Ranchhodbhai Kurjibhai Kakadiya Vs ITO (ITAT Rajkot)
ITAT Restricts Property On-Money Addition to 10%, Directs Taxation at Normal Rate
Summary: The Income Tax Appellate Tribunal (ITAT), Rajkot Bench, in Ranchhodbhai Kurjibhai Kakadiya v. Income Tax Officer, partly allowed the assessee’s appeal against an addition arising from alleged cash on-money paid for purchasing property. The Tribunal restricted the addition to ₹23,656, representing 10% of ₹2,36,560, and directed taxation at normal income-tax rates, instead of under section 115BBE. It expressly clarified that the adjudication should not be treated as a precedent for any preceding or succeeding assessment year.
The order was pronounced on 16 October 2026 by Dr. Arjun Lal Saini, Accountant Member, in ITA No. 553/RJT/2025, concerning Assessment Year 2019-20. The appeal arose from the CIT(A), National Faceless Appeal Centre, Delhi’s order dated 2 September 2024, which upheld the addition made in reassessment proceedings under section 147 read with section 144 of the Income Tax Act, 1961.
Delay of 275 days condoned
The assessee filed the appeal before the Tribunal with a delay of 275 days. Seeking condonation, the authorised representative submitted that the delay had mainly resulted from the mistake of the assessee’s tax consultant.
The Revenue opposed the request. However, after examining the explanation, the Tribunal found sufficient cause and mitigating circumstances to exercise its discretion in the assessee’s favour. It accordingly condoned the delay and proceeded to decide the appeal on merits.
Search on RK Group led to reassessment
The assessee, an individual, had filed the return of income on 15 August 2019, declaring taxable income of ₹2,82,560. The return was processed under section 143(1) without any adjustment.
Subsequently, a search and seizure operation under section 132, named “Operation Blue Diamond”, was conducted on 24 August 2021 in the cases of real estate builders in Rajkot. Four principal groups, including the RK Group, were covered. The proceedings also extended to associated concerns and persons.
During the search, the authorities seized or impounded loose papers, diaries, registers, accounting ledger printouts and digital records. According to the assessment findings reproduced in the order, these materials indicated that the RK Group had received cash on-money against the sale or booking of units in its projects.
The assessee was identified as a purchaser in “RK Industrial Zone 9”. On the basis of information stated to relate to the assessee, satisfaction was recorded with the approval of the Principal Commissioner of Income Tax, Rajkot. A notice under section 148 was issued on 31 March 2023.
Addition as unexplained investment
The Assessing Officer noted that the assessee had booked Unit No. 32 in the project and that the registered sale deed reflected consideration of ₹2,50,500. The officer alleged that an additional ₹2,36,560 had been paid in cash and had not been recorded in the registered deed or the assessee’s regular books.
According to the Assessing Officer, the assessee did not explain the source of the alleged cash payment despite repeated opportunities. The amount was therefore treated as unexplained investment under section 69, attracting taxation under section 115BBE.
The assessee challenged the assessment before the CIT(A) but remained unsuccessful. The dispute consequently reached the Tribunal.
Assessee denied payment of on-money
Before the Tribunal, the authorised representative submitted that the assessee had furnished bank statements and property documents during the assessment proceedings and had specifically denied paying on-money.
The representative also contended that the Assessing Officer had not provided an opportunity for cross-examination. On these grounds, deletion of the addition was sought.
The Revenue’s representative supported the assessment and reiterated the Assessing Officer’s stand.
Tribunal sustains estimated addition of ₹23,656
After considering the submissions and material on record, the Tribunal observed that the assessee had failed to submit the entire documents and evidence. It also found that some documents were self-serving and could not be relied upon.
Nevertheless, the Tribunal considered that the case warranted partial relief. Taking account of the smallness of the amount and inconsistencies in the documents and evidence, it held that an ad hoc estimated addition would meet the ends of justice while protecting the Revenue’s interest.
The Tribunal further observed that the entire on-money could not be taxed and that the profit element embedded in it could be brought to tax. It adopted a net profit rate of 10% on ₹2,36,560, resulting in an addition of ₹23,656.
The Assessing Officer was accordingly directed to sustain only this amount and apply the normal rate of income tax, not section 115BBE.
Appeal partly allowed; express restriction on precedent
The Tribunal partly allowed the appeal, reducing the disputed addition to ₹23,656. Its express direction against treating the adjudication as a precedent for preceding or succeeding assessment years is material when reporting the decision. The order records relief based on its appreciation of the evidence, inconsistencies and amount involved.
Editorial note: Paragraph 2 contains a reference to ₹2,36,650. However, the assessment discussion and the Tribunal’s final computation consistently use ₹2,36,560, on which the sustained addition of ₹23,656 is calculated.
FULL TEXT OF THE ORDER OF ITAT RAJKOT
The present appeal has been filed by the assessee, against the order passed by the Learned Commissioner of Income Tax (Appeal), National Faceless Appeal, Centre (NFAC), Delhi [hereinafter referred to as “CIT(A)”] dated 02.09.2024 arising in the matter of assessment order passed u/s. 147 r.w.s. 144 of the Income Tax Act, 1961 (here-in-after referred to as “the Act”) relevant to the Assessment Year 2019-20.
