Huzefa Kurbanhusain Lakdawala Vs ITO (ITAT Rajkot)
Reopening Based on Another Person’s Bank Account Invalid: ITAT Quashes Reassessments
The Income Tax Appellate Tribunal, Rajkot SMC Bench, in Huzefa Kurbanhusain Lakdawala v. ITO, ITA Nos. 286 and 287/Rjt/2026, quashed reassessments founded on incorrect facts concerning ownership of a bank account. The Tribunal held that attributing another person’s account to the assessee demonstrated non-application of mind while recording reasons for reopening.
The consolidated order, pronounced on 23 October 2026 by Dr. Arjun Lal Saini, Accountant Member, concerned Assessment Years 2011–12 and 2012–13. Both appeals were allowed. Since the reassessments were invalidated, the disputes concerning turnover and estimated profit became academic and infructuous.
Background of the Business and Reopening
The assessee was engaged in trading in timber and firewood and also worked as a transport commission agent.
The Department received information from the Investigation Wing concerning cash deposits in bank accounts. Reassessment proceedings followed under Sections 147 and 148 of the Income-tax Act, 1961.
The assessee participated in the proceedings, objected to reopening and sought examination of the actual ownership and nature of the accounts.
His central objection was that a Kotak Mahindra Bank account included in the recorded reasons did not belong to him.
He maintained that the reopening therefore rested partly on information concerning a different taxpayer.
Bank Certificate Identified a Different Account Holder
The assessee furnished a certificate showing that the disputed Kotak Mahindra Bank account belonged to M/s Abbas Timber Mart, a proprietorship of Banuben Kurbanhussain Lakdawala.
He argued that credits in that account could not be attributed to his own business.
The submissions also identified differences between amounts mentioned in the recorded reasons, the show-cause notice and the bank statements.
According to the assessee, these discrepancies reinforced his objection that the officer had proceeded without independently checking the information received.
The bank certificate and the treatment of the account in the assessment records became decisive to the jurisdictional challenge.
Explanation Regarding Other Bank Deposits
The assessee separately explained that deposits in his own accounts included money received from customers located at different places.
He submitted that some amounts were used to make purchases on behalf of customers, while others represented his own sales.
Payments to suppliers were subsequently made through withdrawals from those accounts.
He therefore disputed treating every credit as his turnover and maintained that his commission-related activities normally yielded a comparatively small margin.
These explanations concerned the merits of the computation. However, the Tribunal first considered whether the reassessment itself had been validly initiated.
Assessing Officer Estimated Business Profit
The assessment narrative recorded adoption of Rs. 1,28,26,644 in aggregate bank credits as turnover.
The Assessing Officer applied a 10% profit estimate, determining business profit at Rs. 12,82,664.
After adjusting profit already disclosed, an addition of Rs. 12,43,812 was made as undisclosed business income.
The assessee challenged the assessment before the CIT(A)/NFAC, but did not obtain the relief sought. He then appealed to the Tribunal against the separate appellate orders dated 12 December 2025.
His grounds questioned both the jurisdiction to reopen and the estimation applied to the deposits.
Tribunal Finds Reasons Factually Incorrect
The Tribunal examined the recorded reasons and found that the officer had stated that the assessee held the disputed Kotak Mahindra Bank account.
However, the officer had himself accepted that the account did not belong to the assessee.
The Tribunal considered this inconsistency a clear indication that the correct facts had not been checked before reasons were recorded.
It held that the reopening was based on factually incorrect and non-existent premises.
The defect therefore concerned the foundation of the officer’s belief that income had escaped assessment, rather than merely a disagreement over the eventual profit calculation.
Borrowed Satisfaction Could Not Replace Independent Examination
The Tribunal further found that the reasons reflected borrowed satisfaction and a failure to apply an independent mind.
It observed that relevant records and returns had not been verified before initiating reassessment.
The order also noted the absence of an allegation in the supplied reasons that the assessee had failed to disclose fully and truly the material facts necessary for assessment.
On the circumstances examined, the Tribunal concluded that the officer lacked material supporting a valid reason to believe and had instead proceeded on suspicion and incorrect information.
