Case Law Details
Kantilal Parsotamdas Patel Vs ITO (Gujarat High Court)
The Gujarat High Court considered a challenge to a notice dated 31.03.2025 issued under Section 148 of the Income Tax Act, 1961 for Assessment Year 2020-21. The reassessment proceedings were initiated on the basis of documents allegedly recovered during a search conducted under Section 132 in the case of the BSafal Real Estate and City Estate Management Group, where it was alleged that cash transactions involving real estate had taken place. The petitioners sought quashing of the reassessment notice, contending that there was no material directly linking them with the alleged escapement of income.
The petitioners had filed their return of income declaring total income of Rs.17,50,220. The impugned notice alleged that documents recovered during the search revealed that the petitioners had sold land bearing Survey Nos.347 and 351 to one Natwarlal Hiralal Shah through a registered sale deed dated 29.04.2019 for approximately Rs.75 lakh, whereas a seized loose paper mentioned a rate of Rs.2.25 crore per vigha, leading the Revenue to infer that substantial on-money had been received in cash.
The petitioners argued that the reassessment was founded entirely on a loose paper prepared after the sale transaction had already been completed. They pointed out that the loose paper was dated 28.09.2019, whereas the land had been sold on 29.04.2019, making the document subsequent to the transaction. According to the petitioners, there was no live link between the loose paper and the completed sale transaction, and therefore the conditions for invoking Section 148 were not satisfied. They also highlighted that reassessment proceedings against the third co-owner of the same land had culminated in an assessment determining nil income.
The Revenue defended the reopening by relying upon the broad expressions “pertains to” and “relates to” used in Explanation 2 to Section 148. It argued that the material recovered during the search, coupled with the statement recorded under Section 131 from the broker, constituted sufficient prima facie material to justify reopening. The Revenue submitted that at the stage of issuing a notice under Section 148, the Court should not examine the sufficiency of evidence but only whether relevant material existed to form the requisite belief regarding escapement of income. Reliance was placed on several Supreme Court decisions in support of this proposition.
The High Court examined the seized material and the statement recorded during the search proceedings. The statement of Shri Pravin Nagjibhai Bavadiya confirmed that the documents had been seized from the premises of City Estate Management, a real estate broker, and explained that the seized annexures contained details of lands available for sale, including survey numbers, locations, rates, owners and other particulars. One loose paper referred to Survey Nos.347 and 351, mentioned a rate of Rs.2.25 crore per vigha, and contained the name “Natvarkaka Shah.”
The Court found that the loose paper was dated after the registered sale deed executed by the petitioners. It noted that the petitioners had already sold the land to Natwarlal Hiralal Shah on 29.04.2019, whereas the loose paper was dated 28.09.2019. The Court also recorded that the Revenue had connected the survey numbers mentioned in the loose paper with the petitioners by referring to information available on the Government’s AnyROR website.
The High Court held that although cash transactions are often carried out clandestinely, the Revenue must still establish a live link between the seized material and the assessee before reopening an assessment. The expressions “relates to” and “pertains to” in Explanation 2 to Section 148 could not be applied in isolation. According to the Court, the Revenue was required to analyse the seized material along with surrounding circumstances, record its relevance, and form a prima facie opinion demonstrating escapement of income attributable to the assessee.
The Court concluded that no such live link existed in the present case. It observed that the information contained in the loose paper was vague, non-specific and incapable of establishing any nexus between the petitioners and the alleged receipt of on-money. The statement of Shri Bavadiya did not mention the petitioners by name, nor did it establish any connection between them and the BSafal Group or City Estate Management Group. The Court held that the Revenue had merely attempted to retrospectively apply the rate mentioned in the loose paper to an earlier registered sale deed.
The Court also noted that reassessment proceedings against one of the co-sellers of the same property had ultimately resulted in an assessment determining nil income. This fact further supported the petitioners’ contention that the material relied upon by the Revenue lacked the necessary evidentiary connection.
While acknowledging the Supreme Court’s settled position that courts should not examine the sufficiency of evidence at the stage of reopening, the High Court emphasised that there must nevertheless exist some relevant prima facie material. In the present case, the reassessment proceedings were held to be based on vague, irrelevant and non-specific information that had been retrospectively applied to the petitioners’ earlier sale transaction.
Accordingly, the Gujarat High Court allowed the writ petition and quashed the notices issued under Section 148, holding that the Revenue had failed to establish the requisite live link between the seized third-party material and the alleged escapement of income.
FULL TEXT OF THE JUDGMENT/ORDER OF GUJARAT HIGH COURT
1. Rule, returnable forthwith. Learned Senior Standing Counsel Mr. Aaditya Bhatt waives service of notice of rule for respondent.
2. In the present petition, the petitioners have assailed the notice dated 31.03.2025 issued by the respondent under section 148 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’ for short) for the Assessment Year 2020-2021.
