Gujarat High Court
Ajay Cotspin Industries vs Income Tax Officer, Ward 1 Mehsana on 26 August, 2025
Author: Bhargav D. Karia
Bench: Bhargav D. Karia
NEUTRAL CITATION
C/SCA/8150/2024 JUDGMENT DATED: 26/08/2025
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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 8150 of 2024
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR. JUSTICE BHARGAV D. KARIA
and
HONOURABLE MR. JUSTICE PRANAV TRIVEDI
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Approved for Reporting Yes No
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AJAY COTSPIN INDUSTRIES
Versus
INCOME TAX OFFICER, WARD 1 MEHSANA
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Appearance:
MR SN DIVATIA(1378) for the Petitioner(s) No. 1
MS MAITHILI D MEHTA(3206) for the Respondent(s) No. 1
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CORAM:HONOURABLE MR. JUSTICE BHARGAV D. KARIA
and
HONOURABLE MR. JUSTICE PRANAV TRIVEDI
Date : 26/08/2025
ORAL JUDGMENT
(PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA)
1. Heard learned advocate Mr. S.N. Divatia for the petitioner and learned Senior Standing Counsel Ms. Maithili D. Page 1 of 16 Uploaded by RAGHUNATH R NAIR(HC00196) on Thu Aug 28 2025 Downloaded on : Thu Aug 28 22:40:19 IST 2025 NEUTRAL CITATION C/SCA/8150/2024 JUDGMENT DATED: 26/08/2025 undefined Mehta for the respondent.
2. Having regard to the controversy involved, with the consent of learned advocates for the respective parties, the matter is taken up for hearing.
3. Rule returnable forthwith. Learned Senior Standing Counsel Ms. Maithili D. Mehta waives service of notice of rule on behalf of the respondent.
4. By this petition under Article 226 of the Constitution of India, the petitioner has prayed for the following reliefs:
"(a) to issue a writ of certiorari or in the nature of certiorari or any other appropriate writ, orders or directions quashing and setting aside the impugned order u/ s.148A(d) dated 29.03.2024 for A.Y.2018-19 passed by the Respon-
dent [Annexure-A].
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(b) to issue a writ of certiorari or in the nature of certiorari or any other appropriate writ, orders or directions of quashing and set- ting aside the impugned the notice u/s.148 of the Act issued by the Respondent on 29.03.2024 for A.Y.2018-19. [Annexure-B].
(c) to call for the records of the proceedings and look into them and be pleased to issue a writ of cer- tiorari or any other appropriate writ, order or direction quashing the impugned notice and order.
(d) Pending the hearing and final disposal of this petition to main- tain status quo in the matter and ask the Respondent and its subor- dinates not to take any action or to do anything in furtherance and pursuance of this impugned order and notice both.
(e) To allow this Petition with cost.
(f) To pass any further or other orders as the Hon'ble Court may deem proper in the interest of justice and in the circumstances of the case."
5. Brief facts of the case are that the petitioner is a partnership firm Page 3 of 16 Uploaded by RAGHUNATH R NAIR(HC00196) on Thu Aug 28 2025 Downloaded on : Thu Aug 28 22:40:19 IST 2025 NEUTRAL CITATION C/SCA/8150/2024 JUDGMENT DATED: 26/08/2025 undefined constituted under the partnership deed executed on 01.07.2015 and carrying on business of manufacturing and trading of cotton bale and cotton yarn related products.
6. The petitioner had filed its e-ITR for Assessment Year 2018-2019 on 03.07.2018 declaring total income of Rs. 1,43,63,430/- and thereafter filed revised return on 11.03.2019.
7. Respondent issued notice under section 148A(b) of the Income Tax Act, 1961 (For short "the Act") calling upon the petitioner to show cause as to why the notice under section 148 of the Act should not be issued in view of the fact that the respondent was in possession of information from Insight Portal that the Page 4 of 16 Uploaded by RAGHUNATH R NAIR(HC00196) on Thu Aug 28 2025 Downloaded on : Thu Aug 28 22:40:19 IST 2025 NEUTRAL CITATION C/SCA/8150/2024 JUDGMENT DATED: 26/08/2025 undefined petitioner had made huge credits and debits in account with Mehsana Urban Coop. Bank Ltd., sales/purchases of yarn/cotton scrap with M/s. Mittal Enterprise, Prop. Mohit Mittal, sale of mutual fund, TDS in relation to sale of motor vehicle, purchase of foreign currency, etc. aggregating to Rs. 25,52,14,888/- which had escaped assessment for Assessment year 2018-2019 and the petitioner was asked to furnish response on or before 04.03.2024.
8. In response to such notice, the petitioner submitted its detailed explanation along with relevant documents vide reply dated 04.03.2024.
9. The respondent thereafter passed the impugned order under section 148A(d) of the Act on 29.03.2024 holding that the Page 5 of 16 Uploaded by RAGHUNATH R NAIR(HC00196) on Thu Aug 28 2025 Downloaded on : Thu Aug 28 22:40:19 IST 2025 NEUTRAL CITATION C/SCA/8150/2024 JUDGMENT DATED: 26/08/2025 undefined income to the tune of Rs. 3,84,39,847/- had escaped assessment for the year under consideration since the petitioner had failed to prove genuineness of the transactions, source of income for making such huge transactions and therefore, it was a fit case for issuance of notice under section 148 of the Act.