Gujarat High Court Decisions Applied
The Tribunal relied on Vijay Ramanlal Sanghvi [2023] 146 taxmann.com 55 (Gujarat) and Inductotherm (India) (P) Ltd. v. M. Gopalan (2013) 356 ITR 481.
The principles discussed in those decisions distinguished valid reopening from a fishing or roving inquiry undertaken merely to verify information.
Applying that reasoning, the Tribunal held that the officer could not sustain reopening after relying on an irrelevant fact and failing to verify the correct account ownership.
The reassessments were therefore liable to be quashed.
Final Decision
The Tribunal quashed the reassessments and allowed both appeals.
It did not separately determine the correct turnover, appropriate profit margin or other computational objections. Those issues became infructuous once the jurisdictional foundation failed.
The ruling underscores the need for accurate facts and independent verification before recording reopening reasons.
Cases Discussed
- Vijay Ramanlal Sanghvi Vs ACIT (Gujarat High Court) — [2023] 146 taxmann.com 55 (Gujarat). Relied upon for the principle that reassessment cannot be initiated merely to conduct a roving inquiry into facts already available on record without tangible material indicating escapement of income.
- Inductotherm (India) Pvt. Ltd. Vs M. Gopalan (Gujarat High Court) — (2013) 356 ITR 481. Relied upon for the principle that the power to reopen an assessment cannot be exercised merely to verify a claim through a fishing or roving inquiry.
FULL TEXT OF THE ORDER OF ITAT RAJKOT
Captioned two appeals filed by the assessee, pertaining to assessment year (AY) 2011-12 & 2012-13, are directed against the separate orders passed under section 250 of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’) dated 12.12.2025 by the National Faceless Appeal Centre (NFAC), Delhi/ Commissioner of Income Tax (Appeals) [in short ‘Ld.CIT(A)’] which in turn arise out of separate assessment orders passed by the Assessing Officer (in short ‘assessing officer’) u/s 143(3) r.w.s. 147 of the Act.
2. Since, the issues involved in all the appeals are common and identical; this consolidated order. For the sake of convenience, the grounds as well as the facts narrated in ITA No.286/RJT/2026, for assessment Year 2011-12, have been taken into consideration for deciding the above appeals en masse.
3. The grounds of appeal raised by the assessee in lead case in ITA No.286/RJT/2026, for assessment Year 2011-12, are as follows:
1. The learned CIT(Appeals) [ADDL./JCIT[A]-2 BENGLURU] has grievously erred both in law and on facts in not judiciously deciding the ground against illegality of reassessment made on the basis of so called “Reasons” that deposits in bank account was escaped income though objections to reopening were raised and as per settled legal position of case laws including those of Ahmedabad ITAT, deposits in bank account is not a valid ‘REASON’ to believe to initiate reassessment proceedings. The legal ground ought not to be treated as general in nature.
2. Without prejudice to the above ground, both the lower authorities erred in law and on facts in initiating reassessment proceedings and confirming the same when the ‘REASONS’ were incorrect since bank account with KOTAK MAHINDRA BANK DID NOT BELONG TO THE APPELLANT AS ALSO ACCEPED BY BOTH. The Reasons being incorrect, entire proceedings ought to be held as bad in law.
3. Without prejudice to the above grounds, the Id CIT[A] also erred in confirming the addition at 8% of the total deposits in bank account when the fact about appellant’s main business being trading in timber, firewood and commission agent of firewood transportation in which normal rate is only 1 to 2%. It be so held now and addition retained be deleted.
4. Both the lower authorities erred in law and on facts in not appreciating that the various deposits in bank account of appellant at different places were deposited by the various customers from Muradabad Kanth Road, Amoroha gate, Shayma Ganj, Barelly etc which were not part of appellant’s turnover hence 8% on such gross credits is patently wrong. It be so held now.
5. The Order passed by Ld assessing officer and additions made/ retained being against sanction of law, the same be quashed/cancelled.
6. The Ld CIT[A]-ADDL./JCIT[A]-2 BENGALURU erred in not properly considering appellants submissions which ought to have accepted the appeal in toto.
