ITAT Rajkot Deletes Rs. 26.02 Lakh Addition: Reopening Based on Borrowed Satisfaction, Natural Justice Violation and Documented Loan Repayment
1. Background and Factual Context
In Hemal Paresh Madeka Vs ACIT (ITA No. 955/RJT/2026), the Rajkot Bench of the Income Tax Appellate Tribunal, in its order dated 19/10/2026, deleted an addition of Rs. 26,02,186/- that had been made in the hands of the assessee for Assessment Year 2020-21. The Tribunal's ruling rested on three independent grounds — defective reopening premised on borrowed satisfaction, denial of cross-examination in breach of natural justice, and the merits of the underlying loan transactions supported by documentary evidence and subsequent repayment.
The assessee, Hemal Paresh Madeka, an individual, had filed his original return of income on 08.01.2021 for A.Y. 2020-21, relevant to Financial Year 2019-20, declaring total income of Rs. 62,19,410/-. The case came under the Department's radar following a search and seizure operation conducted under Section 132 of the Income Tax Act, 1961 on 09.08.2022, covering the Qutone Group of Companies along with various associated entities and persons. During this action, Shri Rajesh Janaklal Daftary and entities connected to him were observed to be allegedly engaged in providing accommodation entry transactions.
On examining tally files extracted from digital data backup and loose papers discovered during the search, the Assessing Officer concluded that the assessee had engaged in accommodation entry transactions with Rajesh Janaklal Daftary and his controlled entities, attributing transactions aggregating to Rs. 26,02,186/- to the assessee. This formed the stated basis for issuing a notice under Section 148 of the Act on 24.03.2024, after recording reasons and securing approval from the competent authority.
2. Nature of the Additions Made
In response to the Section 148 notice, the assessee filed a return on 15.04.2024 again declaring income of Rs. 62,19,410/-. The Assessing Officer issued notices under Section 142(1) of the Act during the reassessment proceedings. The assessee raised multiple objections — challenging the tangibility of material for reopening, alleging absence of independent application of mind, contending borrowed satisfaction, disputing the absence of Document Identification Numbers (DIN) on the satisfaction note and approval, and seeking cross-examination of the persons whose statements were being relied upon.
Notwithstanding these objections, the Assessing Officer proceeded to complete the assessment under Section 147 of the Act, making additions under Section 68 of the Act as follows:
- Loan transactions with Bhoomi P. Vachhani: Rs. 10,39,973/-
- Loan transactions with Rajesh J. Daftary: Rs. 15,62,213/-
- Total addition: Rs. 26,02,186/-
The assessee's appeal before the National Faceless Appeal Centre / Commissioner of Income-tax (Appeals) under Section 250 of the Act, decided on 27.05.2026, did not yield any relief, prompting the further appeal before the Tribunal. The assessment order itself had been passed on 23.03.2025 under Section 147 read with Section 144 of the Act.