ITAT Grants Fresh Opportunity to Assessee; Case Sent Back for Review

The Income Tax Appellate Tribunal ruled that the cash deposits of Rs 1,318,064 made in the assessee’s bank account cannot be considered unexplained, because the explanation given by the assessee, claiming that this amount was used by some other person for bitcoin transactions, was reasonable and plausible. The penalty imposed on the basis of non-compliance was also removed by the tribunal, considering the age and circumstances of the assessee.

The appeal was filed by Manojbhai Chhaganbhai, which was against the orders of the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi. These appeals were filed under Section 250 of the Income Tax Act, 1961 and pertained to Assessment Year 2018-19.

The assessee challenged two separate orders, the first order dated August 22, 2025 (related to addition) and the second order dated June 18, 2025 (related to penalty). These orders were passed by CIT(A), NFAC, Delhi, where it treated cash deposits as unexplained, and a penalty was also imposed for non-reply to notices.

The story of this case is fascinating and reflects a practical situation. The assessee was a student at that time and did not have much understanding of tax laws or financial transactions. An amount of more than Rs 13 lakh was deposited in his bank account, which the income tax department considered suspicious and treated as an unexplained cash deposit.

The assessee explained that the money was not actually his. One of his acquaintances, Mr Kashyap Maganbhai Vaghasiya, had used his bank account for bitcoin (cryptocurrency) transactions. At that time, crypto transactions were becoming quite popular, and many people were using others’ accounts. The assessee said that approximately Rs 12,09,464 was deposited in the account, from which crypto was purchased, and later that amount was immediately returned.

The assessee got only a small commission of Rs 25,000 from these transactions. He also said that he was a teenager at the time and had no idea that letting someone else use his bank account could be a legal offence. Later, he did not do any such transaction.

When the income tax officer (AO) sent him notices, he could not appear due to fear and ignorance. He was afraid that he would be penalised or scolded by his family. For this reason, he did not participate in the proceedings, due to which an adverse inference was taken against him and in addition, a penalty was also imposed.

But the tribunal carefully looked at all the facts, bank statements and circumstances. The tribunal found the assessee’s explanation reasonable. Also, considering his age and situation, the penalty was also considered harsh. The tribunal removed both the addition and penalty and gave relief to the assessee.