No Return Filed, Yet ITAT Grants Relief: Principle of Consistency Defeats Revenue’s Bid to Tax Entire Bank Deposits
When the Tax Department Itself Adopted a Method Earlier, Can It Suddenly Change Its Stand?
The principle of consistency is one of the most important yet often overlooked doctrines in tax law. While each assessment year is technically separate, courts have repeatedly held that where facts remain identical, the Revenue cannot arbitrarily change its stand from one year to another.
In a recent ruling, the Income Tax Appellate Tribunal (ITAT) once again reaffirmed this principle and dismissed the Revenue’s appeal, holding that the Department cannot tax income on one basis in an earlier year and adopt an entirely different approach in a subsequent year without any change in facts.
What makes the decision particularly interesting is that the relief was granted even though the assessee had not filed an income tax return.
The Dispute: Entire Bank Deposits Taxed as Income
The case involved substantial deposits in the assessee’s bank account.
Since no return of income had been filed, the Assessing Officer proceeded to examine the bank transactions and treated the entire amount of deposits as unexplained income.
According to the Department, the deposits represented taxable receipts for which no satisfactory explanation was available.
As a result, the entire amount was brought to tax.
For many taxpayers, such additions can be devastating because taxing gross deposits instead of actual income often leads to unrealistic tax demands.
The Assessee’s Strongest Defence Came from the Department Itself
During appellate proceedings, an important fact came to light.
In the immediately preceding assessment year, the Assessing Officer had examined similar deposits under identical circumstances.
However, instead of taxing the entire deposits, the Department had adopted a different approach.
The Assessing Officer had applied a net profit rate of 1% on the deposits and assessed only the estimated profit element as income.
In other words, the Department itself had accepted in the earlier year that the deposits represented business turnover or circulating funds and not income in their entirety.
This became the turning point of the case.
Can the Revenue Change Its Position Without Any Change in Facts?
The appellate authorities noted that the factual circumstances in both years were substantially similar.
There was no material difference in the nature of transactions.
There was no fresh evidence suggesting that the deposits represented undisclosed income rather than business receipts.
Yet, the Department sought to adopt a completely different methodology in the subsequent year by taxing the entire deposits.
The question before the Tribunal was simple:
Can the Revenue take contradictory positions on identical facts merely because the assessment year has changed?
The ITAT answered this question in the negative.
Supreme Court’s Principle of Consistency Comes to the Rescue
The Tribunal relied upon the celebrated decisions of the Supreme Court in:
• Radhasoami Satsang v. CIT
• CIT v. Excel Industries Ltd.
These judgments laid down an important principle:
Where a fundamental aspect permeating different assessment, years has been accepted by the Department and there is no material change in facts, consistency should be maintained.
Although the rule of res judicata does not strictly apply to income tax proceedings, arbitrary departures from earlier accepted positions are discouraged.
The Tribunal observed that certainty and consistency are essential features of a fair tax system.
ITAT Upholds CIT(A)’s Order
Applying the principle of consistency, the Tribunal upheld the order of the CIT(A).
It noted that the Revenue had itself accepted a profit-based approach in the preceding year.
Without demonstrating any distinguishing feature or fresh material, the Department could not suddenly treat the entire deposits as income.
Consequently, the Tribunal dismissed the Revenue’s appeal and upheld the relief granted to the assessee.
Why This Decision Matters
The ruling is significant because similar disputes arise frequently in cases involving:
• Bank deposits,
• Cash deposits,
• Business turnover,
• Accommodation entry allegations,
• Unrecorded business receipts,
• Assessments based on bank statements.
Quite often, the Department attempts to tax the entire deposits rather than the profit element embedded therein.
This judgment reminds tax authorities that consistency in approach is not merely desirable—it is a legal requirement when facts remain unchanged.
Does Non-Filing of Return Automatically Justify Harsh Additions?
An important takeaway from the decision is that non-filing of a return does not give the Department unrestricted authority to disregard established principles of taxation.
Even where a return is not filed, the assessment must be based on evidence, logic, and settled legal principles.
The Revenue cannot adopt one methodology in one year and a completely opposite methodology in another year without justification.
Practical Lesson for Taxpayers
Taxpayers facing additions based on bank deposits should carefully examine earlier assessments.
If the Department has accepted a particular treatment in previous years under similar facts, that history can become a powerful defence.
Consistency arguments have repeatedly found favour before appellate authorities and courts, particularly where the Revenue itself seeks to deviate from its own earlier position.
Conclusion
The ITAT’s decision reinforces a fundamental principle of tax jurisprudence: The Revenue cannot blow hot and cold at the same time.
Where the Department itself has accepted a profit-based taxation model in an earlier year, it cannot suddenly seek to tax the entire bank deposits in a later year without any change in facts. By relying on the Supreme Court’s landmark rulings in Radhasoami Satsang and Excel Industries, the Tribunal has once again underlined that consistency is not merely an administrative convenience-it is a cornerstone of fair taxation.
The ruling serves as an important reminder that while assessment years may change, principles of fairness and consistency do not.
The copy of the order is as under:
