Vinay Harishkumar Bhansali Vs ITO (Gujarat High Court)
Summary: The Gujarat High Court allowed the assessee’s petition for AY 2020-21 and quashed the order under Section 148A(3) and the consequential Section 148 notice, both dated 30 June 2026, because the Assessing Officer introduced grounds outside the original show-cause notice without affording an opportunity to respond. The assessee had filed his return declaring income of Rs.43,31,600/-, which was processed under Section 143(1), without scrutiny proceedings under Section 143(3). A show-cause notice dated 31 March 2026, based on information from the CBDT’s INSIGHT/Risk Management Strategy Portal, questioned financial transactions aggregating to Rs.3,87,87,00,000/-. In replies dated 22 May 2026 and 5 June 2026, the assessee explained that the transactions represented IPO funding provided by ECL Finance Limited, a registered NBFC, and furnished the funding agreement, ledger accounts, bank statements, demat account, IPO allotment details and other supporting records. He also explained the source of margin money of Rs.1,70,00,000/- transferred through normal banking channels from his IDBI Bank account.
Although the Assessing Officer accepted that the IPO investments were financed by ECL Finance Limited, the impugned order shifted attention to the creditworthiness of Harishkumar Jitmal HUF, proprietor of JH Handloom, from whom the margin money was allegedly received as an unsecured loan, and to a proposed disallowance under Section 40(a)(ia) concerning interest on that loan. The assessee argued that neither issue formed part of the original notice. Revenue’s counsel could not satisfy the Court regarding the order travelling beyond that notice, but sought liberty to initiate fresh proceedings. The Court held that the original notice exclusively concerned the alleged unexplained financial transactions and that the assessee had not been afforded an opportunity to meet the subsequently introduced issues. It therefore quashed the order and consequential notice, while reserving liberty to issue a fresh show-cause notice concerning the Rs.1,70,00,000/- margin money and the proposed Section 40(a)(ia) disallowance, if otherwise permissible in law.
FULL TEXT OF THE JUDGMENT OF GUJARAT HIGH COURT
1. Since a short issue is involved in the present writ petition, the same is taken up for final hearing and is being decided by this judgment today.
2. Rule. Learned Senior Standing Counsel Mr. Dev D. Patel waives service of notice of Rule on behalf of the respondent.
3. In the present petition, the petitioner has prayed for quashing and setting aside the order dated 30.06.2026 passed by the respondent under sub-section (3) of Section 148A of the Income-tax Act, 1961 (for short, “the Act”), as well as the consequential notice under Section 148 of the Act dated 30.06.2026.
4. The petitioner is an individual assessee within the meaning of the Act and is regularly assessed to tax. The Permanent Account Number (PAN) of the petitioner is APKPB4890C. The petitioner filed his return of income for the Assessment Year (A.Y.) 2020-21 on 29.10.2020, declaring total income of Rs.43,31,600/-. The said return was processed under Section 143(1) of the Act and no proceedings under Section 143(3) of the Act were initiated.
5. Nearly six years thereafter, the respondent issued a notice dated 31.03.2026 under Section 148A(1) of the Act, alleging that the petitioner had undertaken high-value financial transactions aggregating to Rs.3,87,87,00,000/- during the Financial Year 2019-20 relevant to the A.Y. 2020-21, and called upon the petitioner to show cause as to why a notice under Section 148 of the Act should not be issued. The said notice was based solely upon information generated through the INSIGHT/Risk Management Strategy Portal of the CBDT, and no independent material or enquiry conducted by the Assessing Officer was disclosed therein.
6. On receipt of the aforesaid notice, the petitioner submitted a detailed reply dated 22.05.2026, explaining that the alleged financial transactions represented IPO funding transactions and not unexplained receipts or income. The petitioner specifically explained that the entire funding had been provided by ECL Finance Limited, a duly registered Non-Banking Financial Company (NBFC), for subscription to IPOs and debt instruments. Along with the reply, the petitioner furnished copies of the funding agreement, ledger account of ECL Finance Limited, bank statements, demat account, IPO allotment details and other supporting documentary evidence establishing the complete source and utilisation of the funds.
7. Thereafter, by way of a further reply dated 05.06.2026, the petitioner furnished additional particulars explaining the source of the margin money utilised for obtaining the IPO funding. The petitioner demonstrated that the margin money aggregating to Rs.1,70,00,000/- had been transferred through normal banking channels from the IDBI Bank account and that the source thereof was duly explained by ledger accounts and banking records.
8. The respondent obtained approval under Section 151 of the Act on 30.06.2026 for passing an order under Section 148A(3) of the Act and for issuance of a consequential notice under Section 148 of the Act.
9. The respondent thereafter passed the impugned order dated 30.06.2026 under Section 148A(d) of the Act, holding that the case was fit for issuance of notice under Section 148 of the Act. Significantly, the respondent accepted in the impugned order that the transactions in question related to investments in IPOs and that the funding for such transactions had been provided by ECL Finance Limited.
10. It is the case of the petitioner that, thereafter, the respondent shifted the basis for reopening and introduced entirely new issues by questioning the creditworthiness of Harishkumar Jitmal HUF, proprietor of JH Handloom, from whom the margin money had allegedly been received by the petitioner. According to the petitioner, the same ultimately resulted in the issuance of the impugned notice as well as the impugned order.
11. Learned advocate Mr.Mehta, appearing for the petitioner, has submitted that the impugned order as well as the notice dated 30.06.2026 is required to be quashed and set aside, since an entirely new ground has been introduced, departing from the basis set out in the original show-cause notice. It was submitted that the impugned order proceeds on altogether new allegations relating to the creditworthiness of Harishkumar Jitmal HUF, proprietor of JH Handloom, and the alleged applicability of Section 40(a)(ia) of the Act, neither of which formed part of the show-cause notice. It was, therefore, urged that the impugned order as well as the consequential notice are liable to be quashed and set aside as being in gross violation of the principles of natural justice.
12. When the fact that the impugned order had travelled beyond the scope of the initial show-cause notice, was pointed out, learned Senior Standing Counsel Mr. Dev D. Patel, he was unable to satisfy the Court on the said aspect. However, he urged that liberty may be reserved in favour of the Revenue to issue a fresh notice in accordance with law in respect of the issues relating to the margin money and the deduction of tax at source on the interest under the provision of Section 40(a)(ia) of the Act.
13. We have perused the impugned show-cause notice as well as the impugned order. The show-cause notice dated 31.03.2026 exclusively refers to the alleged unexplained credit/financial transactions for the A.Y. 2020-21 to the tune of Rs.3,87,87,00,000/-.
14. Thus, the return of income filed by the assessee on 29.10.2020, declaring total income of Rs.43,31,600/-, was questioned on the basis of the information received through the INSIGHT Portal of the CBDT, New Delhi, under the category of high-risk transactions.
15. However, after the petitioner tendered his explanation pointing out that the transactions amounting to Rs.3,87,87,00,000/- were financed by ECL Finance Limited, while passing the impugned order, the Assessing Officer shifted the focus to the margin money of Rs.1,70,00,000/-, which was allegedly sourced from JH Handloom, a proprietary concern of Harishkumar Jitmal HUF, by way of an unsecured loan. Further, the disallowance under Section 40(a)(ia) of the Act in respect of the interest on the unsecured loan has also been questioned.
16. Thus, in our considered opinion, the impugned order travels beyond the scope of the show-cause notice. The petitioner was not afforded an opportunity to meet the aforesaid issues before the impugned order came to be passed. Consequently, the impugned show-cause notice as well as the impugned order are required to be quashed and set aside.
17. However, we reserve liberty in favour of the Revenue to issue a fresh show-cause notice in accordance with law in respect of the margin money of Rs.1,70,00,000/- and the proposed disallowance under Section 40(a)(ia) of the Act, if otherwise permissible in law.
18. With the aforesaid observations and directions, the present writ petition is allowed. The impugned order dated 30.06.2026 passed by the respondent under Section 148A(3) of the Act, as well as the consequential notice under Section 148 of the Act dated 30.06.2026, is hereby quashed and set aside. Rule is made absolute accordingly.
