Synopsis

Waseem Ahmed, accountant member and Keshav Dubey, judicial member of ITAT Bangalore, in a recent judgement refused to condone a delay of about 4 years in an unexplained cash deposit case after the taxpayer explained he only got to know about this tax notice while applying for visa for overseas travel.

The Income Tax Appellate Tribunal (ITAT) Bangalore, in a recent judgement refused to overlook a delay of about 4 years in a case involving unexplained cash deposits. The taxpayer claimed he only got to know about the tax notice when he was applying for a visa to travel abroad.



This ruling stemmed from a case filed by Mr Reddy from Indiranagar, Bengaluru, who argued that he earns less than Rs 5 lakh annually and his only income source is from rent. Since his wife and father covered all his expenses, Reddy stated he neither filed ITR nor checked his mails or the e-filing portal for tax returns.



Reddy further explained that he got to know about the unexplained cash tax notice only when he sought a visa for overseas travel, and the Embassy told him that an ITR was needed for this.

However, the Income Tax Officer did not believe him and added Rs 41.69 lakh as unexplained cash deposit under Section 69A along with Rs 3.69 lakh as unexplained credit, and Rs 1.5 lakh as business or professional income to his name and levied interest and started penalty proceedings as well.



The Commissioner of Appeals (CIT A) confirmed these additions and the penalties. Feeling aggrieved, Reddy filed an appeal in the Income Tax Appellate Tribunal (ITAT) Bangalore.



Also read: Rs 16 lakh cash seized in income tax raid, tax officer calls it unexplained cash; Taxpayer claims it to be family money, he fights and wins the case in ITAT Mumbai



On August 17, 2026, Reddy lost the case in ITAT Bangalore.

Why did Reddy lose the case in ITAT Bangalore?

Chartered Accountant Suresh Surana said to ET Wealth Online that in this case, the ITAT Bangalore considered three connected appeals relating to the assessment of income and penalties imposed under Sections 270A and 271AAC of the Income-tax Act, 1961.



The assessment appeared to have been completed ex parte because Reddy did not respond to the notices issued by the Income Tax Department and also didn’t challenge the AO’s orders before the Commissioner of Income-tax (Appeals) within the prescribed period.



There was a delay of approximately 1,480 days in filing the quantum appeal and around 1,298 days in filing each of the penalty appeals.



Also read: Rs 1.33 crore cash deposit, no ITR filing, yet senior citizen wins income tax case; ITAT Bangalore explains why



Reddy explained that he had limited knowledge of income-tax proceedings, was not regularly filing ITRs because his income was relatively low, did not routinely check his emails or the income-tax portal and was also affected by the disruption caused by the COVID-19 pandemic.



According to him, the assessment and penalty orders came to his notice only in March 2023, when he required income-tax returns for an overseas visa application. He thereafter consulted a tax professional and filed the appeals.



Also read: NRI used NRE account to buy Rs 79 lakh property, got ‘unexplained cash’ tax notice; ITAT Ahmedabad grants full relief



The CIT(A)/NFAC declined to overlook the delay, observing that the reasons were general and unsupported by documentary evidence.



The ITAT Bangalore agreed with this conclusion and noted that the taxpayer had filed returns for earlier years and, therefore, his plea of being wholly unaware of income-tax compliance was not convincing.



The ITAT Bangalore also referred to the sale of a property for Rs 39 lakh in an earlier year without filing an ITR and rejected the contention that income below Rs 5 lakh automatically removed the obligation to file, since the applicable basic exemption threshold was lower.



Surana says: “Further, the ITAT Bangalore found that Reddy had not explained his prolonged inaction, particularly for the period extending beyond the pandemic.”



To arrive at this decision, ITAT Bangalore relied on a Supreme Court decision in the case of 2023 INSC 885 Sheo Raj Singh (Deceased) through L.Rs. and Ors. vs. Union of India (UOI) concerning condonation of delay.



ITAT Bangalore emphasised that a long delay can be condoned if a satisfactory and credible explanation is provided , but discretion cannot be exercised merely on grounds of sympathy.



The taxpayer has to demonstrate a genuine cause that prevented the appeal from being filed within time. In the given case, the ITAT Bangalore characterised the reasons advanced as excuses rather than an acceptable explanation supported by evidence and therefore upheld the refusal to condone the delay and dismissed all three appeals as time-barred.



Importantly, Surana says the ITAT Bangalore did not examine whether the additions under Section 69A or the penalties under Sections 270A and 271AAC were correct on their merits. Nevertheless, because the appeals were dismissed at the threshold, the assessment and penalty orders remained undisturbed and legally operative.



Consequently, the tax, interest and penalties raised under those orders continued to be payable to the extent they have not already been paid, recovered or stayed.

What happens to Reddy now?

According to Surana, Reddy may consider challenging the ITAT Bangalore’s decision before the jurisdictional High Court under Section 260A if the matter gives rise to a substantial question of law, including a legally sustainable challenge to the refusal to condone the delay.



Surana says: “However, the filing of a further appeal does not automatically suspend recovery. Unless a competent authority or court grants a stay, the Department may proceed to recover the outstanding demand. Thus, as matters presently stand, Reddy remains liable to discharge the tax, interest and penalties arising from the underlying orders.”

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