That is precisely what happened to Tarla Jagdish Chauhan, a resident of Kandivali West, Mumbai. And it took the Income Tax Appellate Tribunal (ITAT) in Mumbai — in an order dated April 16, 2026, pronounced by a bench of Shri Sandeep Gosain (Judicial Member) and Shri Girish Agrawal (Accountant Member) — to set things right.

The Transactions That Caught the Taxman’s Eye

Tarla had not filed an income tax return for Assessment Year 2017-18. That by itself was not unusual for someone whose income fell below the taxable threshold. However, the CBDT’s Risk Management System — a data analytics tool used by the department to flag high-value transactions — picked up two significant entries in her name:

• A purchase of immovable property worth Rs 1,01,50,000 — over Rs 1 crore
• A purchase of debentures worth Rs 40 lakhs

Together, these were transactions worth nearly Rs 1.42 crores for someone who had filed no return. The department invoked Section 148 of the Income Tax Act to reopen her case, issuing a notice asking her to file a return.

Tarla complied. She filed a return in response to the Section 148 notice, declaring total income of just Rs 2,620. A number that must have raised eyebrows at the assessment unit — a woman buying a Rs 1 crore property and Rs 40 lakh in debentures, reporting income of Rs 2,620. The assessment proceedings that followed would require her to explain these transactions in considerable detail.

The Hacked Email: Where It All Went Wrong

During the course of assessment proceedings, the department issued statutory notices under Section 142(1) of the Income Tax Act — a provision that requires taxpayers to furnish information, documents, and accounts as directed. Two such notices were issued: one on August 30, 2024 and another on September 18, 2024.

Tarla did not respond to either on time.

Not because she was being evasive. Not because she had something to hide. But because her email ID had been hacked, and the notices were being delivered to an inbox she could not access.

She had updated her email ID on the Income Tax portal as far back as March 22, 2024 — months before the notices were even issued. But the department, apparently working from an older record, continued sending notices to the old, compromised, inaccessible email address. The notices went out. They arrived at an inbox nobody could open. And Tarla, sitting in her home in Kandivali West, remained completely unaware that any notices had been issued at all.

It was only when she reviewed the Income Tax portal directly that she discovered the pending notices. She acted immediately — furnishing all required documents and submissions without further delay.

The Tax Officer Accepts Everything — Then Penalises Her Anyway

What happened next defies easy explanation.

The Assessing Officer reviewed Tarla’s submissions and found them entirely satisfactory. In his own assessment order, he recorded the following in black and white:

• Tarla had submitted a detailed reply along with the sale deed, purchase agreement, income computation statement, schedules, and capital gains computation statement.
• Her replies and details were “verified and found to be in order.”
• Her submissions were “examined and found to be acceptable.”
• The income reported in her return — Rs 2,620 — was accepted as her total income for the year.

No additions were made. No adverse inference was drawn. The Rs 1 crore property purchase and the Rs 40 lakh debenture investment were explained to the officer’s complete satisfaction. The assessment was closed in her favour.

And yet — simultaneously — he initiated penalty proceedings under Section 272A(1)(d) of the Income Tax Act for her failure to respond to the two Section 142(1) notices on time. A penalty order was passed on May 22, 2025, imposing a penalty of Rs 20,000 on Tarla.

The right hand had accepted her explanation in full. The left hand had penalised her for being late in giving it.

The First Appeal: Penalty Confirmed

Tarla challenged the penalty before the Commissioner of Income Tax (Appeals) at the National Faceless Appeal Centre in Delhi. She explained the hacked email, the portal update done months before the notices were issued, and the undeniable fact that the assessment itself had been completed in her favour with no additions whatsoever.

The CIT(A) was unmoved. The penalty of Rs 20,000 was confirmed. Tarla appealed to the ITAT.

A Procedural Hurdle First: 167 Days of Delay

Before the ITAT could even hear the case on merits, there was a procedural obstacle. Tarla’s appeal before the Tribunal was filed 167 days after the prescribed time limit — a significant delay. She filed a petition for condonation of delay along with a detailed affidavit explaining the reasons for it.

