tribunal condoned the delay in filing the appeal, noting that the circumstances were bonafide and not due to negligence. The Tribunal further held that the addition under Section 69A was unsustainable as Form 2 was not served on the assessee, making the provisions of Section 197(b) inapplicable.
Key Issues
Whether the delay in filing the appeal before CIT(A) should be condoned and whether the addition under Section 69A is sustainable when Form 2 was not served.
Sections Cited
Section 147, Section 69A, Section 197(b), Section 115BBE, Section 187(3), Section 184, Section 185, Section 292BB
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, ‘C’ BENCH: CHENNAI
Before: SHRI ABY T. VARKEY & MS. PADMAVATHY.S
PER PADMAVATHY.S, A.M: This appeal by the assessee is against the order of the Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre (NFAC), Delhi, (in short "CIT(A)") passed u/s. 250 of the Income Tax Act, 1961 (in short "the Act") dated 15.07.2025 for Assessment Year (AY) 2017-18. The assessee raised the following ground of appeal:
1. 1. 1. 1. 1. 1. 1. The Learned Commissioner of Income Tax (Appeals), NFAC, erred in law and on facts in refusing to condone the delay in filing the appeal, which was neither deliberate nor contumacious but arose due to bona fide and reasonable circumstances beyond the appellant's control. In dismissing the appeal on the ground of limitation, the Ld. CIT(A) failed to exercise judicial discretion in a fair and judicious manner and thereby Umamaheswari :- 2 -: denied the appellant an opportunity of adjudication on merits, especially in a case involving substantial tax demand and peculiar factual matrix, warranting consideration in the interest of justice and equity.
The Ld. CIT(A) failed to exercise judicial discretion in condoning the delay and erred in not appreciating that the delay was caused due to circumstances beyond the appellant's control and should have been condoned in the interest of justice.
3. The Learned Commissioner of Income Tax (Appeals), NFAC, erred in law and on facts in dismissing the appeal as time-barred without condoning the delay of 1064 days in filing the appeal, despite cogent, bona fide, and reasonable grounds being provided explaining the delay, including reliance on erroneous advice of the Chartered Accountant.
The Ld. CIT(A) failed to appreciate the notarized affidavit filed by the appellant along with the appeal explaining the circumstances which led to the delay in filing the appeal, and summarily dismissed the appeal without granting a fair opportunity or analyzing the factual matrix.
5. The Learned Commissioner of Income Tax (Appeals), NFAC erred in relying on case laws that are distinguishable on facts and not applicable to the appellant's situation and ignored settled judicial precedents wherein courts have consistently held that litigants should not be penalized for mistakes of their representatives.
The Learned Commissioner of Income Tax (Appeals), NFAC ought to have seen that assessment order passed under Section 147 r/w 144 suffers from gross violation of principles of natural justice as the appellant was not granted sufficient opportunity of being heard.
7. The Learned Commissioner of Income Tax (Appeals), NFAC ought to have seen that the appellant was never issued Form 2 as stipulated under The Income Declaration Scheme Rules, 2016. Only upon issue of Form 2, The Principal Commissioner or Commissioner shall determine the amount payable by the Appellant under the scheme, which shall be followed by the payment of instalments by the applicant.
8. The Learned Commissioner of Income Tax (Appeals), NFAC ought to have seen that the addition made under Section 69A is untenable in law.
Moreover the Learned Commissioner of Income Tax (Appeals), NFAC ought to have seen that the levy of tax under Section 115BBE for Assessment Year 2017-18 and levy of tax at special rate is unsustainable, as the amended provisions with higher rate of tax under the said section are applicable only prospectively from Assessment Year 2018-19.
The appellant craves leave to add, amend, alter, delete, or substitute any of the above grounds of appeal before or at the time of hearing.”
2. The assessee is an individual engaged in the business of real estate. For the year under consideration, the assessee did not file the return of income. The A.O reopened the assessment u/s. 147 for the reason that the assessee has opted for Income Disclosure Scheme (IDS) declaring an amount of Rs. 2,18,23,000/- and that the assessee did not pay the taxes towards the amount offered under IDS. Since the assessee neither filed a return of income nor filed any details, the A.O treated the entire amount as unexplained money u/s. 69A of the Act while concluding the assessment u/s. 147 r.w.s 144 r.w.s 144D of the Act. Aggrieved, the assessee filed further appeal before the CIT(A). There was a delay 1064 days in filing the appeal before the CIT(A). The CIT(A) did not condone the delay and dismissed the appeal in limine. The assessee is in appeal before the Tribunal against the order of the CIT(A).
