Reassessment Based on Third-Party Data Without a Live Nexus is an Invalid Fishing Inquiry.
Issue
Can an Assessing Officer (AO) validly initiate reassessment proceedings against taxpayers (petitioners) on the suspicion that they paid “on-money” (cash) for property purchases, based solely on (1) loose papers seized from a third party (‘D’) relating to a different, later transaction, and (2) a DVO report?
Facts
- The petitioners had purchased bungalows in a housing scheme.
- A search was conducted on a third party, ‘D’, where loose papers were seized. These papers detailed cash payments (‘on-money’) made by ‘D’ for his bungalow (Bungalow No. 6) in the year 2021-22.
- Based only on this seized material, the AO issued reopening notices to the petitioners.
- The AO’s “reason to believe” was an assumption: if ‘D’ paid on-money in 2021-22, the petitioners must have also paid on-money for their bungalows, even though their transactions were “much earlier” than ‘D’s.
- The AO had no other material, apart from ‘D’s papers and a Departmental Valuation Officer (DVO) report, to suggest the petitioners had paid on-money.
- The AO failed to establish any “live nexus” between the petitioners’ prior transactions and the material found in the 2021 search.
Decision
- The High Court quashed and set aside the impugned reassessment notices.
- It held that the AO could not assume jurisdiction based on such third-party information, as there was no live nexus between the material (from 2021-22) and the petitioners’ much older sale deeds.
- The court ruled that a DVO report is merely an “opinion” and cannot, by itself, be the basis for assuming jurisdiction to reopen a case. A DVO report must be supported by independent, corroborative evidence.
- The notices were held to be issued only for the purpose of making a “fishing inquiry” and were therefore without authority of law.
Key Takeaways
- No Reopening Based on Generalization: An AO cannot reopen assessments against a group of taxpayers based on a generalized assumption derived from a single, unrelated third-party’s transaction.
- “Reason to Believe” Needs a Live Nexus: The “information” used to reopen an assessment must have a direct, tangible, and live connection to the assessee and the specific assessment year in question.
- A DVO Report is Not “Information”: A DVO report is only an expert opinion. It is not, by itself, “information” that can form the sole basis for a “reason to believe” that income has escaped assessment. It requires corroboration.
- Fishing Inquiries are Impermissible: The reassessment power cannot be used to conduct a roving or “fishing inquiry” to find evidence. The AO must possess credible information before issuing the notice.
HIGH COURT OF GUJARAT
Dhirajlal Laljibhai Patel
v.
Assistant Commissioner of Income-tax*
BHARGAV D. KARIA and Pranav Trivedi, JJ.
R/SPECIAL CIVIL APPLICATION Nos. 20401 of 2023 and 210 of 2024 and others
SEPTEMBER 16, 2025
Tej Shah for the Petitioner. Varun K.Patel for the Respondent.
JUDGMENT
Bhargav D. Karia, J.- Heard learned advocate Mr. Tej Shah and learned advocate Mr. S.N. Devatia for the petitioners and learned Senior Standing Counsel Mr. Varun Patel for the respondent.
2. Having regard to the controversy arising in this group of petitions in a very narrow compass, with the consent of the learned advocates, same are taken up for hearing.
3. Rule returnable forthwith. Learned Senior Standing Counsel Mr. Varun Patel waives service of notice of rule.
4. All these group of petitions are arising from the similar facts and, therefore, raising the similar issue of challenging notice issued under Section 148 of the Income Tax Act, 1961 (for short ‘the Act’) and are, therefore, heard and disposed of analogously.
5. Brief facts giving rise to these petitions can be summarised as under:
5.1 The petitioners purchased plots of Bungalows in Scheme Vrundavan-9.
5.2 A search action under Section 132 of the Act was carried out in case of MHS Group on 16.11.2021. During the course of search proceedings at residential premises of Dr. Dilip Ambalal Modi at Bungalow No.1/A and 1/B, Nutan Sarvoday Co-op. Housing Society Ltd., Kochrab, Ellisbridge, Ahmedabad, loose papers were found and seized and on perusal of such loose papers, it was found that it contained handwritten details of financial transactions of property situated at Paldi and Vrundavan-9 along with bifurcation of cheque and cash payments.
