Thimanna Nagaraj Vs ITO (ITAT Bangalore)
A statutory notice may be delivered to an email address recorded on the income-tax portal. But when an assessee has limited education, does not know how to access email and has no means to engage a tax professional, should failure to respond automatically attract a penalty? In Thimanna Nagaraj v. ITO, the Bangalore Tribunal held that the assessee’s circumstances constituted reasonable cause for non-compliance and deleted a penalty of ₹20,000 under section 271(1)(b).
Cash deposits led to reassessment
Thimanna Nagaraj had not filed a return for AY 2015–16. Information on the Department’s Insight Portal showed cash deposits of ₹68.80 lakh in his State Bank of India savings account. The Department identified him as a non-filer, passed an order under section 148A(d), and issued a notice under section 148.
The assessee did not respond. The assessment was ultimately completed on 21 February 2023 under section 147 read with sections 144 and 144B. The AO treated the entire cash deposit amount of ₹68.80 lakh as unexplained money under section 69A.
During those proceedings, the Department had also issued notices under section 142(1) on 17 October 2022 and 30 December 2022. According to the assessment record, both notices were delivered to the email address recorded for the assessee on the portal, but no reply was received. The AO initiated penalty proceedings for the two defaults and imposed ₹10,000 for each notice, making a total penalty of ₹20,000 under section 271(1)(b).
The assessee explained his circumstances
The assessee challenged the penalty before the CIT(A). Although the CIT(A) condoned a delay of 608 days in filing the appeal, the penalty was upheld on its merits.
Before the Tribunal, the assessee was represented by his accountant. It was explained that he was a small trader selling loose packets of snacks, including chips and roasted peanuts, to restaurants and liquor shops. He collected sale proceeds in cash and deposited them in his bank account. According to his submission, his limited education and lack of awareness of income-tax filing requirements had also contributed to his failure to file a return.
More directly relevant to the penalty, the assessee stated that he did not know how to access email and could not afford or engage an authorised representative to deal with the Department’s notices. His case was that the two failures to respond did not reflect a deliberate refusal to cooperate; he lacked the practical ability and assistance needed to answer the electronic notices.
Was delivery of the notices enough to sustain the penalty?
The Tribunal did not dispute the record showing delivery of the section 142(1) notices to the email address on the portal. The issue before it was whether, in the assessee’s particular circumstances, a monetary penalty should follow from his failure to respond.
After considering that he was a small businessman with limited education and limited means to engage a tax consultant, the Tribunal found reasonable cause for the two defaults. It directed the AO to delete the entire ₹20,000 penalty. The operative finding records that these circumstances supported reasonable cause for failure to comply with the two notices.
The ruling is significant because it considers the difference between an electronic notice being delivered and an assessee having the practical capacity to act on it. Electronic delivery remained a fact of the case. Yet the Tribunal accepted the explanation for non-compliance after examining who the assessee was and how he conducted his affairs.
What happened to the challenge against reassessment?
The assessee had also raised jurisdictional objections to the reassessment. He relied on Union of India v. Rajeev Bansal and a Karnataka High Court ruling concerning initiation of reassessment proceedings without following the faceless scheme under section 151A. His argument was that, if the underlying assessment was invalid, the penalty arising from those proceedings could not survive.
The Tribunal expressly did not examine the validity or merits of the assessment. Having found reasonable cause and deleted the penalty on that basis, it held that the grounds challenging the jurisdiction and validity of the assessment required no adjudication in this penalty appeal. :chatgpt-content-reference{index=”5″}
This limit is crucial. The order does not delete the ₹68.80 lakh addition, nor does it decide whether the cash deposits represented business receipts or unexplained money. Its operative relief is confined to the ₹20,000 penalty for failure to comply with the two section 142(1) notices.
Author’s comments
The case is a useful reminder that non-compliance and deliberate defiance are not necessarily the same thing. An email delivery record establishes that a notice reached the registered address; it does not, by itself, answer every question about the assessee’s reason for failing to act. Here, the Tribunal accepted the trader’s limited education, lack of email access skills and inability to engage professional assistance as reasonable cause.
At the same time, this is a fact-specific penalty decision, not a general exemption from responding to electronic notices. A person seeking similar relief would need to explain the actual obstacle to compliance and support that explanation with credible circumstances. The Tribunal’s sympathy for the assessee did not decide the separate, much larger dispute over the source and tax treatment of the cash deposits. The penalty appeal was allowed, while the assessment controversy remained outside the scope of this order.
Cases Discussed
- Union of India v. Rajeev Bansal, [2024] 167 taxmann.com 70 / 301 Taxman 238 (SC) — Relied upon by the assessee while challenging the underlying reassessment. The Tribunal did not adjudicate that jurisdictional ground because it deleted the section 271(1)(b) penalty on reasonable-cause grounds.
