Reassessment Notice Quashed as Revenue Failed to Establish Link Between Assessee & Seized Material

Deepak Chinubhai Shah Vs DCIT (Gujarat High Court)

Gujarat High Court Quashes Section 148 Notice Because Seized Document Did Not Match Assessee’s Land Transaction;  Section 148 Reopening Invalid Because Seized Document Referred to Different Date, Seller and Land Status;  Gujarat High Court Rejects Reopening Based Solely on Handwritten Inquiry Register Found During Search;  Section 148 Proceedings Set Aside Because Agricultural Land Was Incorrectly Treated as Non-Agricultural Land;  High Court Holds Mere Suspicion of On-Money Transaction Cannot Justify Income Tax Reopening;  Reassessment Notice Invalid Where Search Statements Did Not Mention Assessee.

The Gujarat High Court allowed the writ petitions challenging notices dated 31.03.2025 issued under Section 148 of the Income Tax Act for Assessment Year 2021-22. The petitioners sought quashing of reassessment proceedings initiated on the allegation that income amounting to Rs. 25.76 crore had escaped assessment.

The petitioner had filed the return of income on 04.02.2022 declaring total income of Rs. 79.81 lakh. The reassessment proceedings were initiated after search actions conducted under Section 132 in the cases of B Safal Group, City Estate Group, City Estate Management India, and City Procon Realtors Pvt. Ltd. During the search, a handwritten extract of an inquiry register was found containing certain land-related details dated 22.04.2021.

The petitioner contended that the reassessment proceedings were initiated solely on the basis of the handwritten extract found from premises of unrelated entities. It was argued that the petitioner had already sold the concerned land through a sale deed dated 07.10.2020, which was registered in January 2021, much prior to the date mentioned in the seized document. The petitioner further pointed out that the seized document described the land as “NA” (non-agricultural), whereas the land sold by the petitioner was agricultural land at the relevant time. It was also submitted that the handwritten extract neither contained the petitioner’s signature nor referred to him directly. The statements recorded from the searched person also did not mention the petitioner’s name.

The Revenue argued that the substantial difference between the sale consideration reflected in the petitioner’s sale deed and the rates mentioned in the seized document indicated possible receipt of “on-money.” It was submitted that the rates mentioned in the document were significantly higher within a short period of three months and therefore justified the Assessing Officer’s belief that income had escaped assessment.

After examining the record, the High Court found multiple discrepancies between the seized document and the petitioner’s transaction. First, the seized document was dated 22.04.2021, whereas the petitioner had sold the land on 07.10.2020. Second, the seized document referred to non-agricultural land, while the petitioner’s land was agricultural land. Third, the seller’s name in the seized document was “Sanjay Thakkar,” which did not match the petitioner’s name.

The Court also noted that the statements recorded under Section 131 from the searched person did not mention the petitioner in any manner. It held that there was neither any direct nor indirect connection between the petitioner and the seized document. The Court observed that the Revenue had attempted to reopen the assessment merely on vague information and presumptions unsupported by material linking the petitioner to the alleged transaction.

Holding that the reassessment proceedings were initiated on conjectures and surmises, the Gujarat High Court quashed and set aside the notices issued under Section 148 of the Income Tax Act. The writ petitions were accordingly allowed.

FULL TEXT OF THE JUDGMENT/ORDER OF GUJARAT HIGH COURT

1. With consent of learned advocates for the respective parties, the matters are taken up for final hearing. Learned Senior Standing Counsel Mr. Dev D. Patel has tendered the affidavit-in-reply dated 12.01.2026. The same is ordered to be taken on record.

RULE. Learned Senior Standing Counsel Mr. Dev D. Patel waives service of notice of rule on behalf of the respondent no.1.

2. In view of the common issues involved in the matters, the same are decided by this common judgment and order. The captioned writ petition being Special Civil Application No. 13298 of 2025, is treated as a lead matter and the facts are borrowed from the said petition.

BRIEF FACTS :

3. By way of present writ petitions the petitioners have assailed the Notices dated 31.03.2025 under Section 148 of the Income Tax Act, 1961 (for short “the IT Act”) for the Assessment Year 2021-22, seeking reassessment of income and has further prayed to direct the respondent not to proceed further or pass final order under Section 143(3) read with Section 147 of the IT Act.

4. Petitioner is an individual and had filed his return of income for A.Y. 2021-22 on 04.02.2022 declaring total income at Rs. 79,81,700/-. An information was received that search action under Section 132 of the IT Act was conducted in the case of B Safal Group , City Estate Group, City Estate Management India and City Procon Realtors Pvt Ltd and several incriminating documents were found and seized. On the basis of the said information, the respondent issued notice under Section 148 of the IT Act dated 31.03.2025 after taking approval from Principal Commissioner of Income Tax, Ahmedabad-1 alleging that income of Rs.25,76,81,747/- has escaped assessment. The petitioner filed objections dated 28.04.2025 on 13.05.2025.

