Safiya Malik

The High Court of Gujarat Division Bench of Justice A.S. Supehia and Justice Pranav Trivedi has quashed a notice reopening an income tax assessment under Section 148, holding that reassessment based solely on a change of opinion and unsupported by concrete material is impermissible where the return was threadbare examined in the original scrutiny and accepted without any failure of disclosure. The dispute concerned a corporate assessee whose payments to a supplier, earlier verified and accepted, were later questioned using search material about alleged fund movements involving third parties. The Bench observed that, on the Assessing Officer’s own showing, he was uncertain whether any income had escaped assessment and intended to determine the quantum only after the proceedings, treating such remarks as vague and lacking specific basis.

The petitioner, a company engaged in trading textile fabrics, filed its return of income for AY 2017-18 and underwent scrutiny assessment under Sections 143(2) and 142(1) of the Income Tax Act. Multiple notices were issued calling for details of trade payables, purchases, contra ledgers, and other information, to which the petitioner furnished detailed replies. The assessment was completed under Section 143(3) on 30.10.2019, accepting the returned income.

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On 31.03.2024, the respondent issued a notice under Section 148 alleging information from a search under Section 132 in the case of another entity on 08.12.2021. The petitioner was again required to submit details, including the source of payment of Rs. 7 crores to Ruchita Chemicals LLP. The petitioner objected to reopening, asserting absence of any nexus with the searched entity and explaining that the payment related to purchases recorded in audited books. The Assessing Officer rejected the objections on 03.02.2025 while admitting that the quantum of escapement “if any” would be determined later.

The petitioner challenged the reopening, contending absence of escapement of income, lack of fresh material, and change of opinion. The respondent argued that the search revealed a financial modus operandi linking the petitioner indirectly through fund flow patterns.

The Court recorded that the original assessment involved detailed scrutiny where the Assessing Officer issued several notices, received replies, and “ultimately the assessment was framed under Section 143(3) …whereby the return of income…was accepted.” The Court stated that documentary evidence, including the ledger of Ruchita Chemicals LLP, contra ledger and sample bills, “establishes that the petitioner had clarified the transactions… and the purchases…for the year under consideration.”

The Court noted the petitioner’s objections to reopening, including its explanation that the Rs. 7 crore payment was for purchase of goods in normal business and “there is no connection between the petitioner and Invent Assets.” It recorded that “the respondents have miserably failed to point out any connection between the petitioner and Invent Assets,” and that the Assessing Officer questioned the payment “only on presumption, without there being any concrete material.”

The Court further recorded that the AO’s own communication showed uncertainty: “exact quantum of escapement, if any, will be finalized only upon completion of assessment proceedings.” The Court stated that “the AO himself is unsure about the actual escapement and has made it subject to the final outcome of the assessment proceedings.”

The Court referred to the precedent in Lambda Therapeutic Research Limited, noting that when an assessee has made full and true disclosure and the assessment was thoroughly examined, reopening is not permissible on a mere change of opinion. It recorded: “the reopening…is based on change of opinion and hence, the same is not justifiable as per the settled position of law.”

After reiterating the factual matrix, the Court stated: “the petitioner cannot be subjected to further reassessment in view of such vague observations recorded by the AO,” and concluded that reopening was “nothing but a change of opinion by the AO.”

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The Court recorded: “the impugned notice dated 31.03.2024 issued under Section 148 of the Income Tax Act, 1961 is hereby quashed and set aside.” It further stated: “The present writ petition succeeds. Rule is made absolute. No order as to costs.”

Advocates Representing The Parties

For the Petitioner: Ms. Vaibhavi K. Parikh, Advocate
For the Respondent: Aaditya D. Bhatt, Standing Senior Counsel

Case Title: Rao Tradelink Private Limited v. Income Tax Officer Ward 3(1)(2), Ahmedabad
Neutral Citation: 2025: GUJHC:68115-DB
Case Number: R/Special Civil Application No. 2650 of 2025
Bench: Justice A.S. Supehia, Justice Pranav Trivedi