Isabella Mariam

The Gujarat High Court Division Bench of Justice A.S. Supehia and Justice Pranav Trivedi quashed the income tax reassessment initiation against an assessee for AY 2019–20, setting aside the pre-notice proceedings and the consequential reopening notice. The case arose after the Assessing Officer, acting on bank-reported high-value debit and credit entries, began action on the basis that income had allegedly escaped assessment. The Court noted that the assessee had furnished details of the banking transactions and parties involved, with the dealings stated to have occurred through banking channels. It held that the officer went beyond the limited remit of Section 148A by pursuing a wider verification exercise amounting to a roving inquiry and therefore annulled the reopening action.

The writ petition arose from reassessment proceedings initiated against the petitioner for Assessment Year 2019–20. The petitioner had filed his return of income declaring total income of Rs.33,98,400/-. Subsequently, summons under Section 131(1) of the Income Tax Act, 1961 were issued and complied with. On 30.03.2025, the respondent issued a notice under Section 148A(1) stating that information had been received indicating debit and credit transactions aggregating Rs.37,40,31,604/- during the relevant financial year.

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The petitioner sought time and thereafter submitted a detailed reply along with objections, explaining that all transactions were routed through banking channels and related to borrowings and repayments. Despite this, the respondent passed an order under Section 148A on 19.06.2025 rejecting the objections and issued a consequential notice reopening assessment.

The petitioner challenged the notice, order, and consequential proceedings on the ground that the reassessment was initiated solely on the basis of bank-reported debit and credit entries, without any independent material suggesting escapement of income. The respondent contended that the information was received through risk management systems and required verification through reassessment proceedings.

The Court examined the statutory scheme governing reassessment proceedings and the factual foundation of the impugned action. It observed that “the facts, which are established from the pleadings and record are that the petitioner was issued the notice on 30.03.2025 under section 148(1) of the Act alleging that as per the information received from the SBI… debit of Rs.18,70,59,704/- was found and respectively, credit of Rs.18,69,71,900/- was also noticed.”

The Bench recorded that the petitioner had explained the nature of the transactions and clarified that “the transactions are done through banking channels and the same do not include any cash deposits.” It noted that detailed information including names of parties, PAN details, balances, receipts, payments, and interest was furnished.

The Court further stated that “the petitioner has borrowed the funds in the earlier year to meet his financial needs arising out of acquisition of additional shares… and as and when repayment had become due, he used to pay from his own funds.” It also recorded that interest paid was not claimed as a deduction.

Referring to precedent, the Court observed that “before issuance of notice under section 148A(1) of the Act, the jurisdiction of the AO is to verify the information made available… which suggests that the income chargeable to tax has escaped the assessment.” It stated that the statutory expression “information which suggests that income chargeable to tax has escaped assessment” must be applied in its literal sense.

The Bench concluded that “the genesis of issuance of the notice and the order lies only on the debit and credit entries, which have been supplied by the bank,” and that “no roving inquiry is permissible.”

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The Court held that “the AO has travelled beyond the provisions of section 148A(1) of the Act.” and that after receipt of bank information, “roving inquiry is sought to be made by calling upon the petitioner to give all the details of transacting parties, which were already available with them.”

“The writ petition succeeds.” It ordered that “the notice dated 30.03.2025, order dated 19.06.2025 passed by the respondent under section 148A of the Act along with the consequential notice dated 19.06.2025 reopening the assessment for the AY 2019-20 are hereby quashed and set aside.” Rule was made absolute, with no order as to costs.

Advocates Representing the Parties

For the Petitioner: Mr. B.S. Soparkar, Advocate

For the Respondent: Mr. Varun K. Patel, Standing Counsel

Case Title: Mukesh Manubhai Shah v. Assistant Commissioner of Income Tax Circle–1(1)(1), Ahmedabad
Neutral Citation: 2025: GUJHC:74067-DB
Case Number: Special Civil Application No. 11102 of 2025
Bench: Justice A.S. Supehia, Justice Pranav Trivedi