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Facts
The Assessing Officer (AO) received information that the assessee had transacted with M/s.V.Nitin, a firm suspected of providing accommodation entries. The AO believed income had escaped assessment and reopened the case. The assessee claimed the transactions were for job-work in cutting and polishing diamonds, supported by documents. The CIT(A) allowed the assessee's appeal, deleting the addition.
Held
The Tribunal held that the reopening of the assessment was invalid as the AO relied on borrowed satisfaction without independent verification. Furthermore, even on merits, the addition was not sustainable because the payments made by M/s.V.Nitin to the assessee were accepted as genuine in M/s.V.Nitin's case, and no addition was made therein.
Key Issues
Whether the reopening of assessment was validly initiated based on borrowed satisfaction, and if the addition made under Section 68 of the Act was sustainable on merits given the evidence presented.
Sections Cited
147, 148, 68, 143(3)
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Income Tax Appellate Tribunal, “B” BENCH, AHMEDABAD
Before: Shri Sanjay Garg & Shri Narendra Prasad Sinha
Per Sanjay Garg, Judicial Member:
The captioned appeals have been preferred by the Revenue and corresponding cross objections by the assessee are against separate orders of even date 21/03/2025 passed by the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as ‘CIT(A)’], u/s. 250 of the Income Tax Act, 1961 ("the Act" for short) relevant to the Assessment Years (AYs) 2014-15 to 2016-17. Since issues raised in all the appeals/COs are identical, they are disposed of by this common order for the sake of convenience. First, we take up the Revenue’s appeal in CO No.49/Ahd/2025 for AY 2014-15 as lead case for the purpose of narration of facts.
2. The Revenue has raised the following grounds of appeal:
“1. Whether the CIT(A) has erred in facts and law in deleting the addition Rs.84,68,856/- under section 68 of the Act, without appreciating the facts of the case?”
2. Whether the CIT(A) has failed to appreciate that the reassessment proceedings were validly initiated based on credible information received from investigation Wing that the entity, V. Nitin, is engaged in providing bogus accommodation entries and the assessee is also one of such beneficiary.
3. The appellant craves leave to amend or alter any ground or add a new ground, which may be necessary.
It is, therefore, prayed that the order of Ld. CIT(A) may be set aside and that of the Assessing Officer be restored.”
to 1116/Ahd/2025 (By Revenue) & CO Nos. 49 to 51/Ahd/2025 (By Assessee) ITO vs. Janakbhai Dharamshibhai Patel Asst. Years : 2014-15 to 2016-17 CO No.49/Ahd/2025 for AY 2014-15
The assessee in his Cross Objection has raised the following grounds:
“1. On the facts and in the circumstances of the case, Ld. CIT(A) has erred in not adjudicating the ground of appellant with regard to validity of reassessment notice issued u/s.148 of the Act.
On the facts and in the circumstances of the case, the appeal filed by the Revenue is not maintainable in view of the CBDT Circular which prescribes the monetary limits for filing appeals by the Revenue before the Income Tax Appellate Tribunal.
2.1. On the facts and in the circumstances of the case, the tax effect involved in the present appeal filed by the Revenue is below the threshold monetary limit specified in the CBDT Circular no.09/2024 dated 17/09/2024, and hence the appeal is not maintainable and deserves to be quashed.
3. The appellant craves to add to, alter, amend and/or withdraw any ground or grounds of appeal either before or during the course of hearing of the appeal.”