10. Being aggrieved, the petitioner has preferred the present petition.
11. Learned advocate Mr. S.N. Dviatia for the petitioner submitted that the petitioner in response to the notice issued under section 148A(b) of the Act has filed a detailed reply which is considered by the respondent in the impugned order under section 148A(d) of the Act and thereafter has arrived at Page 6 of 16 Uploaded by RAGHUNATH R NAIR(HC00196) on Thu Aug 28 2025 Downloaded on : Thu Aug 28 22:40:19 IST 2025 NEUTRAL CITATION C/SCA/8150/2024 JUDGMENT DATED: 26/08/2025 undefined conclusion with regard to only two items i.e. (i) with regard to deposit in Mehsana Urban Cooperative Bank Ltd. from 9.11.2016 to 30.12.2016 amounting to Rs.1,67,06,164/- and (ii) in respect of transaction of Rs. 2,17,33,683/- with Mittal Enterprise.
12. It was submitted that so far as transaction with Mehsana Urban Cooperative Bank is concerned, the same is relevant to the Assessment Year 2017-2018 whereas the impugned order under section 148A(d) of the Act as well as notice under section 148 of the Act is issued for Assessment Year 2018-2019. Therefore, the Assessing Officer cannot be said to have assumed the jurisdiction to reopen the assessment for the year under consideration. Page 7 of 16 Uploaded by RAGHUNATH R NAIR(HC00196) on Thu Aug 28 2025 Downloaded on : Thu Aug 28 22:40:19 IST 2025
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13. With regard to transaction with M/s.
Mittal Enterprise, it was submitted that the petitioner had submitted ledger account duly reflecting the transaction and the Assessing Officer has assumed the jurisdiction only on the ground that the petitioner did not furnish the sales and purchase register and has only furnished the ledger account. It was submitted that the books of accounts of the petitioner are duly audited and the ledger account of M/s. Mittal Enterprise was submitted which was part of the audited books of accounts and therefore, the respondent Assessing Officer could not have assumed the jurisdiction to reopen the assessment when the petitioner has disclosed all the material facts before the respondent Assessing Officer in the reply as well as Page 8 of 16 Uploaded by RAGHUNATH R NAIR(HC00196) on Thu Aug 28 2025 Downloaded on : Thu Aug 28 22:40:19 IST 2025 NEUTRAL CITATION C/SCA/8150/2024 JUDGMENT DATED: 26/08/2025 undefined at the time of filing the return of income in form of audited balance sheet and profit and loss account.
14. On the other hand learned Senior Standing Counsel Ms. Maithili D. Mehta for the respondent has referred to and relied upon the following averments made in the affidavit-in-reply filed on behalf of the respondents:
"In view of the receipt of above information in respect of transac- tion with M/s. Mittal Enterprise and on the basis of material available on record which estab- lish that the income chargeable to tax in respect of above unex- plained transaction and Cash De- posits during Demonetization in The Mehsana Urban Coop Bank the assessee has failed to explain the above mentioned transactions and income earned / derived there from, during the year under con- sideration and therefore, the same remained unexplained. On the basis of material available on record which establish that the income Page 9 of 16 Uploaded by RAGHUNATH R NAIR(HC00196) on Thu Aug 28 2025 Downloaded on : Thu Aug 28 22:40:19 IST 2025 NEUTRAL CITATION C/SCA/8150/2024 JUDGMENT DATED: 26/08/2025 undefined chargeable to tax in respect of above unexplained transaction of Rs.3,84,39,847/- (Rs.1,67,06,164 Rs.2,17,33,683) has escaped as- sessment and therefore, this is a fit case for issuance of notice u/s.148 of the Act and passed the order u/s.148A(d) of the Act with prior approval of specified au- thority as defined in section 151 of the Act and Notice u/s.148 of the I.T. Act was issued and served upon assessee on 29/03/2024.
Therefore, the assessee's con- tention regarding order u/ s.148A(d) and notice u/s.148 of the IT Act are patently illegal, bad-in-law and without jurisdic- tion is not acceptable. The order u/s.148A(d) and notice u/s. 148 of the Act was issued after following due procedure as mandated in the Act.
In view of the above, the con- tention of the assessee that im- pugned order u/s.148A(d) of the Act and the impugned notice u/ s.148 of the Act on the firm to be quashed is not acceptable.
The petitioner has stated that vi- olation of natural justice and non-observance of the mandatory provisions of section 148A of the I.T. Act.Page 10 of 16 Uploaded by RAGHUNATH R NAIR(HC00196) on Thu Aug 28 2025 Downloaded on : Thu Aug 28 22:40:19 IST 2025
NEUTRAL CITATION C/SCA/8150/2024 JUDGMENT DATED: 26/08/2025 undefined The above contention of the peti- tioner that violation of natural justice and non-observance of mandatory provisions of section 148A is not acceptable.
