ITAT Rajkot remands Section 69A addition of ₹4.30 crore and Section 271(1)(c) penalty for de novo assessment

1. Background and context

The Rajkot Bench of the Income Tax Appellate Tribunal (ITAT) in Bhavesh Haribhai Mundiya Vs ITO (ITAT Rajkot) dealt with two interconnected appeals concerning Assessment Year 2013-14. Both matters related to:

  • A reassessment order passed under Section 147 treating alleged accommodation entries of ₹4,30,77,687 as unexplained money under Section 69A; and
  • A consequential penalty order issued under Section 271(1)(c).

The Tribunal did not adjudicate upon the correctness of the addition or the penalty. Instead, it restored both the quantum assessment and penalty proceedings to the file of the Assessing Officer (AO) for a fresh decision after granting the assessee a fair opportunity of hearing.

2. Appeals before ITAT and orders challenged

Two separate appeals filed by the same assessee were heard together and disposed of by a common order:

  • ITA No. 865/Rjt/2026 – challenging the order of the Ld. Commissioner of Income-tax (Appeals) [Ld. CIT(A)] dated 08.04.2026, arising out of reassessment order dated 18.05.2023 passed under Section 147 of the Income Tax Act, 1961.
  • ITA No. 765/Rjt/2026 – challenging the order of the Ld. CIT(A) dated 08.04.2026, arising out of penalty order dated 24.01.2024 issued under Section 271(1)(c).

Since both appeals emanated from the same reassessment proceedings for the same assessment year and involved overlapping issues, the Tribunal clubbed them and decided them together.

3. Factual matrix of the reassessment (Quantum appeal – ITA No. 865/Rjt/2026)

3.1 Original return and subsequent proceedings

  • The assessee is an individual who had filed a return of income for AY 2013-14 declaring total income of Rs.1,98,090/-.
  • The case later came under scrutiny in the context of search and seizure operations conducted under Section 132 in the cases of Jignesh Shah and **Sanjay Shah`.

3.2 Information from search and Insight portal

During the search in the cases of Jignesh Shah and Sanjay Shah, the Department gathered material suggesting that:

  • These persons were allegedly involved in providing accommodation entries to various beneficiaries.
  • The nature of such entries included bogus long-term capital gains and artificially engineered losses.

Using data uploaded and analysed on the Insight portal, the AO formed a view that:

  • The assessee was one of the beneficiaries of accommodation entries allegedly routed through Jignesh Shah and Sanjay Shah; and
  • The aggregate value of these entries in the assessee’s case amounted to Rs.4,30,77,687/-.

3.3 Reopening under Section 147 and non-compliance

On the basis of the above information:

  1. The AO initiated reopening proceedings under Section 147.
  2. A notice under Section 148 was issued on 21.07.2022.

However:

  • The assessee did not file any response to the notice under Section 148.
  • Thereafter, the AO issued:
    • A notice under Section 142(1) dated 24.01.2023, and
    • A show cause notice dated 24.03.2023.

Despite these statutory notices:

  • The assessee did not appear, nor did he furnish the required details or documentary evidence.
  • In view of the repeated non-compliance, the AO proceeded ex parte based on available information.

3.4 Ex parte reassessment and addition under Section 69A

In the absence of cooperation from the assessee:

  • The AO treated the alleged accommodation entries of Rs.4,30,77,687/- as unexplained money under Section 69A.
  • This sum was added to the returned income.
  • Consequently, the AO completed the reassessment by determining total income at Rs.4,32,75,777/-.
  • Simultaneously, the AO initiated penalty proceedings under Section 271(1)(c) in respect of the above addition.

4. Proceedings before the Ld. CIT(A) in quantum matter

The assessee challenged the reassessment before the Ld. CIT(A). The following position emerged: