RAKESH KUMAR KHARE,TIKAMGARH vs. INCOME TAX OFFICER WARD, TIKAMGARH

ITA 59/JAB/2025Status: DisposedITAT Jabalpur06 October 2026AY 2017-1810 pages
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What were the facts?

The assessee, Rakesh Kumar Khare, an individual engaged in liquor trading and property development, filed his return for AY 2017-18 declaring an income of ₹13,40,980. His return was selected for scrutiny. The Assessing Officer (AO) rejected the assessee's books of accounts under Section 145(3) for want of stock records, purchase/sales ledgers, and expense ledgers. Consequently, the AO estimated the net profit (NP) at 14.72% of the turnover and added ₹92,24,675. An additional ₹32,50,800 was added for an unexplained change in the audited opening balance of sundry creditors. The CIT(A) partly allowed the appeal, restricting the NP estimation to 8% and confirming the addition on sundry creditors.

What did the Tribunal hold?

The Tribunal upheld the rejection of the assessee's books of accounts under Section 145(3) due to the non-maintenance and non-production of essential records like stock/inventory registers and purchase/sales ledgers, citing precedents like Dhondiram Dalichand Vs CIT, Bastiram Narayandas Vs CIT, and Kachwala Gems Vs Jt. CIT. However, the Tribunal found the estimation of net profit (NP) at 14.72% by the AO and its restriction to 8% by the CIT(A) to be ad-hoc and lacking rationale. It set aside this estimation and directed the AO to determine the NP based on the simple average NP earned by the assessee in the five assessment years preceding AY 2017-18, with a further direction that no addition would be permissible if the re-computed NP fell below the declared NP. Regarding the addition of ₹32,50,800 on account of sundry creditors, the Tribunal, citing CIT Vs Jansampark Advertising & Marketing (P) Ltd., granted the assessee one more opportunity to furnish necessary evidence and explanations regarding the nature and source of the change in audited figures, restoring this issue for verification.

What were the issues?

1. Whether the Tribunal had to decide if the rejection of the assessee's books of accounts under Section 145(3) of the Income-tax Act, 1961, by the Assessing Officer was justified, and if so, whether the subsequent estimation of net profit (NP) by the Assessing Officer and the modification by the CIT(A) were appropriate. The assessee contended that the NP estimation was ad-hoc and lacked rationale. The revenue, through the AO and CIT(A), argued for the rejection of books due to the absence of crucial records and the necessity of estimating income. 2. Whether the addition of ₹32,50,800 on account of a change in the audited opening balance of sundry creditors, treated as an unexplained cash credit under Section 68 of the Act, was justified. The assessee argued for an opportunity to provide evidence. The revenue, through the AO and CIT(A), confirmed the addition due to the assessee's failure to provide explanations and confirmations.

Which sections of the Income-tax Act were involved?

Section 145(3),Section 144,Section 68,Section 143(3)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, JABALPUR BENCH, MP

Before: HON’BLE SHRI KUL BHARAT & SHRI G. D. PADMAHSHALI

For Appellant: Mr Abhijeet Srivastava [‘Ld.AR’]
For Respondent: Mr N M Prasad [‘Ld. DR’]
Pronounced: 06/10/2026

PER G. D. PADMAHSHALI, AM; This appeal is filed by the assessee challenging DIN & Order No. ITBA/APL/S/250/2024-25/1072848582(1) dt. 03/02/2025 passed u/s 250 of the Income-tax Act, 1961 [‘the Act’ in brief] by first appellate authority [‘Ld. CIT(A)/NFAC’ in brief] which in turn arisen out of order of assessment dt. 29/12/2019 passed by Income Tax Officer, Ward-Tikamgarh [‘Ld. AO’ in brief] u/s 143(3) of the Act anent to assessment year 2017-18 [‘AY’ in brief]

ITAT-Jabalpur Rakesh Kumar Khare Vs ITO ITA Nos.059/PAN/2025 AY: 2017-18

2.

We have heard rival party’s submission and subject to rule 18 of ITAT-R

The order continues below.

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