7. The appellant craves leave to add, alter, modify or delete any of the grounds
4. Brief facts qua the issue are that the assessee filed his original return of income on 27.03.2012 declaring total income at Rs.2,99,480/-. In this case, information regarding cash deposit in various banks received from O/o the DDIT(Inv), Gandhidham. The case of the assessee was reopened for the A.Y.2012-13 after recorded reason for reopen from competent authority. Accordingly, Notice under section 148 issued on 28.03.2018 and served upon the assessee. In response to the notice u/s.148, the assessee has filed return of income on 25.08.2018. A notice u/s 143(2) was issued on 30.08.2018 and notice under section 142(1) was issued on 26.09.2018. Thereafter, vide letter dated 26.09.2018, copy of the reasons recorded was supplied to the assessee. In response to the notices issued, the assessee attended proceedings before the assessing officer. During the year, the assesse has derived income from trading in timber and firewood & transport commission agent. The assessee has filed an objection on 08.10.2018 against reopening assessment u/s.148, vide letter dated 08.10.2018 and the objections of the assessee were considered but not found tenable. The reasons recorded are factually cored and correct and hence the assessee’s contention to this extent is not correct. The objection filed by the assessee was rejected by the assessing officer vide speaking order of the assessing officer. The assessing officer, then, issued show cause notice to the assessee to explain the cash deposit in the bank account.
5. In response to the show cause notice, the Authorized Representative of the assessee vide letter dated 20.12.2018 submitted written submission, which are reproduced below:
“I continue to object the assessment proceedings but still to co-operate with the tax authorities. my responses to your show cause notice are given in further paras as below: As submitted earlier, I reiterate that cash deposits made in bank accounts in account no. 019000100159541 pertains to Punjab national bank and account no. 041210400047676 pertains to IDBI Bank is mainly on account of amount deposited by various customers from other stations such as Muradaba Kanth Road, Muradabad Amroha Gate, Muradabad accounts towards purchases made on behalf of them and supplied to them and partly towards sales made to them and in turn payments to the suppliers of goods have been made on behalf of my customers by withdrawing cash from these accounts. I further submit that these financial transactions are genuine and business activity related. I submit that detailed books of accounts in this regards are not required to be maintained by me therefore, the audit of books of account u/s 44AB is not applicable as income is disclosed U/s. 44AD of the Income Tax Act, 1961 as a presumptive income to be assessee.
It is submitted that amount of cash deposited/ credit transactions amounting to Rs.4251344/- tabulated vide para 2 of the captioned notice in respect of account number 0822200001073 is with Kotak Mahindra Bank is not pertaining to Huzefa Kurbanhussain Lakdawala but that bank account details belong to M/s Abbas Timber Mart (Prop. Banuben Kurbanhussain Lakdawala) – PAN: AAQPL3380C being assssed under jurisdiction of ward -1, Gandhdham -Range. Copy of certificate issued by the Kotak Bank in this regard is already submitted to your good office in earlier submission. I resubmit the copy of the same for your kind consideration Accordingly, the assessee does not accept any credits on his account for this bank account number for the captioned assessment year.
In your show cause notice you have mentioned confession and statements give to DDIT (Ine.). In your furnishing the reasons recorded in writing before reopening the assessment. I have not been provided the correspondence between your office and DDIT (Inv.). In absence of the same, I totally object the points raised by you in the SCN. Also in reason recorded the amount of cash deposited in account number 0190000100159541 is mentioned Rs. 85,75,300/- which in show cause notice such amount changed to Rs. 46,32,000/- and account number 082220001073s mentioned Rs. 42,51,344/- which in show cause notice such amount changed to Rs. 72,41,770/-this seems to be wrong as on going through the bank account statement the credit amount in account no. 19000100159541 is Rs. 46,28,000/-, Reasons recorded for reopening failed to mention as to what facts or information was withheld by assessee. Merely relying on information coming from investigation wing is insufficient for reopening. Reassessment notice based on mere conjectures or surmise is not sustainable. Therefore I totally object the submissions in your notice regarding details of DDIT (Inv.).
I had filed the return of income u/s 44AD which gross business receipts of Rs. 426256/- and has declared income at the rate of 8% on this amount. Since no regular books of accounts is maintained by me, therefore there is no question of audit of books of account and hence is not applicable. I submit herewith that considering my business activity, I have already given details as best available with us. As per section 44AD the profit from the said business shall be deemed to be 8% of the gross receipts during the year. I have truly disclosed all material facts and details.