4. The brief facts of the case are that the assessee filed his return of income for the year under consideration, i.e. for AY 2014-15 on 09/09/2014 declaring an income of Rs.3,03,775/-, Thereafter, the Assessing Officer (AO) received information from DDIT (Inv.)-2, Surat that the assessee had entered into transaction with entity, namely M/s.V.Nitin, a partnership-firm. During the course of investigation carried out by the Department, it was unearthed that M/s.V.Nitin was involved in rotation of funds and giving accommodation entries to beneficiaries without carrying out any genuine business affairs. Therefore, the AO was of the view that all the transaction affairs claimed to have entered by the beneficiaries with M/s.V.Nitin were nothing, but accommodation entries done with the sole intention to plough back the unaccounted money in the books, evading tax liability thereupon. The AO noted that the assessee was one of beneficiaries, who had done transaction of Rs.1,38,34,920/- with M/s.V.Nitin. The AO was of the opinion that the to 1116/Ahd/2025 (By Revenue) & CO Nos. 49 to 51/Ahd/2025 (By Assessee) ITO vs. Janakbhai Dharamshibhai Patel Asst. Years : 2014-15 to 2016-17 transactions so shown by the assessee with the aforesaid entity were nothing but assessee’s own money, which had been routed through M/s.V.Nitin in the books evading tax liability thereupon. On the basis of above information coupled with the opinion of the AO, the AO formed the belief that the income of the assessee for the year under consideration had escaped assessment. He, accordingly, reopened the assessment of the assessee u/s.147/148 of the Act. During the course of assessment proceedings, the assessee explained that the assessee was engaged in the business of cutting and polishing of rough diamonds on job-work basis. That, during the year under consideration, the assessee had carried out cutting and polishing of rough diamonds on job- work basis for and on behalf of Kiran Gems Pvt.Ltd., Surat worth Rs.53,66,064/- and for M/s.V.Nitin worth Rs.84,68,856/- aggregating to Rs.1,38,34,920/-. It was explained that all these payments were received in lieu of labour charges which was duly supported by quantity of job-work done, invoices and through banking channel after deduction of tax and accompanied by balance confirmation and contra account of the party. That all the supporting documents were also furnished to the AO. It was also explained that the said amount was duly reflected in income-tax return as well as Form 26AS of the said year. The assessee also raised objection regarding the validity of the reopening of the assessment stating that the reopening was done without verifying and co-relating the information with the accounts and assessment records of the assessee available with the Department. The AO, however, did not agree with the submissions of the assessee and observed that as per the report of the Investigation Wing, M/s.V.Nitin was engaged in providing accommodation entries, therefore, the transactions done by the assessee were bogus for the purpose of routing the unaccounted income of the assessee through M/s.V.Nitin. He, therefore, to 1116/Ahd/2025 (By Revenue) & CO Nos. 49 to 51/Ahd/2025 (By Assessee) ITO vs. Janakbhai Dharamshibhai Patel Asst. Years : 2014-15 to 2016-17 held that the assessee has failed to prove the genuineness of the transaction with M/s.V.Nitin amounting to Rs.84,68,856/-. He, accordingly, made the addition of the said amount into the income of the assessee.
Being aggrieved by the said order of the AO, the assessee preferred the appeal before the Ld. CIT(A). The Ld. CIT(A), after considering the submissions of the assessee, allowed the appeal of the assessee on merits, by observing as under:
“The assessee has filed his appeal against this order of the Id. A.O. and in the statement of facts at Sl. 1 stated that the appellant was engaged in the business of cutting and polishing of rough diamonds on job work basis for and on behalf of Kiran Gems Pvt. Ltd., Surat, worth Rs. 53,66,064/- and for M/s V. Nitin, Surat, worth Rs. 84,68,856/- aggregating to Rs. 1,38,34,920/- during the year under assessment. All the substantial grounds taken by the appellant revolves round this addition made by the Ld. AO, by relying upon the information received, by not verifying business activity of the assesse the dealings and transactions with local parties, by not looking at the contents and accompanied documents while considering Nature of Invoice, by not considering payment of wages and salaries to workers on monthly basis in spite of submission made, by not considering mode of transportation of rough/polished diamonds through Angadaia, and has erred by making the addition u/s 68 of the Act.
During appellate proceeding the appellant made voluminous submission including paper books and assessment orders of V. Nitin and several other persons whose cases were also reopened on similar grounds. In its elaborate written submission the nature of business was discussed in detail referring to various pages of the paper books: Form 26AS, Processing Agreement made with M/s. V. Nitin, Tax Audit Report, computation of Income were uploaded. In response to further queries made, the appellant submitted more details in order to explain the same. It was stated by the appellant that "M/s V. Nitin were also subject to reassessment proceedings under section 148 of the Act including A.Y 2014-15 consequent to enquiry reports and findings of Directorate of Income-Tax (Investigation) and directorate of Intelligence & criminal investigation. No addition corresponding to payment made to Appellant was made in reassessment order of M/s. V. Nitin” which was found to be correct. The copy of the assessment order of M/SV. Nitin furnished by the appellant shows no addition made on account of disallowance of the job work charges pertaining to the appellant. It was also stated that reassessment proceeding were taken up in case of other labour contractors of M/s. V. Nitin for similar reasons but the returned income was accepted while in case of addition made on account of job to 1116/Ahd/2025 (By Revenue) & CO Nos. 49 to 51/Ahd/2025 (By Assessee) ITO vs. Janakbhai Dharamshibhai Patel Asst. Years : 2014-15 to 2016-17 work receipts from M/s.V. Nitin for the A.Y. 2016-17 by the Assessing Officer, the National Faceless Appeal Centre has deleted such addition eg in the case of Mr Plyushbhai Bhailalbhai Hirpara (DIN ITBA/NFAC/250/2022-23/1049467749(1).
