Gujarat HC sets aside Reopening Notice Issued under Income Tax Act Without Disclosing Reason or Relevant Details [Read Order]

In a recent case, the Gujarat High Court set aside a reopening notice issued under section 148 of the Income Tax Act, 1961 without disclosing the reason or relevant details. The petitioner, Paresh Babubhai Bahalani filed his return of income for the Assessment Year 2017-18 on 21.06.2017 declaring a total income of Rs.7,67,190/- including the income under the head “Profit and Gains from business or profession” by the provisions of Section 44AD of the Income Tax Act, 1961. The respondent-assessing Officer issued an impugned notice dated 31.03.2021 under Section 148 of the Act for reopening the assessment. The petitioner filed a return of income in response to the impugned notice issued on 13.04.2021 and requested for providing reasons for reopening. The respondent supplied a copy of reasons for reopening along with the notice dated 03.08.2021 issued under Section 143(2) read with Section 147 of the Act. According to the reasons for reopening recorded by the Assessing Officer, the petitioner has entered into unaccounted transactions during the year under consideration as per the information made available through Insight Portal along with the report of the Deputy Commissioner of Income Tax, Central Circle, Surat which reveals that the petitioner has entered into an unaccounted transaction of Rs.44,34,265/during the year under consideration. The respondent was therefore of the view that such unaccounted transaction represents the income of the petitioner which has escaped assessment. The petitioner filed objections on 09.10.2021 contending that no escapement of income chargeable to tax emanates from the reasons for reopening as the same are vague and nonspecific. The respondent by order dated 08.12.2021 disposed of the objections holding that the reopening is justified. It was submitted by the petitioner that the respondents-Assessing Officers on similar facts reopened the assessment relying upon the information made available through Insight Portal along with the report of the Deputy Commissioner of Income Tax which reveals that the assessee has done unaccounted transactions of Rs.44,41,360/- which represents the income of the assessee which has escaped assessment. It was submitted that the reasons recorded by the Assessing Officer are vague, scanty and non-specific as the Assessing Officer has failed to disclose the nature of the transaction, date of the transaction, name of the party with whom the transactions allegedly have been entered into and whether such transaction relates to a balance-sheet item or profit and loss item of either of the petitioner It was submitted that the petitioner has not made out any case because the petitioner failed to disclose all the material facts and in the absence of the scrutiny assessment conducted by the Assessing Officer, the impugned notice may not be quashed because what is to be seen at the stage of recording the reasons is the existence of the belief based on the faithful appreciation of the material which has live link to income escaping assessment. A division bench comprising Justice Biren Vaishnav and Justice Bhargav D Karia observed that “the entire exercise of reopening hinges on the reasons recorded by the Assessing Officer. It is the ‘reasons’ which weigh on him. While exercising powers under the Act to reopen the assessment, the Assessing Officer would harbour reasons to believe that on a particular set of facts, the income had escaped assessment and tax was not paid about the year under consideration.” It was found that recording of reasons in the facts of the case not disclosing the nature of the transactions, date of transactions and other relevant details would render the entire exercise of reopening vitiated as the respondent-assessing officer has failed to record independent reason to believe that income chargeable to tax has escaped the assessment. The Court set aside the impugned notice issued under Section 148 of the Act for Assessment Year 2017-18. Senior Advocate Mr Tushar Hemani with advocate Ms Vaibhavi K. Parikh appeared for the petitioner and Senior Standing Counsel Mr Varun K. Patel with advocate Mr Dev Patel appeared for the respondent. Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates