Rajesh Sunderdas Vaswani Vs DCIT (Gujarat High Court)
Summary: The Gujarat High Court considered Special Civil Application No.15090 of 2025 as the lead matter in a common judgment concerning reopening of assessment for Assessment Year 2020-21. The petitioner, a partner of Venus Infrabuild and proprietor of Sundardeep Builders, challenged the show cause notice dated 26.06.2025 issued under Section 148 of the Income Tax Act, 1961 and the order dated 26.06.2025 passed under Section 148A(3). The Revenue had earlier issued a show cause notice dated 15.03.2025 under Section 148A(1), relying upon a Suspicious Transaction Report (STR) flagged on the insight portal concerning transactions involving M/s. Sundaram Landscape LLP and M/s. Sundardeep Builders.
The petitioner had furnished replies dated 09.04.2025, 18.04.2025 and 10.06.2025 and had also responded to a summons issued by the Investigation Department under Section 131(1A), furnishing audit reports, balance sheets, profit and loss statements and other financial records. The STR reflected transactions of Rs.45.50 crores in the ICICI Bank account of Sundaram Landscape LLP and Rs.499.65 crores in the account of Sundardeep Builders. The respondent, however, concluded that income chargeable to tax had escaped assessment to the extent of Rs.499,65,23,000/-.
The petitioner submitted that the statutory prerequisite for invoking Section 147 was not established. It was contended that the transactions were duly recorded in the books of account and that the petitioner had furnished the bank books, cash book, ledgers and financial statements. The petitioner further submitted that, apart from the suspicion reflected in the STR regarding the transaction pattern, there was no seized material, third-party statement or other evidence indicating that the transactions were bogus or accommodation entries. The Revenue, on the other hand, relied upon information available on the insight portal and referred to transactions including a credit of Rs.60 crores on 31.01.2020 and a debit of the same amount through internet fund transfer, as well as a transaction of Rs.15 crores relating to Raghuleela Infra Energy Private Limited on 19.03.2020.
The Court noted that the reopening under Section 147 is permissible only where the Assessing Officer has reason to believe that income chargeable to tax has escaped assessment. It further found that the STR concerned transactions in the accounts of both Sundaram Landscape LLP and Sundardeep Builders, while the petitioner was a partner of the former and proprietor of the latter. Importantly, the Court found that the show cause notice dated 15.03.2025 incorrectly recorded that the petitioner had not responded, despite the detailed reply submitted to the Investigation Department on 05.02.2025.
The Court also found that the order under Section 148A(3) incorrectly recorded that the petitioner had not submitted details or documents establishing the nature and genuineness of the transactions. According to the Court, this was contrary to the replies and documents furnished by the petitioner, including the reply dated 10.04.2025 referred to in the judgment. The Court further observed that the Revenue had not pointed to any material or information indicating that the transactions between the petitioner and his partnership firm or proprietorship concern were bogus or accommodation entries resulting in escapement of taxable income.
While the Court did not doubt the Revenue’s action in examining the assessment on the basis of the STR, it held that mere suspicion, without material justifying that suspicion, could not constitute a basis for reopening the assessment. This was particularly significant because the transactions giving rise to the suspicion were inter se between the partners, were fully disclosed, and were recorded in the books of account of the concerned firms. The Court also found that the Revenue had not explained how loans provided between partners inter se constituted escapement of income.
Accordingly, the Gujarat High Court held that the Revenue had failed to justify the reopening of the assessment. The impugned show cause notice dated 26.06.2025 and the impugned order dated 26.06.2025 were quashed and set aside.
The decision is consistent with the principle reflected in other Gujarat High Court decisions that reopening cannot rest merely on information or suspicion without a legally sustainable basis demonstrating escapement of income. For related TaxGuru coverage on reassessment, see reassessment under Section 148, and decisions concerning reopening in the absence of tangible material. TaxGuru has also reported a Gujarat High Court decision where Section 148 reopening was quashed for absence of new tangible material and another where the Court considered reopening based on a Suspicious Transaction Report.
FULL TEXT OF THE JUDGMENT/ORDER OF GUJARAT HIGH COURT
1. Since the issue involved in both these writ petitions is same, the same is decided by present common judgment wherein Special Civil Application No.15090 of 2025 is taken up as a lead matter.
2.1. The petitioner who is the partner of Venus Infrabuild as well as the proprietor of Sundardeep Builders, is challenging the show cause notice dated 26.06.2025 issued under Section 148 of the Income Tax Act, 1961 (for short ‘the Act’) as well as the impugned order dated 26.06.2025 passed under Section 148A(3) of the Act for Assessment Year (for short ‘A.Y.’) 2020–21.
2.2. The respondent issued the show cause notice dated 15.03.2025 under sub-section (1) of section 148A of the Act whereby the Petitioner was called upon to show cause as to why notice under section 148 of the Act should not be issued for the year under consideration.
2.3. The petitioner is one of the entity who has made transactions with M/s. Sundaram Landscape LLP and M/s. Sunderdeep Builders during the year under consideration. The petitioner, vide letters dated 09.04.2025, 18.04.2025 and 10.06.2025, furnished detailed replies to the said show cause notice.
3. The respondent, vide order dated 26.06.2025 passed under subsection (3) of section 148A of the Act, concluded that there is escapement of income chargeable to tax to the tune of Rs. 499,65,23,000/-.
3.1. Learned Senior Advocate Mr.Tushar Hemani appearing for the petitioner submitted that the provision of Section 147 of the Act can be invoked by the income tax department only if any income chargeable to tax has “escaped assessment”.
