Exemption u/s 10(26) can’t be granted merely on the basis of tribal status and residence

Claim of exemption u/s 10(26) of the Act cannot be granted merely on the basis of tribal status and residence – ITAT

In a recent judgment, ITAT Guwahati has held that the claim of exemption u/s 10(26) of the Act cannot be granted merely on the basis of tribal status and residence and it is the duty of the assessee to conclusively prove that the income was derived from  legitimate source within the specified area and is not in the nature of income taxable under the specified  head.

ABCAUS Case Law Citation:
5044 (2026) (02) abcaus.in ITAT

As per the information available insight portal of the income tax department, the assessee had deposited huge amount of cash in his bank account for two successive years and did not file his return of income u/s 139 of the Income Tax Act, 1961 (the Act).

Accordingly, a notice was issued u/s 148 of the Act but assessee did not file return of income. Subsequently, other statutory notices u/s 142(1) of the Act was issued to the assessee but the assessee did not file any documents.

However, subsequently the assessee filed a reply stating that he belonged to a scheduled tribe mentioned u/s 10(26) of the Act and conducted trading business in District of Aizwal. It was submitted that he satisfied all conditions mentioned in section 10(26) to claim his income exempt. The assessee also attached his GST Registration Certificate, and ST Certificate to substantiate his claim.

However, the AO did not accept the submissions of the assessee observing that mere submission of tribal certificate does not prove that all the condition of section 10(26) are satisfied. Further, according to the AO GST registration only indicates that the assessee had registered his business concern with GST but it did not prove the sources & nature of cash so deposited in his bank account. The AO held the view that the assessee was required to adduce evidences to establish that the cash so deposited was out of his business activities carried out in the state of Mizoram.

As a result, the AO denied the claim of exemption u/s 10(26) of the Act and invoking the deeming section 69A of the Act treated the cash deposits as unexplained assets.

The CIT(A), dismissed the appeal of the assessee.

Before the Tribunal, apart from reiterating the submissions made before lower authorities, the assessee submitted that he had withdrawn cash towards the purchase of the goods for trading activities which was later deposited back in the bank account.

The Tribunal observed that the assessee could not prove the source of cash deposits in his bank account with legitimate evidences and as per the observation of the AO, the assessee had not produced books of accounts, bills and vouchers in support of his claim even if he did not file the return income and financial statements which prove that the assessee had no evidences and not maintained books of accounts.

The Tribunal observed that the assessee had to first compute his income from business of profession carried on by him as per the provision of the Act and thereafter he may make claim for exemption as per section 10(26) of the Act if he was satisfied the conditions as per the Act.

The Tribunal noted that even before it, the assessee could not furnish any single documents about the trading activity carried on by him only bank statement and agreement with suppliers were furnished but the assessee did not furnish the source of deposits in his bank account. Further, there was huge variation in the cash withdrawals and bank deposits between the two years and the reason had also not explained

The Tribunal held that the claim of exemption u/s 10(26) of the Act cannot be granted merely on the basis of tribal status and residence and it is the duty of the assessee to conclusively prove that the income was derived from legitimate source within the specified area and is not in the nature of income taxable under the specified head.

Accordingly, the appeals of the assessee were dismissed.

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