ITO Vs Iddaiah Varikuppala (ITAT Hyderabad)
SEO Title: ITAT Dismisses Revenue Appeals, Upholds Cash Deposit Addition Deletion and Penalty Relief
SEO Description: ITAT dismisses Revenue appeals and upholds deletion of cash deposit addition and Section 271(1)(c) penalty for AY 2013-14.
Summary: The present appeals filed by the Revenue challenged the respective orders passed by the Commissioner of Income Tax, National Faceless Appeal Centre, Delhi, dated 30/06/2025, arising from the assessment order under Sections 147 read with 144 and 144B of the Income-tax Act, 1961, dated 30/03/2022, and the penalty order under Section 271(1)(c) dated 21/09/2022, for Assessment Year 2013-14. Since the issues in both appeals were interlinked, they were disposed of through a consolidated order.
In ITA No.1519/Hyd/2025, the Revenue challenged the CIT(A)’s deletion of the addition relating to cash deposits. Based on NMS information showing cash deposits of Rs.2,04,75,000/- in the assessee’s bank account, the AO initiated proceedings under Section 147. The assessee did not furnish a return in response to the notice under Section 148 dated 25/03/2021 and also failed to comply with notices issued under Section 142(1). The AO accordingly completed the assessment under Section 147 read with Sections 144 and 144B, treating the entire cash deposits of Rs.2,04,75,000/- as unexplained money.
During appellate proceedings, the assessee submitted that the actual cash deposits aggregated to only Rs.49,55,000/- and furnished supporting documentary evidence explaining the deposits. The Revenue contended that the CIT(A) had admitted additional evidence in violation of Rule 46A(3) of the Income Tax Rules, 1962, without confronting the material to the AO and obtaining a remand report. The assessee submitted that the CIT(A) had in fact called for a remand report and that the Income Tax Officer, Ward-1, Nalgonda, issued a letter dated 28/08/2024 seeking relevant information and documents, which the assessee furnished on 02/09/2024.
The Tribunal found from the record that the CIT(A) had called for the remand report before disposing of the appeal. It held that the Revenue’s contention that the additional evidence had been admitted in violation of Rule 46A(3) was factually incorrect and misconceived. The Tribunal further observed that if the AO, after initiating the remand proceedings, failed to furnish the remand report before the CIT(A) disposed of the appeal on 30/06/2025, such failure could not be attributed to the assessee or the CIT(A). Finding no infirmity in the CIT(A)’s well-reasoned order, the Tribunal upheld the deletion of the addition and dismissed the Revenue’s appeal in ITA No.1519/Hyd/2025.
In ITA No.1569/Hyd/2025, the Revenue challenged the CIT(A)’s order vacating the penalty imposed by the AO under Section 271(1)(c). Since the Tribunal had upheld the CIT(A)’s order vacating the quantum addition, it consequently upheld the CIT(A)’s order vacating the penalty. The appeal was therefore dismissed. In the result, both appeals filed by the Revenue were dismissed. The order was pronounced in the open court on 21st August, 2026.
List of Cases Discussed / Relied Upon
- None were discussed or relied upon in the supplied material.
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Hyderabad ITAT Upholds Deletion of ₹2.05 Crore Cash-Deposit Addition: AO’s Failure to Submit Remand Report Cannot Be Blamed on Assessee or CIT(A)
In ITO v. Iddaiah Varikuppala, ITA Nos. 1519 & 1569/Hyd/2025 (AY 2013-14), order dated 21.08.2026, the Hyderabad ITAT dealt with an ex-parte reassessment in which the AO, relying on NMS information, treated alleged cash deposits of ₹2,04,75,000 as unexplained money and assessed the entire amount as income.
Before the CIT(A), the assessee demonstrated that the actual cash deposits were only ₹49.55 lakh and not ₹2.05 crore and furnished bank accounts, ledger accounts and other supporting documents. A date-wise chart explained the ₹49.55 lakh deposits against cash withdrawals/amounts available aggregating to ₹52.28 lakh. The CIT(A) accepted the explanation and deleted the addition.
The Revenue challenged the deletion principally on the ground that the CIT(A) had admitted additional evidence in violation of Rule 46A(3) without giving the AO an opportunity to verify it. The ITAT found this contention factually incorrect. The record contained the AO’s letter dated 28.08.2024 titled “Remand Report Proceedings – Letter”, specifically calling upon the assessee to furnish documents concerning the additional evidence filed before the CIT(A). This established that the CIT(A) had in fact called for a remand report and afforded the AO an opportunity to examine the evidence.
