The Income Tax Appellate Tribunal, Bangalore, has clarified that an updated return filed under Section 139(8A) during the pendency of assessment proceedings is legally invalid, reinforcing the principle that procedural compliance is non-negotiable in tax adjudication. The Tribunal also remanded the issue of unexplained bank credits for fresh adjudication, emphasizing the taxpayer’s obligation to substantiate claims with evidence.
Background & Facts
The Dispute
The appellant, Mr. Abhinandan Shanthinath Saligrama, a salaried employee of Standard Chartered Global Business Services Pvt Ltd, filed his original income tax return for Assessment Year 2023-24 on 29.07.2023, declaring total income of Rs. 17,51,110. He claimed deductions under Chapter-VIA amounting to Rs. 4,50,000, including Rs. 4,34,400 under HRA and LTC, resulting in a refund claim of Rs. 2,08,020. The return was processed under Section 143(1) on 15.07.2023.
Key Facts
- The appellant’s return was selected for scrutiny under the return risk rule for high-risk refund
- The Assessing Officer (AO) issued notices under Sections 143(2), 142(1), and 133(6) seeking details of income and bank transactions
- The appellant did not respond to any of the notices
- The AO examined bank statements from Axis Bank, HDFC Bank, Standard Chartered Bank, Bank of Baroda, and ICICI Bank, and found substantial unexplained credits
- The AO also obtained information from the employer under Section 133(6), revealing that the appellant had opted for the new tax regime for TDS calculation but filed under the old regime in the return
- The appellant filed an updated return on 25.06.2024 under Section 139(8A), revising his income to Rs. 24,83,733, withdrawing HRA and LTC claims, and reducing Chapter-VIA deductions to Rs. 1,52,065 (Rs. 1,50,000 under Section 80C and Rs. 2,065 under Section 80TTA)
- The appellant paid additional tax of Rs. 38,650 under Section 140B, claiming TDS credit of Rs. 5,59,370
- The AO added Rs. 4,34,400 (disallowed HRA/LTC), Rs. 3,00,000 (disallowed Chapter-VIA deductions), and Rs. 18,55,163 (unexplained bank credits under Section 69A), resulting in total assessed income of Rs. 43,40,673
Procedural History
- 29.07.2023: Original return filed under Section 139(1)
- 15.07.2023: Return processed under Section 143(1)
- 19.06.2024: Notice under Section 143(2) issued
- 25.06.2024: Updated return filed under Section 139(8A)
- 11.02.2025: Assessment order passed under Section 144
- 22.09.2025: CIT(A)/NFAC dismissed appeal, upholding AO’s order
- 30.03.2026: Appeal decided by ITAT Bangalore
The Parties' Positions
For the Appellant
- Argued that the updated return under Section 139(8A) was filed in good faith to correct errors
- Claimed that bank credits were from his wife’s business income
- Requested a fresh opportunity to produce evidence before the AO
- Submitted that the AO’s ex-parte assessment was harsh given the subsequent correction
For the Respondent
- Contended that the appellant deliberately filed a false return to claim refund
- Highlighted repeated non-cooperation and failure to respond to notices
- Argued that Section 139(8A) prohibits updated returns during pending assessment
- Maintained that the additions under Section 69A were justified due to lack of evidence
Relief Sought
The appellant sought:
- Quashing of the additions of Rs. 4,34,400 and Rs. 3,00,000
- Cancellation of the unexplained income addition of Rs. 18,55,163
- Permission to substantiate the source of bank credits before the AO
- Grant of legitimate deductions under Chapter-VIA upon verification
The Legal Issue
The central question was whether an updated return filed under Section 139(8A) of the Income Tax Act during the pendency of assessment proceedings is valid, and whether unexplained bank credits can be treated as income under Section 69A in the absence of taxpayer substantiation.
