ITAT Pune Scraps Separate On-Money and Section 69A Additions Against Viraj Estates, Orders Unified Peak Credit Across All Seized Cash Books

The Pune Bench directed the Assessing Officer to recompute income using a single chronological peak credit ledger drawn from all seized handwritten and digital cash books, deleting gross on-money and Section 69A additions for assessment years 2014-15 through 2023-24.

The Income Tax Appellate Tribunal, Pune Bench B, has set aside the separate additions made against Viraj Estates Private Limited on account of unaccounted on-money receipts and unexplained money under Section 69A read with Section 115BBE, covering five assessment years from 2014-15 to 2023-24. The Bench, comprising Vice President R. K. Panda and Judicial Member Vinay Bhamore, held that the only scientifically defensible method for taxing entries found in a single continuous seized cash book is the unified peak credit method. All ten cross-appeals — five by the assessee and five by the Revenue — were disposed of by a common order pronounced on 27 May 2026. The assessee's appeals were partly allowed for statistical purposes; the Revenue's appeals were dismissed.

The Assessee and the Search Action

Viraj Estates Private Limited, Nashik, is a company engaged in the purchase of litigated agricultural and raw plot land, development of layouts, and sale of residential plots and flats. The group, as part of its business model, formed multiple companies to transact through different entities.

On 20 April 2023, a search and seizure action under Section 132 of the Income Tax Act, 1961 was conducted across multiple premises of the Viraj Group. Three office premises were covered: the 4th Floor of Abhyankar Tower, MG Road, Nashik (Party No. YO-01); the 3rd Floor of the same building (Party No. YO-1(1)); and premises at Anandvalli, Gangapur Road, Nashik (Party No. YO-2). Residences of key directors — Rajendra Rasiklal Shah, Vilas Rasiklal Shah, Karan Rajendra Shah and Viraj Vilas Shah — and key employees were also searched.

During the search, handwritten cash books in Gujarati covering financial years 2012-13 to 2022-23 were seized from Party No. YO-2 premises. Digital data in Tally software under file names “V89” and “CON” was found on an external hard drive. These records were said to document unaccounted daily cash transactions of the Viraj Group, including on-money receipts over and above registered sale consideration, accommodation entries, cash loans, and bank withdrawals.

The Assessee's Objections to Jurisdiction and Seized Material

After a notice under Section 148 was issued and served on 28 March 2024, the assessee filed objections on 10 May 2024 challenging the assumption of jurisdiction. It questioned the validity of the notice under Section 148, the approval under Section 151, compliance with Section 151A, and the validity of the notice under Section 143(2). All objections were rejected by the Assessing Officer.

On the merits of the seized material, the assessee contended that the premises at YO-1(1) and YO-2 were third-party premises — one in the name of S. C. Pawar, Advocate, and the other owned by one Vilas Joshi — and therefore the presumption under Section 292C could not attach to documents found there. The assessee relied on a statement of Shri Rohit Manilal Shah recorded under Section 132(4), in which he stated that YO-2 was not owned or rented by the Viraj Group.

The Assessing Officer rejected this argument. He relied on the statement of Shri Karan Rajendra Shah recorded under Section 132(4) on 24 April 2023, in which Karan Shah answered questions 10, 11, 12, 30, 31 and 33 and accepted that both YO-1(1) and YO-2 were rented by the Viraj Group and that books of account of Viraj Group companies and entities were kept there. The Assessing Officer also noted that Shri Rohit Manilal Shah himself had stated that documents found at YO-2 related to Viraj Group entities and that entries were made on the instructions of Karan Rajendra Shah and Vilas Rasiklal Shah. Additionally, a letter dated 28 July 2023 signed by Karan Rajendra Shah in his capacity as Director had proposed to tax income from the disputed premises proportionately in the hands of Viraj Estates Pvt Ltd and Viraj Realty Pvt Ltd.

How the Assessing Officer Computed the Additions for AY 2014-15

The Assessing Officer analysed the Digital Cash Book (DCB), which was prepared during post-search proceedings by digitising the handwritten cash books and Tally data. For assessment year 2014-15, the DCB contained 5,568 entries on the receipt and payment side.

From 100 receipt-side entries linked to land and plot survey numbers whose ownership the assessee had accepted in post-search submissions dated 21 July 2023, the Assessing Officer computed on-money receipts of Rs. 19,25,26,021 and added this as undisclosed business income. A further 38 entries amounting to Rs. 7,21,81,100 were treated as on-money receipts from properties where no survey number details were provided, and this too was added as undisclosed business income.

For entries with the narration “VR1” and related internal group movement entries, the Assessing Officer accepted the assessee's argument that these were contra entries and applied the peak credit method, arriving at a peak of Rs. 7,41,39,862, which was added under Section 69A read with Section 115BBE.

For entries with the narration “V A/c”, the Assessing Officer treated the inflows as unexplained money because the assessee failed to furnish PAN and addresses of the parties involved, and added the amount under Section 69A read with Section 115BBE. The total income was determined at Rs. 74,12,67,186 against the returned income of Rs. 9,22,52,410.

The CIT(A)'s Partial Relief

Before the CIT(A), Pune-12, the assessee raised both legal and merits-based grounds. The CIT(A) dismissed the jurisdictional and legal grounds. He also rejected the argument that documents from third-party premises could not form the basis for additions, and declined to apply a single unified peak credit across all entries.

On the on-money additions, however, the CIT(A) agreed that only the profit element embedded in on-money receipts should be taxed, not the gross receipts. He held that the handwritten cash book itself recorded expenses on the payment side, which the Assessing Officer had ignored. He applied a net profit rate of 17% to on-money receipts from sale of plots and land, and directed 15% to be applied in other years where on-money related to flats and shops. This restricted the on-money addition for AY 2014-15 to 17% of Rs. 26,47,07,121.

The CIT(A) sustained the peak credit addition of Rs. 7,41,39,862 under Section 69A. For the “V A/c” entries, he directed the Assessing Officer to restrict the addition to Rs. 24,24,01,500 on a peak theory basis. He rejected the assessee's additional ground seeking telescoping of on-money profit additions against peak credit additions, holding that both were independent income streams with no connection to each other.

The Dispute Before the Tribunal

Both the assessee and the Revenue appealed the CIT(A)'s order. The assessee challenged the jurisdictional findings, the application of Section 292C to documents from third-party premises, the reliability of retracted statements, the 17% profit rate as excessive, the failure to apply a single unified peak credit, and the separate treatment of “V A/c” entries. The Revenue challenged the CIT(A)'s restriction of on-money additions to 17%, arguing that the entire gross on-money receipts should be taxed since the assessee had already claimed all expenses in its profit and loss account and allowing further estimated expenses would amount to double deduction.

The assessee's counsel were CA V. R. Suresh, CA Sneha Karan Shah and CA Mahavir Anil Nahata. The Revenue was represented by Shri Amit Bobde, CIT. The matter was heard on 10 March 2026.

The Tribunal's Reasoning on the Peak Credit Question

The Tribunal's central finding was that the handwritten cash book and the DCB constitute a single continuous record. All entries — on-money receipts, “V A/c” entries, “VR1” entries, accommodation entries, and all other notings — emanate from the same seized source. Artificially segregating these entries into separate pools and taxing some on a gross or estimated profit basis while applying peak credit only to others was, in the Tribunal's view, scientifically unjustifiable.

The Bench held that the rotation of funds within a single cash book demands a single unified peak credit computation. It found no justification for the approach taken by the Assessing Officer and partially sustained by the CIT(A), which maintained separate additions for on-money and Section 69A amounts alongside a separate peak for the remaining entries.

The Tribunal directed that all additions sustained on a gross basis and estimated at 17% for plots and land and 15% for flats and shops be deleted. The Section 69A additions, both the sustained peak of Rs. 7,41,39,862 and the “V A/c” peak of Rs. 24,24,01,500, were also directed to be deleted. The Revenue's grounds seeking restoration of the full gross on-money additions were dismissed.

Directions for Recomputation

The Tribunal issued detailed directions for the Assessing Officer to follow in recomputing income for each of the five assessment years.

First, the Assessing Officer must prepare a single unified and chronologically sequenced cash ledger incorporating every entry found in the seized DCB and HCB for the year under consideration. No entry is to be excluded or maintained in a separate pool. This includes “V A/c” entries, “V Exp” entries, unidentified entries, and all alleged on-money receipt and payment entries relating to plots, lands, flats and shops.

Second, the unified peak must crystallise entirely in the hands of Viraj Estates Pvt Ltd, which the Revenue treats as the flagship company of the group. No separate addition based on DCB or HCB entries is to be made in the hands of any other entity or individual of the Viraj Group.

Third, since the seized HCB is a continuous record with entries predating the assessment years in question, the Assessing Officer must compute the peak balance as on the last date of assessment year 2013-14. That closing peak is to be brought forward as the opening peak balance for assessment year 2014-15.

Fourth, the Assessing Officer must calculate the running daily cash balance using the single consolidated ledger. The peak credit for any given assessment year is the highest unexplained balance reached during that financial year.

Fifth, to prevent double taxation of rotating funds, only the incremental peak of that particular year is to be taxed.

Sixth, all separate additions under Section 69A regarding “V A/c” entries and all additions made on a gross basis estimated at 17% or 15% on alleged on-money receipts are explicitly directed to be deleted. The Assessing Officer is to give the assessee due opportunity of hearing while computing the peak for each year.

Outcome

All five appeals filed by Viraj Estates Private Limited (ITA Nos. 3001, 3002, 3015, 3027 and 3028/PUN/2025) were partly allowed for statistical purposes. All five appeals filed by the Revenue (ITA Nos. 3289, 3290, 3291, 3292 and 3293/PUN/2025) were dismissed. The order was pronounced in open court on 27 May 2026 by the Pune Bench B of the Income Tax Appellate Tribunal.