Reassessment Valid as Wealth Tax Disclosures Do Not Exempt Taxpayer From Proving Income Sources

By | July 25, 2026
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Reassessment Valid as Wealth Tax Disclosures Do Not Exempt Taxpayer From Proving Income Sources

Issue

  • Validity of Reassessment under Section 147 for Unexplained Investments: Whether a notice issued under Section 148 for unexplained investment in property (including a substantial cash component) is valid when the original return was processed only under Section 143(1), even if the transaction was disclosed in a wealth tax return.

  • Sufficiency of Disclosure via Wealth Tax Return: Whether disclosure of an asset in a wealth tax return satisfies the assessee’s onus to disclose material facts regarding the source of funds and nature of transaction in its income tax return.

  • Compliance with Section 151 Sanction Requirements: Whether the approval granted under Section 151 by the Principal CIT based on satisfaction with the AO’s recorded reasons constitutes sufficient compliance with statutory requirements.

Facts

  • Return and Investment Details: For AY 2012–13, the assessee-HUF filed its income tax return declaring an income of approximately Rs. 5.20 lakhs, which was processed under Section 143(1) without scrutiny assessment under Section 143(3). The assessee also filed a wealth tax return.

  • Property Acquisition: The assessee purchased an immovable property for about Rs. 2.22 crores, which included an unverified cash payment component of about Rs. 1.02 crores.

  • Reassessment Proceedings: Based on ITS (Income Tax System) information, the Assessing Officer (AO) noted the large property investment and cash component. Given the low returned income, the AO formed a belief that income chargeable to tax had escaped assessment due to unexplained cash sources and undisclosed investments under Section 69.

  • Sanction and Reopening: The AO recorded reasons for reopening, obtained prior approval under Section 151 from the Principal CIT, and issued a notice under Section 148.

  • Assessee’s Defense: The assessee challenged the reopening, contending that the transaction was already disclosed in its wealth tax return and therefore could not be treated as escaped income.

Decision

  • Applicability of Explanation 2 to Section 147 (In favor of Revenue): Held YES. Since the original return was merely processed under Section 143(1) without scrutiny, Explanation 2 to Section 147 applied, and reassessment could not be halted at the threshold simply because the asset was mentioned in a wealth tax return. [Paras 12 and 14]

  • Onus of Disclosure on Assessee (In favor of Revenue): Held YES. The AO is not deemed to have knowledge of facts disclosed in a separate wealth tax return. The burden lies squarely on the assessee to disclose all material facts—specifically the source of funds and the true nature of cash payments—in its income tax return. [Paras 12 and 14]

  • Jurisdictional Ingredients Fulfilled (In favor of Revenue): Held YES. The primary conditions under Section 147 were satisfied, and the reassessment proceedings could not be closed prematurely. [Paras 12 and 14]

  • Valid Sanction under Section 151 (In favor of Revenue): Held YES. The Principal CIT recorded due satisfaction on the reasons provided by the AO, constituting proper and sufficient compliance with Section 151. [Paras 12 and 14]

Key Takeaways

  • Wealth Tax Filings Do Not Preempt Income Tax Scrutiny: Disclosure of an asset in wealth tax returns does not substitute full disclosure of the underlying income source and cash flow in the income tax return.

  • Processing under Section 143(1) Allows Broader Reopening: Where no prior assessment order exists under Section 143(3), the AO has wider latitude under Explanation 2 to Section 147 to reopen cases based on tangible information indicating escaped income.

  • Onus on Assessee for Unexplained Cash: Low declared income coupled with substantial cash payments toward immovable property purchases forms a valid “reason to believe” that income has escaped assessment under Section 69.