Arguments Presented
For the Appellant
The appellant’s representative argued that the updated return was filed promptly after receiving the notice under Section 143(2), demonstrating bona fide intent to correct errors. He relied on the principle of equity and fair play, citing the appellant’s payment of additional tax under Section 140B and withdrawal of false claims. He contended that the AO’s ex-parte assessment was procedurally flawed and that the Tribunal should permit the appellant to produce evidence regarding the source of bank credits, particularly the business income of his wife.
For the Respondent
The Department argued that Section 139(8A) explicitly bars the filing of an updated return once assessment proceedings are pending, as per the third proviso. It emphasized that the appellant had been given five opportunities to respond and chose to remain silent. The Department maintained that the unexplained credits under Section 69A were properly added due to complete failure to discharge the burden of proof, and that the Tribunal should not interfere with the AO’s factual findings absent evidence.
The Court's Analysis
The Tribunal examined the statutory framework under Section 139(8A) and found that the third proviso clearly prohibits the filing of an updated return if any proceedings under the Act for assessment or reassessment are pending. The Tribunal noted that the notice under Section 143(2) was issued on 19.06.2024, and the updated return was filed on 25.06.2024 - squarely within the pendency of assessment proceedings. Therefore, the updated return was legally invalid and could not override the original return.
"In view of the above, we are of the considered opinion that as the assessee had already accepted and declared the true & correct net taxable income in the so called updated return and paid the legitimate taxes on or before the completion of the assessment proceedings, the additions of Rs.4,34,400/- and Rs.3,00,000/- as made by the AO to the original returned income of Rs. 17,51,110/- are hereby confirmed."
The Tribunal further held that the AO was justified in adding the disallowed deductions of Rs. 4,34,400 and Rs. 3,00,000 to the original return, as the updated return was void ab initio. The Tribunal also affirmed the addition of Rs. 18,55,163 under Section 69A, noting that the appellant had failed to discharge the burden of proving the source of the credits during the assessment or before the CIT(A). However, recognizing the appellant’s undertaking to produce evidence before the AO, and in the interest of justice, the Tribunal remanded this issue for fresh adjudication.
The Tribunal emphasized that while the appellant’s conduct was callous, the principles of natural justice require that he be given a fair opportunity to substantiate his claim regarding his wife’s business income. The Tribunal directed the AO to grant a reasonable opportunity of hearing and to verify the documentary evidence before making a final determination.
The Verdict
The appeal was partly allowed. The Tribunal confirmed the additions of Rs. 4,34,400 and Rs. 3,00,000 to the original return. The addition of Rs. 18,55,163 under Section 69A was remanded to the AO for fresh adjudication, with directions to grant the appellant a reasonable opportunity to produce evidence regarding the source of bank credits, particularly the business income of his wife. The AO was directed to verify and allow the claimed deductions under Section 80C and Section 80TTA, subject to documentary proof, and to give credit for the tax paid under Section 140B. The appellant was warned that any further default would result in no leniency.
What This Means For Similar Cases
Updated Returns During Pending Assessment Are Invalid
- Practitioners must advise clients that Section 139(8A) does not permit updated returns once a notice under Section 143(2) is issued
- Any attempt to file an updated return during pending assessment will be treated as void
- Taxpayers must correct errors before the notice is issued or through rectification under Section 154
Burden of Proof for Unexplained Income Remains on the Assessee
- Failure to respond to notices under Section 143(2) or Section 142(1) results in adverse inference
- Unexplained bank credits under Section 69A will be added unless substantiated with credible, verifiable documents
- Oral assertions or generic claims (e.g., "wife’s business") without supporting records are insufficient
Tribunals May Remand for Fair Hearing Despite Non-Cooperation
- Even in cases of procedural default, Tribunals may remand for fresh adjudication if the taxpayer undertakes to produce evidence
- This reflects the principle of natural justice, but does not excuse prior non-compliance
- Practitioners should ensure clients submit evidence promptly upon remand - failure will result in final adverse orders