The Ld. Authorized Representative (AR) of the assessee, at the outset, submitted that the assessee the CIT(A) did not consider the submissions made by the assessee for the delay in filing the appeal. The Ld. AR further submitted that the assessee being an individual lacks independent legal or technical expertise and is wholly dependent on her erstwhile tax consultant. The Ld. AR also submitted that the assessee was given a wrong legal advice that effective relief could be expected from the appellate authority and therefore did not immediately take further action on the assessment order. The assessee was subsequently seeking advice from another professional specialising tax litigation who was representing the assessee's husband case and was advised that the assessment order suffers from legal infirmities and was accordingly advised to file further appeal. The Ld. AR submitted that the Umamaheswari :- 4 -: delay therefore is on account of bonafide reasons and not deliberate and nor attributable to any negligence, in action or malafide intent on the part of the assessee. The Ld. AR also drew our attention to the decision of the coordinate bench in assessee's husband case Jagathesh v. ACIT [ITA No.l565 & 1566/Chny/2025 dated 30.12.2025] where the Tribunal has condoned a delay of 677 days.
4. The ld. AR submitted that the short legal issue arising for consideration is whether an addition made u/s. 69 of the Act purportedly on the basis of a declaration made under the IDS is sustainable when the statutory acknowledgement in Form-2 was never issued/served on the assessee. The Ld. AR further submitted that since the issue is clearly legal it can be raised by the assessee before the Tribunal and does not require any further investigation into facts. Accordingly, the ld. AR prayed for the adjudication of the same. The Ld. AR in this regard also placed reliance the decision of the Coordinate in assessee' husband's case Jagathesh (supra).
The Ld. AR on merits submitted that the assessee never received the Form-2 and there is no material on record to establish valid service of Form-2. The Ld. AR further argued that in the absence of issuance and service of Form-2 the statutory consequence of payment of tax, surcharge and penalty under the scheme does not arise. The Ld. AR further argued that since the alleged failure to make such payment is not attributable to the assessee provisions of Section 197(b) of Finance Act, 2016 cannot be validly invoked. The Ld. AR also argued that the revenue is not correct in selectively relying on the statutory sequence prescribed under IDS to fasten a liability based on Umamaheswari :- 5 -: declaration made in Form-1 to make an addition u/s. 69 of the Act. The ld AR also made written submissions on merits as extracted below – “The appellant submits that Section 197(b) of the Finance Act, 2016 provides that undisclosed income declared under the Income Declaration Scheme shall be chargeable to tax in the year of declaration only in a situation where the declarant fails to pay the tax, surcharge and penalty within the time prescribed under section 187. However, the statutory time limit contemplated under section 187 commences only upon the issuance and valid service of Form-2. In the absence of issuance and service of Form-2, the statutory time for payment never begins to run, and consequently, no “failure” to pay the stipulated amounts can be attributed to the declarant. In such circumstances, invocation of section 197(b) is legally impermissible. Therefore, the very jurisdictional precondition for treating the declared income as assessable in the year of declaration remains unfulfilled, rendering the consequential action unsustainable in law.
It is further submitted by the appellant that where a declaration does not culminate in a valid and complete statutory process under the Income Declaration Scheme, the same cannot be mechanically or selectively relied upon as evidence for making additions under section 69 of the Income-tax Act, 1961. In the absence of adherence to the mandatory procedural requirements prescribed under the Scheme, the declaration loses its statutory sanctity, and any addition founded solely on such defective or incomplete declaration is rendered legally unsustainable.
The Appellant humbly submits that the Income Declaration Scheme, 2016 is a self-contained code, and the procedure prescribed thereunder is mandatory in nature and not merely directory. In terms of Rule 4 of the Income Declaration Scheme Rules, 2016, a declaration is first required to be made by the assessee in Form-1, whereupon the Designated Authority is statutorily obligated to issue an acknowledgement in Form-2 within the prescribed time. It is only upon issuance and receipt of Form-2 that the declarant is required to discharge the liability towards tax, surcharge and penalty and intimate such payment in Form-3. Thus, issuance and valid service of Form-2 constitutes the statutory trigger for the subsequent obligations under the Scheme, and in the absence thereof, the procedural chain envisaged under the Scheme remains incomplete.
It is respectfully submitted by the appellant that section 292BB of the Income- tax Act, 1961 has no application to proceedings initiated or governed under the Finance Act, 2016, including those under the Income Declaration Scheme. The appellant submits that there is no deeming fiction or statutory provision Umamaheswari :- 6 -: under the Scheme that enables the Revenue to presume issuance or service of Form-2. In the absence of any material evidencing valid service, the burden squarely rests upon the Revenue to establish compliance with the mandatory procedural requirement, which burden remains wholly undischarged in the present case. The appellant submits that the issue under consideration stands squarely covered by the decision of the Chennai Bench of the Hon’ble Tribunal in Jagathesh v. ACIT, & 1566/Chny/2025 (order dated 30.12.2025). In the said decision, the Tribunal categorically held that issuance and valid service of Form-2 under the Income Declaration Scheme is mandatory and that, in the absence of service of Form-2, the provisions of sections 187(3) and 197(b) of the Finance Act, 2016 cannot be invoked. The Tribunal further held that any addition made under section 69 of the Income- tax Act, 1961 solely on the basis of an IDS declaration, without compliance with the mandatory statutory procedure, is unsustainable in law. It was unequivocally concluded that failure on the part of the Revenue to serve Form- 2 vitiates the entire addition and renders the consequential assessment invalid.”