I have gone through the facts as above, the submission made by the appellant regarding its nature of business and its accompanied details of wages, electricity charges, challans and vouchers with respect to diamond polishing from rough diamond as well as the numerous orders u/s 143(3), 147 r.w.s. 143(3),148A(d) etc. uploaded by the appellant in support of the grounds taken where returned income had been accepted and several judicial decisions referred and respectfully considered. It is also seen that the National Faceless Appeal Centre has also deleted such addition made in a similar case. Based on the findings with respect to the assessee's case and relying upon the facts as above the addition made by the Ld. AO is directed to be deleted and the grounds taken by the appellant are hereby allowed.”
Being aggrieved by the said order of the Ld. CIT(A), the Revenue has come in appeal agitating the action of the Ld. CIT(A) in deleting the impugned addition on merits, whereas, the assessee has filed the Cross Objection on the ground that the reopening of the assessment u/s.147/148 of the Act, in itself, was bad in law.
We have heard the rival submissions and gone through the record. So far as the legal ground taken by the assessee regarding the validity of the reopening of the assessment is concerned, it is to be noted that the only information received by the AO was that as per the report of Investigation Wing, M/s.V.Nitin was engaged in providing accommodation entries and that the assessee had also made transaction of Rs.1,38,34,920/- with M/s.V. Nitin. Simply based on this information, the AO formed belief of escapement of income of the assessee without co-relating the said information with the accounts of the assessee. The assessee explained that the assessee had made transaction of Rs.84,68,856/- with M/s.V. Nitin and that the said amount was received on account of job-work charges of cutting and polishing of rough diamonds got done by M/s.V. Nitin through assessee. The assessee after to 1116/Ahd/2025 (By Revenue) & CO Nos. 49 to 51/Ahd/2025 (By Assessee) ITO vs. Janakbhai Dharamshibhai Patel Asst. Years : 2014-15 to 2016-17 receipt of the said amount had further disbursed the same to the workers. The assessee also furnished the various details showing that the said amount was on account of job-work charges which was duly reflected in the accounts of the assessee and tax was duly deducted at source by the payer which was duly reflected in Form 26AS. The AO without verifying the above aspects, proceeded to reopen the assessment merely on the basis of borrowed satisfaction of the Investigation Wing and did not make any effort to verify the said information from the accounts of the assessee. The another fact on the file is that the assessment of M/s.V.Nitin for the year under consideration was also reopened u/s.147/148 of the Act on the similar ground that the said M/s.V.Nitin was engaged in providing accommodation entries as there were high value transactions in the accounts of M/s.V.Nitin and amount were paid to various beneficiaries. However, after detailed investigation, the AO in the case of M/s. V.Nitin accepted the explanation given by the M/s. V.Nitin on this account and no addition corresponding to payments made to the assessee was made in the re-assessment order in the case of M/s.V. Nitin. No addition has been made on account of job-work charges paid by M/s. V.Nitin and even no addition has been made in the case of other recipients in relation to job-work charges received from M/s.V. Nitin as in the case of Shri Piyushbhai Bhailalbhai Hirpara [DIN ITBA/NFAC/250/2022-23/1049467749(1)] for AY 2016-17. Since no addition has been made in the case of the payer M/s.V.Nitin of the alleged amount paid to the assessee and such payments made by M/s. V.Nitin to the assessee have been accepted as genuine expenditure in the case of M/s. V.Nitin, therefore, under the circumstances, neither the reopening of the assessment was valid, in this case, as the AO has simply acted on borrowed satisfaction of the Investigation Wing nor the addition on merits is sustainable as the payments made by M/s.V. Nitin to to 1116/Ahd/2025 (By Revenue) & CO Nos. 49 to 51/Ahd/2025 (By Assessee) ITO vs. Janakbhai Dharamshibhai Patel Asst. Years : 2014-15 to 2016-17 the assessee have been accepted as genuine and no addition has been made in the case of M/s. V.Nitin on this account. Even the Co-ordinate Bench of the Tribunal vide common order dated 20/05/2025 in the case of Jigneshkumar Jivrajbhai Patel & Others in for AY 2013-14 & Ors. has held the reopening of the assessment on identical grounds relating to the transaction with M/s.V. Nitin as bad in law. Accordingly, the appeal of the Revenue, having no merits, is hereby dismissed, whereas, the Cross Objection of the assessee stands allowed.
& 1116/Ahd/2025 and Assessee’s Cross Objections 50 & 51/Ahd/2025.
Since the facts and issues involved in all the captioned appeals are identical, hence, our finding given above will mutatis mutandis apply to all captioned appeals and Cross Objections. Accordingly, all the captioned appeals of the Revenue are dismissed, whereas, all the captioned Cross Objections of the assessee stand allowed.
In the result, all the appeals of the Revenue are hereby dismissed, whereas all the Cross Objections of the Assessee are hereby allowed. Order pronounced in the Open Court on 30/12/2025.