3. For convenience, SCA No.3676 of 2026 is considered as a lead matter and the facts of the case are incorporated from SCA No.3676 of 2026:
3.1 The petitioners filed the return of income on Assessment Year: 2020-21 on 29.01.2021, declaring the total income of Rs. 17,50,220/-. A notice under Section 148 of the Act was issued on 31.03.2025, alleging escapement of income on the ground that a search under Section 132 of the Act was conducted in the case of BSafal Real Estate and City Estate Management Group, during which certain documents purportedly pertaining to the petitioners were found. During the course of search, it was found that M/s.City Estate Management India, a Real Estate Broker, is providing broking service to BSafal Group.
3.2 It is alleged that the cash transactions in real estate were being done by selling various lands/plots etc. in and around Ahmedabad city. The details of address, name of person, survey numbers of the land in question and the market rate of property were unearthed during such proceedings. Post search, the statement of one Shri Pravin Nagjibhai Bavadiya was recorded by the revenue, the relevant extract of the statement recorded under Section 131 of the Act dated 27.12.2021 is incorporated in the impugned notice. Based on such material, the revenue has reopened the assessment by issuing the notice under Section 148 of the Act.
3.3 It is the case of the Revenue that for Survey Nos.347 and 351 were sold by the petitioners vide sale deed dated 29.04.2019 to one Shri Natwarlal Hiralal Shah and from the seized document, it was found that the rate prescribed was Rs.2.25 crores per vigha, whereas the property of Survey No.347 was sold at Rs.72,36,056/- as per the sale deed dated 29.04.2019 (Final Plot area of 20671 square meters, which is equivalent to 8.69 Vigha) and (the Final Plot area of the same Survey No.351 i.e. 754 square meters, which is equal to 0.32 Bigha), was sold at Rs.2,63,944/- through the same sale deed dated 29.04.2019. Thus, as per the sale deed, the land was sold for a total of 75 lakhs for Survey Nos.347 and 351, situated at Sitapur whereas, as per the seized document, the value of the immovable property under consideration, the rate is mentioned as 2.25 crores per vigha and hence, it is alleged by the revenue that a huge amount was paid in cash as on-money.
4. Learned advocate Mr.Hardik Vora appearing for the petitioners has submitted that the petitioners, who have already sold their land on 29.04.2019 are sought to be roped in the reassessment proceedings on an entry made in a loose paper in the inquiry Registered on 28.09.2019, which is subsequent and hence the petitioners cannot be held responsible by alleging that he has paid some on–money by cash. It is thus submitted that the entire reopening is premised on an incorrect fact and there is no live link to the alleged rates mentioned in the inquiry Register on a loose paper directly linking to the petitioners and hence the provision of Section 148(4) of the Act would not get attracted.
4.1 Learned advocate Mr.Vora has further submitted that out of these two petitioners (who have sold the land to Natwarlal Hiralal Shah), the third seller Mukesh Prahladbhai Patel was also subjected to reopening proceedings on the basis of the same search ultimately by the assessment order dated 25.03.2026. The Assessing Officer has computed the income as NIL and hence it is submitted that the impugned reopening may be quashed and set aside.
5. Vehemently opposing the present writ petition, the submissions advanced as recorded here-in-above, the learned Senior Standing Counsel Mr.Aaditya Bhatt has submitted that as per the provisions of Section 148 of the Act, more particularly clause 4 below Explanation 2, it cannot be said that the information, which is unearthed during the search proceedings from the concerned broker, does not pertain or pertains to any information contained therein relates to the assessee.
5.1 It is submitted that the legislature has deliberately used the expansive phrases “pertains to” and “relate to”. Unlike the stringent requirement of “belongs to” under the erstwhile Section 153C regime and hence, as per the decisions of the Supreme Court in the case of Raymond Woollen Mills Limited vs. Income-tax Officer, [1999] 236 ITR 34 (SC), the revenue has only to see whether there was a prima facie some material on the basis of which the department could reopen the case and the sufficiency or correctness of the material is not a thing to be considered at this stage of issuance of notice.
5.2 Further reliance is also placed by learned Senior Standing Counsel Mr. Bhatt on the decision of the Supreme Court in the case of Assistant Commissioner of Income-tax vs. Rajesh Jhaveri Stock Brokers (P.) Private Ltd., [2007] 291 ITR 500 (SC) and it is submitted that the only question which is required to be examined at the stage of issuance of notice is whether there was relevant material on which a reasonable person could have formed a requisite belief.