6. We heard the parties and perused the material on record. From the submissions of the assessee, we are of the view that there is a reasonable cause for the delay in filing the appeal before the CIT(A). We further notice that the coordinate bench in assessee's husband's case where the delay in filing the appeal was due identical reasons, the coordinate bench has condoned the delay by placing reliance on various judicial precedence. accordingly we condone the delay in filing the appeal before the CIT(A) by placing reliance on the decision of the Hon'ble Supreme Court in the case of Collector, Land Acquisition v MST Katiji 1987 167 ITR 471 (SC).
We also notice that the coordinate bench in the above has admitted the contentions raised for the first time before the Tribunal with regard to service of Form 2 and admitted the same for adjudication on the ground that no new facts need to be examined. In the present case also where the assessee has Umamaheswari :- 7 -: raised the identical ground and therefore we hold that the additional grounds raised being pure legal issue, not requiring investigation of new facts we admit the additional grounds, by placing reliance on the judgment of the Hon’ble Apex Court in the case of National Thermal Power Co. Ltd. v. CIT (1998) 229 ITR 383 (SC).
8. Now coming to merits of the issues contended, we notice that the identical issue has arisen in assessee's husband's case and the coordinate while considering the same has held that –
Before proceeding to discuss this aspect, we find that the Ld.AR has urged before us that since the Tax / Surcharge / Penalty as contemplated in section 184 / 185 of the FA 2016 have not been paid, by virtue of section 187(3) the declaration is deemed never to have been made and that therefore such declaration cannot be admitted in evidence against the assessee. We do not find any force in the argument of the Ld.AR since section 187(3) provides that where the tax / surcharge / penalty in respect of a declaration made u/s.183 is not paid within the specified date, the same shall be deemed never to have been made.
Section 192 provides that a declaration cannot be admitted in evidence. Once it is admitted that the declaration is deemed never to have been made, the said Form 1 will constitute material that is admissible in evidence against the declarant, since the said Form 1 is no longer a declaration as contemplated u/s.183 of the FA 2016. Any other view of the matter would render section 197(b) of the Act nugatory and would mean that in no case where the tax / surcharge / penalty are not paid within the date specified under the scheme the amounts shown under the IDS, 2016 can be treated as income chargeable to tax of the previous year in which the declaration is made. We, therefore, hold that the declaration filed in Form 1 and pursuant to which taxes have not been paid can be used and is admissible in evidence against a declarant.
Now turning to there being no service of Form 2 given that proof has not been furnished before us, we turn to Rule 4 of the IDS, Rules which reads as follows: 4. (1) A declaration of income or income in the form of investment in any asset under section 183shall be made in Form-1.
(2) The declaration shall be furnished:—(a) electronically under digital signature; or(b) through transmission of data in the form electronically under electronic verification code; or(c) in print form, to the concerned Principal Commissioner or the Commissioner who has the jurisdiction over the declarant. (3) The Principal Commissioner or the Commissioner shall issue an acknowledgement in Form-2to the declarant within fifteen days from the end of the month in which the declaration under section 183 has been furnished. (4) The proof of payment of tax, surcharge and penalty made pursuant to the acknowledgement issued by the Principal Commissioner or the Commissioner shall be furnished by the declarant to the such Principal Commissioner or Commissioner in Form 3. (5) The Principal Commissioner or the Commissioner shall grant a certificate in Form-4 to the declarant within fifteen days of the submission of proof of full and final payment of tax, surcharge along with penalty by the declarant under section 187 of the Act in respect of the income so declared. (6) The Principal Director-General of Income-tax (Systems) or Director-General of Income-tax (Systems) shall specify the procedures, formats and standards for ensuring secure capture and transmission of data and shall also be responsible for evolving and implementing appropriate security, archival and retrieval policies in relation to furnishing the form in the manner specified in sub-rule (2). Explanation.—For the purposes of this rule "electronic verification code" means a code generated for the purpose of electronic verification of the person furnishing the return of income as per the data structure and standards specified by Principal Director General of Income-tax (Systems) or Director General of Income-tax (Systems).
