Supreme Court Upholds Gujarat HC Ruling Quashing Mechanical Income Tax Reopening Notices Based on ‘National Shroff Angadiya’ Search Inputs [Read Judgement]

In a recent ruling, the Supreme Court upheld the Gujarat High Court decision which quashed Income Tax reopening notices that were issued mechanically based on “National Shroff Angadiya” search inputs.

The case arose from a Special Leave Petition filed by the Income Tax Department against a Gujarat High Court judgment. The dispute started when the Assessing Officer issued notices under Section 148 for reopening Assessment Years 2013–14, 2014–15 and 2015–16.

The reopening was based on information received from DCIT, Central Circle-1, Rajkot, relating to survey and search actions in the case of National Shroff group, and the reasons stated that assessee had carried out transactions through that party and income escaped assessment.

Before the High Court, the assessee's counsel argued that the reasons were wrong because AO assumed that no return was filed for AY 2013–14 and 2014–15 though returns were filed. The counsel also argued that no documents, statements or material was supplied even after request and the reopening was on borrowed satisfaction without proper enquiry.

The department argued that at Section 148 stage only prima facie material is required and sufficiency cannot be checked and relied on Raymond Woollen Mills and Rajesh Jhaveri. The department also accepted there was a mistake about return filing in AY 2013–14.

A Division Bench of Justice Bhargav D. Karia and Justice D.N. Ray observed that the AO recorded reasons in a mechanical manner only on DCIT information and there was no reference to any specific transaction of assessee. The court also observed that material was not provided and the department’s stand of “confidential” was not acceptable because the assessee must get the material relied upon.

The court observed that objections were not properly considered and there was no link between material and reasons so AO could not assume jurisdiction, and the High Court quashed the notices dated 30 March 2021 for all years.

The department went to Supreme Court. The Supreme Court Bench comprising Justice Manoj Misra and Justice Manmohan first condoned the delay but observed there was no good ground to interfere under Article 136. The SLP was dismissed and pending applications were disposed.

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