Gujarat HC Quashes Reassessment Notice Lacking Independent

Gujarat HC Quashes Reassessment Notice:

Amitkumar Chandulal Rajani vs. Revenue (Special Civil Application No. 2930 of 2022)

Background of the Case

The Appellant, Amitkumar Chandulal Rajani (Proprietor of S.R. Jewellers), had duly filed his ITR for AY 2013–14 to 2015–16 under section 139(1) of the Act. However, the ITD issued reassessment notices under Section 148 on 30^th March 2021, alleging that the petitioner had undisclosed income based on information from a search action conducted on M/s. National Shroff & Co. in 2014, where unaccounted cash of Rs. 1.14 crore was found. The department claimed that the appellant had engaged in unexplained transactions leading to escaped assessment.

Appellant Arguments

The Appellant, argued that the reasons recorded failed to establish a nexus between the alleged transactions and escaped income. The AO merely parroted information from the search action without independent verification or providing documents (e.g., seized records, statements) to the appellant. Further, the appellant contested that the approval under Section 151 (for reopening beyond 4 years) was granted without application of mind. The AO wrongly claimed the appellant did not file returns for AY 2013–14 and 2014–15, despite submitting proof of filed returns.

Respondent’s Response

The Respondent, Revenue defended its position, stating that the AO had sufficient basis to reopen assessments based on search findings indicating undisclosed transactions. The revenue further refused to share search documents, claiming they were departmental secrets. Further the revenue contested that the appellant’s transactions with searched entity warranted reassessment hence establish a nexus between the alleged transactions and escaped income.

Court Findings and Decision

The Gujarat High Court ruled in favour of the appellant, held that – The AO mechanically reproduced search details without verifying their relevance to the appellant. The department failed to provide any material (e.g., seized documents, bank entries) linking the appellant to the alleged transactions. Further, approval under Section 151 was rubber-stamped without examining the merits. Also denying the appellant access to incriminating material vitiated the proceedings.