Reassessment Notice Quashed as Reopening Based on Original

Reassessment Notice Quashed as Reopening Based on Original Scrutiny Records Amounts to Mere Change of Opinion

Issue

Whether a reassessment notice under Section 148 based on Investigation Wing information can be sustained when the underlying transactions were fully disclosed and examined during the original scrutiny assessment under Section 143(3), without any new tangible material showing failure by the assessee to disclose material facts.

Facts

Original Assessment Completed: For Assessment Year 2012–13, the assessee’s case was originally selected for scrutiny, and an assessment order was passed under Section 143(3).
Disclosed Business Transactions: During the original assessment, the assessee disclosed regular business dealings for the purchase of cotton with M/s Manibhadra Textile Company, involving payments amounting to approximately ₹95.26 lakhs. Invoices and transaction details were fully examined by the Assessing Officer.
Reopening Notice Issued: Subsequently, the AO issued a notice under Section 148 to reopen the assessment based on information from the Investigation Wing flagging the payment as a high-value transaction not commensurate with the returned income.
No Material Omission: The assessee had fully and truly disclosed all material facts regarding its business transactions with the concerned party during the original scrutiny assessment, and no new tangible material was brought on record by the AO.

Decision

Mere Change of Opinion: The High Court held that since the transactions were already examined during the original scrutiny assessment under Section 143(3), reopening the assessment on the same set of facts without any new tangible material amounted to a mere change of opinion.
Fishing and Roving Inquiry: Reopening initiated solely on Investigation Wing information without establishing any failure on the assessee’s part to disclose material facts constitutes a fishing and roving inquiry.
Reassessment Notice Quashed: The impugned notice issued under Section 148 was quashed and set aside, deciding the issue in favor of the assessee.

Key Takeaways

Change of Opinion Impermissible: Tax authorities cannot reopen a completed scrutiny assessment under Section 148 on matters already disclosed, examined, and accepted during Section 143(3) proceedings, as doing so constitutes an impermissible change of opinion.
Requirement of New Tangible Material: Investigation Wing reports alone cannot justify reassessment unless accompanied by new, tangible material demonstrating that the assessee failed to fully and truly disclose all material facts necessary for assessment.
Protection Against Roving Inquiries: Reopening provisions under Section 147/148 cannot be utilized to conduct fishing and roving inquiries into issues already closed in regular scrutiny assessments.

HIGH COURT OF GUJARAT

Hiramoti Texchem (P.) Ltd.

Income-tax Officer

A.S. Supehia and Ms. VAIBHAVI D. NANAVATI, JJ.

R/SPECIAL CIVIL APPLICATION NO. 22517 of 2019

JULY 27, 2026

B.S. Soparkar for the Petitioner. Dev D. Patel for the Respondent.

JUDGMENT

A.S. Supehia, J.- The present writ petition has been filed assailing the notice issued by the respondent under section 148 of the Income Tax Act, 1961 (for short “the Act”) dated 28.03.2019.

2. The petitioner filed original return of income of Assessment Year (AY) 2012-13 on 28.09.2012 disclosing income at Rs.20,15,440/-. Scrutiny was undertaken and the assessment order under section 143(3) of the Act was passed on 09.12.2014 determining total income at Rs.20,15,440/-. Thereafter, the respondent issued the impugned notice under section 148 of the Act dated 28.03.2019 reopening the assessment for the AY 2012-13. Reasons for reopening were supplied vide letter dated 02.05.2019. The assessee raised various objections on merits and requested the respondent to drop the reassessment proceedings vide letters dated 04.12.2019 and 06.12.2019. Thereafter, vide letter dated 11.12.2019 the respondent disposed of the objections.

3. Learned advocate Mr.Soparkar appearing for the petitioner has submitted that the respondent has not applied any independent mind of his and borrowed satisfaction entirely on the basis of information received from the Assistant Director of Income Tax (Investigation) (for short “the ADIT(Inv.)”) and the same is not permissible under the law. It is submitted that the information received from the Deputy Director of Income Tax (Investigation) (for short “the DDIT (Inv)”) can certainly raise suspicion but the same is required to be examined in light of the records available with the Assessing Officer and the same are required to be then evaluated to form a valid reason to believe that in income has escaped assessment. It is submitted that in the present case, the assessee has paid Rs.95,26,354/- to M/s.Manibhadra Textile Company, and there is no other evidence adduced to infer that the assessee could not have paid this money. It is submitted that there is not failure on the part of the assessee to truly and fully disclose all material facts. It is submitted that in the case of the assessee, there was an assessment framed originally under section 143(3) of the Act. It is submitted that the reasons are based on the information already in possession of the Assessing Officer and there is no fresh tangible material which was not available with the Assessing Officer originally.

