Jayamma Vs ITO (ITAT Bangalore)
Illiterate Assessee’s Delay Deserves Sensitive Consideration: ITAT Restores Assessment and Tax Audit Penalty
An assessee’s inability to handle notices and electronic communication must be considered in the light of her circumstances. The Bengaluru ITAT applied this approach in Jayamma v. ITO, ITA Nos. 1267 and 1268/Bang/2026, for AY 2017–18. It held that the CIT(A) ought to have condoned the delay in the assessee’s appeal and restored both the assessment and the related Section 271B tax audit penalty to the Assessing Officer.
The order, pronounced on 29 September 2026, concerns a petrol bunk proprietor who had taken over the business after her husband’s death. She was stated to be 61 years old, illiterate, unwell and dependent on others to attend to tax correspondence. The Tribunal’s decision gives her an opportunity to explain the disputed transactions; it does not delete the assessment additions or the penalty on merits.
An Ex Parte Assessment Followed by a Delayed Appeal
The assessee filed her return declaring income of ₹4,99,870. Her case was selected for scrutiny. According to the Assessing Officer, a notice under Section 143(2) was served and seven further notices went unanswered. He therefore completed a best judgment assessment under Section 144 on 15 December 2019.
The assessment determined total income at ₹26,53,827, after additions aggregating ₹21,53,957. Information obtained from banks also showed cash deposits aggregating ₹3,74,60,739, including deposits during the demonetisation period. The source of these deposits was one of the matters requiring examination.
The assessee filed her appeal before the CIT(A) on 30 September 2021. In Form 35, she disclosed the delay and filed a condonation petition. She explained that she could neither read nor write and was unfamiliar with email. The email address used for the business belonged to a clerk at the petrol bunk, who was expected to alert the auditors or tax consultant. Having inherited the business rather than set it up herself, she relied on employees for compliance matters and said she had not understood or responded to the notices.
The CIT(A) refused to condone the delay. He considered her claim of complete unawareness difficult to reconcile with the operation of a petrol bunk, which, in his view, required a reliable system for legal and financial matters. He also noted the absence of medical evidence explaining how her health prevented her from filing the appeal. The appeal was consequently dismissed without examination of the additions.
Tribunal: Look at the Person Behind the Non-Compliance
Before the ITAT, the assessee reiterated that the dealership had originally belonged to her husband and had been transferred to her following his death. Her representative submitted that she was illiterate, lacked her own email address and mobile phone, and was unable to understand the notices even if they had been served.
The Department relied on the repeated failure to respond and the substantial delay in appealing. The Tribunal acknowledged those facts. Its concern was whether the assessee’s personal circumstances supplied sufficient cause for the non-compliance and delay.
The ITAT found that the assessee’s age, illiteracy, stated ill health and dependence on others had to be considered together with the manner in which she came to operate the business. In those circumstances, it observed, a failure to comply was not unusual. The situation called for sensitivity and an opportunity to comply, rather than rejection of her explanation simply because a business was being run in her name. The Tribunal held that the CIT(A) erred in refusing to condone the delay.
Cash Deposits Still Have to Be Explained
The relief granted was procedural, but important. The Tribunal restored the assessment to the Assessing Officer to ascertain the true sources of the cash deposits. It directed the assessee to furnish the necessary details, following which the AO must reassess her income in accordance with law.
Thus, the ITAT did not accept the cash deposits as explained. Nor did it decide the merits of the assessee’s objections to the individual additions, including the disallowances raised in her grounds of appeal. Those issues return for examination after she produces the relevant evidence.
Section 271B Penalty Also Sent Back
A separate appeal concerned the ₹1,50,000 penalty under Section 271B. The AO had treated the aggregate cash deposits of ₹3,74,60,739 as turnover, inferred that the ₹1 crore threshold under Section 44AB had been crossed, and imposed the penalty for failure to comply with the tax audit requirement.
Because the assessment itself was restored, the Tribunal held that fairness required the penalty matter to be restored as well. The AO may reconsider it after reassessment, including the question whether reasonable cause existed. The ITAT did not hold that the bank deposits were turnover; that was the AO’s basis for imposing the penalty and remains subject to reconsideration.
Author’s Comment
The decision has two practical lessons. First, while service of notices and delay in filing an appeal matter, sufficient cause must be assessed in the assessee’s actual circumstances. Running a business does not necessarily mean that its proprietor personally reads emails, understands tax notices or manages litigation—particularly where an illiterate widow has taken over an existing concern and depends on staff and advisers.
Second, cash deposits cannot automatically be equated with business turnover for Section 44AB purposes without examining their nature. Here, however, the Tribunal stopped short of deciding that issue. Its order gives the assessee a fresh opportunity to produce records explaining the deposits and permits the AO to determine both the income and any consequential penalty on the evidence and in accordance with law.
Cases Discussed:
- Suo Moto Writ Petition (Civil) No. 3 of 2020 — The assessee relied on the Supreme Court’s limitation-extension order dated 27/04/2021 to contend in her grounds that the effective delay in filing the assessment appeal was about 41 days rather than two years. The Tribunal ultimately granted relief by considering her personal circumstances and sufficient cause.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
1. The assessee has filed two appeals for the same assessment year. ITA No. 1267/Bangalore/2026 challenges the appellate order dated 13 January 2026 passed by the Joint Commissioner of Income Tax (Appeals)-4, Delhi (the learned CIT(A)). The learned CIT(A) declined to admit the assessee’s appeal against the assessment order dated 15 December 2019, passed by the Income Tax Officer, Ward-1, Shimoga (the learned AO), under section 144 of the Act, on the ground that the appeal was filed almost two years later. The second appeal challenges the appellate order dated 19 December 2024 passed by the National Faceless Appeal Centre. That order likewise declined to admit, on account of delay, the assessee’s appeal against the penalty order dated 4 February 2022 passed under section 271B by the National e-Assessment Centre, imposing a penalty of ₹1,50,000. Aggrieved by both orders, the assessee is in appeal before us.
2. The Assessee has raised the following grounds of appeal:
ITA No. 1267/Bang/2026:
1. The exparte appellate order passed by the learned Commissioner of Income-tax [Appeals] NAFC, under Section 250 of the Act for the Assessment Year 2017-18, dated 13/01/2026, in so far as it is against the Appellant is opposed to law, weight of evidence, probabilities, facts and circumstances of the Appellant’s case, may be quashed.
2. The ex-parte order passed by the learned Commissioner of Income – tax [Appeals], is in grave violation of principles of natural justice, as the appellant could have been afforded another opportunity of hearing, consequently the impugned ex-parte order passed by the learned Commissioner of Income-tax [Appeals] requires to be cancelled in the interest of justice and equity, on the facts and circumstances of the case.
3. The learned Commissioner of Income-tax [Appeals] is not justified in not condoning the delay in filing the appeal preferred by the appellant without properly appreciating the fact that the reason for delay in filing the appeal is neither intentional or negligence or deliberate but it is due to the reasons beyond the control of the appellant, on the facts and circumstances of the case.
3.1 The learned Commissioner of Income-tax [Appeals] is not justified in arbitrarily rejecting the reasons submitted by the appellant as regard to the bonafide reasons for delay in filing the appeal under section 246A of the Act which is against the principles of natural justice, on the facts and circumstances of the case.
3.2 The learned Commissioner of Income-tax [Appeals] ought to have properly appreciated that the actual number of days delay in filing the appeal is only about 41 days and not two years as erroneously observed in the appellate order without appreciating that as per the order of the Hon’ble Supreme Court in Suo Moto Writ Petition [Civil] No.3 of 2020 vide its judgement dated 27/04/2021 extended the period of limitation from 15/03/2020 till 28/02/2022 and consequently such period should be ignored for the purposes of computing the limitation for filing the appeals, on the facts and circumstances of the case.
3.3 The learned Commissioner of Income-tax [Appeals] ought to have condoned the delay in filing the appeal of about 41 days and thereby ought to have admitted the appeal and adjudicated on the grounds raised by the appellant in the interest of justice and equity, on the facts and circumstances of the case.
4. The appellant denies herself liable to be assessed on a total income determined by the learned assessing officer and confirmed by the learned Commissioner of Income-tax {Appeals] amounting to Rs. 26,53,827/- as against the total income returned / reported by the appellant amounting to Rs. 4,99,870/-, on the facts and circumstances of the case.
5. The learned Commissioner of Income-tax [Appeals] and the learned assessing officer were not justified in making disallowance of Rs. 54,208/- under section 43B of the Act being VAT liability not paid within the due date, without appreciating the fact that the appellant itself in the computation of total income has voluntarily disallowed the same and consequently amounting to double disallowance of the very same amount, which requires to be deleted, on the facts and circumstances of the case.
6. The learned Commissioner of Income-tax [Appeals] and the learned assessing officer failed to appreciate that the salaries paid to the managers amounting to Rs. 3,00,000/- would not attract the provisions of section 192 of the Act if the deduction under Chapter VIA and rebate under section 87A of the Act is considered then the income doesn’t exceed the taxable limits and consequently the disallowance made of Rs. 90,000/- being 30% of Rs. 3,00,000/- under section 40[a][ia] of the Act, requires to be deleted, on the facts and circumstances of the case.
7. The learned Commissioner of Income-tax [Appeals] failed to appreciate that the learned assessing officer is not correct and justified in disallowing the salaries paid by the appellant to the extent of Rs. 5,81,800/- by erroneously holding that the salary paid by the appellant is excessive, and the said addition made by the learned assessing officer requires to be deleted, on the facts and circumstances of the case.
8. The learned Commissioner of Income-tax [Appeals] failed to appreciate that the learned assessing officer is not correct and justified in making an addition of Rs. 1,05,013/- on account of fall in Net Profit without the learned assessing officer considering the various factors leading to the decrease in the net profit and more so the accounts of the appellant being duly audited and the fall in net profit ration cannot be the basis for making addition, and the said addition made by the learned assessing officer requires to be deleted, on the facts and circumstances of the case.
9. The learned Commissioner of Income-tax [Appeals] failed to appreciate that the learned assessing officer is not correct and justified in making an addition of Rs. 11,82,393/- on account of unproved Creditors without appreciating that the said amount is pertaining to earlier years and also the observations made by the learned assessing officer in the impugned order of assessment is contrary to the actual facts and consequently the addition made by the learned assessing officer requires to be deleted, on the facts and circumstances of the case.
10.The learned Commissioner of Income-tax [Appeals] and the learned assessing officer failed to appreciate that the rent paid amounting to Rs. 1,80,000/- would not attract the provisions of section 194I of the Act, as per the proviso to section 194I of the Act if the payment is in excess of Rs. 1,80,000/- then only the TDS provision is applicable and in the instant case the payment has not exceeded Rs. 1,80,000/- and consequently the disallowance made of Rs. 1,08,000/- being 30% of Rs. 1,80,000/- under section 40[a][ia] of the Act, requires to be deleted, on the facts and circumstances of the case.
11. The learned Commissioner of Income-tax [Appeals] and the learned assessing officer failed to appreciate that the interest paid by the appellant on the overdraft account with M/s. Canara Bank amounting to Rs. 1,08,478/- would not attract the provisions of section 194A of the Act, and consequently the disallowance made of Rs. 32,543/- being 30% of Rs. 1,08,478/- under section 40[a][ia] of the Act, requires to be deleted, on the facts and circumstances of the case.
12. Without prejudice, to the right to seek waiver of interest under section 234 of the Act, the Appellant denies herself liable to be charged to interest under section 234 of the Act on the facts and circumstances of the case. The appellant contends that the levy of interest under section 234 of the Act is also bad in law as the period, rate, quantum and method of calculation adopted by the learned assessing officer on which interest is levied are not discernible and are wrong on the facts of the case.
13. The appellant craves leave to add, alter, amend, substitute or delete any or all of the grounds of appeal urged above.
