Court rules improper inquiry into bank transactions violates Section 148A(1) of the Income Tax Act, 1961.
In a significant ruling, the Gujarat High Court quashed the reassessment notice issued to Mukesh Manubhai Shah by the Assistant Commissioner of Income Tax Circle 1(1)(1) Ahmedabad. The court found that the tax authorities exceeded their jurisdiction under Section 148A of the Income Tax Act, 1961, by conducting an impermissible roving inquiry based on unverified debit and credit entries.
The petitioner, Mukesh Manubhai Shah, is the Managing Director of a data processing firm and a partner in multiple enterprises. He filed his income tax return for the Assessment Year 2019-20, declaring an income of Rs. 33,98,400. However, in March 2025, the tax authorities issued a notice under Section 148A(1), alleging transactions totaling Rs. 37,40,31,604 (Rs. 18,70,59,704 in debits and Rs. 18,69,71,900 in credits) in his bank account suggested escaped income.
Shah's legal counsel argued that the transactions were conducted through official banking channels without any cash involvement, thus not justifying a reassessment. Citing previous judgments, including Vasuki Global Industrial Ltd. v. Principal Chief Commissioner of Income-tax, the counsel contended that the inquiry was unwarranted and beyond legal provisions, as the petitioner had already provided detailed transaction explanations.
The respondent's counsel maintained that the notice was justified based on information received in accordance with the bank's Risk Management Strategy. They argued that Shah had not maintained personal accounts, which left room for further investigation. However, the court found these arguments insufficient to warrant a reassessment.
The bench, comprising Justices A.S. Supehia and Pranav Trivedi, emphasized that the Assessing Officer (AO) must verify information suggesting escaped income before invoking Section 148A(1). The court criticized the reliance on mere bank entries for reopening assessments and reiterated that the AO must substantiate claims with verified information.
Ultimately, the court quashed the notices and orders issued by the tax authorities, ruling that the inquiry exceeded the scope permitted under Section 148A. The decision underscores the necessity for tax authorities to adhere strictly to procedural mandates, ensuring that taxpayers are not subjected to undue investigations.
Bottom Line:
Income Tax - Issuance of notice under Section 148A(1) of the Income Tax Act - Jurisdictional Assessing Officer must verify the information suggesting that income chargeable to tax has escaped assessment before invoking Section 148A(1). Roving inquiry is impermissible under the provisions.
Statutory provision(s): Section 148A(1), Section 148A(3) of the Income Tax Act, 1961