4. Learned advocate Mr.Soparkar has further submitted that there is no escapement of income. He has submitted that the assessee has paid M/s.Manibhadra Textile Company for the purchase of cotton and thus, the assessee is having long business transactions with M/s.Manibhadra Textile Company and in such business relations, the payment has been made. Thus, it is urged that the present writ petition may be allowed.

5. Opposing the present writ petition and the submissions advanced by the learned advocate appearing for the petitioner, learned Senior Standing Counsel Mr.Patel appearing for the respondent has submitted that as far as failure to disclose fully and truly all material facts is concerned, as per the information M/s.Manibhadra Textile Company does not have any creditworthiness to receive huge funds, furthermore, the same funds have been withdrawn by self-cheque or any other mode. It is submitted that since M/s.Manibhadra Textile Company is not engaged in any business activity, it is not justified why the assessee has paid such huge amount to the said concern. He has further submitted that the assessee has made allegation that reopening of assessment is for making roving inquiry however, the Assessing Officer has relevant material i.e. information shared by DDIT (Inv.). Moreover, he has submitted that the assessee itself in its replies and objection has accepted that he has made transaction with M/s.Manibhadra Textile Company which is corroborative evidence itself. It is further submitted that as far as the sufficiency and correctness of the information and cause and justification is concerned, the same will be considered at further stages of assessment proceedings. In such circumstances, it is urged that the present writ petition may not be entertained.

6. We have heard the learned advocates appearing for the respective parties and also perused the documents, as pointed out by them.

7. The established facts from the pleadings are that the petitioner filed his return of income for the AY 2012-13 on 28.09.2012 disclosing income at Rs.20,15,440/-, which was subjected to scrutiny assessment and finally an order under Section 143(3) of the Act was passed on 09.12.2014, assessing the total income at Rs.20,15,440/-. However, thereafter, the impugned notice under Section 148 of the Act was issued on 28.03.2019, seeking reopening of the assessment. The reopening is premised on the investigation report of ADIT (Inv.), raising suspicion about the cash withdrawal done by the assessee of M/s.Manibhadra Textile Company i.e. proprietorship firm of Shri Bhavesh Sureshchandra Shah. It is alleged that on verification of the bank account statements of M/s.Manibhadra Textile Company, it has been noticed that it has received credits from three concerns including the petitioner, and thereafter, Shri Bhavesh Shah had withdrawn the amount through self-cheque and cash. Thus, it is alleged that the petitioner, who deposited an amount of Rs.95,26,354/- in the bank account of M/s.Manibhadra Textile Company, which is of high-value transaction, does not commensurate with the return of income.

8. It is not in dispute that the petitioner had disclosed the entire income and the transactions with M/s.Manibhadra Textile through invoices in the scrutiny assessment. The petitioner, in his objection to the notice, had categorically pointed out that it is dealing with M/s.Manibhadra Textile Company regularly, and the petitioner had paid Rs.95,26,354/- to M/s.Manibhadra Textile Company relating to purchase of cotton transactions. Thus, from the invoices which are placed on record, we find that the petitioner is having business transactions with M/s.Manibhadra Textile Company, and for such business relations, the payment has been made, which was already subjected to scrutiny.

9. Thus, it cannot be said that the petitioner has not disclosed or suppressed any material relating to the business transactions with M/s.Manibhadra Textile in the scrutiny assessment under Section 143(3) of the Act. Hence, it appears that reopening is premised on fishing and roving inquiry and is nothing but change of opinion. We find that there is no valid reason to believe that any income has escaped assessment, as ADIT(Inv.) does not reveal any new tangible material, which has escaped the assessment. There has been full disclosure of the income by the petitioners and the transaction with M/s.Manibhadra Textile Company, and mere withdrawal of amount in cash by its proprietor, is not sufficient ground to rope the petitioner in re-assessment proceedings.

10. Hence, the writ petition succeeds. The impugned notice issued by the respondent under section 148 of the Act dated 28.03.2019 is hereby quashed and set aside.