HEMAL PARESH MADEKA,RAJKOT vs. ASST.COMMISSIONER OF INCOME TAX CIRCLE-2(1), RAJKOT

ITA 955/RJT/2026Status: DisposedITAT Rajkot19 October 2026AY 2020-218 pages
AI SummaryAllowed

What were the facts?

The assessee, Hemal Paresh Madeka, filed an appeal against the order of the National Faceless Appeal Centre (NFAC) Delhi/CIT(A) dated 27.05.2026. This order upheld the reopening of assessment under section 147 of the Income-tax Act, 1961, and the addition of Rs. 26,02,186/- as unexplained income under section 69A, taxed under section 115BBE. The original assessment order was passed by the Assessing Officer (AO) under sections 147 and 144 of the Act on 23.03.2025. The assessee had originally declared an income of Rs. 62,19,410/- for AY 2020-21. The reopening was based on information from a search and seizure action against 'Qutone Group of Companies' and associated entities, indicating the assessee's involvement in accommodation entry transactions with Rajesh Janaklal Daftary and his controlled entities, totaling Rs. 26,02,186/-.

What did the Tribunal hold?

The Tribunal held that the reopening of the assessment under section 147 was liable to be set aside/quashed. The Assessing Officer (AO) had taken irrelevant facts into consideration, reopened the assessment on suspicion, and proceeded on a non-existent and factually incorrect basis. The AO had not applied his independent mind and had not verified the assessment records prior to recording the reasons. The reasons recorded lacked any allegation of failure by the assessee to disclose material facts, indicating a complete non-application of mind and borrowed satisfaction, as supported by the Gujarat High Court's decision in Vijay Ramanlal Sanghvi and the decision in Inductotherm (India) (P) Ltd. Regarding the violation of natural justice, the Tribunal found that additions made without providing an opportunity for cross-examination of persons whose statements were relied upon are in violation of natural justice and cannot be sustained, citing Krishnachand Chelaram and Andaman Timber Industries. On merits, the Tribunal found that the transactions represented genuine loans duly recorded in the books of account, supported by ledger accounts, PAN details, bank statements, confirmations, and repayment details. Relying on CIT vs. Ayachi Chandrashekhar Narsangji, the Tribunal held that if a loan has been repaid in the subsequent year, no addition should be made. Consequently, the addition made by the AO was deleted. The appeal was allowed.

What were the issues?

The Tribunal had to decide the following issues: 1. Whether the reopening of the assessment under section 147 of the Income-tax Act, 1961, was valid and justified, considering the conditions precedent for assuming jurisdiction were met. - Assessee's contention: The reopening was bad in law, unjustified, and liable to be quashed due to non-satisfaction of conditions precedent. The AO lacked tangible material, acted on borrowed satisfaction, and there was no independent application of mind. The information was already on record, and the search team found no incriminating material against the assessee. There was also an absence of DIN on the satisfaction note and approval, and jurisdiction should have been through the faceless mechanism under section 144B. - Revenue's contention: Not recorded in the judgment. 2. Whether the addition of Rs. 26,02,186/- as unexplained income under section 69A of the Act, and its taxation under section 115BBE, was legally sustainable. - Assessee's contention: No evidence of involvement in accommodation entries. The seized material did not pertain to the assessee. Additions should not be made based on dump documents. The transactions represented genuine loans supported by documentation and were repaid in the subsequent year. - Revenue's contention: Not recorded in the judgment. 3. Whether the impugned addition was sustainable despite a gross violation of the principles of natural justice, specifically the denial of the opportunity to cross-examine third parties whose statements were relied upon. - Assessee's contention: The AO relied on third-party statements without providing an effective opportunity to confront them or cross-examine the individuals, causing prejudice and vitiating the assessment. The addition based on untested material is unsustainable. - Revenue's contention: Not recorded in the judgment.

Which sections of the Income-tax Act were involved?

Section 147,Section 144,Section 148,Section 142(1),Section 69A,Section 115BBE,Section 68,Section 132,Section 144B

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “SMC”

Before: Dr. Arjun Lal Saini

For Appellant: Shri R. D. Lalchandani, Ld. AR
For Respondent: Shri Ganesh Iyer, Ld. Sr. DR
Hearing: 15/10/2026

Per, Dr. Arjun Lal Saini, AM: Captioned appeal filed by the assessee, pertaining to assessment year (AY) 2020-21, is directed against the order under section 250 of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’) passed by the National Faceless Appeal Centre (NAC) Delhi/Commissioner of Income-tax (Appeals) [in short ‘NFAC/Ld.CIT(A)’], dated 27.05.2026, which in turn arises out of an assessment order passed by the Assessing Officer u/s 147, r.w.s. 144 of the Act, dated 23.03.2025.

The order continues below.

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