Section 271(1)(c) Penalty Deleted for Cash Deposits Linked to Earlier Withdrawals

Naresh Singh Contractors Vs ITO (ITAT Agra)

ITAT Refuses 2,799-Day Delay Condonation for Lack of Sufficient Cause; No Penalty as Interest in Form 26AS Was Already Taxed: ITAT; No Penalty Under Section 44AD as Income Exceeded Presumptive Rate: ITAT; ITAT Deletes Penalty as Revenue Failed to Disprove Cash Deposit Source; ITAT Rejects Delay Condonation Despite Non-Service Claim.

The Income Tax Appellate Tribunal (ITAT), Agra Bench, adjudicated two appeals relating to Assessment Year 2014-15 arising from the order of the Commissioner of Income Tax (Appeals)-2, New Delhi, dated 30.03.2018. One appeal concerned the condonation of delay in filing a quantum appeal, while the other involved the levy of penalty under Section 271(1)(c) of the Income-tax Act, 1961.

Appeal relating to delay in filing (ITA No. 85/AGR/2026)

The assessee’s appeal against the quantum addition was filed with a delay of 2,799 days. The assessee contended that the appellate order dated 30.03.2018 had neither been served upon it nor uploaded on the Income Tax Portal. According to the assessee, an application seeking a copy of the order was filed on 25.04.2019 along with the prescribed challan. It was further submitted that despite repeated requests and visits to the office of the CIT(A), the order could not be obtained because the file had allegedly been misplaced. The assessee stated that the appellate order was ultimately uploaded on the Income Tax Portal only in November 2025, following which the appeal was filed before the Tribunal.

An affidavit by one of the partners reiterated these facts and asserted that the delay occurred solely due to the non-service of the appellate order, which was beyond the assessee’s control. It was pleaded that the delay should be condoned in the interest of substantial justice and natural justice.

However, after considering the explanation and supporting affidavit, the Tribunal held that it was not convinced that the assessee had been prevented by sufficient cause from filing the appeal within the prescribed time. Consequently, the Tribunal declined to condone the delay of 2,799 days. The quantum appeal was therefore dismissed in limine.

Penalty appeal under Section 271(1)(c) (ITA No. 117/AGR/2026)

The second appeal concerned the validity of penalty levied under Section 271(1)(c) of the Act.

The assessee, a partnership firm engaged in contract work for the Public Works Department, had declared business income by applying Section 44AD. It disclosed business income of Rs. 1,90,000, from which interest paid to partners amounting to Rs. 9,00,395 was deducted, resulting in a business loss of Rs. 7,10,395. The assessee also disclosed interest income from fixed deposits amounting to Rs. 6,30,895 under the head “Income from Other Sources.” Consequently, the return reflected a total loss of Rs. 79,500.

During assessment proceedings, the Assessing Officer observed that cash deposits amounting to Rs. 11,13,000 had been made in the assessee’s bank account. It was further noted that Form 26AS reflected gross receipts of Rs. 28,93,261. The return filed by the assessee was treated as non est. Based on AIR information, the Assessing Officer added the cash deposits as unexplained cash credits under Section 68 and also relied upon the receipts reflected in Form 26AS while completing the assessment under Section 143(3).

In quantum proceedings, the CIT(A) held that the assessee had not maintained books of account and was therefore entitled to the benefit of Section 44AD. The CIT(A) directed that only 8% of the gross receipts of Rs. 28,93,261 should be taxed and deleted the balance addition. However, the addition relating to cash deposits of Rs. 11,13,000 under Section 68 was sustained.

Subsequently, penalty proceedings under Section 271(1)(c) were initiated. The Assessing Officer imposed penalty in respect of the additions sustained by the CIT(A), observing that the assessee had failed to provide satisfactory explanations in response to the penalty notices. The CIT(A) upheld the penalty.

Before the Tribunal, the assessee submitted that out of the total receipts reflected in Form 26AS, an amount of Rs. 5,65,022 represented interest on fixed deposits and did not constitute business receipts. It was pointed out that the assessee had already offered interest income of Rs. 6,30,895 under the head “Income from Other Sources” in the return, and therefore there was no concealment regarding the interest component.

Regarding the cash deposits of Rs. 11,13,000, the assessee explained that these deposits had originated from cash withdrawals made from bank accounts during the same year. A tabulated statement was furnished showing that deposits of Rs. 5,00,000, Rs. 1,99,000 and Rs. 4,00,000 were sourced from earlier bank withdrawals, while only Rs. 14,000 represented available cash on hand.

The Tribunal observed that the explanation regarding the source of cash deposits was satisfactory. It noted that the Revenue had not alleged that the earlier withdrawals had been spent for personal or business purposes or were otherwise unavailable for redeposit. Consequently, the Tribunal held that no allegation of concealment of income or furnishing of inaccurate particulars could be sustained with respect to the cash deposits.