2. The solitary grievance of the assessee in this appeal is that Ld. CIT(A) erred on facts as also in law in confirming the addition of Rs. 2,36,650/- by making allegation that assessee had paid on money through cash of Rs. 2,36,560/- for purchase of property.
3. The appeal filed by the assessee is barred by limitation by 275 days. The assessee has moved a petition requesting the Bench to condone the delay. The learned Counsel adverted my attention towards the reasons for condonation of delay before this Tribunal and urged for a benign view and sought condonation of delay of 275 days in filing the appeal before the Tribunal. Learned Counsel for the assessee submitted that delay has mainly resulted because of the mistake of the tax consultant of the assessee. However, Ld. DR for the revenue opposed the prayer of the assessee for condonation of delay. A perusal of the reasons and sufficient cause explained by the ld. Counsel for the assessee, gives me an impression of existence of mitigating circumstances to enable me to exercise my discretion in favour of the assessee. Accordingly, the delay is condoned in filing the appeal.
4. Succinctly, the factual panorama of the case is that assessee before us is an Individual.In this case, Return of Income for the year under consideration i.e. A.Y. 2019-20 was e-filed by the assessee on 15.08.2019, declaring therein total taxable income of Rs. 2,82,560/-. The return of income so filed subsequently processed u/s 143(1) of the Act by CPC without making any adjustment to the taxable income of the assessee. A search and seizure action u/s 132 of the Act named “operation blue diamond” was carried out on 24.08.2021 in the case of real estate builders of Rajkot. Mainly four groups including R K Group were covered in search action. During the course of search action various business concerns as well as associate persons/key person / family members were covered under section 132/133A of the Act. Various incriminating documents in the form physical loose papers/diary/register/ print out of accounting ledger as well as digital back up computers, pen drive /Hard Disk, mail etc have been found and seized/ impounded. The seized documents reveal that the RK Group is involved in taking on- money in cash on sale/ booking of units of their projects. The assessee is found one of the purchasers who have paid cash on-money for the purchase of units/offices in project “RK Industrial zone 9”.Since the incriminating digital data/ documents seized during the search action contain information pertaining to /and information contained therein relate to the assessee, therefore, in view of the provision of section 148, Explanation 2 clause (iv) of the Act a satisfaction with the approval of the Pr. CIT-1, Rajkot was recorded. Thereafter, case has been re-opened u/s 147 of the Act with prior approval of the Pr.CIT-1, Rajkot. Notice u/s 148 of the Act was issued on 31.03.2023 and the assessee has been asked to file the return of income (ROI) in response to notice issued u/s 148 of the Act. The assessing officer noted that assessee has booked unit no. 32 in the project “RK Industrial zone 9” developed by R K Group for which the sale deed has been executed for Rs. 2,50,500/- only, which establishes the fact that the remaining amount has been paid in cash and the same has not been recorded on registered deed or regular books of the assessee. Therefore, amount of Rs.2,36,560/- has been paid in cash during the year under consideration. however, despite asking again and again, the assessee has refrained herself to explain the sources of the his share of Rs. 2,36,560/- as on-money payment, therefore, unaccounted on-money payment of Rs.2,36,560/- was treated as income in the hands of the assessee as unexplained investment within meaning of section 69 r.w.s. 115BBE of the Act and added to the total income of the assessee.
5. Being aggrieved by the said order of the Assessing Officer, the assessee filed an appeal before the Ld. CIT(A), but remained unsuccessful. Therefore, assessee is left with no other alternative but to knock on the doors of the Tribunal with this appeal praying for justice.
6. Learned Counsel for the assessee submitted that during the assessment proceedings, the assessing officer has not provided an opportunity to cross examination. The Ld. Counsel also submitted that during the assessment proceedings, the assessee submitted the bank statement and documents of the property and also stated that he did not pay the “on-money” therefore, addition made by the assessing officer may be deleted.
7. 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.
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. I note that assessee has failed to submit the entire documents and evidences, and I also find that some of the documents and evidences are self- servicing, documents and evidences on which reliance cannot be placed, therefore, to protect the interest of the revenue, and considering the smallness of the amount an ad hoc, estimated addition should be made in the hands of the assessee. Therefore, I find some merit in the contention of the ld. Counsel for the assessee. Hence, I find that while the case of the assessee merits some relief, at the same time entire relief cannot be permitted to the assessee. Besides, entire “on money” cannot be taxed and profit element embedded may be taxed. In my view the ends of justice would be met, if a net profit rate of @ 10% of Rs.2,36,560/-, which comes to Rs. 23,656/-, is adopted, since the same would take care of the inconsistencies, in the various documents and evidences submitted before the lower authorities. Therefore, in order to plug the leakage of revenue, I direct the assessing officer to make addition of Rs.23,656/-, by applying the normal rate of income tax (not under section 115BBE of the Act). It is also made clear that instant adjudication shall not be treated as a precedent in any preceding or succeeding assessment year.
9. In the result, the appeal of the assessee is partly allowed.
Order is pronounced in the open court on 16/10/2026.