Only one day opportunity is given to the assessee after issuance of the notice for hearing and gathering the corroborative evidences of credit, which is not justified. Without having regard to my submissions and evidences on record, your good self has made up mind to estimate profit at the rate of 10% on total receipts of Rs.12826644/- which is incorrect and unjustified. Primarily this credit includes total receipts in bank account no. 08220001073 Rs.4251344/-, which belong to M/s Abbas Timber Mart (Prop Banuben Kurbanhussain Lakdawala). Therefore you cannot consider the account belong to M/s Abbas Timber Mart (Prop Banuben Kurbanhussain Lakdawal). After considering the above, total credits remains are pertaining towards my business activities as at Rs.8575300/- and add remaining receipts to the turnover of business and accordingly assess the income under section 44AD @ 8% of the turnover and calculate tax already mentioned earlier and in foregoing para of this response. In this line of business normal commission at the rate of 1 to 2% of the business carried out is the profit to the assessee. Hence, estimated profit at the rate of 10% of the gross receipts (After reducing Rs.4251244/-) pertaining to Abbas Timber through the bank account and bank statement copy of the whole year is already submitted for your kind consideration, which clearly shows cash depositions from various centres and cash withdrawals for payment to the supplier manly at Gandhidham.
I have already object the assessment proceedings by filing my objections as the reasons recorded in writing are faulty and mere reliance on information received from DDIT (Inv) and without application of mind is not a valid reason and reasons recorded are not fully pertaining to the assessee and hence is bad in late. Also, you are also requested to consider disclosed the facts. the above submission and accept the returned income as the assessee has fully and truly disclosed the facts.
6. The above reply of the assessee was carefully considered by the assessing officer and found partly tenable. The assessing officer noticed that the assessee has submitted the certificate of Kotak Mahindra Bank for account number 082220001073 pertains to M/s Abbas Timber Mart (Prop Banuben Kurbanhussain Lakdawala), who have filing their return of income ACIT- circle, wherein return filed no such bank accounts have been furnished in the I.T. return filed. Further, ITS data disclosed bank account was HDFC bank, having account No.02162560002176. Further, the assessee once confronted, extract of his statement recorded u/s 131 of the Act before the ADIT(Inv), Gandhidham, wherein he had disclosed the details of bank accounts maintained before the competent authority, now he retracts. The assessee has claimed to disclose the profits on the business so transacted, he has not been able to substantiate with complete evidences as to why the turnover should not be taken at Rs.1,28,26,644. In the circumstances, the turnover is adopted at Rs.1,28,26,644/- (the total credits in the bank accounts) and the credit for the withdrawals are deemed to have been granted against these deposits. Therefore, total credit of Rs.1,28, 26,644/- was considered as total profit of the business. As the assessee had filed his return of income in 44AD, therefore, Rs. 12,82,664/- (10% of Rs. 1,28,26,644/-) is considered as total profit of the business. Further, the assessment of the assessee in earlier AY 2009-10 & 2010-11 has adopted estimated profit @8% of total credits as a total profit of Rs.38,852/- in return of income. Therefore, remaining profit of Rs.12,43,812/- (Rs. 12,82,664 – Rs.38,852) was required to be added to his total income. Accordingly, amount of Rs. 12,43,812/- was therefore added back to the income of the assessee as undisclosed business income.
7. Aggrieved by the order of the Assessing Officer, the assessee carried the matter in appeal before the Ld. CIT(A), who has confirmed the action of the Assessing Officer, therefore, assessee is in appeal before this Tribunal.
