R.D. Diamond Vs ITO (Gujarat High Court)
Reopening u/s 147 held invalid where based solely on third-party information and portal data without independent material showing escapement of income—amounting to mere suspicion and fishing inquiry
Read SC Judgment in this case: SC Declines Reassessment Revival as Income & Transactions Were Fully Disclosed in ITR
Core Issue: The core issue before the Gujarat High Court, later affirmed by the Supreme Court of India, was whether reassessment proceedings under Sections 147/148 can be validly initiated merely on the basis of third-party information and portal data, without any independent material establishing escapement of income in the hands of the assessee, and whether such reopening amounts to a fishing and roving inquiry based on suspicion rather than a legally sustainable “reason to believe”.
Facts: The assessee, a partnership firm engaged in diamond trading, filed its return for AY 2019–20 declaring turnover of ₹16.28 crore with duly audited books. The reopening was initiated on the basis of information alleging bogus transactions of ₹5.66 crore linked to dealings with certain third parties, namely Vasudev Babubhai Kapadia and Janakbhai Vasudev Kapadia. A notice under Section 148A(1) was issued, and the assessee furnished a detailed reply along with reconciliation, clarifying that all transactions were genuine, recorded in books, and duly offered to tax. Despite this, the Assessing Officer proceeded to pass an order under Section 148A(3) and issued notice under Section 148.