5.3 The respondent Assessing Officer, considering such seized documents, and loose papers in page No.33 in his satisfaction note observed as under, [In SCA No. 20417 of 2023-pg-27)]:
“2.3 A careful perusal of the loose paper in page no. 33, it is very clear that the assessee has purchased property being Bungalow No. 6 in the Scheme Vrundavan-9 viz. land admeasuring 1207 @92,500/-, thus, the cost of land worked out to Rs. 11,16,47,500/-and construction admeasuring 880 Sq. Yd. @ 31,500/-, the construction cost works out to Rs.2,77,20,000/-. The total value of bungalow, therefore, worked out to Rs. 13,93,67,500/-. The middle part of the page no. 33 shows bifurcation of Rs. 13,96,67,500/- with the details of cash component of Rs.9,92,70,500/- adding thereto further amount of Rs. 26,54,850/-, the total cash component works out to Rs 10,19,25,350/-after reducing Rs.9,93,35,000/-, shown Rs.25,90,350/- as “Pending” and cheque component of Rs.4,00,97,000/- with stamp duty, GST and other expenses. In the said loos paper, the total cash payment of Rs. 10,19,25,350/- shows against the purchase of bunglow in Vrundavan-9. During the course of recording the statement, as reproduced above, the assessee viz. Dr. Dilip Modi clearly admitted that he has paid cash of Rs. 10,13,35,000/-out of cash payment of Rs. 10,19,25,350/- to the builder on purchase of bungalow in Vrundavan-9.”
5.4 The Assessing Officer, thereafter, on the basis of the above information in case of Dr. Dilip Modi and after referring to his statement, as well as the mobile images found out from his phone, observed as under:
“2.9 From the statement, it is very clear that Shri Kalpeshbhai N. Aahir admitted that the amount shown in the diary found and seized from the residence of Dr. Dilip Modi is written by Shri Kalpeshbhai N. Aahir. However, Kalpeshbhai N. Aahir’s dispute is only that the amount shown in the diary is in actual and not in coded figure as deposed by Dr. Dilip Modi. He further stated that the amount shown in the diary is received for the renovation work. However, Kalpeshihai N. Aahir failed to furnish any evidences to prove what renovation work was done in the newly constructed/being constructed bungalow. Needless to say that for a newly constructed bungalow may not be needed any renovation work.”
“2.14 The statement given by Mustufamiya Mustu H. Shaikh is exactly match with Page No. 44 of Annexure-AS/1 in respect of cash payment of Rs.5,00,00,000/- & Rs.3,34,35,000/- on 04/08/2021 & 29/08/2021 respectively. Considering the above, it can be concluded that Kalpeshbhai N. Aahir is received an amount of Rs. 10,19,25,350/- in cash on sale of bungalow no. 6 in Vrundanvan-9 over and above the document price of Rs.4,00,97,000/. Dr. Dilip Modi also stated that this cash amount of Rs.8,34,35,000/- and adding thereto further cash amount of Rs. 1,84,90,350/- and made cash investment of Rs. 10,19,25,000/- in purchase of new property being Bungalow No. 6 in Vrundavan-9. On inquiry it revealed that the project of Vrundavan-9 consists of 21 bunglows having different plot area, however, the constructed area is the same. As the detailed discussion made in the case of Dr. Dilip Modi in this appraisal report in Para No. 7.6.1.1, it has been seen that the builder Shri Kalpesh Ahir has hugely Rs.92,500/- per Sq. Yd. and construction cost of Rs 31,500/- as has been arrived at in the case of Dr. Dilip Modi. Accordingly, a list is prepared applying the least rate of land at Rs.92,500/- per Sq. Yd. thereby unaccounted on money receipt from the owners of the 17 bungalows sold in the Scheme Vrundavan-9 comes to Rs. 163,81,61,523/-