The Tribunal importantly held that even if the AO ultimately failed to furnish the remand report, such failure was attributable to the AO himself and could neither be attributed to the assessee nor to the CIT(A). Once the CIT(A) had called for the remand report, the procedural requirement under Rule 46A stood complied with.
Accordingly, the ITAT found no infirmity in the CIT(A)’s well-reasoned order, upheld the deletion of the cash-deposit addition and dismissed the Revenue’s quantum appeal. Since the quantum addition had been deleted, the Tribunal also upheld cancellation of the consequential penalty under Section 271(1)(c). Thus, both Revenue appeals were dismissed.
FULL TEXT OF THE ORDER OF ITAT HYDERABAD
The present appeals filed by the Revenue are directed against the respective orders passed by the Commissioner of Income Tax, National Faceless Appeal Centre, Delhi (for short, “CIT(A)”), dated 30/06/2025, which in turn arises from the orders passed by the Assessing Officer (“AO”) under section 147 r.w.s 144 r.w.s 144B of the Income Tax Act, 1961 (for short, “the Act”), dated 30/03/2022 and under Section 271(1)(c) of the Act, dated 21/09/2022 for Assessment Year 2013-14. As the issue involved in the captioned appeals is inextricably interlinked and interwoven, the same are being taken up and disposed of vide the consolidated order. We shall first take up the quantum appeal filed by the Revenue in ITA No.1519/Hyd/2025 wherein the impugned order has been assailed on the following grounds of appeal:
“1. The Ld. CIT(A) erred in accepting additional evidences furnished by the assessee for the first time during the appellate proceedings and in deleting the entire addition solely based on such material without remanding the matter to the Assessing Officer for verification, thereby violating Rule 46A(3) of the Income Tax Rules, 1962 which mandate giving the Assessing Officer an opportunity to examine such evidence.
2. The Ld. CIT(A) failed to appreciate that even the assessee’s claimed cash deposits of Rs 49,55,000/- remained unexplained and unverifiable, in the absence of contemporaneous books of accounts, cash flow statements, OR confirmations from alleged third parties.
3. On facts and in law, the Ld. CIT(A) erred in deleting the entire addition made by the Assessing Officer under Income from other sources, without appreciating the fact that the assessee had failed to produce any evidence OR explanation during the assessment proceedings despite being provided adequate opportunities.
4. On facts and in law, the Ld. CIT(A) failed to consider that the addition was made based on CIB/AIR data and that the assessee never rebutted the same during the course of assessment proceedings, leading to assessment under section 144.
5. The order of the Ld. CIT(A) is liable to be set aside for having been passed in violation of Rule 46A, and without examining the genuineness of fresh documents submitted by the assessee at appellate stage OR referring the matter back to the Assessing Officer for verification.
6. The appellant craves leave to add, amend, alter, OR withdraw any of the
2. Succinctly stated, the AO, based on NMS information, which revealed that the assessee during the subject year made cash deposits of Rs.2,04,75,000/- in his bank account, initiated proceedings under section 147 of the Act. Notice under section 148 of the Act, dated 25/03/2021, was issued to the assessee. However, the assessee failed to furnish his return of income in compliance with the aforesaid notice.
3. As is discernible from the record, the AO, in absence of any compliance on the part of the assessee who failed to furnish the requisite information that were called for by him vide notices issued under section 142(1) of the Act, dated 13/07/2021, 25/11/2021 and 02/12/2021 was constrained to proceed with and frame the assessment to the best of his judgment under section 144 of the Act. Accordingly, the AO, vide his order passed under section 147 r.w.s 144 r.w.s 144B of the Act, dated 30/03/2022, held the entire amount of cash deposits of Rs.2,04,75,000/- as the assessee’s unexplained money and determined his income at the same amount.
4. Aggrieved, the assessee carried the matter in appeal before the CIT(A).
5. As is discernible from the record, the assessee during the course of the appellate proceedings had submitted before the CIT(A), viz., (i) that the actual cash deposits in his bank accounts aggregated to Rs.49,55,000/- and the same had wrongly been taken by the AO at Rs.2,04,75,000/-; (ii) that based on supporting each entry of cash deposit in the bank account; and (iii) the cash deposits in the bank account considering the multi facet sources for making the said deposits could not have been brought in the meaning of unexplained income. We find that the CIT(A) in his order has culled out the submissions of the assessee where he had explained the respective cash deposits made in his bank account held with Union Bank of India during the subject year, as under:
6. Ostensibly, the CIT(A), as can be gathered from his order, had found favor with the explanation of the assessee that the actual cash deposits made in his bank account aggregated to Rs.49.55 lakhs and, referring to his explanation regarding the date-wise cash deposits made in his bank account, accepted the same and allowed the appeal.
