Bankim Harilal Khatri Vs ACIT (ITAT Rajkot)
₹4.08 Lakh Addition Shrinks to ₹40,840: ITAT Applies 10% Estimate and Normal Tax Provisions
A Search in Another Group Leads to Reassessment
A search in the case of the Khavada Group and its associates at Gandhidham on 11 November 2022 resulted in examination of seized material and data. Among the records examined was a ledger account appearing in the books of M/s. Khavada Property & Finance, which reflected transactions in the name of the assessee.
According to the Department, the ledger indicated that the assessee had made cash payments aggregating to ₹4,08,400 to the Khavada Group during the relevant year.
The assessee, an individual and proprietor of Laxmi Tyres, had not originally filed his return for Assessment Year 2020-21. Based on the information obtained from the search material, the Assessing Officer reopened the assessment under section 147, after obtaining the requisite approval, and issued notice under section 148.
In response, the assessee filed his return on 21 August 2024, declaring a loss of ₹1,78,054.
Ledger Entries Become the Basis of the Addition
During reassessment, the Assessing Officer issued notices under section 142(1), to which the assessee furnished replies from time to time. A show-cause notice subsequently required him to explain why the debit and credit entries in the ledger should not be treated as unexplained and added to his income.
After considering the submissions and material available, the Assessing Officer treated the entries as loan transactions. However, the assessee had not accepted the transactions as reflected in the ledger.
The Assessing Officer therefore did not set off the credit relating to the opening balance and the amounts received by the assessee against the payments shown as having been made by him.
The order records that the loan amounts received from M/s. Khavada Travels & Others were not treated as the assessee’s income. The cash payments appearing in the records, however, were treated as unexplained.
Thus, although the ledger contained both receipts and payments, the addition ultimately concerned the alleged cash payments of ₹4,08,400.
Assessing Officer Invokes Section 69A
The Assessing Officer concluded that the assessee had failed to satisfactorily explain the source of the cash payments, despite being afforded sufficient opportunities.
Accordingly, the entire amount of ₹4,08,400 was added as unexplained money under section 69A. The reassessment order was passed on 21 March 2025.
The assessee challenged the addition before the CIT(A)/NFAC. However, the first appellate authority dismissed the appeal by its order dated 13 February 2026, leaving the addition intact.
The dispute then reached the Rajkot Bench of the Tribunal.
Earlier Rajkot Decision Provides the Route to Relief
Before the Tribunal, the assessee’s authorised representative contended that the addition sustained by the CIT(A) was unjustified both on facts and in law. The Departmental Representative supported the orders of the lower authorities.
After hearing both sides and examining the record, the Tribunal found that the issue was similar to the one considered in Nitaben Kirtikumar Parekh v. ITO, ITA No. 506/RJT/2026.
The Tribunal stated that, on similar facts, the appeal in that case had been partly allowed by restricting the addition to 10% of the disclosed income. The assessee’s representative also fairly submitted that the present issue was covered by that decision.
The present order does not reproduce the detailed facts or reasoning of the earlier decision. Its conclusion rests on the Tribunal’s finding of similarity in the facts and circumstances and its decision to follow that precedent.
Addition Restricted to ₹40,840
Applying the earlier decision, the Tribunal restricted the addition to 10% of ₹4,08,400, resulting in a sustained addition of ₹40,840.
Consequently, the assessee obtained relief of ₹3,67,560, representing 90% of the original addition.
The relief was therefore substantial, but the addition was not deleted in full. The Tribunal retained a smaller amount by applying the percentage adopted in the earlier case.
This distinction matters: the decision does not record a finding that every ledger entry was disproved or that the entire source of the alleged payments had been established.
Normal Tax Provisions to Apply
The Tribunal also expressly directed that, considering the nature of the addition, the amount sustained should be taxed under the normal provisions of the Act.
The Assessing Officer was directed to restrict the addition to ₹40,840 and compute tax accordingly. The appeal was partly allowed.
Although the original addition had been made under section 69A, the operative direction is clear on the tax treatment of the amount retained. The order, however, does not contain an elaborate separate discussion explaining that direction.
Author’s Comments
The decision delivers relief on two fronts: a 90% reduction in the addition and taxation of the balance under normal provisions. For the assessee, the outcome is considerably more favourable than the treatment adopted in reassessment.
Its application to other cases nevertheless requires attention to the underlying facts. The Tribunal followed a specific earlier decision after finding factual similarity; it did not prescribe a general 10% rule for unexplained cash payments or third-party ledger entries.