14. For the above and other grounds to be urged during the course of hearing of the appeal the Appellant prays that the appeal be allowed in the interest of equity and justice.
ITA No. 1268/Bang/2026:
1. The exparte appellate order passed by the learned Commissioner of Income-tax [Appeals] NAFC, under Section 250 of the Act for the Assessment Year 2017-18, dated 19/12/2024 as against the appeal preferred by the appellant against order of penalty passed under section 271B of the Act dated 04/02/2022, in so far as it is against the Appellant is opposed to law, weight of evidence, probabilities, facts and circumstances of the Appellant’s case, may be quashed.
2. The ex-parte order passed by the learned Commissioner of Income – tax [Appeals], is in grave violation of principles of natural justice, as the appellant could have been afforded another opportunity of hearing, consequently the impugned ex-parte order passed by the learned Commissioner of Income-tax [Appeals] requires to be cancelled in the interest of justice and equity, on the facts and circumstances of the case.
3. The learned Commissioner of Income-tax [Appeals] is not justified in not condoning the delay in filing the appeal preferred by the appellant without properly appreciating the fact that the reason for delay in filing the appeal is neither intentional or negligence or deliberate but it is due to the reasons beyond the control of the appellant, on the facts and circumstances of the case.
3.1. The learned Commissioner of Income-tax [Appeals] is not justified in arbitrarily rejecting the reasons submitted by the appellant as regard to the bonafide reasons for delay in filing the appeal under section 246A of the Act which is against the principles of natural justice, on the facts and circumstances of the case.
3.2. The learned Commissioner of Income-tax [Appeals] ought to have condoned the delay in filing the appeal and thereby ought to have admitted the appeal and adjudicated on the grounds raised by the appellant in the interest of justice and equity, on the facts and circumstances of the case.
4. The appellant denies herself liable to pay penalty imposed by the learned assessing officer amounting to Rs. 1,50,000/- under the provisions of section 271B of the Act and confirmed by the learned Commissioner of Income-tax {Appeals], on the facts and circumstances of the case.
5. The learned Commissioner of Income-tax [Appeals] failed to properly appreciate that the appellant was prevented by reasonable cause from obtaining and furnishing the Audit Report under section 44AB of the Act within time and the delay in obtaining and furnishing the Audit Report was not out of willful default or negligence on the part of the appellant and which is due to reasonable cause and consequently, the learned Commissioner of Income-tax [Appeals] ought to have deleted the penalty levied by the learned assessing officer under section 271B of the Act, on the facts and circumstances of the case.
6. Without prejudice, the learned Commissioner of Income-tax [Appeals] failed to properly appreciate that reasons for the delay in filing the audit report in time was due to reasonable cause which is covered under the provisions of section 273B of the Act and consequently ought to have exercised the discretion as provided in the provisions of section 273B of the Act and ought not to have been imposed penalty under section 271B of the Act, on the facts and circumstances of the case.
7. The appellant craves leave to add, alter, amend, substitute or delete any or all of the grounds of appeal urged above.
8. For the above and other grounds to be urged during the course of hearing of the appeal the Appellant prays that the appeal be allowed in the interest of equity and justice.
3. In brief, the assessee, an individual, filed her return of income on 30 March 2018. The return was selected for scrutiny, and a notice under section 143(2) of the Act was issued on 10 August 2018. The learned Assessing Officer recorded that the postal acknowledgement of service was on file. Despite seven further notices, the assessee did not respond. The assessment was therefore completed under section 144 of the Act. Against the returned income of ₹4,99,870, the learned Assessing Officer made seven additions aggregating ₹21,53,957 and, after examining the profit and loss account and balance sheet, determined the total income at ₹26,53,827 by an ex parte order.
4. Aggrieved, the assessee appealed to the learned CIT(A) on 30 September 2021 against the assessment order dated 15 December 2019, nearly two years late. She disclosed the delay at serial no. 14 of Form No. 35 and enclosed a condonation petition at serial no. 15. As reproduced by the learned CIT(A), the petition stated that the assessee was about 61 years old, illiterate, and unfamiliar with email correspondence. The email address used belonged to a clerk at the petrol bunk, who was expected to notify the auditors or tax consultant. Because she could neither read nor write and relied on her employees, she was unable to understand or respond to the notices. The petition also stated that the petrol bunk had belonged to her husband and that she took over its operations after his death. She therefore sought condonation of the delay and admission of the appeal.
