Gujarat High Court Quashes Reassessment Notice Against Rao Tradelink Pvt. Ltd.

Court Finds Reopening of Assessment Based on Change of Opinion and Lack of Concrete Evidence

In a significant ruling, the Gujarat High Court quashed a notice issued by the Income Tax Department to Rao Tradelink Private Limited for reopening the assessment of the financial year 2017-18. The Division Bench, comprising Justices A.S. Supehia and Pranav Trivedi, concluded that the reopening was based on a mere change of opinion without any new tangible evidence, thus rendering it unsustainable.

The case arose from a notice dated March 31, 2024, issued under Section 148 of the Income Tax Act, 1961, which sought to reassess the income of Rao Tradelink. The notice claimed that the reopening was justified due to information obtained during a search conducted on another entity, Invent Assets Securitization and Reconstruction Pvt. Ltd. However, the court found that the Assessing Officer (AO) had failed to establish any concrete link between Rao Tradelink and Invent Assets that would justify the reassessment.

The court emphasized that the original assessment for the year in question was conducted after a thorough scrutiny of documents and detailed explanations provided by Rao Tradelink. The AO had previously accepted the company's returns, which included a substantial purchase from Ruchita Chemicals LLP, backed by comprehensive documentation. The reassessment notice was issued based on presumptions and lacked a direct nexus with any new evidence of income escapement.

The court also referenced the legal precedent set in the case of Lambda Therapeutic Research Limited v. Assistant Commissioner of Income Tax, which underscores that a reassessment cannot be justified by merely changing the opinion on the same set of facts already scrutinized and accepted by the tax authorities.

Ultimately, the court ruled in favor of Rao Tradelink, stating that the reassessment notice under Section 148 was not justified. The judgment reinforces the principle that reopening of assessments requires clear, new evidence of income escapement, rather than vague suspicions or changes in the opinion of tax officials.

Bottom Line:

Income Tax Act, 1961 - Reopening of assessment under Section 148 - Assessment cannot be reopened based on change of opinion - If there is no failure on the part of the assessee as to full and true disclosure, reassessment cannot be justified.

Statutory provision(s): Income Tax Act, 1961 - Sections 143(3), 147, 148

Rao Tradelink Private Limited v. Income Tax Officer, (Gujarat)(DB) : Law Finder Doc Id # 2817210