5.5 Thereafter, the Assessing Officer reproduced the details of the 17 owners of the Bungalows in Vrundavan-9 Scheme considering the rate of land at Rs.92,500/- per Sq. Yd, in a Table, and thereafter finding out from the Office of Subregistrar that the average cost of the Bungalow in the said Scheme was shown as Rs.7300/- per Sq. Ft., calculated the amount of on-money, which assumed to have been paid by the each Bungalow owner. The respondent Assessing Officer thereafter issued impugned notices under Section 148 of the Act proposing to re-open assessment of income of the petitioners for respective Assessment Years. The requisite details of the notice under Section 148 of the Act for A.Y. 2019-20 to 2021-22 in each case are tabulated as under:
Details of Vrundavan 9
| Particular s | Dhirajlal Lajibhai Patel | Milankum ar Dhirajlal Patel | Brijesh Dhirajlal Patel | Haresh Masribhai Kataria | Kishor Bhanubha i Kataria | Bhanuben Hareshbh ai Kataria | Jayantibh ai Patel | Shravan Patel |
| SCA No. | 210 of 2024 | 259 of 2024 | 262 of 2024 | 20481 of 2023 | 20401 of 2023 | 20586 of 2023 | 20417 of 2023 | 20886 of 2023 |
| A.Y. of reopening | 2019-20 | 2019-20 | 2019-20 | 2019-20 | 2020-21 | 2019-20 | 2021-22 | 2021-22 |
| Date of Satisfacti on on Note | 10-02-2023 | 10-02-2023 | 10-02-2023 | 10-02-2023 | 10-02-2023 | 10-02-2023 | 10-02-2023 | 10-022023 |
| Bungalow No. | 3 & 11 jointly owned with sons Brijesh & Milan | 3 jointly owned with father Dhirajlal | 11 jointly owned with father Dhirajlal | 5 jointly owned with wife Bhanuben | 16 jointly owned with wife | 5 jointly owned with husband Haresh | 9 jointly owned with son | 9 jointly owned with father |
| Date of notice issued u/s. 148 of the Act | 10.3.2023 | 10.3.2023 | 10.3.2023 | 10.3.2023 | 10.3.2023 | 10.3.2023 | 20.3.2023 | 20.3.2023 |
| Sale deed date | 25-10-18 | 30-03-19 | 25-10-18 | 18-01-19 | 01-10-19 | 18-01-19 | Purchase deed executed on 31.3.2021 (Page-58-60 of petition) | Purchase deed executed on 31.3.2021 (Page-55-58 of petition) |
| Booking amount paid | 3,21,12,5 00 | 1,52,50,0 00 | 1,68,62,5 00 | 2,60,15,0 00 | 2,59,45,0 00 | 2,60,15,0 00 | Rs. 6,00,000 by cheque on 06.09.201 6; Rs. 45,00,000 paid by cheque on 06.09.201 6 | Rs. 25 lakhs by cheque on 08.03.201 7 |
| Details from public domain | Pg. 30 | Pg. 31 | Pg. 30 | Pg. 32 | Pg. 32 | Pg. 32 | Page-43-44 of petition | Page 40-41 of petition |
| Proposed escapeme nt | 8,65,75,0 00 | 8,65,75,0 00 | 8,65,75,0 00 | 11,06,70, 000 | 9,11,30,0 00 | 11,06,70, 000 | Rs. 9,65,33,0 00 (Page 44) | Rs. 9,65,33,0 00 (Page 41) |
5.6 Thereafter, copy of reasons recorded/ satisfaction note was issued to the petitioners. Each of the petitioner raised objection before the Assessing Officer contending inter alia that the respondent Assessing Officer could not have assumed the jurisdiction by assuming that the petitioner had also paid on-money as it was found to have been paid by Dr. Dilip Modi from the seized material. Each of the petitioners submitted the details of the amount paid for purchase of the Bungalow at Vrundavan-9 along with the sale-deed executed by M/s. Vrundavan Buildcon in favour of the petitioners.