The ITAT, after hearing both sides, found sufficient cause for the delay and condoned it, admitting the appeal for adjudication on merits. Without this condonation, the appeal would have been dismissed at the threshold without being heard at all. It was the first of two hurdles she had to clear — and she cleared it.

At the ITAT: Two Arguments That Demolished the Penalty

Before the ITAT, Tarla was represented by Chartered Accountant Ms. Shweta Dave, who built her case around two arguments that the bench found impossible to dismiss.

The First: A Hacked Email Is a Reasonable Cause

Section 272A(1)(d) imposes a penalty for non-compliance with statutory notices — but like most penalty provisions under the Income Tax Act, it is not absolute. Where a taxpayer demonstrates reasonable cause for the delay or non-compliance, the penalty cannot be sustained.

Tarla’s cause could not have been more reasonable or more verifiable. Her email ID had been hacked and was completely inaccessible. She had updated her email ID on the IT portal on March 22, 2024 — before either of the two notices was even issued. The department had continued sending notices to the old, hacked address despite the update being on record. She had no means of knowing the notices existed until she independently checked the portal. The moment she discovered them, she responded fully and completely.

The ITAT accepted this. A hacked email address — particularly where the taxpayer had already updated her contact details on the portal before the notices were issued — constitutes sufficient and reasonable cause for delay in compliance.

The Second: The Assessment Order Told Its Own Story

The more devastating argument came from the Assessing Officer’s own words. Ms. Dave directed the Tribunal to paragraphs 3 and 4 of the very assessment order under which the penalty had been initiated. Those paragraphs recorded explicitly that Tarla’s submissions had been verified and found in order, that her replies had been examined and found acceptable, and that her declared income had been accepted without modification.

The ITAT made a further observation that cut to the heart of the matter — the assessment had not been completed ex parte. It was not a case where the officer had given up waiting for a response and decided the matter in Tarla’s absence. It was a full, regular assessment, completed with her participation, in which her explanations were heard, considered, verified, and accepted without a single addition being made.

When a taxpayer’s explanation is accepted wholesale, when the substantive assessment is completed in their favour, when not a rupee is added to their income — the argument that they should be penalised for the technical delay in furnishing that very explanation becomes very difficult to sustain. The ITAT found the penalty entirely unjustified and deleted it in full.

The Final Outcome

The ITAT allowed Tarla’s appeal completely. The Rs 20,000 penalty was deleted. To appreciate the full arc of what she went through:

• The CBDT’s data systems flagged her for Rs 1.42 crore in transactions despite having filed no return
• Her case was reopened under Section 148 and she filed a return declaring Rs 2,620 in income
• Statutory notices were sent to her hacked, inaccessible email address — despite her having updated her email ID on the portal months earlier
• She missed the notices, discovered them independently through the portal, and responded immediately with complete documentation
• The Assessing Officer accepted every submission, verified every document, and closed the assessment in her favour with zero additions
• She was then penalised Rs 20,000 for responding late to the very notices whose contents were accepted without question
• The CIT(A) confirmed the penalty
• The ITAT deleted it entirely

The Practical Warning This Case Carries

For the millions of taxpayers registered on the Income Tax portal, this case carries two warnings that are worth taking seriously.

The first is about email security. Your registered email ID on the IT portal is the primary channel through which the Income Tax Department communicates with you — notices, orders, intimations, and demands all flow through it. If that email ID is hacked, compromised, or simply becomes inaccessible for any reason, update it on the portal immediately and preserve documentary evidence of when you did so. Tarla did this — and that record of her March 22, 2024 update was ultimately a key part of her defence.

The second is about portal vigilance. Waiting for an email to arrive is no longer a sufficient approach to staying on top of your tax matters. The IT portal is the authoritative source of all notices and proceedings in your case. Periodic checks of the portal — regardless of whether you have received any email communication — are now essential. Tarla discovered her pending notices only because she checked the portal directly. Had she not done so, the consequences could have been far worse than a Rs 20,000 penalty.

