S.148A Income Tax Act | Gujarat High Court Quashes Reopening Of Assessment, Says AO Conducted Roving Inquiry Despite Being Given All Details

The Gujarat High Court quashed proceedings reopening the assessment of a man whose income had allegedly escaped assessment, after noting that despite the assessee explaining all banking transaction details, the assessing officer had travelled beyond the law and conducted a roving inquiry. For context, Section 148A of the Income Tax Act pertains to conducting of inquiry by assessing officer before he issues notice to assesee in cases where income has escaped assessment. The petitioner had challenged notice issued under section 148A(1) and the order passed by the tax authority along with consequential notice dated 19.06.2025, reopening the assessment for the Assessment Year (AY) 2019-20.The petitioner is a Managing Director of data processing forms private limited, which is in the business of security printing. He is also a partner in the firms viz., M/s Date International, M/s. Form Stores and M/s. Superb World Biotech LLP. He filed his return of income on 27.08.2019 for AY 2019-20 declaring his total income at Rs.33,98,400/-. Thereafter on 27.06.2022, summons under section 131(1) was issued to him for the FY 2018-19 to 2020-21, to which reply was filed on 04.07.2022. Subsequently, another summon was issued on 30.09.2022 and the same was replied on 20.10.2022. On 30.03.2025, the respondent authority issued a notice under section 148A(1) of the Act stating that the information is received suggesting that during the FY 2018-19, the petitioner has undertaken transactions of Rs.37,40,31,604/- (Rs.18,70,59,704/- debit and Rs.18,69,71,900/- credit). The petitioner sought short adjournment to supply the details called on 15.04.2025, which was granted vide reply dated 16.04.2025. He filed detailed reply along with objections to the notice on 22.04.2025. The respondent authority thereafter, passed impugned order dated 19.06.2025 rejecting the objections of the petitioner and also issued impugned notice dated 19.06.2025A division bench of Justice AS Supehia and Justice Pranav Trivedi in its order observed that the Assessing Officer had questioned the debit and credit entries for AY 2019-20, to which the petitioner had responded by stating that entries have been reported without appreciating the transactions, which are done through banking channels and the same do not include any cash deposits."The summarized Excel Sheet showing the names and address of the parties, with whom such transactions have been entered into their PAN opening balances and receipts and payments during the year, closing balances, interest paid, remarks on the nature of the transactions were also published. The petitioner also clarified that he has borrowed the funds in the earlier year to meet his financial needs arising out of acquisition of additional shares of Data Processing Form Pvt. Ltd. and as and when repayment had become due, he used to pay from his own funds but if the funds available with him were insufficient, he used to borrow again from other parties and repay to the previous parties to fulfill the commitment made earlier. It is further asserted that interest paid on such borrowings has never been claimed as a deduction in computing the total income. Further details of the transactions were submitted and from the statements recorded by the bank, it is submitted that the transactions are genuine and the provisions of section 148(1) of the Act would not be attracted in the present case," the court said.It further noted that the petitioner had submitted that the transactions do not in any manner, suggest that income chargeable to tax has escaped the assessment in his case for the relevant AY. Although the bank has reported high risk transactions considering the total amount involved in the bank statement having regard to the details and the evidence, it was urged that there is no information, which may suggest that the income chargeable to tax has escaped the assessment. The petitioner, the court noted, was further called upon to clarify certain points with regard to information/details received by the AO and furnish data collected on such verification inquiry. When such explanations were supplied to the AO, the same were not considered and ultimately, the order under the provisions of section 148A(3) of the Act was passed on 19.06.2025. "It is interesting to note that the AO has acknowledged the production of documents of the respective parties, which include the bank opening/closing balances, receipts and payments of Income Tax Return however, the assessment proceedings re-continued only for verification for authenticity of declared transactions. We have also considered the transactions in questions and the bank statements. It is noticed by us that the amounts, which have been borrowed, have been repaid by the petitioner and it is interesting to note that the AO has considered both, debit as well as credit entries though the petitioner has fully complied with the provisions of the ...

S.148A Income Tax Act | Gujarat High Court Quashes Reopening Of Assessment, Says AO Conducted Roving Inquiry Despite Being Given All Details

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