5.7 The respondent Assessing Officer passed impugned orders rejecting objections raised by the petitioners. The petitioners have thereafter preferred this petition.
6. Learned advocates for the petitioners submitted that respondent Assessing Officer could not have assumed the jurisdiction to reopen the assessment on the basis of the loose papers found during the course of search at the premises of Dr. Dilip Modi, as the details mentioned in the Satisfaction Note/ reasons recorded, refers only to the transactions carried out by Dr. Dilip Modi and there is no reference to any of the transactions carried out by the petitioners. It was submitted that the respondent Assessing Officer has only assumed that the petitioners also would have paid the amount at the rate of Rs.92,500/- per Sq. Yd. on the basis of the computation made in case of Dr. Dilip Modi for purchase of Bungalow No.6 in Vrundavan-9. It was also submitted that search in case of MHS Group took place on 16.11.2021 whereas the petitioners have purchased the property in Vrundavan-9 Scheme prior thereto. It was submitted that on the basis of the details given in Satisfaction Note, the transaction of purchase made by Dr. Dilip Modi for the purchase of Bungalow No.6 in Vrundavan-9 was in the year 2021-22, as per the details mentioned in Para-2.7 which is just prior to the search. It was further submitted that therefore the data revealed in the seized documents of Dr. Dilip Modi could not have been considered as an information to compute the escaped income by presuming that the petitioners would have also paid the amount over and above the saleconsideration mentioned in the sale-deed. It was further submitted that from the public domain, it was verified by the respondent Assessing Officer that the average cost of Bungalow of Vrundavan-9 developed by M/s. Vrundavan Buildcon is Rs.7300/-per Sq. Ft. by referring to the relevant images of the Vrundavan-9 project captured from website. It was submitted that on the basis of such information, it could not have been presumed that the petitioners have also paid on-money to the builder so as to reopen the assessment as the entire basis of reopening is without there being any material on record for having live nexus with the information to reopen the assessment in case of the petitioners.
7. It was submitted that the petitioners have placed on record all the details pertaining to the transactions before the Assessing Officer, however, the objections raised by the petitioners have not been disposed of, more particularly in SCA No. 20417 of 2023 and SCA No. 20886 of 2023. In other cases, the objections were disposed of by the Assessing Officer on the ground that incriminating material gathered during the course of search and seizure operation, opinion has been formed on the basis of the facts to compute that on-money was paid by the petitioners, as the property has been purchased by the petitioner, is at much lower rate computed on the basis of the seized material and the Assessing Officer, shall be deemed to have information which suggest that the income chargeable to tax has escaped assessment, which is sufficient to reopen the assessment. It was contended in the objection while disposing objections that computation of alleged on-money payment by the petitioners is based on the information available from the seized documents from the premises of Dr. Dilip Modi pertaining to the purchase of the Bungalow No.6 and, therefore, it was rightly considered by the Assessing Officer that similarly the petitioners would have made the on-money payment for purchase of the Bungalow in Vrundavan-9 Scheme.
8. Learned advocates for the petitioners, therefore, submitted that disposal of such objections are only on the basis of conjectures and surmises without there being any material on record to show that the petitioner had paid on-money for purchase of the property in Vrundavan-9 Scheme.
9. It was further submitted that merely on the basis of the suspicion and in absence of any corroborative material, the respondent Assessing Officer could not have assumed the jurisdiction to reopen the assessment for the year under consideration.