For practitioners seeking to rely on this order, examining the decision in Nitaben Kirtikumar Parekh would be particularly useful. The present order identifies that precedent as the foundation of relief, while providing only a brief account of its reasoning.
Cases Discussed
- Nitaben Kirtikumar Parekh v. ITO (ITAT Rajkot), ITA No. 506/Rjt/2026 — Followed. The Tribunal found the facts and circumstances similar to those in this earlier decision, which had restricted the addition to 10% of disclosed income, and accordingly restricted the present addition to 10% of ₹4,08,400.
FULL TEXT OF THE ORDER OF ITAT RAJKOT
Captioned appeal filed by the assessee, pertaining to Assessment Year (AY) 2020-21, is directed against the order under section 250 of the Income-tax Act, 1961 [hereinafter referred to as ‘the Act’] passed by the National Faceless Appeal Centre [hereinafter referred to as ‘NFAC’], dated 13.02.2026, which in turn arises out of an order passed by assessing officer u/s. 147 of the Act, dated 21.03.2025.
02. Brief facts of the case are that the assessee is an individual who had not filed his return of income for the Assessment Year 2020- 21. Subsequently, pursuant to a search and seizure action under section 132 of the Income-tax Act, 1961, conducted on 11.11.2022 in the case of the Khavada Group and its associates at Gandhidham, certain seized material/data was examined. On verification of the seized material, it was noticed that, as per the ledger account of the appellant appearing in the books of M/s. Khavada Property & Finance, the assessee had made cash payments aggregating to Rs.4,08,400/- to the Khavada Group during the year under consideration. On the basis of the information so received, the assessment was reopened under section 147 of the Act after obtaining the requisite approval from the competent authority. Accordingly, notice under section 148 of the Act was issued to the assessee. In response thereto, the assessee filed his return of income for AY 2020-21 on 21.08.2024, declaring a loss of Rs.1,78,054/-. Thereafter, notices under section 142(1) of the Act were issued from time to time during the course of reassessment proceedings. In response to the notices issued under section 142(1) of the Act, the assessee furnished replies from time to time. Subsequently, a show-cause notice was issued requiring the assessee to explain why the debit as well as credit entries appearing in the relevant ledger account should not be treated as unexplained and added to his income. After considering the submissions of the assessee and the material available on record, the Assessing Officer treated the transactions as loan transactions. Since the assessee had not accepted the transactions as reflected in the ledger, the credit in respect of the opening balance and the amounts received by the assessee were not set off against the payments made by him. The loan amounts received by the assessee from M/s. Khavada Travels & Others were, therefore, not treated as the assessee’s income. However, the cash payments made by the assessee to M/s. Khavada Travels & Others were treated as unexplained. Accordingly, observing that the assessee had failed to satisfactorily explain the source of cash payments aggregating to Rs.4,08,400/- despite being afforded sufficient opportunities, the Assessing Officer treated the said amount as unexplained money within the meaning of section 69A of the Act and added the same to the income of the assessee.
03. Aggrieved by the aforesaid assessment order passed under section 147 of the Act, the assessee went in appeal before the Ld. CIT(A) where the appeal of the assessee was dismissed.
04. Still, aggrieved by the order of the Ld. CIT(A), the assessee is in appeal before this tribunal.
05. At the time of hearing, the Ld. AR submitted that the impugned addition made by the Assessing Officer and sustained by the Ld. CIT(A) is not justified either in law or on facts and, therefore, the same is liable to be deleted.
06. On the other hand, the Ld. DR supported the orders of the authorities below and submitted that no interference is called for.
07. We have heard the rival submissions and perused the material available on record. We find that the issue involved in the present appeal is similar to the issue considered by this tribunal in the case of Nitaben Kirtikumar Parekh v. ITO, in ITA No. 506/Rjt/2026, wherein, on similar facts, the tribunal partly allowed the appeal of the assessee by restricting the addition to 10% of the disclosed income. In the present case also, the Ld. AR fairly submitted that the issue is covered by the aforesaid decision of the tribunal. Respectfully following the same and considering the similarity of the facts and circumstances, we deem it appropriate to restrict the addition to 10% of the amount of Rs.4,08,400/-. Accordingly, the addition is restricted to Rs.40,840/- (10% of Rs.4,08,400/-). Further, considering the nature of the addition, the same shall be taxed under the normal provisions of the Act. Accordingly, the Assessing Officer is directed to restrict the addition to Rs.40,840/- and compute the tax thereon under the normal provisions of the Act. The grounds raised by the assessee are partly allowed.
08. In the result, the appeal of the assessee is partly allowed.
Order pronounced in the open court on this 6th day of October, 2026.
