Manaki Natung Vs ITO (ITAT Guwahati)
Summary: The Guwahati Bench of the Income Tax Appellate Tribunal dismissed appeals filed by Manaki Natung against NFAC orders dated 22.09.2025 for AYs 2021-22 and 2022-23. In AY 2021-22, the dispute concerned an addition under Section 69A arising from cash deposits in the assessee’s bank accounts. The assessee claimed that she was a Scheduled Tribe member residing in Arunachal Pradesh and that her income was eligible for exemption under Section 10(26), while also explaining the deposits with reference to past cash withdrawals, savings and other income. The Tribunal noted that cash deposits during the year totalled Rs. 54,20,000/-, of which Rs. 13,39,652/- was accepted as rental income, while the remaining source was not established to its satisfaction. The Tribunal held that a valid source of income had to be established before the question of exemption under Section 10(26) could arise, and that merely producing bank statements could not substitute for books of account for establishing the source. It therefore dismissed ITA No. 364/GTY/2025 and, finding the issue identical, dismissed ITA No. 365/GTY/2025 for AY 2022-23 on the same terms. The common order was pronounced on 17.07.2026.
Relevant TaxGuru Coverage: The issue may be read alongside TaxGuru’s coverage of Section 10(26) and unexplained cash deposits, including Section 10(26) exemption for individual members of Scheduled Tribe, Section 10(26) exemption and the expression “residing in any area specified”, Section 69A cash deposit addition and source verification, and ITAT Guwahati decisions concerning cash deposits and Section 10(26).
FULL TEXT OF THE ORDER OF ITAT GUWAHATI
These Appeals are filed by the Assessee against the orders of the NFAC, Delhi [“the Ld. CIT(A)”, for short], dated 22.09.2025 with DIN & Order Nos. ITBA/NFAC/S/250/2025-26/1081012222(1) and ITBA/NFAC/S/250/2025-26/1081012731(1) passed u/s 250 of the Income Tax Act, 1961 [“the Act”, for short] for the assessment years 2021-22 & 2022-23 respectively on the following grounds of appeals:-
GROUNDS OF APPEAL in ITA No. 364/GTY/2025 (A.Y. 2021-22)
1) For that the Ld. CIT(A) erred in law and in facts in upholding the validity of the assessment order passed in gross violation of the law.
2) For that the Ld. CIT(A) erred in law and in facts in upholding the assessment order making additions of Rs 41,30,348/- as unexplained cash deposits u/s 69A on the only ground that in the absence of books of accounts the assessee could not have satisfactorily explained the source of cash deposited in her bank accounts.
3) For that the Ld. CIT(A) erred in law in holding that the assessee was not eligible for exemption under section 10(26) of the Act only in respect of the alleged unexplained income assessed in her hands, without first having first held that the impugned income arose outside the specified area.
4) For that the assessee craves leave to add/alter any of the grounds of appeal before or at the time of hearing.
GROUNDS OF APPEAL in ITA No. 365/GTY/2025 (A.Y. 2022-23)
1) For that the Ld. CIT(A), NFAC, Delhi erred in law and in facts in upholding the assessment order making additions of Rs 2,63,40,000/- as unexplained money u/s 69A of the Income tax Act 1961.
2) For that the Ld. CIT(A) erred in upholding the action of the Assessing Officer in rejecting the explanation offered by the assessee regarding the source of deposit of cash in bank account which included cash withdrawals made earlier from bank, without first bringing into record any material to disprove the explanation.
3) For that the Ld. CIT(A) credit law in holding that the assessee was not eligible for exemption under section 10(26) of the Act in respect of the income assessed in her hands.
4) For that the assessee craves leave to add/alter any of the grounds of appeal before or at the time of hearing.
On going through the above grounds of appeal, we noted that the issues raised are similar except the difference in figures, therefore, both the appeals were heard together, accordingly, we are common order. We are taking up first appeal in ITA No.364/GTY/2025 for the assessment year 2021-22 and decision will apply mutatis mutandis in other appeals too.
2. Briefly stated, the facts of the case are that the assessee filed a return of income on 26.10.2021, declaring the income at NIL. The case was selected for scrutiny, accordingly notices u/s 143(2) of the Act was issued. Subsequently, various other statutory notices u/s 142(1) etc. were also issued to the assessee. In response to these notices, the assessee furnished replies from time to time, along with details including a copy of the SC Certificate, Bank Statements, Permanent Residence Certificate, Trade Licence, Computation of Income, copy of GST Registration Certificate, GSTR, copy of Work Order, and Issue Contract details along with the TDS deduction statement etc. During the course of the assessment proceedings, it was observed that cash was deposited into the assessee’s two bank accounts, which was not found commensurate with the declared income and the transactions made. Accordingly, a show- cause notice was issued to the assessee. In response, a reply was received, but the assessee was unable to furnish bills, vouchers, or copies of ledger accounts, and no books of accounts were furnished. Before finalizing the assessment, another show- cause notice was issued to the assessee. On 21.11.2022, the assessee her claim, which are incorporated in the assessment order. After going through the submissions, the Assessing Officer was not satisfied and made an addition u/s 69A of the Act on those cash deposits.
3. Aggrieved from the above order, assessee filed an appeal before the Ld. CIT(A). After considering the entire submissions, h e dismissed the appeal of the assessee.