The Tribunal further noted that the interest income of Rs. 5,65,022 included in Form 26AS had already been offered to tax by the assessee. With respect to the remaining contract receipts of Rs. 23,28,239, the Tribunal observed that 8% thereof amounted to Rs. 1,86,259, whereas the assessee had already disclosed Rs. 1,90,000 as business income under Section 44AD. Therefore, there was no concealment or furnishing of inaccurate particulars in relation to the contract receipts.

In view of these findings, the Tribunal held that the levy of penalty under Section 271(1)(c) was not justified. It directed the Assessing Officer to cancel the penalty.

Accordingly, the appeal challenging the quantum order was dismissed due to non-condonation of delay, while the appeal against the penalty order was allowed.

FULL TEXT OF THE ORDER OF ITAT AGRA

1. The appeal in ITA Nos. 85 and 117/AGR/2026 for AY 2014-15, arises out of the order of the Id. Commissioner of Income Tax (Appeals)-2, New Delhi [hereinafter referred to as ‘Id. CIT(A) , in short] dated 30.03.2018 against the order of assessment passed u/s 143(3) of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’) dated 21.12.2016 by the Assessing Officer, ACIT, Circle-2(2)(1), Firozabad (hereinafter referred to as ‘Id. AO’).

ITA No. 85/AGR/2026 for AY 2014-15

2. At the outset, I find there is delay in filing of appeal by the assessee before this Tribunal by 2799 days. The reasons adduced in the delay condonation petition is reproduced below:-

“Subject: Applications for condonation of delay in filing of appeal against the order passed by C1T(Appeals)

Hon’ble Sir,

The Applicant most respectfully beg, prays and humbly submits as under:

Briefly stated, the fact of the case that the quantum order of appeal passed by C1T(A) Agra under section 250 of the Act dated 30.03.2018 was neither served to the Appellant and nor it was uploaded on the Income Tax Portal.

Thereafter the Appellant has filed an application requesting the authorities to provide the copy of appellate order dated 30.03.2018 along with the challan of Rs. 100 dated 25.04.2019 having BSR Code: 6390340 and Challan Serial Number: 50713. Only Pursuant to this application the said order was uploaded on the Income Tax Portal in the month of November 2025.

That the delay in filing appeal has been due to the non-availability of the Appellate Order which is beyond the control of Appellant

Since there is genuine reason for delay in filling appeal, the same shall be condoned in the interest of natural justice.

Prayer

In view of above, having regards to the facts mentioned above, it is humbly prayed that based upon the totality of the circumstances mentioned above, since there was ‘sufficient cause” your honors may be pleased to consider the prayer of the Applicant for condonation of delay. The facts and circumstances as mentioned above involve the question of ‘substantial justice”, delay deserves to be condoned in the overall interest of justice. On the other hand, if condonation of delay being denied it would seriously undermine the cause of justice, resulting miscarriage of justice for the Appellant.

3. The same facts are also supported in the affidavit of the partner of the assessee:-

“Before the Hon’ble Members.
Income Tax Appellate Tribunal
Agra

Affidavit of Naresh Singh, Partner of M/s Naresh Singh Contractors, resident of 42-A Friends Colony, Etawah having PAN: AWLPS3602D,

The Deponent do hereby submit as under:

1. That the Deponent, Partner in M/s Naresh Singh Contractors, resident of 42­A Friends Colony, Etawah having PAN: AWLPS3602D is well verse with the facts of the case.

2. That the Ld. AC1T-2(2)(1) Agra has passed an order under section 143(3) dated 21.12.2016 making an addition of Rs.40,06,261/-

3. Being aggrieved with the assessment order, an appeal was filed before C1T(A).

4. That the quantum order of appeal passed by C1T(A) Agra under section 250 of the Act dated 30.03.2018 was neither served to the Deponent nor it was uploaded on the Income Tax Portal.

5. Thereafter the Deponent has filed an application requesting the authorities to provide the copy of appellate order dated 30.03.2018.

6. That the Deponent visited the office of Ld. CIT(A) requesting to provide the Appellate Order, however due to misplace of file in the office the appellate order was not provided to the Deponent.

7. Now in the month of November 2025 it was seen that the appellate order was uploaded on income tax portal.

8. That the deponent hereby confirm that delay in filing appeal is due to non-service of the Appellate Order which is beyond the control of Deponent.

9. Since, there is genuine reason for delay in filing the appeal, the same shall be condoned in the interest of natural justice.

10. It is humbly prayed to the Hon’ble member of 1TAT to condone the delay in filing of appeal in the interest of justice.

Verification

That the Deponent do hereby confirms and states that above content of para 1 to 10 are correct and nothing material has been concealed.

Verified on 20.01.2026

DEPONENT”

4. On perusal of the above, I am convinced that the assessee was not prevented from sufficient cause in not filing the appeal in time. Hence, I am not inclined to condone the delay and admit the appeal of the assessee is hereby dismissed in limine.

ITA No. 117/AGR/2026 for AY 2014-15

5. The only issue to be decided in this appeal is as to whether the Id CIT(A) was justified in confirming the levy of penalty u/s 271(1)(c) of the Act in the facts and circumstances of the instant case. The assessee is a partnership firm engaged in the business of contract work with Public Works Department. The business income was offered by the assessee in the return by applying the provisions of Section 44AD of the Act in the sum of Rs. 1,90,000/- and from which interest paid to partner of Rs. 9,00,395 was deducted resulting in business loss of Rs. 7,10,395/-. The assessee earned interest on fixed deposits of Rs. 6,30,895/- offered under income from other sources and total loss returned was Rs. 79,500/-.

6. The Id AO noted that there was a cash deposit made in the sum of Rs. 11,13,000/- in the bank account by the assessee. The total receipts reflected in Form 26AS was Rs. 28,93,261/-. The return of income filed by the assessee on 03.03.2015 declaring total income of Rs. Nil was treated as non est by the Id AO. Based on the AIR information that assessee had deposited cash of Rs.11,13,000/- in savings bank account, the same was added as unexplained cash credit u/s 68 of the Act. based on the gross receipts reflected in Form 26AS in the sum of Rs. 28,93,261/- in the assessment framed u/s 143(3) of the Act on 21.12.2016.

7. The Id CIT(A) noted that this is a case of non maintenance of books by the assessee and hence the assessee would be entitled to apply the provisions of Section 44AD of the Act and held that only 8% of business receipts of Rs. 28,93,261/- should be taxed as per Section 44AD of the Act and deleted the remaining sum of Rs. 26,61,800/-. The Id CIT(A) thereafter confirmed the addition made on account of cash deposit of Rs. 11,13,000/-u/s 68 of the Act in the quantum proceedings. Penalty proceedings u/s 271(1)(c) of the Act stood initiated and penalty order was passed on 26.03.2019 levying penalty only on the additions that stood sustained by the Id CIT(A) for no satisfactory explanation given by the assessee in response to the penalty show cause notice u/s 271(1)(c) of the Act dated 31.12.2016 and 28.06.2018. The Id CIT(A) confirmed the levy of penalty by the Id AO as the assessee had not complied with the penalty notices at all before the Id AO.

8. The Id AR before me stated that out of total gross receipts of Rs. 28,93,261/- mentioned in Form 26AS, a sum of Rs. 5,65,022/- represent interest from fixed deposit and hence the same cannot be treated as business receipts of the assessee from contract business. The assessee had indeed offered interest income on fixed deposits of Rs. 6,30,895/- separately under the head “income from other sources” in the return. Hence, this sum of Rs. 5,65,022/- had been otherwise offered to tax by the assessee in the return. With regard to cash deposit of Rs. 11,13,000/-, the Id AR pleaded that the same were sourced out of cash withdrawals made from the bank accounts during the year itself and only a paltry sum of Rs. 14,000/- stood deposited out of available cash with the assessee. The source of cash deposit explained by the assessee are tabulated as under:-

Details showing Source of Cash Deposits in Bank Account Number 2156947222

9. From the above, it could be seen that satisfactory explanation has indeed been given by the assessee explaining the source of cash deposits to have emanated out of withdrawals from the bank account during the year itself. It is not the case of the revenue that the withdrawals by the assessee have already been spent for personal or business purposes by the assessee and that the same is not available as a cash source for explaining the cash deposit. Hence, there cannot be any allegations of concealment of income or furnishing of inaccurate particulars of income qua the assessee warranting levy of penalty u/s 271(1)(c) for the addition of Rs. 11,13,000/-.

10. As stated earlier, the total gross receipts reflected in Form 26AS of Rs. 28,93,261/- includes a sum of Rs. 5,65,022/- on account of interest on fixed deposits which has been already offered to tax in the return itself as the said interest figure is included in the total interest income of Rs. 6,30,895/-offered in the return. Hence, there cannot be any levy of penalty u/s 271(1)(c) of the Act for the credit of Rs. 5,65,022/- representing interest income. With regard to remaining contract receipts of Rs. 23,28,239/­(2893261-565022). The assessee offered 8% profit as per Section 44AD of the Act which is only a estimated and accepted profit percentage as per the Act. The 8% of the contract receipts of Rs. 23,28,239/- works out to Rs. 1,86,259/- whereas assessee itself had disclosed Rs. 1,90,000/- as business income u/s 44AD before interest paid to partners in the return itself. Hence, there cannot be any allegation of concealment of income or furnishing of inaccurate particulars of income on the part of the assessee.

11. In view of the aforesaid observations, there cannot be any levy of penalty u/s 271(1)(c) of the Act in the facts and circumstances of the instant case and accordingly, I direct the Id AO to cancel the levy of penalty thereon. Grounds raised by the assessee are allowed.

12. In the result, the appeal of the assessee is allowed.

13. To sum up, the appeal in ITA No 117/AGR/2026 filed by the assessee is dismissed and ITA No. 85/AGR/2026 filed by the assessee is allowed.

Order pronounced in the open court on 02/06/2026.