No Direct Link, No Reopening: High Court Quashes Income Tax Reassessment Based on Broker’s Loose Papers

No Direct Link, No Reopening: High Court Quashes Income Tax Reassessment Based on Broker’s Loose Papers

Naliniben Jagdishkumar Gandhi filed her return of income for AY 2022-23 on 25 July 2022, declaring a total income of Rs. 1.48 crore, including capital gains arising from the sale of her 30% share in non-agricultural land situated at Survey No. 465, Village Shela. The land was sold to the co-owner, Atulkumar Gangadas Patel, through a registered sale deed dated 13 August 2021 for a consideration of Rs. 2 crore. The return was processed under Section 143(1) without any adjustment.

The Assessing Officer issued a notice under Section 148 of the Income-tax Act, 1961, seeking to reopen the assessment. The basis for reopening was a search conducted on City Estate Management, during which a register belonging to a broker was seized. The register contained an entry dated 11 August 2017 mentioning Survey No. 465 with a rate of Rs. 17,000 per square yard. The Assessing Officer alleged that the property was undervalued and that “on-money” had been paid. The petitioner’s objections were rejected, prompting her to approach the Hon’ble High Court.

Main Issue: Whether reassessment proceedings under Section 148 could be sustained solely on the basis of a broker’s seized register and third-party statements, without any independent material directly linking the assessee to alleged cash or “on-money” transactions.

HC’s Order: The Gujarat High Court quashed and set aside the impugned reassessment notice. The Court noted that the seized register entry relied upon by the Revenue pertained to the year 2017, whereas the actual transaction involving the petitioner took place in 2021. The Court found that neither the seized documents nor the broker’s statement named the petitioner or established her involvement in any unaccounted transaction.

The Court further observed that the factual sequence completely undermined the Revenue’s theory that the entire land was sold at a higher undisclosed price. Reopening of the assessment was held to be unsustainable. Thus, the notice under Section 148 was quashed, and the petition was allowed with no order as to costs.

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