ITO Vs Janakbhai Dharamshibhai Patel (ITAT Ahmedabad)
When Payer Is Clean, Payee Can’t Be Tainted: Section 68 Addition Knocked Down-Accommodation Entry Theory Collapses Without Verification: Reassessment Held Invalid
Ahmedabad ITAT dismissed Revenue appeals & allowed Assessee’s cross-objections in case of ITO Vs. Janakbhai Dharamshibhai Patel, holding that reopening u/s 147/148 based solely on Investigation Wing information alleging accommodation entries through M/s V. Nitin was invalid & additions u/s 68 were unsustainable. Assessee, engaged in diamond cutting & polishing job-work, had received labour charges duly supported by invoices, banking transactions, TDS reflected in Form 26AS & corresponding expenditure accepted in payer’s reassessment. Tribunal noted that AO acted on borrowed satisfaction without independent verification or correlation with Assessee’s records. Crucially, no corresponding disallowance was made in hands of M/s V. Nitin or similarly placed job-workers. Following coordinate bench rulings on identical facts, Tribunal upheld deletion of additions on merits & quashed reassessment itself. Revenue appeals for AYs 2014-15 to 2016-17 were dismissed & Assessee’s cross-objections allowed.
Borrowed Satisfaction Fails: Reopening Based Only on Investigation Report Invalid: ITAT Ahmedabad Quashes Reopening & Deletes ₹84.68 Lakh s.68 Addition
The Ahmedabad Bench “B” of the ITAT, vide common order dated 30.12.2025, in ITO v. Janakbhai Dharamshibhai Patel (ITA Nos. 1114 to 1116/Ahd/2025 for AYs 2014-15 to 2016-17) along with corresponding Cross Objections (CO Nos. 49 to 51/Ahd/2025), dismissed all Revenue appeals and allowed all assessee cross-objections, holding both the reopening u/s 147/148 and the additions u/s 68 to be unsustainable.
The assessee, engaged in cutting and polishing of rough diamonds on job-work basis, had received payments from M/s V. Nitin towards labour charges. Based solely on an Investigation Wing report alleging that M/s V. Nitin was providing accommodation entries, the AO reopened the assessments and treated ₹84.68 lakh (part of total receipts of ₹1.38 crore) as unexplained cash credit u/s 68, alleging routing of unaccounted money.
Before the CIT(A), the assessee produced extensive evidence including job-work agreements, invoices, wage payments, electricity expenses, Form 26AS, bank trail, confirmations and contra accounts, demonstrating that the receipts were genuine business income. The CIT(A) deleted the additions, noting a crucial fact that in the reassessment of M/s V. Nitin itself, no disallowance or adverse finding was made in respect of job-work payments to the assessee or similarly placed contractors.
The ITAT upheld the CIT(A)’s order and went a step further by allowing the assessee’s cross-objections on jurisdiction. The Tribunal held that the AO acted on borrowed satisfaction, without independently verifying the information with the assessee’s books and records. Once no addition was made in the hands of the payer (M/s V. Nitin) and the payments were accepted as genuine expenditure there, a corresponding addition in the hands of the job-worker could not survive. The Tribunal also relied on its earlier coordinate-bench decision in Jigneshkumar Jivrajbhai Patel & Ors. on identical facts relating to M/s V. Nitin, where such reopening was held to be bad in law.
Accordingly, the ITAT dismissed the Revenue’s appeals, allowed the assessee’s cross-objections, and held that both the reopening and the additions u/s 68 were invalid for all three assessment years.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
