Income, P&L, Transactions Disclosed in ITR: Supreme Court Declines Interference with Guj HC’s Quashal of Reassessment [Read Order]

The Supreme Court of India recently declined to interfere with a judgment of the Gujarat High Court which quashed reassessment proceedings against an assessee after noting that the assessee had disclosed their income, profit and loss account, and all relevant transactions in their Income Tax Return (ITR) for the relevant year.

The assessee M/s R D Diamond is a trader, and have been regularly filing their ITRs since incorporation.

The assessee filed its return for the Assessment Year 2019-20, declaring its income at ₹16.28 crore.

The Revenue issued a show-cause notice to the assessee under Section 148A(1) of the Income TaxAct, 1961 alleging that the assessee had entered into bogus transactions, resulting in an escaped assessment of ₹5.66 crore based on information flagged through the portal.

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The assessee denied the allegations and furnished a detailed explanation that the transactions pertaining to their sales were duly offered to tax.

However the Revenue issued a reassessment notice under Section 148 on 29.06.2025, alleging escapement of income, and passed an order under Section 148A(3).

Before the High Court, the Revenue’s counsel submitted that the case was primarily based on investigation into one ‘Vasudev Babubhai Kapadia’, who was found to have conducted huge transactions through an undisclosed bank account which did not match with the details provided in his ITR. Babubhai Kapadia had also engaged in transactions with the petitioner.

Due to mismatches in Babubhai Kapadia’s purchases and relevant documentation, and failure to cooperate with the department’s investigation, the authorities claimed that the petitioner had engaged in bogus purchase and sale transactions aggregating to ₹5.66 crore, warranting reopening of assessment.

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Senior Advocate Tushar Hemani appeared for the assessee and argued that there was no escapement of income as all transactions, including those with Kapadia, were fully disclosed in the books of account and reflected in the profit and loss statement. It was contended that the reassessment was initiated merely on information retrieved from the portal and was nothing but a fishing and roving inquiry.

The Gujarat High Court Bench of Justice A.S. Supehia and Justice Pranav Trivedi noted that the assessee had maintained regular books, undergone audit, and disclosed all transactions including those with Kapadia.

The Court noted that the Revenue had misdirected themselves while assessing the transactions of Vasudev Babubhai Kapadia and that there was no material indicating that the petitioner’s income had escaped assessment.

Accordingly, the High Court quashed the reassessment notice and the order under Section 148A(3), holding the proceedings to be uncalled for.

When the matter reached the Supreme Court, the Bench comprising Justice Dipankar Datta and Justice Satish Chandra Sharma stated that it was not inclined to interfere with the High Court ruling and dismissed the Special Leave Petition, while keeping the question of law open.

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