Tax Notice Came Too Late: Retired Teacher Wins Rs 48.73 Lakh Cash Deposit Case

Cash deposits of more than Rs 1.33 crore landed a retired school teacher from Mysuru in a tax dispute. He had not filed an income tax return (ITR) for the year in question, and the Income Tax Department (ITD) treated Rs 48.73 lakh as unexplained money.

The taxpayer has now received relief from the Bengaluru Bench of the Income Tax Appellate Tribunal (ITAT). The tribunal, however, did not decide whether the money deposited in the bank was properly explained. It quashed the reassessment because the tax notice was issued after the legal deadline had passed.

The dispute related to assessment year 2015-16.

Large Bank Deposits Triggered Scrutiny

Details available with the tax department showed several high-value transactions in the teacher’s accounts. These were flagged through the Central Board of Direct Taxes’ (CBDT) risk management system.

The transactions included Rs 13 lakh deposited in a Bank of Baroda savings account and Rs 60 lakh in a Canara Bank account. Two other cash deposits added up to another Rs 60 lakh. The records also showed bank interest of Rs 12,701, according to a recent report by The Times of India.

The retired teacher had cited agriculture and savings bank interest as his main sources of income. As he had not filed an ITR, the department did not have a return showing how much he had earned during the year or where the deposits had come from.

A show-cause notice dated March 26, 2022, went unanswered, with the teacher also making no request for more time to respond.

The case was taken up for reassessment on April 26, 2022. The teacher was then given 30 days to submit his return.

He did file an ITR, but failed to e-verify it. The return was consequently treated as invalid. His responses to subsequent notices were also found to be incomplete.

In the reassessment order passed in February 2024, the teacher’s income was calculated at Rs 48.85 lakh. Of this, Rs 48.73 lakh was added as unexplained money under Section 69A, read with Section 115BBE. The Commissioner of Income Tax (Appeals) later dismissed his appeal.

Delay In Notice Proved Decisive

When the matter reached the ITAT, the teacher attacked the legality of the reassessment notice itself.

For assessment year 2015-16, the earlier six-year time limit for reopening the case ended on March 31, 2022. Even after allowing for the period spent on the proceedings under Section 148A, the department could have issued the final notice only up to April 12, 2022.

The Section 148 notice, however, was dated April 26, 2022.

The tribunal held that completing the preliminary procedure under Section 148A could not extend a limitation period that had already expired. Once the notice was found to be time-barred, the AO no longer had valid jurisdiction to reopen the assessment.

It therefore cancelled the reassessment notice as well as the resulting order and allowed the teacher’s appeal. The relief arose from the delayed notice; the tribunal did not accept the bank deposits as explained on their merits.

FAQs

Why did the retired teacher win the case?
The ITAT found that the reassessment notice was issued after the statutory deadline. Therefore, the entire reassessment was invalid.

Did the ITAT accept the Rs 1.33 crore deposits as explained?
No. The tribunal quashed the case on the limitation issue without deciding whether the taxpayer had satisfactorily explained the deposits.

What happens if an ITR is not e-verified?
An ITR that is not verified within the prescribed period is treated as invalid, as though the taxpayer had not filed it.