7. The Revenue being aggrieved with the order of the CIT(A) has carried the appellate proceedings had submitted before the CIT(A), viz., (i) that the actual cash deposits in his bank accounts aggregated to Rs.49,55,000/- and the same had wrongly been taken by the AO at Rs.2,04,75,000/-; (ii) that based on supporting documents like bank account, sale deed an explanation was provided regarding each entry of cash deposit in the bank account; and (iii) the cash deposits in the bank account considering the multi facet sources for making the said deposits could not have been brought in the meaning of unexplained income. We find that the CIT(A) in his order has culled out the submissions of the assessee where he had explained the respective cash deposits made in his bank account held with Union Bank of India during the subject year, as under:
6. Ostensibly, the CIT(A), as can be gathered from his order, had found favor with the explanation of the assessee that the actual cash deposits made in his bank account aggregated to Rs.49.55 lakhs and, referring to his explanation regarding the date-wise cash deposits made in his bank account, accepted the same and allowed the appeal.
7. The Revenue being aggrieved with the order of the CIT(A) has carried the matter in appeal before us.
8. We have heard the Learned Authorized Representatives of both parties, perused the orders of the authorities below and the material available on record.
9. Shri Mohan Babu, Learned Senior Departmental Representative (for short, “Ld. Sr-DR”) at the threshold of hearing of the appeal assailed the order passed by the CIT(A). Elaborating on his contention, the Ld. Sr-DR submitted that the solitary grievance of the Revenue is that the CIT(A) had admitted the explanation of the assessee regarding the source of the cash deposit of Rs.49.55 lakhs based on supporting documents that were filed before him without confronting the same to the AO, and thus admitting the same in violation of Rule 46A(3) of the Income Tax Rules, 1962. The Ld. AR, to buttress his contention, has taken us through the observations of the CIT(A), which at first glance revealed that the appellate authority had summarily admitted and acted upon the explanation along with the supporting documentary evidence that were filed by the assessee before him and vacated the impugned addition of Rs.49.55 lakhs made by the AO. The Ld. Sr. DR submitted that as the CIT(A) had violated the procedure for admission of additional evidence as contemplated in Rule 46A(3) of the Income Tax Rules, 1962, the order passed by him cannot be sustained and is liable to be set aside.
10. Per contra, Shri M V Anil Kumar, Advocate, Learned Authorized Representative (for short, “Ld. AR”) rebutted the aforesaid contentions of the Revenue. Elaborating on his contention, the Ld. AR submitted that the contention controverting the same to the AO, and thus, violated the procedure contemplated under Rule 46A(3) of the Income Tax Rules, 1962 is misconceived and incorrect. Elaborating on his contention, the Ld. AR submitted that the assessee, in the course of the proceedings before the CIT(A), had come forth with the aforesaid explanation regarding the respective cash deposits made in his bank account aggregated to Rs.49.55 lakhs, based on which the CIT(A) had called for a “remand report” from the AO regarding the admission of the additional evidence so filed by the assessee. The Ld. AR submitted that the AO, i.e., Income Tax Officer, Ward-1, Nalgonda, had thereafter, vide his letter dated 28/08/2024, called upon the assessee to furnish the relevant information/documents in support of the submissions filed before the CIT(A) on or before 06/09/2024. The Ld. AR to buttress his aforesaid factual averment had drawn our attention to the letter issued by the ITO, Ward-1, Nalgonda, dated 28/08/2024, which is marked as “ Subject: “Remand Report Proceedings – Letter” addressed to the assessee, wherein the AO after making a reference to the additional evidence that was filed by the assessee with the CIT(A), had called upon the assessee to furnish the relevant information/documents which was submitted before the CIT(A), Page-109 of APB. The Ld. AR based on his aforesaid contention submitted that the aforesaid letter issued by the ITO, Ward-1, Nalgonda 28/08/2024 reveals beyond doubt that the CIT(A) after considering the additional documentary evidence that were filed by the assessee to explain the source of the cash deposits at Rs.49.55 lakhs (supra), whereto the latter had directed the assessee to furnish the requisite information/documents. Carrying his contention further, the Ld. AR submitted that the assessee, pursuant to the aforesaid direction of the AO in the course of the remand proceedings, had furnished/uploaded with the AO the requisite details on 02/09/2024, Page 110-115 of APB. The Ld. AR submitted that the aforesaid facts which are borne from the record reveals beyond doubt that that the CIT(A) had admitted the additional evidence filed by the assessee with him only after confronting the same and calling for a remand report from the AO as required per the mandate of Rule 46A, and it is incorrect to say that the same had been admitted by him without following the procedure contemplated under law.