HIGH COURT OF GUJARAT
Virendra Naginbhai Patel (HUF)
v.
Income-tax Officer
A.S. Supehia and Ms. VAIBHAVI D. NANAVATI, JJ.
R/SPECIAL CIVIL APPLICATION NO. 20401 of 2019
JUNE  30, 2026
Darshan R Patel for the Petitioner. Chirag Virani and Rutvij R. Patel for the Respondent.
ORDER
A.S. Supehia, J. – Pursuant to the order dated 24.06.2026, learned advocate Mr. Chirag Virani on behalf of learned Senior Standing Counsel Mr. Rutvij Patel appearing for the respondent has tendered the Form for recording of reasons for initiation of proceedings under section 147 of the Income tax Act, 1961 (hereinafter referred to as “the Act”) signed by the Principal CIT Vadodara (1). The same is ordered to be taken on record.
2. The present writ petition is filed by the petitioner seeking an order to quash and set aide the impugned notice dated 29.03.2019 under Section 148 of the Act along with the preliminary order dated 09.11.2019.
3. As recorded in the order dated 24.06.2026, on the earlier occasion the matter was fully argued and it was kept for taking further instructions, whether the petitioner would like to withdraw the writ petition or not. Today, learned advocate Mr.Darshan Patel upon instructions has submitted that the petitioner would like to invite a reasoned order.
FACTS OF THE CASE
4. The petitioner is an HUF being regularly assessed to tax by the Income Tax Department at Vadodara. The petitioner filed the wealth tax return for the Assessment Year (AY) 2012-13, along with computation statement. The petitioner received a notice under Section 148 of the Act on 29.03.2019. The respondent issued a letter dated 07.05.2019 providing the reasons recorded for reopening of Assessment under Section 147 of the Act. The petitioner filed his objections to the reasons recorded for reopening the assessment for A.Y. 2012-13 on 09.05.2019. On 27.05.2019, the petitioner filed a letter addressed to the respondent requesting him to dispose of the objections. The respondent rejected the objections raised by the petitioner vide letter dated 09.11.2019. Hence, the present writ petition has been filed.
SUBMISSIONS OF THE PETITIONER
5. Learned advocate for the petitioner Mr. Darshan Patel has submitted that the respondent authority merely wants to carry out the exercise of verification by resorting to provision of Section 147/148 of the Act. It is submitted that the petitioner has fully and truly disclosed all material facts while filing the return of income under the Act as well as the Wealth Tax Act, 1957. However, the respondent-authority has contended that the petitioner failed to point out any particulars in his return of income for the A.Y 2012-13 in respect of investments in purchase of the land at Vadodara. It is submitted that the rules for filing of income tax return do not provide for disclosure of investment i.e. purchase made, in the return of income. It is contended that the petitioner has not violated any rules while filing the income tax return for A.Y 2012-13.
5.1 It is submitted that the petitioner filed the income tax return under Form ITR-3, wherein there is no column or place to disclose the investments made by the petitioner for the relevant AY. It is submitted that petitioner had duly disclosed the transaction i.e. purchase of the land at Vadodara in the Wealth Tax return filed by the petitioner for the AY 2012-13. It is submitted that that the department was well aware about the purchase of the said land by the petitioner, on perusal of the Wealth Tax return which was available with the department. The petitioner respectfully submits that there was no statutory requirement to disclose the same in Form ITR-3, therefore, the exercise of reopening the assessment by the respondent authority is illegal due to absence of reasoned sanction under Section 151 of the Act, which is mandatory in nature.
5.2 Reliance is placed in the decision rendered by this Court in the cases of India Gelatine and Chemicals Ltd. v. Asstt. CIT [2014]  364 ITR 655 (Gujarat), and Pr. CIT v. Manzil Dineshkumar Shah 406 ITR 326 (Gujarat).
SUBMISSIONS OF THE RESPONDENT
6. Learned Senior Standing Counsel appearing for the respondent department has submitted that the present petition filed under Article 226 of the Constitution of India, challenging the notice dated 29.03.2019 issued under Section 148 of the Act, as well as the order dated 09.11.2019 disposing of the objections raised by the petitioner against the reopening, does not deserve to be entertained. It is submitted that the petitioner has failed to demonstrate any violation of a legal or statutory right capable of being enforced in exercise of the extraordinary jurisdiction of this Court under Article 226 of the Constitution of India.
6.1 It is submitted that on the basis of the information available in the Individual Transaction Statement (ITS) on the ITD system, the Assessing Officer noticed that the petitioner had made an investment of Rs.2,22,07,564/-, plus stamp duty, registration charges and other incidental expenses, towards the purchase of an immovable property. It is submitted that out of the aforesaid amount, a sum of Rs.1,02,07,564/- was paid in cash. It is submitted that neither the investment in the said property nor the source of the substantial cash payment was disclosed by the petitioner in the return of income for AY 201213.
6.2 On the basis of the aforesaid information, the Assessing Officer formed a belief that income chargeable to tax had escaped assessment on account of the undisclosed investment in the immovable property. Accordingly, after recording detailed reasons, the Assessing Officer issued the notice dated 29.03.2019 under Section 148 of the Act. It is further submitted that, upon receipt of the notice, the petitioner filed objections to the reopening, which came to be disposed of by a detailed and reasoned order dated 09.11.2019.
6.3 It is further submitted that the return of income filed by the petitioner for the relevant assessment year was not subjected to scrutiny and had merely been processed under Section 143(1) of the Act. It is submitted that, upon comparing the investment made by the petitioner with the income disclosed in the return, the Assessing Officer found that the petitioner had disclosed income viz. Rs.5,30,090/-, whereas the investment in the property purchased amounting to Rs.2,22,07,564/-, along with stamp duty, registration charges and copying charges was believed to have escaped assessment for A.Y 2012-13. Therefore, the Assessing Officer has rightly formed the belief that income chargeable to tax had escaped assessment.
6.4 It is further submitted that disclosure of purchase transaction in wealth tax return by the petitioner does not amount to disclosure of transaction/income for the purpose of assessment under the income tax. Hence, the reassessment proceedings have been initiated not merely on account of the investment in the immovable property but also on account of the petitioner’s failure to explain the source of the cash payment exceeding Rs.1.02 crores made towards purchase of the said land.
6.5 It is further submitted that at the stage of issuance of Notice under Section 148 of the Act, the Assessing Officer is only required to form a prima facie belief that income chargeable to tax has escaped assessment pursuant to the impugned notice and they are premature at this stage. Further, the Assessing Officer is not expected to arrive at a final conclusion on the merits of the case. In support of the aforesaid submission, reliance has been placed on the judgment of the Supreme Court in the case of Asstt. CIT v. Rajesh Jhaveri Stock Brokers (P) Ltd. 291 ITR 500 (SC) .
6.6 It is further submitted that looking at the return filed by the assessee with respect to AY 2012-13 and earlier years, it was found that the investment made in property is far away from the income disclosed. In the present case, the assessee had paid Rs.1,02,07,564/- in cash for purchase of the property in dispute. Therefore, the reassessment proceedings to verify the genuineness and source of the investment are necessary. Therefore, the impugned notice cannot be said to be arbitrary, illegal or without jurisdiction.
7. Reliance is also placed on the decision of this Court in the case of Hemjay Construction Co(P.)Ltd. v. ITO [2019]  419 ITR 39 (Gujarat).
8. It is further asserted that since the Notice under Section 148 of the Act was issued after four years from the end of the relevant assessment year, the requisite sanction under Section 151 of the Act was duly obtained from the Principal Commissioner of Income Tax, Vadodara-I, vide communication dated 27.03.2019, after due satisfaction was recorded on the reasons made by the Assessing Officer. It is, therefore, submitted that Explanation 2(b) to Section 147 of the Act, squarely applies to the facts of the present case, as the Assessment Year under consideration is deemed to be an undisclosed income in other words, an income chargeable to tax had escaped assessment on account of an unrecorded investment in the purchase of an immovable property.
ANALYSIS AND OPINION
9. We have heard learned advocates appearing for the respective parties at length.
10. The facts of the case are not in dispute and are established on record is that the petitioner filed his return for income for AY 2012-13. The petitioner is karta of the HUF who filed wealth tax return for the same assessment year along with computational statement. Thereafter the petitioner has received notice under Section 148 of the Act on 29.03.2019. A letter dated 07.05.2019 providing the reasons for reassessment under section 147 of the Act was also supplied. The petitioner filed objections to the reasons recorded for reassessment for AY 2012-13 on 09.05.2019. Ultimately, by the order dated 09.11.2019, the objections raised by the petitioner has been rejected, hence, the present writ petition has been filed.
10.1 It is the case of the petitioner, that the petitioner has truly and fully disclosed all material facts while filing the return of income under the Act as well as in the wealth tax and at no point of time his return of income for AY 2012-13 was doubted. It is also contended that since there was no provision to disclose the transaction in ITR-3, it is disclosed in the Wealth Tax and hence, it cannot be said that there has been escapement of income. At this stage we may mention that the return of income filed by the petitioner was not taken under scrutiny, no assessment order under section 143(3) of the Act was passed but the same was only processed under section 143(1) of the Act.