Rule 4(3) specifically provides that the ld.PCIT / CIT shall issue acknowledgement in Form 2 to the declarant within 15 days from the end of the month in which the declaration u/s.183 is furnished. It is beyond doubt that Rule 4(3) has been complied with in as much as the declaration in the instant case has been made on 30.09.2016 and Form 2 has been issued on 06.10.2016 which is within the time contemplated under Rule 4(3) of the IDS Rules. We however notice that sub rule (4) of Rule 4 of the IDS Rules provides that proof of payment of tax / surcharge / penalty made pursuant to the acknowledgment issued by the ld.PCIT / CIT. The question that therefore needs to be answered is whether it would suffice if the Form 2 is issued or whether the From 2 has to be served on a declarant for the time to start ticking for the payment of tax / surcharge / penalty and where the non- payment of the same within the time specified in the scheme would render the declaration never to have been made, thereby triggering the application of section 197(b) of the FA 2016.
In this connection as already mentioned the intimation of payment u/s.187(1) of the Finance Act 2016 in respect of the IDS, 2016 is to be in Form 3. The relevant portion of the Form 3 reads as follows:
To, The Principal Commissioner/Commissioner …………………………… Sir / Madam, 1. Pursuant to the acknowledgement received from you in Form 2 vide Certificate F.No.-------------- dated --------------, the detail of payments made are as under:
A plain reading of the Form 3 clearly shows that the payment of the tax / surcharge / penalty are made pursuant to an acknowledgement received by a declarant in Form 2 from the ld.PCIT / CIT. Therefore, it is clear that if an acknowledgement in Form 2 is not received by a declarant the question of filing Form 3 and the payment of tax / surcharge / penalty pursuant to the declaration in Form 1 u/s.183 of the FA 2016 does not and cannot arise. This being so, one will have to conclude that where the Form 2 is not served on the declarant the question of payment of tax / surcharge / penalty as contemplated by Sections 184 & 185 of IDS 2016 does not arise.
In the instant case there is no doubt that the Form 2 has been issued. Can in the circumstance there be a presumption that the Form 2 has been served on the assessee. In this connection one may notice the provisions of section 292BB of the Income Tax Act. Section 292BB of the Act specifically provides that where an assessee has appeared in any proceeding or co-operated in any enquiry under the Income Tax Act relating to an assessment or reassessment, such assessee shall be precluded from taking any objection in any proceedings or inquiry under the Income Tax Act that the notice was not served upon him or not served upon him in time or served upon him in an improper manner, unless he has raised such objection before completion of such assessment or reassessment. It can be seen that section 292BB is only applicable to the Income Tax Act and cannot be extended to the Finance Act, 2016. Therefore, the benefit of section 292BB of the Act will not be available while interpreting the service or otherwise of acknowledgement in Form 2 as contemplated by the Finance Act 2016 read with the Rules framed thereunder.
Therefore in the absence of any provisions corresponding to section 292BB of the Income Tax Act in the Finance Act 2016, it would lead to the irresistible conclusion that the burden of having served the notice in the present case having not been discharged by the revenue, there can be no Umamaheswari :- 10 -: valid service and consequently the provisions of section 197(b) cannot be triggered for an addition to be made in the A.Y. relevant to the previous year in which the declaration under IDS was made on the basis of a failure to make payment of tax / surcharge / penalty as contemplated by sections 184 & 185 of the Finance Act 2016
Having observed so, we have to necessarily conclude that in the facts and circumstances of the case the Form 2 having not been served on the assessee, section 187(3) and 197(b) have no application. Since section 197(b) has no application, we hold that the addition of a sum of Rs.14,55,65,400/- u/s.69A of the Act made in the assessment framed u/s.147 r.w.s 144 of the Act could not have been made by invoking the provisions of section 197(b) of the Finance Act 2016.
We therefore direct the AO to delete the addition of Rs.14,55,65,400/- as income u/s.69A of the Act by allowing the grounds of appeal raised by the assessee.
64. Though we have decided that the income is not chargeable to tax under the provisions of section 69A of the Income Tax Act, it would not be out of place to mention that even if an addition is made u/s.69A of the Act, the provisions of section 115BBE of the Act for charging higher rates of tax cannot be invoked for the assessment year 2017-18.
7. The ratio laid down by the coordinate bench is that case the when Form 2 is not served on the assessee, then section 187(3) and 197(b) have no application. In the present case also the contention of the assessee is that Form 2 has not been served on the assessee and during the course of hearing no new material has been brought on record by the revenue to controvert the said claim. Further the ld AR raised the alternate plea that the income declared by the assessee in Form 1 pertains to AYs prior to the year under consideration and therefore the AO cannot make the addition towards the same in the year under consideration. In view of these discussions and considering the decision of the coordinate bench on identical facts, we are of the view that the addition
In result the appeal of the assessee is allowed.
Order pronounced on 13th day of February, 2026 at Chennai.