4. Feeling aggrieved from the above order, assessee filed an appeal before this Tribunal. The Learned Counsel for the assessee reiterated the submissions made before the Lower Authorities and submitted that assessee claims of Rs.1,39,03,023/- (Rs.17,73,897/-) being interest on SB bank account and FDR, Rs.1,07,63,352/- being Income from Contract Receipts, Rs.13,36,652/- being Income from House property and Rs.26,122/- as Interest on IT refund) as exempt income u/s 10(26) of the Act. Since she is a member of Scheduled Tribe and residing in the state of Arunachal Pradesh and earning all her income in the said State. This fact has been accepted beyond any doubt by the Assessing Officer. The onus of proving the applicability of any exemption provision has been fully discharged by the assessee to the full satisfaction of the Assessing Officer. The Assessing Officer has made the addition of Rs.41,30,348/- on account of unexplained On one hand in Para 5 of his order the Assessing Officer himself has enquired about the veracity of withdrawals made during the financial year 2019- 20 and when the explanation regarding cash withdrawals of Rs.72,79,575/- made by the assessee during the preceding financial year 2019- 20 has been provided with the relevant bank statement he is not ready to accept it on the ground that Books of account were not filed by the assessee. It seems that from the very First day the Assessing Officer has worked with a pre set mind of making the addition and more particularly after the submission provided by the assessee on 04.11.20222 wherein the anomalies in the assessment process were pointed out by the assessee. Proper and valid explanations along with the corroborative evidences were provided to the Assessing Officer in respect of cash deposits made during the year under scrutiny. The assessee i s not required to maintain Books of account and it may also be stated that even if the books of account were required to be maintained then how fare is justified to add the Cash deposits to the income of the assessee when otherwise also, she has established adequate sources substantiating the deposits. He further submitted that the Judgements relied by the Learned Counsel has not been controverted by the Assessing Officer. The Ld. CIT(A) has also not properly appreciated.
5. On the other hand, the Ld. DR relied on the orders of the Lower Authorities and submitted that the assessee had been granted two opportunities to establish a valid source of income to qualify for exemption u/s 10(26) of the Act. However, the assessee failed to establish the valid source of the cash deposits before the Lower Authorities. The books of accounts were not submitted so that the AO would be satisfied. Therefore, the case laws cited during the initial proceedings are not applicable to the present facts, and requested that the orders of the Lower Authorities may be upheld.
6. Considering the rival submissions and perused the material available on record. The dispute pertains to an addition of Rs. 41,31,348/- made by the Assessing Officer u/s 69A of the Act due to the lack of a proper explanation from the assessee regarding the valid source of the cash deposited into her bank account. During the impugned assessment year, the assessee deposited cash totalling of Rs. 54,20,000/-. Out of this, the Assessing Officer accepted Rs. 13,39,652/- as rental income received in cash during the year, while the assessee claimed the remaining balance arose from her past savings and interest receivable from the preceding year were not accepted. Furthermore, as per submission of the ld. Counsel for the assessee both the Lower Authorities failed to consider the Residential the assessee’s claim for exemption u/s 10(26) of the Act. For the sake of convenience, we are producing the section 10(26) of the Act which is as under: –
“in the case of a member of a Scheduled Tribe as defined in clause (25) of article 366 of the Constitution, residing in any area specified in Part I or Part II of the Table appended to paragraph 20 of the Sixth Schedule to the Constitution or in the States of Arunachal Pradesh, Manipur, Mizoram, Nagaland and Tripura or in the areas covered by notification No. TAD/R/35/50/109, dated the 23rd February, 1951, issued by the Governor of Assam under the proviso to sub- paragraph (3) of the said paragraph 20 as it stood immediately before the commencement of the North- Eastern Areas (Reorganisation) Act, 1971 (81 of 1971) or in the Ladakh region of the State of Jammu and Kashmir, any income which accrues or arises to him,—
(a) from any source in the areas or States aforesaid, or
(b) by way of dividend or interest on securities;”
The assessee is eligible for exemption u/s 10(26) of the Act as per the income computation but t o be qualified for exemption u/s 10(26) of the Act, there should be a valid source in the eyes of law as per the provisions of the Income Tax Act to qualify the exemption u/s 10(26) of the Act. However, the assessee could not establish a valid source of cash deposits. The books of accounts were not produced. In view of this the income which cannot be considered for the eligibility of the exemption. During the course of the assessment proceedings, the Assessing Officer noted that the assessee has not produced the books of account, and merely producing bank statements cannot be treated as producing books of account to justify the source of income. Firstly, the assessee has to prove the valid source of income, so that the question of exemption can be considered only after the source is established; an unexplained source cannot be treated as an exempt source. Accepting the appellant’s argument would mean validating the deposit of funds from any source, including unverified receipts, without any accountability/illegal money, merely by virtue of being a member of a Scheduled Tribe. This is not the legislative intent of section 10(26) of the Act. The provision is meant to provide relief for income arising in specified areas form the Bonafide source of income but not to serve as a conduit for unexplained money. Therefore, the case laws relied upon by the assessee are not applicable to the present facts of the case, and the assessee is not eligible for the exemption under section 10(26) of the Act. Considering the totality of the facts and circumstances of the case, we are dismissing the grounds raised by the assessee.
In ITA No. 365/GTY/2025, the issue is identical, therefore. the decision taken in ITA No. 364/GTY/2025 is squarely applicable. Since we have dismissed the ITA No. 364/GTY/2025 on the above terms and the issues are similar in ITA No. 365/GTY/2025, accordingly, ITA No. 365/GTY/2025 is also dismissed on the same terms.
7. In the result, both the appeals of the assessee are dismissed.
A common order shall be kept in the respective case files. Order pronounced on 17.07.2026.