10.2 The Assessing Officer while examining the return and the purchase value of the property in dispute found that the income disclosed in the return of income was Rs.5,20,090/-, whereas the purchase value of the property was amounting to Rs.2,22,07,564/- plus stamp duty and registration fee. The reopening is premised that the petitioner failed to disclose the income of Rs. 2 crores relating to investment of land with respect of unexplained source of cash payment of more than Rs.1.02 crores for purchase of land. It is not in dispute that the petitioner has paid Rs.1,02,07,564/- for purchase of the property in dispute. Hence, after such facts were noticed by the Assessing Officer, a Sanction under Section 151 of the Act was also taken from the Principal CIT Vadodara, vide communication dated 27.05.2019 for issuance of Notice under Section 148 of the Act. In order to verify that whether the Principal CIT has actually given accordance action the form recording reasons has been forwarded to us and the same is taken on record.
11. At this stage, we may refer to the provision of Section 147 of the Act which reads thus : –
“If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may subject to the provisions of Section 148 to 153, assesss or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of proceedings under this Section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereinafter in this Section and in Sections 148 to 153 referred to as the relevant assessment year):”
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“Explanation 2.—For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely :
(b) where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return ;”
12. Upon examination of the facts we find that the provision of Explanation-2 to Clause (b) of Section 147 of the Act is applicable to the facts of the case. As for the assessment year under consideration, we find that there appears undisclosed income in purchase of immovable property. It is not in dispute that the reassessment is within six years from the relevant assessment year. In our opinion, the re-assessment cannot be scuttled at this stage on the ground that the petitioner had disclosed the transaction in wealth tax. The petitioner has made payment of Rs.1,02,07,564/- in cash. No explanation has been tendered in form of ledger account, cash book of Everest Construction in which the petitioner’s family is a partner.
13. In a recent decision the Supreme court in the case of Sanand Properties (P.) Ltd. v. Joint Commissioner of Income-tax [2026]  488 ITR 337 (SC)/2026 INSC 472 ,while examing the provision of Section 147 of the Act has held thus:
“60. Upon a bare reading of Section147 of the IT Act, it is seen that the provision empowers the Assessing Officer to assess income that escaped assessment in the relevant assessment year. Subject to the provisions and safeguards in the section, the Assessing Officer can reassess income for an assessment year irrespective of whether the original assessment was merely processed under Section 143(1) or assessed under Section 143(3) of the Act. The power to reopen assessment is not confined to cases where the assessee has concealed his income; it also extends to cases where though there has been no concealment by the assessee, the Assessing Officer has reason to believe, in consequence of tangible material in his possession, that income has escaped assessment. The expression “escaped assessment” is not restricted to those cases only which have not come to the notice of the Assessing Officer at all, but also applies to those cases where an assessment has been made but (i) income chargeable to tax has been under-assessed, or (ii) such income has been assessed at too low a rate, or (iii) such income has been made the subject of excessive relief under this Act, (iv) excessive loss or depreciation allowance or any other allowance under this Act has been computed.”
14. Thus, the material and facts the present case suggests that the Assessing Officer has not fell in error in re-opening the assessment. The Assessing Officer is not deemed to have noticed the facts disclosed in a wealth tax return, and the onus lies on the petitioner-assessee to disclose all material facts such as the source of funds and the true nature of the transaction its return of income. Thus, in the present case, the ingredients of Section 147 of the Act get fulfilled, and the re-assessment cannot be closed at this stage in light of the aforesaid facts. We have also noticed that the Principal CIT Vadodara, granting approval for issuance of Notice under Section 148 of the Act has also recorded satisfaction on the reasons recorded by the Assessing Officer, and it is opined that “In view of the material placed on record as per AO’s report, the case is found fit for issue of notice u/s 148”. In our opinion this is sufficient compliance of the provisions of section 151 of the Act.
15. In view of the foregoing analyses, the writ petition fails, the same is rejected.