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

ITA 59/JAB/2025Status: DisposedITAT Agra06 October 2026AY 2017-1810 pages
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What were the facts?

The assessee, Rakesh Kumar Khare, engaged in liquor trading and property development, filed his return for AY 2017-18 declaring a total income of ₹13,40,980. His return was selected for scrutiny, and the Assessing Officer (AO) rejected his books of accounts under Section 145(3) for lack of stock records, ledgers of purchases/sales, and expenses. Consequently, the AO estimated Net Profit (NP) at 14.72% 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. The assessee appealed to the ITAT against the restricted NP and the confirmation of the sundry creditors addition.

What did the Tribunal hold?

The Tribunal upheld the rejection of the assessee's books of accounts under Section 145(3) of the Act. It reasoned that the non-maintenance or non-production of shop-wise item/product-wise trading/stock or inventory records, along with ledger accounts of purchases/sales and expenses, constitutes a substantial defect in the accounts, making them incomplete and incorrect. The Tribunal relied on judicial precedents like 'Dhondiram Dalichand Vs CIT', 'Bastiram Narayandas Vs CIT', and 'Kachwala Gems Vs Jt. CIT' to support this view. However, the Tribunal found that the estimation of Net Profit (NP) by the AO at 14.72% and its subsequent restriction to 8% by the CIT(A) lacked a proper rationale. The Tribunal noted that neither authority provided justification for the estimation percentage, nor did they consider industry standards or market conditions. Therefore, the Tribunal set aside the estimation of NP and directed the AO to re-determine it based on the simple average NP earned by the assessee in the five assessment years preceding AY 2017-18. The addition on account of sundry creditors under Section 68 was also partly allowed, with the Tribunal granting the assessee one more opportunity to furnish necessary evidence and explanations regarding the nature and source of the change in audited figures. The Tribunal stated that no addition would be permissible if the re-computed NP falls below the declared NP, and any addition would not exceed the differential amount based on the re-computed NP.

What were the issues?

1. Whether the rejection of the assessee's books of accounts under Section 145(3) of the Income-tax Act, 1961, was justified on the grounds of incompleteness and incorrectness due to the non-maintenance of stock/inventory records and ledgers. - Assessee's Contention: The assessee implicitly challenges the rejection of books by appealing against the consequential estimation of income. (No specific argument recorded for the assessee on this point). - Revenue's Contention: The revenue, through the AO and CIT(A), contended that the absence of crucial records like stock registers and ledgers rendered the accounts incomplete and incorrect, justifying the rejection under Section 145(3). 2. Whether the estimation of Net Profit (NP) at 14.72% by the AO and its subsequent restriction to 8% by the CIT(A) was based on a sound rationale, and if not, what should be the correct method for estimating NP. - Assessee's Contention: The assessee challenged the ad-hoc restriction of NP to 8% by the CIT(A). - Revenue's Contention: The revenue supported the estimation of NP, first at 14.72% by the AO and then the restricted 8% by the CIT(A). 3. Whether the addition of ₹32,50,800 on account of the unexplained change in the audited opening balance of sundry creditors, treated as unexplained cash credit under Section 68, was justified. - Assessee's Contention: The assessee failed to provide satisfactory explanations or evidence regarding the change in sundry creditors. - Revenue's Contention: The revenue, through the AO and CIT(A), treated the unexplained change as an unexplained cash credit under Section 68.

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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