Reopening under Section 148 is invalid when premised on change

Reopening under Section 148 is invalid when premised on change of opinion without new tangible material

Issue

Whether an assessment reopening under Section 148 of the Income-tax Act, 1961 (Section 280 / Section 102 of the Income-tax Act, 2025) is legally permissible when it relies on an Investigation Wing report alleging high-value bank deposits, but no fresh tangible material showing escaped income exists, rendering the action a mere change of opinion and a fishing inquiry.

Facts

Assessee & Assessment Year: The case pertains to the assessee for Assessment Year 2013-14.
Original Assessment: The assessee filed its return of income, which was selected for scrutiny and assessed under Section 143(3).
Reopening Notice: Subsequently, the Assessing Officer (AO) issued a notice under Section 148 to reopen the completed assessment.
Basis of Reopening: Recorded reasons relied on an ADIT (Investigation) Wing report alleging that the assessee deposited ~₹16.14 lakhs in a firm’s bank account, treated as a high-value transaction not commensurate with the declared income.
Assessee’s Objections: The assessee clarified that no payment was made to the firm during the year; the ~₹16.14 lakhs figure was merely an opening balance carried forward from earlier years, out of which the firm returned ~₹2.00 lakhs during the relevant year.

Decision

No Tangible Material: The ADIT(Inv.) report revealed no new or tangible material demonstrating that any income had actually escaped assessment during the relevant year.
Impermissible Reopening: The reopening was premised on a fishing and roving inquiry and amounted to a mere change of opinion on previously assessed facts.
Notice Quashed: The Court/Tribunal held that the notice under Section 148 was unsustainable in law and quashed the impugned notice in favor of the assessee.

Key Takeaways

Change of Opinion is Prohibited: Reopening an assessment completed under Section 143(3) without fresh, tangible material is an impermissible “change of opinion” and legally invalid.
Investigation Reports Are Not Automatic Evidence: Information from the Investigation Wing cannot blindly form the basis for Section 148 unless it reveals actual income escaping assessment for the relevant year.
Roving Enquiries Invalid: Section 148 cannot be invoked to conduct a fishing or roving inquiry into previously settled matters or opening balances.

HIGH COURT OF GUJARAT

Hiramoti Texchem (P.) Ltd.

Income-tax Officer

A.S. Supehia and Vaibhavi D. Nanavati, JJ.

R/SPECIAL CIVIL APPLICATION NO. 22523 of 2019

AUGUST 3, 2026

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

ORDER

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 (for short ‘AY’) 2013-14 on 27.09.2013 disclosing income at Rs.23,08,270/-. Scrutiny was undertaken and the assessment order under Section 143(3) of the Act was passed on 30.12.2015 determining total income at Rs.23,08,270/-. Thereafter, the respondent issued the impugned notice under Section 148 of the Act dated 28.03.2019 reopening the assessment for the AY 2013-14. 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 letter dated 04.12.2019. Thereafter, vide letter dated 11.12.2019 the respondent disposed of the objections.

3. Learned advocate Mr.B.S. 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 not paid any money to M/s.Manibhadra Textile Company during the year under consideration (AY 2013-14). The amount of Rs.16,14,883/- as referred in the reasons for reopening represents the opening balance in the ledger of M/s.Manibhadra Textile Company. Out of such balance, it is the M/s.Manibhadra Textile Company that has returned Rs.2,00,000/- during the year on 23.05.2012 to the petitioner. 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 had paid M/s.Manibhadra Textile Company for the purchase of cotton in earlier year and thus, the assessee is having long business transactions with M/s.Manibhadra Textile Company and in such business relations, the payment had been made in earlier year. Thus, in absence of any payment at all to M/s.Manibhadra Textile Company during the year under consideration, 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.Dev 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 2013-14 on 27.09.2013 disclosing income at Rs.23,08,270/-, which was subjected to scrutiny assessment and finally an order under Section 143(3) of the Act was passed on 30.12.2015, assessing the total income at Rs.23,08,270/-. 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.16,14,883/- 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. The petitioner, in his objection to the notice had categorically pointed out that it has not made any payment to M/s.Manibhadra Textile Company during the year under consideration and the amount of Rs.16,14,883/- represents the opening balance. Such fact is not disputed by the respondent. Thus, the reopening is based on incorrect facts, which is not permissible in the eyes of law. In absence of any payment to M/s.Manibhadra Textile Company, there arises no question of any escapement of income.

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 Company 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 reassessment 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.