💡 Introduction: A Shocking Tax Notice
Imagine waking up one morning and finding a big brown envelope from the Income Tax Department.
You open it and your eyes freeze — it says you have undisclosed income of ₹2.28 crore, and you must pay tax and penalty running into tens of lakhs!
That’s exactly what happened to an Indian living abroad (a Non-Resident Indian – NRI) who didn’t file his income tax return. The department assumed he had “unexplained income” and raised a huge demand.
But instead of panicking or ignoring the notice, he decided to fight back. He collected every document, proved where the money came from, and appealed his case all the way to the Income Tax Appellate Tribunal (ITAT) in Ahmedabad.
In the end, the ITAT found that almost all the income shown by the department was wrongly added, and the final tax payable came down to just ₹63,133.
Let’s understand how this happened, what mistakes the taxpayer avoided, and what you can learn from this real-life success story.
Step 1: Tax Department Reopens the Case (Section 148)
Since the taxpayer had not filed an ITR, the department assumed he had hidden income. Using Section 148 of the Income Tax Act, they reopened the case to reassess his income.
They found large bank transactions — deposits, credits, and fixed deposits — and asked for explanations. Because no return was originally filed, the officer concluded these amounts were unexplained money.
Step 2: The Draft Assessment — ₹2.28 Crore Added as “Unexplained”
The Assessing Officer (AO) prepared what’s called a “Draft Assessment Order” under Section 144C.
He decided to add ₹2.28 crore to the taxpayer’s income under Section 69A, which covers unexplained money or deposits.
That means, the officer believed that this money had no proper source or proof — so it was treated as hidden income.
He also applied Section 115BBE, which taxes such “unexplained” income at a very high rate (60% plus surcharge and cess).
➡️ So the total “proposed income” now stood at ₹2.32 crore, including other minor additions.
Step 3: The Taxpayer Fights Back Before the DRP (Dispute Resolution Panel)
When a draft assessment is issued, you can object before a special panel called the Dispute Resolution Panel (DRP) — a body of senior tax officers who review such cases.
The taxpayer filed detailed objections.
The DRP asked the assessing officer to recheck the details (called a remand report). The officer submitted two reports.
Even after reviewing them, the DRP said many explanations were not convincing and upheld most of the ₹2.28 crore addition.
➡️ The taxpayer’s objections were largely rejected at this stage.
Step 4: Final Assessment Order – Tax Demand Confirmed
Following the DRP’s direction, the AO passed a final assessment order confirming the entire ₹2.28 crore addition.
So, officially, the taxpayer now faced a huge tax bill — possibly over ₹1.5 crore including penalty and interest!
For most people, that’s enough to give up and pay quietly.
But this taxpayer didn’t stop here.
Step 5: Appeal to ITAT Ahmedabad — The Game Changer
He appealed to the Income Tax Appellate Tribunal (ITAT) in Ahmedabad.
This is an independent judicial body that hears appeals against tax orders.
At the ITAT, the taxpayer submitted:
All bank statements,
Fixed deposit receipts,
Source proofs (like salary, investments, or transfers from family), and
A detailed explanation of every credit and debit entry in his bank account.
The tribunal examined the documents minutely.
Step 6: ITAT’s Finding — “You Can’t Doubt Without Proof”
The ITAT noticed that the taxpayer had properly explained where the money came from — with proof.
The tribunal remarked that the tax department and DRP had “doubted the genuineness of documents without any valid reason.”
It said that when a taxpayer gives clear evidence for each transaction, the officer cannot simply reject it based on suspicion.
After verifying all the entries, the ITAT found that only one small amount — ₹63,133 — remained unexplained.
So, it deleted the entire ₹2.28 crore addition, retaining only ₹63,133 as taxable.
✅ Final Result:
From ₹2.28 crore → reduced to ₹63,133.
That’s over 99.97% relief!
⚖️ Key Legal Sections Involved (in Plain English)
| Section | What It Means | Used For |
|---|---|---|
| 148 | Reopening old tax years when department suspects unreported income | Used to start this case |
| 69A | If you can’t explain the source of money/deposits, it’s treated as your income | ₹2.28 crore was added under this |
| 115BBE | High tax rate (60%+) for such unexplained money | To tax the “unexplained” part heavily |
| 144C | Draft order process – gives taxpayer a chance to object | Draft order was issued under this |
| DRP | Dispute Resolution Panel – reviews draft orders | Heard taxpayer’s objections |
| ITAT | Income Tax Appellate Tribunal – higher appeal body | Gave final relief |
💬 What the Tribunal Clearly Said
“Once the assessee has submitted all the credit entries along with debit entries and other supporting evidence, doubting the genuineness of such documents without any basis is not justifiable on the part of the Assessing Officer as well as by the DRP.”
🧠 Lessons for Every Taxpayer
✅ 1. Always File Your Return
Even if you are an NRI or your income is small, it’s safer to file an ITR.
Not filing gives the department a reason to assume “hidden income.”✅ 2. Keep All Money Trail Proofs
Save your bank statements, investment proofs, fund transfer details, and FD records.
If you can show where each rupee came from, the department can’t label it “unexplained.”✅ 3. Don’t Panic When You Get a Notice
Most notices are just requests for clarification.
Respond calmly, gather papers, and reply on time.✅ 4. Use the Legal Channels
You have every right to:
File objections before DRP, and
Appeal to ITAT, if needed.
Even government bodies make mistakes — and higher authorities can correct them.
✅ 5. Get Professional Help Early
A good chartered accountant or tax advisor can make a world of difference.
They know how to structure replies and present documents effectively.
🚨 What If You Ignore a Notice?
If you ignore income tax notices:
The officer can do “best judgment assessment” — i.e., guess your income.
They may treat every deposit in your account as income.
You can be charged heavy tax, interest, and even penalties up to 300% of the tax.
So never delay — respond immediately.
🏁 The Final Takeaway
This case is a perfect reminder that:
“In tax matters, evidence speaks louder than assumptions.”
The department had assumed ₹2.28 crore was unreported income.
But the taxpayer proved every transaction — and justice was done.If you receive a big tax notice, don’t panic.
Gather your documents, explain clearly, and use your legal rights.Even a ₹2 crore demand can sometimes come down to just ₹63,000 — if you know the facts and fight smart.
✍️ Simple Summary for Everyone
Stage Department’s View Taxpayer’s Action Final Result Draft Order ₹2.28 crore added as unexplained Filed objections to DRP DRP rejected Final Order ₹2.28 crore confirmed Appealed to ITAT ITAT deleted almost all Final Tax ₹63,133 only ✅ Victory for taxpayer ₹2.27 crore relief 📣 Moral of the Story
Don’t fear income tax notices — face them with facts.
File your ITR regularly to avoid unnecessary issues.
Keep your bank and investment records safe.
If you’re right, the law will protect you — just like it did for this taxpayer.