For Tarla Jagdish Chauhan, a hacked email account turned what should have been a routine tax inquiry into years of penalty proceedings across three levels of the income tax hierarchy. The ITAT corrected the injustice — but it took a condonation petition, a full hearing, and a two-member bench to get there. The system eventually worked. It just took far longer than it should have.

Also Read: Big Money Bets on India’s Property Market: Real Estate Investments Set to Cross $10 Billion in 2025

The post Hacked Email, Rs 1 Crore Property Deal and a Penalty She Never Deserved appeared first on Square Feat India.

The case, decided by a bench of Smt. Beena Pillai (Judicial Member) and Shri Girish Agrawal (Accountant Member) on April 15, 2026, is a textbook illustration of how large cash transactions — even entirely legitimate ones — can spiral into prolonged tax litigation when documentation is incomplete and third parties don’t cooperate with the taxman.

The Transaction That Caught the Taxman’s Eye

Pooja had not filed an income tax return for the financial year 2009-10 (Assessment Year 2010-11), believing her income was below the taxable threshold. She had no salary, no business income to speak of, and reported interest income of a mere Rs 14,429 when eventually asked to file.

But the Income Tax Department’s data systems told a different story. A review of her individual transaction statement flagged two significant financial events during that year — a cash deposit of Rs 40.09 lakhs into a Bank of Maharashtra account, and the purchase of a flat at Dev Shrishti, Kurla Camp Road, Ulhasnagar for Rs 12.65 lakhs, paid by cheque. Together, these transactions amounted to over Rs 52 lakhs — a striking sum for someone claiming negligible income.

The Assessing Officer (AO) at Income Tax Ward 2(3), Kalyan issued a notice under Section 148 of the Income Tax Act in March 2017, invoking Section 147 to reopen the case on the ground that income had escaped assessment. Pooja was required to file a return and explain these transactions.

The Explanation: A Property Deal That Never Closed

Pooja’s explanation was straightforward. She had entered into a sale agreement with a developer, M/s Samruddhi Developers, for the sale of her ancestral house property — a plot identified as BK 1894-U No. 204, Shade No. 68. The developer had paid her a token advance of Rs 40 lakhs in cash, in two tranches: Rs 20 lakhs in June 2009 and another Rs 20 lakhs in December 2009. She deposited this cash into her Bank of Maharashtra account.

However, the sale ultimately did not go through. The deal fell apart and was cancelled. Since the advance had been received in cash, she returned it to the developer in cash — withdrawing the money from her bank account, as reflected in her passbook. She produced copies of the sale agreement and her bank passbook to support her account.

As for the flat purchase in Ulhasnagar, she explained that it was funded through three cheques totalling Rs 12.65 lakhs — a separate transaction entirely, with its own paper trail.

Why the Tax Officer Wasn’t Convinced

The Assessing Officer found the explanation plausible on its face but unverifiable. The critical problem was the developer. The AO issued a notice under Section 133(6) of the Income Tax Act to M/s Samruddhi Developers, asking them to confirm the transaction — but the developer simply did not respond.

With no third-party confirmation of the cash advance, the AO took the view that Pooja had failed to explain the source of the cash deposits with adequate documentary evidence. He invoked Section 68 of the Income Tax Act — which deals with unexplained cash credits — and added the entire Rs 40.09 lakhs to her income for the year. Interestingly, he did not pursue the flat purchase separately, treating that as explained by the cheque trail.

The addition of Rs 40.09 lakhs as unexplained income meant a substantial tax demand on a woman who had reported virtually no income that year.

The First Appeal: Half Relief, Half Frustration

Pooja challenged the addition before the Commissioner of Income Tax (Appeals), or CIT(A), operating through the National Faceless Appeal Centre (NFAC) in Delhi. She reiterated her explanation about the developer and the cancelled deal.

The CIT(A) was sympathetic but non-committal. In what can only be described as a compromise ruling, he observed that “there may be certain element of truth in the conditions of the assessee and the same cannot be totally ignored.” Rather than either accepting or rejecting her explanation fully, he split the addition down the middle — accepting 50% of the deposits as explained and confirming the remaining 50% as unexplained cash credit. This left Pooja with an addition of approximately Rs 20.04 lakhs still standing against her.