- Ramachandra Reddy Ravi Kumar v. Deputy Commissioner of Income-tax, [2025] 178 taxmann.com 491 (Karnataka), dated 28 August 2025 — Relied upon by the assessee for the contention that initiation of proceedings under section 148A without following the faceless scheme envisaged under section 151A was bad in law. The Tribunal left the jurisdictional issue unadjudicated after deleting the penalty for reasonable cause.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
1. The assessee Mr. Thimanna Nagaraj has filed this appeal against the order dated 5 January 2026 passed by the National Faceless Appeal Centre, Delhi, for assessment year 2015–16, which confirmed the penalty of ₹20,000 imposed by the Assessment Unit under section 271(1)(b) of the Income-tax Act, 1961, by order dated 21 August 2023.
2. The Assessee has raised the following grounds of appeal:
1. The order of the learned CIT(A), National Faceless Appeal Centre, confirming the penalty under section 271(1)(b) of the Act is bad in law and prejudicial to the appellant.
2. The learned CIT(A) has erred in dismissing the appeal filed by the Appellant without appreciating the submissions made by the Appellant on the Jurisdictional Grounds related to the main assessment from which the Penalty Order was emanating.
3. The learned CIT(A) erred in dismissing the appeal filed by the Appellant without appreciating that the main assessment lacked merits following the decisions rendered by the following courts:
a. Union of India v. Rajeev Bansal [2024] 167 taxmann.com 70/ 301 Taxman 238 (SC) – All notices issued after 01.04.2021 relating to AY 20l5-l6are liable to quashed.
b. Ramachandra Reddy Ravi Kurnar vs. Deputy Commissioner of Income-tax [2025] 178 taxmann.com 491 (Karnataka) [28-08-2025] – AO initiating the proceedings u/s 148A of the Act without following the faceless scheme envisaged u/s 151A of the Act is bad in law.
The Appellant craves leave to, add to, alter or rescind any of the grounds mentioned hereinabove.
3. Based on the facts before us, the assessee, an individual, did not file a return of income for assessment year 2015–16 and was therefore identified as a non-filer in the Non-Filer Management System. Information available on the Insight Portal showed cash deposits of ₹6,880,000 in a savings bank account maintained with the State Bank of India during the relevant year. Accordingly, after an order was passed under section 148A(d) of the Income-tax Act, 1961, the necessary notice was issued under section 148. The assessee did not comply, and further statutory notices, together with a show-cause notice, were issued. The assessment was completed on 21 February 2023 under section 147 read with sections 144 and 144B, determining total income at ₹6,880,000 by treating the cash deposits as unexplained money under section 69A. Notices under section 142(1), dated 17 October 2022 and 30 December 2022, were delivered to the assessee’s email address as recorded on the portal, but no response was received. A show-cause notice under section 271(1)(b) was therefore issued. As the assessee also failed to respond to these notices, the Assessing Officer, by order dated 21 August 2023, imposed penalties of ₹10,000 for each default, totalling ₹20,000.
4. Aggrieved, the assessee appealed to the learned CIT(A). The learned CIT(A) condoned the delay of 608 days but, on the merits, upheld the penalty of ₹20,000. The assessee is therefore in appeal before us.
5. We heard Ms Girija, the assessee’s accountant, and Shri Pradeep S., Additional Commissioner of Income Tax and Senior Departmental Representative.
6. The learned authorised representative submitted that the learned CIT(A) had been presented with a jurisdictional challenge to the assessment order from which the penalty proceedings arose. It was argued that, in view of the Hon’ble Supreme Court’s decision reported in 167 taxmann.com 70, the assessment order itself lacked merit and, consequently, a penalty under section 271(1)(b) could not be sustained. It was further submitted that the assessee is an individual with limited education who earns a livelihood by selling loose packets of snacks, such as chips and roasted peanuts, to restaurants and liquor shops. He collects the sale proceeds in cash and deposits them in his bank account; during the relevant year, these deposits totaled ₹6,880,000. Because of his limited education and lack of awareness of income-tax filing requirements, he did not file an income tax return. The assessment order dated 21 February 2023 made the above addition and initiated penalty proceedings for non-compliance. As the assessee did not know how to access email and could not afford or engage an authorised representative, he was unable to respond to the notices issued by the Income Tax Department or appear before the Assessing Officer on two occasions. It was therefore contended that the penalty for non-compliance was unwarranted.
7. Although these facts were set out in the grounds of appeal, the learned CIT(A) upheld the Assessing Officer’s imposition of the ₹20,000 penalty.
8. Considering that the assessee is a small businessman with limited education, limited means to engage a tax consultant, and was represented before us by his accountant, we find that his failure to comply with the two notices issued by the Assessing Officer was supported by reasonable cause. We therefore direct the Assessing Officer to delete the penalty of ₹20,000 imposed under section 271(1)(b) of the Act.
9. Before concluding, we clarify that we have not examined the merits of the assessment. Accordingly, the assessee’s grounds concerning jurisdiction and the validity of the assessment order do not require adjudication at this stage.
10. In the result, the assessee’s appeal is allowed.
Order pronounced in the open court on 28th September, 2026.
