LI Network
Published on: November 24, 2023 at 00:45 IST
The Gujarat High Court has highlighted the necessity for concrete evidence and valid reasons to believe that income has evaded assessment.
The decision pertains to the reopening of assessments without a direct link between the taxpayer and the disputed transaction.
Justice Biren Vaishnav and Bhargav D Karia, in their observations, pointed out the insufficiency of reasons provided by the Income Tax Department.
The court emphasized that the department’s inquiry lacked material to establish a live link or nexus between the taxpayer and the questioned transaction.
The case arose from a petition filed by Bhagwati Polyfill Pvt. Ltd., challenging the validity of a notice issued under Section 148 of the Income-Tax Act for the Assessment Year 2012-13.
The court expressed concern that the department’s actions seemed like a speculative and exploratory inquiry without substantial evidence.
The court criticized the vague grounds presented by the department, stating that the reasons suggested a roving and fishing inquiry without tangible material, especially considering the prior scrutiny assessment. The lack of a valid reason to believe that taxable income had escaped assessment was a pivotal point in the court’s decision.
The ruling underscored that the department’s approach appeared to be an attempt to conduct a broad and unrestricted inquiry under the guise of reopening the assessment. This practice was deemed impermissible under Section 148 of the Income-Tax Act.
The court highlighted that, despite mentioning the petitioner’s association with certain entities, the department failed to provide material proof establishing a clear link between the petitioner and the transactions under scrutiny.
The court emphasized the need for a strong foundation and substantial grounds for reopening assessments.
Given that the reopening occurred beyond the four-year period, the onus was on the Income Tax Department to demonstrate the petitioner’s failure to fully and accurately disclose income. However, the court determined that the petitioner had adequately disclosed information pertaining to unsecured loans.
In conclusion, the court quashed and set aside the notice issued under Section 148 of the Income-Tax Act for the Assessment Year 2012-13, stating that the department failed to provide prima facie material justifying the reopening of the assessment.