ITAT Hyderabad Rejects Revenue Appeals on Cash Deposits and Penalty for AY 2013-14

1. Background of the Appeal Proceedings

The Income Tax Appellate Tribunal, Hyderabad Bench, in the case of ITO Vs Iddaiah Varikuppala, dealt with two connected appeals filed by the Revenue for Assessment Year 2013-14. Both appeals arose from orders passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi dated 30/06/2025.

  1. The first appeal, ITA No.1519/Hyd/2025, concerned the deletion of an addition made towards cash deposits treated as unexplained money in a reassessment framed under Section 147 read with Section 144 and Section 144B of the Income Tax Act 1961.
  2. The second appeal, ITA No.1569/Hyd/2025, related to deletion of penalty levied under Section 271(1)(c) by the Assessing Officer (AO) on the basis of the same quantum addition.

Given that both appeals stemmed from the same reassessment and penalty proceedings and involved common factual and legal issues, the Tribunal disposed of them by a single consolidated order pronounced on 21/08/2026.

2. Facts Leading to Reassessment under Section 147

2.1 NMS Information and Initiation of Proceedings

The reassessment originated from information available through the Non-filers Monitoring System (NMS). The NMS data indicated that cash deposits aggregating to Rs.2,04,75,000/- had been made in the bank account of the assessee during AY 2013-14.

  • Relying on this information, the AO initiated proceedings under Section 147.
  • A notice under Section 148 dated 25/03/2021 was issued, calling upon the assessee to file a return of income in response to the notice.

However, the assessee did not file any return pursuant to the Section 148 notice.

2.2 Non-compliance and Best Judgment Assessment

Subsequently, the AO issued multiple notices under Section 142(1) on:

  • 13/07/2021
  • 25/11/2021
  • 02/12/2021

The assessee again failed to respond or furnish the requisitioned details. Due to this non-compliance:

  • The AO proceeded ex parte and framed a best judgment reassessment under Section 147 read with Section 144 and Section 144B vide order dated 30/03/2022.
  • The AO treated the entire alleged cash deposits of Rs.2,04,75,000/- as unexplained money and assessed the income at the same figure, effectively making a 100% addition under the head "Income from other sources".

Aggrieved by this reassessment, the assessee preferred an appeal before the CIT(A), NFAC.

3. Assessee’s Case before CIT(A): Actual Cash Deposits and Source Explanation

3.1 Correction of Quantum of Cash Deposits

In the appellate proceedings before the CIT(A), the assessee produced a detailed explanation challenging the very basis of the reassessment. The key submissions were:

  1. The actual cash deposits in the relevant bank account during the year were Rs.49,55,000/-, not Rs.2,04,75,000/- as assumed by the AO on the basis of NMS data.
  2. The difference arose because of a misreading or miscompilation of the bank account data at the assessment stage.

To substantiate this, the assessee:

  • Filed complete copies of bank statements,
  • Produced ledger accounts,
  • Furnished a date-wise chart of cash deposits,
  • Correlated each deposit with available funds such as earlier withdrawals and explained sources, aggregating to around Rs.52.28 lakh.

3.2 Supporting Documents and Additional Evidence under Rule 46A

As the proceedings before the AO had been ex parte, much of the material was being filed for the first time at the appellate stage. Therefore, the assessee: