Revenue’s “No ITR Filed” Claim Backfires: Supreme Court sustains Deletion of Income Tax Addition made without Proof [Read Judgement]

The Supreme Court has declined to interfere with a ruling by the Gujarat High Court by which a reassessment initiated on a mistaken premise was quashed along with the deletion of an income tax addition of ₹1.68 crore, observing that no tangible material or proof linked the assessee to any escaped income as purported by the Revenue.

The Revenue filed a Special Leave Petition against the respondent-assessee Amitkumar Chandulal Rajani, assailing a Gujarat High Court judgment invalidating the reopening of assessment under Section 147 of the Income Tax Act, 1961 for the Assessment Years 2013-14 and 2014-15.

The reopening was initiated on the basis of information received from the DCIT, Central Circle–1, Rajkot, following a search on M/s National Shroff & Co., where unaccounted cash was reportedly found.

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Relying on that information, the Assessing Officer concluded that the assessee had carried out unrecorded transactions through the said entity and had not filed returns of income for the relevant years.

On this assumption, the Department reopened the assessments and proceeded to add ₹1.68 crore as unexplained income. Although the assessee objected with proof and demanded copies of the seized material linking him to the alleged transactions, none were provided by the Revenue.

Aggrieved by the reopening based on erroneous facts and absence of tangible material, the assessee filed a writ petition before the Gujarat High Court challenging the validity of the notice and the reasons recorded therein.

Fenil H. Mehta, appearing for the assessee proved before the High Court that the assessee had indeed filed returns of income for the relevant years and that the Assessing Officer had acted mechanically, without verifying records in reopening the assessment.

It was further argued that the Assessing Officer had relied on information borrowed from the DCIT without conducting any independent investigation and had also grossly failed to provide the assessee with copies of the documents or statements allegedly forming the basis of the whole notion of escaped income.

Senior Standing Counsel Karan G. Sanghani, conceded before the Gujarat High Court that the Assessing Officer had mistakenly recorded that the assessee had not filed returns. The Department however sought to justify their action by contending that the assessee had carried out a transaction of Rs.1,68,70,100/- during the relevant Assessment Year 2013-14.

The Bench comprising Justice Bhargav D. Karia and Justice D.N. Ray found this explanation unsustainable, observing that the reasons recorded were mechanical and unsupported by any tangible nexus between the seized material and the assessee.

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The High Court held that the reopening was initiated on borrowed satisfaction and in complete absence of evidence, quashed the impugned notices for multiple assessment years and set aside the reassessment proceedings.

When the Revenue challenged this ruling before the Supreme Court, the Division Bench of Justice Manoj Misra and Justice Manmohan heard the counsel and at the outset noted that there was ‘no good ground’ to exercise the jurisdiction of the apex court under Article 136 of the Constitution of India.

Accordingly, the Supreme Court dismissed the petition, effectively sustaining the Gujarat High Court’s order deleting the ₹1.68 crore addition made on the assessee.

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