Negligence of tax payer would not make exempt income taxable – ITAT

It is well settled that if any receipt cannot be subjected to tax being exempt under law, negligence of any tax payer would not make it taxable.

In a recent judgment, ITAT Varanasi has held that it is well settled that if any receipt cannot be subjected to tax being exempt under law, The negligence of any tax payer would not make it taxable.

ABCAUS Case Law Citation:
4967 (2025) (12) abcaus.in ITAT

In the instant case, the assessee had challenged the order passed by the Commissioner of Income-tax (Appeals)/National Faceless Appeal Centre (NFAC) in confirming addition u/s 69A of the Income Tax Act, 1961 (the Act) on account of cash deposited in the Saving Bank account of the Trust.

The Assessing Officer was having an information regarding large amount of cash deposited by the assessee in its saving bank account. Therefore, after obtaining the requisite approval of the Competent Authority, a notice under section 148 of the Act was issued.

However, the assessee failed to file its return of income for the relevant assessment year. During the course of assessment proceedings, multiple opportunities were granted to the assessee to furnish the source of the cash deposits, but no compliance was made.

Consequently, the Assessing Officer proceeded to complete the assessment ex parte to the assessee and made the impugned addition by invoking the provisions of section 69A of the Act.

On appeal, the CIT(A) categorically noted that the multiple notices of hearing were issued to the assessee; however, there was no compliance. Therefore, he also passed ex parte order.

Before the Tribunal, it was contended that the assessee was a registered educational institution which had been running four institutions/college. He submitted that the bank account was maintained by one of the College where the fees collected in cash was deposited in the bank account.

The assessee further contended that there were internal differences among the institutions and, therefore, the return of income for the relevant assessment year could not be filed. Thus, there was no representation on behalf of the assessee. He submitted that if an opportunity is granted, the assessee would be in a position to satisfactorily explain the source of the cash deposits.

It was further submitted that, in the interest of fairness and to sub-serve the principles of natural justice, the assessee may be granted an opportunity to explain the source of the cash deposits. It was also contended that the source of such cash deposits was the fees collected from students. He further submitted that if such an opportunity is not granted, the assessee would suffer irreparable loss, resulting in gross miscarriage of justice.

The Tribunal observed that it was an admitted fact that the cash was deposited in the bank account of the assessee. The assessee contended that the noncompliance occurred due to reasonable cause of the institution, which was a non-profit organization (NPO), and the bank account was maintained by a College wherein fee collected from student was deposited, as was evident from the bank statements.

The Tribunal observed that the contention of the assessee was that the cash deposits were in fact amount of fee in cash collected from students, such receipts are exempt u/s 10(23C) of the Act on account of the fact that the assessee society is fully aided by the Government of Uttar Pradesh and imparting education to the students.

The Tribunal opined that it is well settled that if any receipt cannot be subjected to tax being exempt under law. The negligence of any tax payer would not make it taxable. Nothing to this aspect of the matter has been examined at any stage. No one can be subjected to tax if the law does not faster such liability.

Accordingly, the assessment was set aside and restored to the file of the Assessing Officer for de novo assessment.

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