5.3 Reliance is also placed on the decision of the Supreme Court in the case of Anshul Jain vs. Principal Commissioner of Income-tax, [2022] 143 taxmann.com 38 (SC). It is submitted that in the present case, the documents which are documents / incriminating material which have been recovered during the search proceeding, cannot be said to be dumb documents, devoid of any evidential value. It is submitted that the material which was seized specifically mentions the names of the brokers or third parties and the same reveal the link between the petitioners and the land dealing, by paying the on-money. Thus, it is urged that, at this stage, the Court may not interfere with the reopening of the assessment.
6. We have heard the learned advocates appearing for the respective parties at length. The facts, which are established from the documents on record and the pleadings and also from the impugned notice issued under Section 148 of the Act dated 31.03.2025 are as under:
6.1 The entire case of the revenue hinges on the search proceedings as mentioned hereinabove conducted at BSafal group and the statement of Shri Pravinbhai Naghjibhai Bavadiya, who was confronted with the documents found and seized from the office premises of City Assist Management post search. Post search, a statement of one Shri Pravin Nagjibhai Bavadia was recorded after he was confronted with the documents found and seized from the premise of the City Estate Management, which is a broker, dealing with land deals in the City of Ahmedabad. Statement under Section 131 of the Act of Shri Pravin Nagjibhai Bavadiya are incorporated in the impugned notice. A specific question No.14, was asked to him with regard to the documents found during the search and in response, he has submitted that ‘I confirm that the documents were found and seized from the premises of the propriety entity City Estate Management’ It is further responded by him that sometimes the clients come with their land documents or title deeds and there might be such types of documents which are also seized with the above annexures and these belonged to the clients and not to him. Question No.26, when he was confronted with the annexures, he has referred that such annexure contained the details of lands/plots available for sale at different locations of Ahmedabad and each entry contains the details of land, location, village, taluka, survey number, area, rate, owner of the land, etc., and he doesn’t know the current status regarding the sale of the land. The entry made on the loose paper falls from search proceedings, refers to the Survey number of the present petitioners and the rate quoted is 2.25 crores per Vigha and the name is referred as Natwarkaka Shah (pg-35), the same is as under:
28.9.19 Moje- Sitapur
opp. Maruti Suzuki Plant __
S.No. 347, 351
25625__(9 bigha)
Rate- 2.25 Cr per Bigha
Natvarkaka Shah
6.2 It is apparent that the date mentioned in the loose paper is 28.09.2019 whereas, the present petitioners have sold the land on 29.04.2019 to one Natwarlal Hiralal Shah. The petitioners along with Mukesh Prahladbhai Patel vide sale deed dated 29.04.2019 had sold the land. Thus, the petitioners are roped in for reassessment only on the entry which is subsequently made after selling of land to Natwarlal Hiralal Shah. It is not in dispute that Mukeshbhai Prahladbhai Patel, who is also the co-owner of the land and his name figures in the sale deed, was subjected to reassessment and by the assessment order dated 25.03.2026, the income is assessed as NIL.
6.3. The survey number mentioned in the loose paper is linked with the petitioner by the revenue by gathering information from the government Website “AnyROR”, which records the details of the sale deeds. It is true that the cash transactions are done in a clandestine manner using coded script, however, the revenue, before re-opening the assessment has to establish a live link of the assessee on the basis of seized material only. The expression “ relates to” and “pertains to” used in Clause(iv) to Explanation 2 to Section 148 of the Act cannot be used in vacuum. The revenue after the seizure of incriminating material is under an obligation to analyze such material, in light of attendant circumstances and record relevancy and a prima facie opinion linking such material establishing escapement of income at the hands of the assessee. The information which is derived from the incriminating material in the instant case, does not establish live-link. The information is absolutely vague and unspecific and the rate mentioned in the loose-paper is attempted to be imposed upon the petitioner retrospectively to the sale deed registered on 29.04.2019. The statement of Shri Bavadiya does not mention the name of the petitioner. There is no link, even remotely found with Safal Group or City Estate Group. All these aspects are very relevant, and are required to be examined before roping the petitioner in re-assessment. Thus, on these facts, it can be said that the reopening is on vague material and is sought to be applied to the petitioners on the basis of the rate prescribed on a chit which is subsequent to the selling of the land to Natwarlal Hiralal Shah and hence the impugned notice of reopening dated 31.03.2025 issued by the respondent under section 148 of the Act, is required to be quashed and set aside. Subsequently, it is not denied that in case of one of the seller the assessment has resulted into NIL.
7. We are conscious about the legal precedent as set out by the Supreme Court. At the stage of notice of re-opening of the asssessment, albeit, the Court cannot go into the sufficiency of evidence, however, simultaneously the Court has to examine the aspect as to whether there is even prima facie some material, which could enable the department to reopen the assessment. In the present case, the reopening is based on a vague, irrelevant, and non-specific information, and that too, applying the same retrospectively to the sale deed of the petitioners.
8. Hence, the writ petition succeeds. The impugned notices issued are quashed and set aside. Rule made absolute.
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