11. We have given thoughtful consideration to the contentions advanced by the Learned Authorized Representatives of both parties in the backdrop of the orders of the authorities below.
12. Admittedly, it is a matter of fact borne from record that the assessee had failed to participate in the proceedings before the AO, as a result whereof the latter was constrained to frame the assessment to the best of his judgment under section 147 r.w.s 144 r.w.s 144B of the Act, dated 30/03/2022. However, we find that thereafter, the assessee, in the course of the proceedings before the CIT(A), had filed his written submissions on 01/06/2024 along with supporting documentary evidence and requested that the same be admitted under Rule 46A of the Income of the additional documentary evidence under Rule 46A is placed on record at Page-64 of APB, along with supporting documentary evidence, i.e., copies of bank accounts, copies of ledger accounts, RTI appeal order, etc., at Pages 65-108 of APB. Also, a perusal of the written submissions filed by the assessee before the CIT(A) on 01/06/2024 reveals that the assessee had filed before him a “Chart” wherein he had explained the source of the impugned cash deposits of Rs.49.55 lakhs out of the withdrawals/amounts available with him on the respective dates aggregating to Rs.52.28 lakhs, Pages 46-62 of APB.
13. Although it is the claim of the Revenue that the CIT(A) had grossly erred in law and facts of the case in admitting the aforementioned additional evidence without following the procedure contemplated under Rule 46A, i.e., without confronting the said additional evidence to the AO and calling for his “remand report”, but we find that the said contention is factually incorrect and misconceived. We say so, for the reason that a perusal of the letter addressed by the Income Tax Officer, Ward-1, Nalgonda, dated 28/08/2024 to the assessee, which is marked as “Subject: “Remand Report Proceedings – Letter”, bearing DIN & Letter No. ITBA/COM/F/17/2024-25/1068074826(1), wherein the AO had called upon the assessee to furnish the relevant information/documents/claims regarding the additional evidence that was submitted by him before the CIT(A) on or before 06/09/2024, thus establishes beyond doubt that the CIT(A) had called for a “remand report” from the AO regarding the additional evidence furnished the Ld. Sr. DR’s claim that the CIT(A) had not received the “remand report” from the AO, we are afraid that the same would not advance the case of the Revenue. We say so, for the reason that if the AO who apparently had initiated the remand proceedings vide his letter, dated 28/08/2024 had failed to furnish the “remand report” before the culmination of the proceedings before the CIT(A) who had disposed of the appeal vide his order, dated 30/06/2025, then the same is a failure on the part of the AO, which can neither be attributed to the assessee or the CIT(A).
14. We thus, in the backdrop of our aforesaid deliberations are of the considered view that as the CIT(A) prior to disposing of the appeal had called for the “remand report” of the AO as required per the procedure contemplated under Rule 46A, therefore, there is no substance in the claim of the Revenue that the CIT(A) had erred in admitting the additional evidence furnished by the assessee during the appellate proceedings in violation of Rule 46A(3) of the Income Tax Rules, 1962.
15. As the Revenue has assailed the impugned order of the CIT(A), wherein the latter had admitted and accepted the duly substantiated explanation of the assessee regarding the source of the cash deposits made in his bank accounts after following the procedure contemplated under Rule 46A(3) of the Income Tax first appellate authority had violated the procedure which was required to be followed for admitting the said additional evidences, and thus, reject the same.
16. We thus, finding no infirmity in the well-reasoned order passed by the CIT(A), uphold the same.
17. Resultantly, the appeal filed by the Revenue is dismissed. ITA No.1569/Hyd/2025 AY: 2013-14
18. We shall now take up the appeal filed by the Revenue wherein it has assailed the order passed by the CIT(A) vacating the penalty imposed by the AO under section 271(1)(c) of the Act, dated 21/09/2022.
19. As we have upheld the order of the CIT(A) wherein he had vacated the quantum addition made by the AO vide his order under section 147 r.w.s 144 r.w.s 144B of the Act, dated 30/03/2022 while disposing of the aforementioned appeal in ITA No.1519/Hyd/2025, therefore, as a consequence thereto, the order passed by the CIT(A) vacating the impugned penalty imposed by the AO under section 271(1)(c) of the Act is upheld.
20. Resultantly, the appeal filed by the Revenue is dismissed.
21. In the result, both the appeals filed by the Revenue are dismissed.
Order pronounced in the open court on 21st August, 2026.
