When filing for a visa to fly abroad, an individual claimed he discovered he had a tax notice against his name that was due to cash deposits which the Income Tax Department saw as unexplained.The Income Tax Appellate Tribunal (ITAT) Bangalore has declined to condone the delay of nearly four years in the case concerning unexplained cash deposits. The taxpayer told the tribunal that he became aware of the tax notice only when he was seeking a visa to travel overseas.
Rs 41 lakh cash deposit but less than Rs 5 lakh income: What the case was about
The case involved Reddy, a resident of Indiranagar, Bengaluru, who maintained that his annual income was below Rs 5 lakh and that rent was his only source of income. According to Reddy, his wife and father took care of his expenses, which was why he neither filed income tax returns (ITRs) nor regularly checked his emails or the income tax e-filing portal, ET reported.Reddy said he discovered the notice relating to the unexplained cash deposits only when he applied for a visa for foreign travel. He claimed that the Embassy informed him that an ITR was required for the visa application, which was when he came to know about the tax proceedings.The Income Tax Officer, however, did not accept this explanation. The officer treated Rs 41.69 lakh as unexplained cash deposits under Section 69A, besides adding Rs 3.69 lakh as unexplained credit and Rs 1.5 lakh as business or professional income. Interest was also levied and penalty proceedings were initiated.The Commissioner of Appeals (CIT A) upheld the additions as well as the penalties. Reddy then challenged the orders before the Income Tax Appellate Tribunal (ITAT) Bangalore.The tribunal dismissed his appeal on August 17, 2026.
Why did he lose the case?
Chartered Accountant Suresh Surana told ET that the ITAT Bangalore was dealing with three connected appeals in the matter. These related to the assessment of Reddy’s income and penalties imposed under Sections 270A and 271AAC of the Income-tax Act, 1961.According to Surana, the assessment appeared to have been completed ex parte because Reddy failed to respond to notices issued by the Income Tax Department. He also did not contest the Assessing Officer’s orders before the Commissioner of Income-tax (Appeals) within the prescribed time.By the time the matter reached the tribunal, there was a delay of approximately 1,480 days in filing the quantum appeal. The two penalty appeals were each filed after a delay of around 1,298 days.Reddy attributed the prolonged delay to several factors. He said he had limited understanding of income-tax proceedings and was not in the habit of filing ITRs because his income was relatively low. He also said that he did not regularly monitor his emails or the income-tax portal and that the disruption caused by the COVID-19 pandemic had further affected the situation.According to Reddy, he became aware of the assessment and penalty orders only in March 2023, when he needed his income-tax returns for an overseas visa application. After learning about the proceedings, he approached a tax professional and subsequently filed the appeals.The CIT(A)/NFAC, however, refused to condone the delay. It found that the explanations offered by Reddy were broad in nature and were not backed by documentary evidence.The ITAT Bangalore concurred with this view. It pointed out that Reddy had filed income-tax returns in earlier years, making his claim that he was completely unaware of his income-tax compliance obligations difficult to accept.The tribunal also took note of the fact that Reddy had sold a property for Rs 39 lakh in an earlier year without filing an ITR. It rejected his argument that earning less than Rs 5 lakh by itself meant that he was not required to file a return, since the basic exemption limit applicable at the time 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.”In reaching its conclusion, the ITAT Bangalore relied on the Supreme Court ruling in 2023 INSC 885, Sheo Raj Singh (Deceased) through L.Rs. and Ors. vs. Union of India (UOI), which dealt with the issue of condonation of delay.The tribunal stressed that even a substantial delay can be condoned where the taxpayer provides a satisfactory and credible explanation. However, the power to condone such a delay cannot be exercised simply because the circumstances may invite sympathy.It is for the taxpayer to establish that a genuine cause prevented the appeal from being filed within the prescribed period. In Reddy’s case, the ITAT Bangalore found that the reasons given amounted to excuses rather than a sufficiently supported explanation. It therefore upheld the decision not to condone the delay and dismissed all three appeals as time-barred.An important aspect of the ruling, Surana points out, is that the ITAT Bangalore did not decide whether the additions made under Section 69A or the penalties imposed under Sections 270A and 271AAC were legally correct on their merits. Since the appeals were rejected at the threshold on the ground of limitation, the assessment and penalty orders were left intact and continued to have legal effect.As a result, the tax, interest and penalties arising from those orders remain payable, to the extent that they have not already been paid, recovered or stayed.Surana says Reddy could consider approaching the jurisdictional High Court against the ITAT Bangalore ruling under Section 260A, provided the matter involves a substantial question of law. This could include a legally sustainable challenge to the tribunal’s 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.”