Neither side was fully satisfied. However, the Income Tax Department chose not to appeal the 50% relief granted by CIT(A) to the ITAT — which meant that portion was settled in Pooja’s favour. Pooja, on the other hand, appealed the remaining Rs 20.04 lakh addition to the ITAT.

A Complication: The 108-Day Delay

Before the ITAT could even hear the case on merits, there was a procedural hurdle. Pooja had filed appeals for two assessment years — 2010-11 and 2014-15 — and the CIT(A) had passed orders on both within a day of each other in December 2024. Pooja mistakenly believed both orders were the same, forwarded only one to her tax consultant, and the appeal for AY 2010-11 was consequently not filed within the prescribed time limit. The delay was 108 days.

She filed a petition for condonation of delay along with an affidavit explaining the genuine mix-up. The ITAT accepted this explanation, found the delay to be bona fide and unintentional, condoned it, and admitted the appeal for hearing.

What the ITAT Found: Two Critical Errors

When the ITAT examined the record in detail, it found that the remaining Rs 20.04 lakh addition suffered from two distinct and fatal flaws.

Error One — A Daughter’s Account Wrongly Attributed to the Mother

The total cash deposits of Rs 40.09 lakhs that the AO had added to Pooja’s income were not all in Pooja’s account. The ITAT found that the deposits were spread across two Bank of Maharashtra accounts — Rs 32.01 lakhs in Account No. 20116731464 held in Pooja’s own name, and Rs 8.99 lakhs in Account No. 20116743538 held in the name of Miss Pragathi Wadhwani — Pooja’s daughter.

This was a straightforward error. Deposits in a daughter’s bank account cannot be added as unexplained income in the mother’s hands. The ITAT deleted the Rs 8.99 lakh addition on this ground alone. When the department’s representative was confronted with this fact, he had nothing to say in response.

Error Two — Withdrawals Explained the Re-Deposits

After removing the daughter’s deposits and accounting for the 50% relief already given by CIT(A), the disputed amount that remained was Rs 12.01 lakhs. This was the sum the ITAT now had to decide on.

Pooja’s counsel pointed the tribunal to her bank passbook, which showed a clear pattern. Between July 2009 and March 2010, Pooja had made withdrawals from her account totalling Rs 15.20 lakhs. The cash deposits of Rs 12.60 lakhs that the taxman found suspicious were made on March 30 and 31, 2010 — after those withdrawals. In other words, the deposits were simply money she had previously withdrawn, sitting with her in cash, and then re-deposited.

The ITAT laid down a clear and important principle: once there are deposits in a bank account with corresponding prior withdrawals, the entire deposit cannot automatically be treated as unexplained income. The burden shifts to the Revenue — it must specifically demonstrate that the withdrawals were used for some other purpose and were therefore not available to the assessee for re-deposit. The department failed to discharge this burden. The Rs 12.01 lakh addition was accordingly deleted.

The Final Scoreboard

The appeal was allowed in full. Pooja walked away with a clean slate for Assessment Year 2010-11, more than 15 years after the original transactions took place.

The Broader Lesson

This case carries important lessons for anyone dealing in cash — particularly in property transactions. A legitimate deal, a cancelled agreement, and a developer who simply didn’t respond to a tax notice were enough to trigger over a decade of litigation for an ordinary woman from Ambernath.

The ITAT’s ruling reinforces two key principles of tax law. First, family members’ bank accounts must not be clubbed together without clear legal basis. Second, cash re-deposits backed by prior withdrawals from the same account cannot be treated as fresh unexplained income unless the department can prove the withdrawals were deployed elsewhere.

For taxpayers, the case underscores the importance of ensuring that all parties to a property transaction — especially developers receiving or returning cash — respond to tax notices when called upon, since a developer’s silence can turn a straightforward explanation into years of appellate proceedings.

Also Read: ITAT Mumbai Clears Real Estate Developer of Fraud Allegations, Allows ₹1.79 Crore Tax Deduction

The post Property Deal Gone Wrong: Rs 40 Lakh Cash Deposit Lands Ambernath Woman in Tax Trouble appeared first on Square Feat India.