8. I have heard, both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld CIT(A) and other materials brought on record. Learned Counsel for the assessee submitted that assessment was reopened under section 147 of the Act and incorrect facts. The assessee, is engaged in the business of trading in timber and firewood and also works as a transport commission agent. The Ld. Assessing Officer considered total cash deposits of Rs. 1,28,26,644/-, in two bank accounts as belonging to the assessee. During the assessment proceedings, the assessee furnished a certificate stating that the Kotak Mahindra Bank account did not belong to him. However, the assessing officer did not accept this explanation. Accordingly, the assessing officer treated the deposits of Rs.1,28,26,644/- as pertaining to the assessee. Further, since the assessee’s accounts were not audited, the assessing officer estimated income at 10% of the said deposits and made an addition of Rs. 12,43,812/-, after reducing the income already declared under section 44AD of the Act. Learned Counsel for the assessee, submitted that bank account itself does not belong to the assessee and the reasons are recorded based on incorrect facts. The ld. assessing officer himself accepted that the said Kotak Bank account did not belong to the assessee. In the reasons recorded by the assessing officer, there is no application of mind by the assessing officer, hence reasons recorded by the assessing officer are bad in Law, and therefore, assessment order should be quashed. The Ld. Counsel for the assessee also submitted on other technical issue that notice u/s 143(2) was issued by the Assessing Officer, however in such notice the Assessing Officer did not mention whether it is limited scrutiny case or full scrutiny case. It is a mandatory requirement to mention in the notice issued u/s 143(2) of the Act that it is limited scrutiny case or full scrutiny case. Therefore, based on the facts reassessment proceedings may be quashed.
9. On the other hand, the Ld. DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer, which I have already noted in my earlier para and is not being repeated for the sake of brevity.
10. I have considered submissions of both the parties and gone through the reasons recorded by the assessing officer. I note that notice u/s 147/148 of the Act was issued on incorrect facts, the assessing officer himself accepted that assessee does not have bank account in Kotak Mahindra Bank, however in the reasons recorded, the Assessing Officer mentioned that the assessee has bank account in the Kotak Mahindra Bank Ltd., therefore there is a complete non- compliance of minds on the part of the Assessing Officer while recording the reasons. I have gone through the reasons recorded by the assessing officer and noted that in the reasons supplied to the petitioner, there is no whisper, what to speak of any allegation, that the petitioner had failed to disclose fully and truly all material facts necessary for assessment and that because of this failure there has been an escapement of income chargeable to tax. I note that assessing was Huzefa Kurbanhusain Lakdawala v. ITO was an escapement of income, and there is complete non-application of mind while recording reasons. Moreover, the reasons were recorded based on the borrowed satisfaction. Thus, making the wrong statement in the reasons recorded and ignoring the relevant and correct facts available on record established that the assessing officer has not applied his independent mind while forming the opinion, for that reliance is placed on the following decisions:
(i) Decision of Jurisdictional High Court viz. Gujarat High Court in case of Vijay Ramanlal Sanghvi [2023] 146 taxmann.com 55 (Gujarat)
“9 On perusal of the reasons recorded, the assessment is sought to be reopened for verification of the facts which are already on record as to whether the amount of Rs. 2.1 crore received by the assessee and reflected in the regular books of accounts pertains to any accommodation entry or not. It is not in dispute that the assessee returned that amount within a short span of two months. Therefore, it appears that under the guise of reopening the assessment, the Assessing Officer wants to have a roving inquiry. Under the circumstances, it cannot be said that Assessing Officer had any tangible material to form an opinion that the income chargeable to tax has escaped the assessment”
(ii) In case of Inductotherm (India) (P) Ltd. v. M. Gopalan, Deputy CIT reported in (2013) 356 ITR 481, the Court observed that:
“..for a mere verification of the claim, the power of reopening of assessment could not be exercised and the Assessing Officer cannot seek to undertake a fishing or a roving inquiry and seek to verify the facts which are already on record, as if it were a scrutiny assessment”.
11. In view of the above discussion, I hold that the assessing officer had taken an irrelevant fact into consideration and reopened the assessments on the basis of suspicion, further, the Assessing Officer proceeded for re-opening of the assessment on non- existent and factually incorrect basis/reasons and has not applied his mind and did not verify the assessment records/returns filed by the assessee prior to recording of the reasons, therefore, re-opening of the assessment on non- existent and factually incorrect basis/reasons and has not applied his mind and did not verify the assessment records/returns filed by the assessee prior to recording of the reasons, therefore, re-opening of the assessments is liable to be set aside/quashed.
12. As the reassessment itself is quashed, all other issues on merits of the additions, in the impugned assessment proceedings, are rendered academic and infructuous.
13. In the result, both appeals filed by the assessee are allowed.
Order is pronounced in the open Court on 23/10/2026.