3.2. It is submitted that in the present case, the very pre-requisite for invoking Section 147 of the Act (i.e. escapement of income chargeable to tax) is not proved. It is submitted that the amount of escapement of income of Rs.499,65,23,000/- arrived at by the respondent in the impugned order only relates to transactions in bank account of M/s.Sunderdeep Builders (proprietorship concern of petitioner) and does not relate to transaction with M/s. Sundaram Landscape LLP. The finding of the respondent that the Petitioner has not submitted any details of documents to prove the nature or genuineness of the transactions is factually incorrect. The Petitioner has placed on record the following documents in reply to summons issued by the investigation department:
- Audit report and financial statements of the Petitioner
- Bank book of all the bank accounts
- Cash book
- Ledgers of all the parties called for by the investigation department with whom transactions are made through the bank account in question.
3.3. It is submitted that the petitioner has furnished the books of accounts of M/s.Sunderdeep Builders including cash book, bank book, financial statements, etc. and hence, the finding that the petitioner has failed to explain the nature of the transactions in the bank account is incorrect since the nature of all the transactions are evident from such books of accounts.
3.4. It is submitted that the respondent has raised doubts regarding genuineness of transactions in the bank account. However, except for the suspicions raised in Suspicious Transaction Report (for short ‘STR’) regarding pattern of transactions appearing in the bank account, there is no evidence with the Respondent like some seized material, statement of third party, etc. indicating that such transactions are bogus or accommodation entries which resulted in the escapement of income chargeable to tax.
3.5. Thus, it is urged that the reopening of the assessment merely on the basis of analysis of STR without any concrete material is bad in law and required to be quashed and set aside. Moreover, it is also informed by learned Senior Advocate Mr. Hemani that the assessment against M/s. Sunderdeep Builders is already dropped by the Revenue.
4. Opposing the present writ petition learned Senior Standing Counsel Mr. Varun K. Patel has submitted that the Revenue had received the information suggesting the escapement of taxable income on the insight portal and on analysis of the same and looking to the transaction pattern it was observed that on 31.01.2020, Rs.60 crores were credited through transfers from Infi M and M Developers LLP on the same day and same amount got debited through internet fund transfer.
4.1. He submitted that there were other similar transactions relating to Raghuleela Infra Energy Private Limited of Rs.15 crores dated 19.03.2020 and since the transactions appear to be suspicious, the reopening is valid and hence, the same may not be interfered with at this stage.
5. We have heard the learned advocates appearing for the respective parties at length. The respondent by the impugned notice as well as order has sought reopening of the assessment for financial year 2020-21. The petitioner was issued the show cause notice dated 15.03.2025 under Section 148A(1) of the Act on the basis of the STR which was flagged on the insight portal relating to the transaction for the A.Y. 2020-21 in ICICI Bank account of partnership firm M/s.Sundaram Landscape LLP. Thus, it is not in dispute that the petitioner is a partner of M/s Sundaram Landscape LLP. The STR also reflected the transactions of bank account of M/s.Sundardeep Builders which is the proprietorship concern of the present petitioner.
6. The STR reflected an amount of Rs.45.50 crores of the ICICI bank account of Sundaram Landscape LLP and amount of Rs.499.65 crores of Sundardeep Builders. A summon was issued by the Investigation Department under Section 131(1A) of the Act. The petitioner accordingly responded to the summon by filing a detailed reply on 05.02.2025 giving all the audit report, balance sheets, P&L etc. However it is interesting to note that, in the show cause notice under Section 148(1) of the Act dated 15.03.2025 it is recorded that the petitioner had not responded till date which is a factually incorrect statement recorded in the impugned show cause notice.
7. The reopening under the provision of Section 147 of the Act is permissible only if the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment. In the present case, the provisions have been invoked on STR by alleging that the transactions by the petitioner with its partnership and proprietorship are doubtful. The petitioner in his reply had pointed out all the details with its partnership firms and the proprietorship. However, in the impugned order dated 25.06.2025 passed under Section 148(A)(3) of the Act it has been recorded that the petitioner assessee has not submitted any details or documents to prove the nature of genuineness of the transaction which is also an incorrect fact recorded in the impugned order. It is further recorded that the petitioner (assessee) in his reply in response to the show cause has not submitted any details regarding nature of such transactions or pattern of this transaction which runs contrary to the reply filed by the petitioner dated 10.04.2025. It is not the case of the Revenue that they are in possession of any material or any information which would indicate that the transactions entered by the petitioner with its partnership firm or proprietorship are bogus and are accommodation entries which resulted into escapement of income chargeable to tax.
8. Nothing is pointed to us that in what manner the loans provided between partners inter se constitute an escapement of income. It is not the case of the Revenue that it was in possession of any information or material or any statement of third party indicating that the transactions appearing in the bank accounts are bogus or are forming part of accommodation entries which ultimately resulted in the escapement of income chargeable to tax. We do not doubt the action of the Revenue in reopening the assessment on the basis of the STR. However, the mere suspicion without any material justifying such suspicion cannot be made a basis for reopening the assessment, more particularly in wake of the fact that the transactions on which the suspicion is premised is inter se between the partners, and are fully disclosed. All the transactions are recorded in the books of accounts providing details of transactions of both the firms, and were furnished to the investigation department.
9. Thus, we are inclined to quash and set aside the impugned show cause notice as well as the impugned order as the respondent is miserably failed before us to justify the reopening of the assessment. The impugned show cause notice dated 26.06.2025 as well as the impugned order dated 26.06.2025 are quashed and set aside.