5. The learned CIT(A) found the assessee’s claim of complete unawareness and illiteracy inconsistent with the expectation that a person operating a petrol bunk would have a reliable system for handling legal and financial matters. He also noted that, although she cited health issues, she neither explained how they prevented her from filing the appeal nor produced any medical evidence. He accordingly refused to condone the delay and dismissed the appeal as unadmitted.
6. The assessee is therefore before us. Her authorized representative, Shri Narendra Sharma, Advocate, submitted that she operates a Hindustan Petroleum dealership originally allotted to her husband and transferred to her after his death. He contended that she is illiterate, unfamiliar with income-tax law and compliance requirements, and has no email address, mobile phone, or other means of communication. She was therefore unable to understand or respond to the notices, even if duly served. As she inherited rather than established the business, the assessment was completed ex parte and the learned CIT(A) declined to condone the delay. In the interests of justice, the authorized representative requested that the matter be restored to the learned Assessing Officer.
7. The learned Senior Departmental Representative, Ms. Prajakta Thakur, JCIT, submitted that the assessee’s failure to respond to several notices justified the learned Assessing Officer in completing the assessment under section 144 of the Act. She further contended that the appeal before the learned CIT(A) was filed nearly two years late and that the assessee had not shown sufficient cause for condoning the delay.
8. We have carefully considered the rival submissions and examined the orders of the lower authorities. The record shows that the assessee filed her return of income on 30 March 2018, after which the return was selected for scrutiny. Information obtained by the learned Assessing Officer from the banks showed cash deposits of ₹1,20,32,150 during the demonetization period, ₹1,43,83,677 in one bank account, and ₹1,10,44,947 in another, aggregating ₹3,74,60,739. As the assessee did not respond to the several notices issued during the assessment proceedings, the learned Assessing Officer completed the assessment under section 144 of the Act. Her appeal to the learned CIT(A) was filed two years late and was not admitted. The question before us is whether the assessee had sufficient cause for both the non-compliance before the learned Assessing Officer and the delay in filing the appeal. The facts indicate that the petrol bunk belonged to her husband and that she took over the business after his death. She was stated to be 61 years old, illiterate, unwell, and unable to write even in the vernacular language or communicate effectively, leaving her dependent on others for compliance matters. In such circumstances, a failure to comply with the law is not unusual and should be addressed with sensitivity by enabling compliance rather than disregarding her situation. The learned CIT(A) therefore erred in refusing to condone the delay.
9. In the interests of justice, and to ascertain the true sources of cash deposits of such magnitude, the matter is restored to the file of the learned Assessing Officer. The assessee is directed to furnish the necessary details, after which the learned Assessing Officer shall reassess her income in accordance with law.
10. Accordingly, ITA No. 1267/Bangalore/2026 for assessment year 2017–18 is restored to the file of the learned Assessing Officer, and the assessee’s appeal is allowed for statistical purposes.
11. ITA No. 1268/Bangalore/2026 concerns the penalty imposed under section 271B of the Act. The learned Assessing Officer treated the assessee’s aggregate cash deposits of ₹3,74,60,739 as turnover, inferred that her turnover exceeded ₹1 crore, and consequently held that she had violated section 44AB of the Act, attracting a penalty of ₹1,50,000.
12. As the quantum appeal has been restored to the learned Assessing Officer, fairness requires that the assessee’s appeal against the penalty order also be restored. After reassessing the assessee’s income, the learned Assessing Officer may reconsider the penalty in accordance with law, including whether reasonable cause existed.
13. Accordingly, ITA No. 1268/Bangalore/2026 is also allowed for statistical purposes.
14. In the result, both appeals filed by the assessee are allowed for statistical purposes in the terms stated above.
Order pronounced in the open court on 29th September, 2026.