SUBMISSIONS ON BEHALF OF PETITIONER :

5. Learned Senior Advocate Mr.Saurabh Soparkar with learned advocate Mr. Hardik Vora has submitted that the respondent invoked the provision of Section 148 of the IT Act, by issuing the notice under Section 148 of the IT Act, without following the procedure. It is submitted that the reassessment proceedings were initiated on the basis of hand written extract of the inquiry register, which was found from the premises of M/s.City Estate Management India and M/s.City Procon Realtors Pvt. Ltd., a real estate broker providing services to B Safal Group. It is submitted that the reopening of the assessment based on the search proceedings and that too only the basis of extract of a paper is illegal and a vague attempt made by the Assessing Officer to rope in the petitioner on the basis of the same material. It is contended that upon perusal of the hand written extract of the inquiry register, it is found that the same appears to be dated 22.04.2021, whereas the petitioner had already sold the concerned parcel of land to Smt.Naiyabageb Dipakkumar Thakkar on 02.01.2021. The second aspect which is pointed out is that the said extract of the inquiry register contains the endorsement “NA” i.e. non-agricultural land of the survey no, mentioned therein and unquestionably in the present case, the petitioner vide sale deed dated 07.10.2020 had sold the land which was an agricultural land.

6. It is submitted that the said information which has been derived by the Assessing Officer from the hand written extract of the inquiry register is neither authorised nor signed by the assessee and it does not contain any signature of the co-owners. It is further submitted that the information was further shown to one Shri Pravin Bavadiya, the searched person, who has also not referred the actual name of the present petitioner and also the status of the land in question. It is therefore submitted that the extract of the inquiry registers which is found from the premises of entirely unrelated party/entities with whom, the petitioner has no business or any personal association, cannot form a valid basis from drawing any adverse inference against the present petitioner, in absence of any direct or indirect link. It is submitted that from the basis of the extract of the inquiry register, the satisfaction note was recorded by the Assessing Officer to the extent that B Safal Group has accepted on money over and above the documented price as per the sale deed which is merely on presumption roping in the petitioner who had already sold the land vide sale deed dated 07.10.2020. Thus, it is submitted that the assessment is sought to be reopened on the basis of conjunctures and surmises and hence the impugned notice may be quashed and set aside.

7. In support of his submissions, learned senior advocate Mr.Soparkar has placed reliance on the judgment and order dated 24.11.2025 passed in Special Civil Application No. 4162 of 2023 and allied matters.

SUBMISSIONS ON BEHALF OF RESPONDENT:

8. In response to the aforesaid submissions, learned Senior Standing Counsel Mr.Dev D. Patel while placing reliance on the averments made in the affidavit-in-reply, has submitted that it is impossible to believe that the land is further sold within a period of three months without taking any “on money”. It is submitted that on the date mentioned the seized documents i.e. three months after the petitioner sold the property to Naiyabahen Dipakkumar Thakkar, the rates mentioned therein is far in excess of the rate at which the petitioner had sold the property. Hence, the asking rate for the said property would not see such huge jump within a period of three months. It is further submitted that looking to the huge difference in the prices itself suggests that the Assessing Officer is of the opinion that the income has escaped assessment. Hence, the impugned notices issued is just and proper. It is submitted that upon working on sale consideration and unaccounted cash component involved in the transaction, it is noticed that the same would come to Rs. 25,76,81,747/-.

9. Thus, it is submitted that as per the provision of Clause (iv) of Explanation 2 to section 148 of the IT Act, the satisfaction note was drawn by the Assessing Officer and the same was approved by the Principle Commissioner of Income Tax on 28.03.2025, as it was found that the income has escaped assessment in the case of the petitioner. Thus, it is urged that the present writ petitions may be dismissed.

ANALYSIS AND CONCLUSION:

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

11. The established facts from the record and pleadings reveal that during the search proceedings in the case of B Safal Group, City Estate Group, City Management India and City Procon Realtors Pvt Ltd. an extract of the inquiry registry was found which had the information as under :

12. The assessment in the case of the petitioner for the year 2021-22 is sought to the be reopened on the basis of the aforementioned information contained in the extract of the inquiry register. It is not in dispute that the petitioner had sold the land vide sale deed dated 07.10.2020, the registration of the same was done in the month of January 2021. It is also noticed from the sale deed that the land in said question of survey number being Block No. 1445 – Old Survey No. 1568 was an agricultural land at the time of sale in the month of October 2020. The information relating to the date in the seized document is 22.04.2021, is after the sale deed dated 07.10.2020, this is the first flaw which is noticed by us. Secondly, with regard to the status of the land mentioned in the seized document. The status of the land in question refers to “NA” i.e. a non-agricultural land and unquestionably the land which was sold by the petitioner vide sale deed dated 07.10.2020 is an agricultural land. The name of the seller appears to be Sanjay Thakkar. Thus, there are three components which do not reconcile with the petitioner

(i) the date mentioned as 22.04.2021,

(ii) the status of the land being shown as “NA” i.e. non-agricultural and

(iii) the name of the seller – Sanjay Thakkar.

13. The questions and answers forming part of the statements recorded under the provisions of 131 of the IT Act, in the case of one Shri Nagjibhai Bhavadiya, the searched person, does not in any manner mention the name of the petitioners. Thus, we do not find any direct or indirect link with the seized document and the same does not even remotely connect the rate mentioned of the concerned question of land with the petitioner. Thus, the revenue has attempted to reopen the assessment year 2021-22 only on the basis of some vague information allegedly connected from the seized document and the same does not in any manner relates to the present petitioner. Thus, the invocation of the proceedings under Section 148 of the IT Act, itself is ill conceived and unsustainable in light of the information contained in the seized document.

FINAL ORDER

Hence, we are of the opinion that the assessment has been reopened on the basis of conjunctures and surmises, the same action is required to be quashed and set aside. Accordingly, the captioned writ petitions stand allowed. The impugned Notices dated 31.03.2025 issued under Section 148 of the IT Act are hereby quashed and set aside. No order as to costs. Rule is made absolute.