10. On the other hand, learned Senior Standing Counsel Mr. Varun Patel appearing for the respondent submitted that there is a clear evidence of the on-money paid by Dr. Dilip Modi for purchase of the Bungalow No.6 at Vrundavan-9 at the rate of Rs.92,500/- per Sq. Yd as well as construction rate i.e. Rs.31,500/- per sq.yd for the construction of Bungalow are clearly mentioned in the seized material and, therefore, the respondent Assessment Officer was justified to compute the on-money paid by petitioner on applying the same rate which was found from the loose paper during the course of search.
11. It was submitted that one Kalpeshbhai Ahir admitted that the amount shown in the Diary found and seized from the residence of Dr. Dilip Modi is written by him which contained the amount of payment of on-money by Dr. Dilip Modi for the purchase of Bungalow No.6 in Vrundavan-9. Reference was also made to the District Valuation Officer (DVO) under Section 142A of the Act, who has submitted the estimate of the fair market value of the property of the bungalow at Vrundavan-9 Scheme, which is higher than the registered sale consideration paid by the petitioner and, therefore, it is clear that the petitioner has paid on-money in respect of purchasing of the Bungalow No.9 in said Scheme resulting into escapement of the income.
12. It was further submitted that during the course of search proceedings under Section 132 of the Act carried out at the residential premises of Dr. Dilip Modi, incriminating documents containing 48 pages were found at Annexure AS1, which clearly mentions the rate of land at Rs.92,500/- per Sq. Yd and construction rate at Rs.31500/- per Sq. Yd and, therefore, the Assessing Officer has rightly computed the amount of on-money ought to have been paid by the petitioners for purchase of the Bungalow. It was, therefore, submitted that the petitioners have enough opportunity to demonstrate before the Assessing Officer during the reassessment proceedings and it cannot be said that the impugned notices are without jurisdiction.
13. Having considered the rival submissions made by the learned advocates for the respective parties, it is apparent that respondent Assessing Officer has issued the impugned notice on the basis of the Satisfaction Note on the basis of search carried out at the premises of Dr. Dilip Modi and the loose papers found during the course of search which contained the transactions of the purchase of Bungalow No.6 in Vrundavan-9, developed by M/s. Vrundavan Buildcon. It is also on the basis of such information, the impugned notices were issued which clearly shows that the Assessing Officer has no other material except the seized material which is found during the search of residential premises of Dr. Dilip Modi and on the basis of such information the Assessing Officer has arrived at a prima-facie conclusion that the petitioners would have also made the payment of on-money over and above the sale consideration reflected in sale-deed without taking into consideration that each transaction made by the petitioner was much earlier than that of the transactions of purchase of Bungalow No.6 made by Dr. Dilip Modi in the year 2021-22, just prior to the search carried out on 16.11.2021.
14. It is also pertinent to note that reliance placed on the information found from the public domain is also without any basis as the Assessing Officer could not have assumed the jurisdiction on the basis of such information which has no live nexus with the material available on record in form of sale-deed which was executed by the petitioners much prior to the date of search and the date of transactions of the purchase made by Dr. Dilip Modi. It also appears from the record that the respondent Assessing Officer has also referred to the valuation report of the DVO in some of the cases which could never have been the basis for assuming jurisdiction and its valuation report is only an opinion of the valuer and the same is required to be supported by corroborative evidence to prima-facie come to the conclusion that the petitioners must have paid the on-money for the purchase of the Bungalow.
15. Thus, from the facts of the case, it is apparent that the respondent Assessing Officer has issued the impugned show-cause notices only for the purpose of making phishing inquiry without there being any supporting material having a live nexus with the material on record of purchase of Bungalow by these petitioners in Vrunavan-9 Scheme.
16. The impugned notices are, therefore, without jurisdiction and liable to be quashed and set-aside.
17. In view of the foregoing reasons, all the petitions succeed. The impugned notices issued in each of the relevant petition are hereby quashed and set-aside. Rule is made absolute to the aforesaid extent. No order as to costs.