It can be seen from the chronology of the events that as mandated in the Provision of section 148A of the Act, opportunity was granted to the assessee vide notice u/ s.148A(b) of the I.T. Act dated 23/02/2024 and sufficient time was also granted to the assessee to furnish the reply as per provision of section 148A of the IT Act.
The assessee furnished the reply on 04/03/2024 and the same was duly considered and partly ac- cecpted, which can be seen from the body of the order u/s.148A(d) of the I.T. Act.
In view of the above, contention of the assessee regarding viola- tion of natural justice and non- observance of mandatory provisions of section 148A of the I.T. Act is not acceptable."
15. Having considered the submissions made by both the learned advocates, it Page 11 of 16 Uploaded by RAGHUNATH R NAIR(HC00196) on Thu Aug 28 2025 Downloaded on : Thu Aug 28 22:40:19 IST 2025 NEUTRAL CITATION C/SCA/8150/2024 JUDGMENT DATED: 26/08/2025 undefined appears that the respondent Assessing Officer while arriving at prima facie conclusion that it is a fit case to reopen the assessment has failed to consider that the amount of credit in the account of Mehsana Urban Cooperative Bank Ltd. during demonitisation period could not have been considered for Assessment Year 2018-2019 as the same pertains to the Assessment Year 2017-2018 which is evident from the following observations made by the respondent Assessing Officer:
"5(iv) In regards to the Credit in account during the period from 9th Nov. 2016 to 30th December, 2016 in the bank account held with The Mehsana Urban Coop Bank Ltd, the assessee has stated that no such transaction has been carried out. However, the assessee has not furnished the bank statement of The Mehsana Urban Coop Bank for the period under consideration as well as source of the cash deposits. Hence the cash deposits in the bank account of Page 12 of 16 Uploaded by RAGHUNATH R NAIR(HC00196) on Thu Aug 28 2025 Downloaded on : Thu Aug 28 22:40:19 IST 2025 NEUTRAL CITATION C/SCA/8150/2024 JUDGMENT DATED: 26/08/2025 undefined Rs.1,67,06,164/- being represented in the form of assets as defined in explanation to Section 149 of the Act has escaped assessment."
16. So far as other addition is concerned, the respondent Assessing Officer has only considered the transaction of Rs.2,17,33,683/- with M/s. Mittal Enterprise and arrived at a prima facie conclusion that such transaction represents the escaped income of the assesse only on the ground that the petitioner failed to furnish sales/purchase register and had only furnished the ledger account by observing as under:
"5(xii) In respect to Transaction of Rs. 2,17,33,683/- with Mittal Enterprise the assessee has stated that the same are duly recorded in the books and furnish the ledger of M/s. Mittal enterprise from the books. In respect of the transac- tion with M/s. Mittal Enterprise the assessee has not furnished the Page 13 of 16 Uploaded by RAGHUNATH R NAIR(HC00196) on Thu Aug 28 2025 Downloaded on : Thu Aug 28 22:40:19 IST 2025 NEUTRAL CITATION C/SCA/8150/2024 JUDGMENT DATED: 26/08/2025 undefined sales/ purchase register and has only furnished the ledger of M/s. Mittal Enterprise. Hence the in- come corresponding to the sale transaction with M/s. Mittal en- terprise Rs.2,17,33,683/- being represented in the form of assets as defined in explanation to Sec- tion 149 of the Act has escaped assessment."
17. We are of the opinion that the above reasons assigned by the Assessing Officer cannot lead to a prima facie conclusion that income has escaped assessment for the year under consideration.
18. With regard to proposed reopening in respect of credit in Mehsana Urban Cooperative Bank Ltd. is concerned, the period relied upon is from 9.11.2016 to 30.12.2016 which is relevant for the Assessment Year 2017-2018 whereas the Page 14 of 16 Uploaded by RAGHUNATH R NAIR(HC00196) on Thu Aug 28 2025 Downloaded on : Thu Aug 28 22:40:19 IST 2025 NEUTRAL CITATION C/SCA/8150/2024 JUDGMENT DATED: 26/08/2025 undefined impugned order is passed for Assessment Year 2018-2019 and so far as the transaction with M/s. Mittal Enterprise is concerned, the petitioner has already submitted ledger account along with the reply to the notice issued under section 148A(b) of the Act in addition to the tax audit report already filed along with the return of income.
19. In view of above findings, we are of the opinion that the Assessing Officer has failed to assume jurisdiction to hold that it is a fit case for reopening as it cannot be said that the respondent Assessing Officer was having information which suggest that there is escapement of income.
20. In the result, the impugned order Page 15 of 16 Uploaded by RAGHUNATH R NAIR(HC00196) on Thu Aug 28 2025 Downloaded on : Thu Aug 28 22:40:19 IST 2025 NEUTRAL CITATION C/SCA/8150/2024 JUDGMENT DATED: 26/08/2025 undefined dated 29.03.2022 passed under section 148A(d) of the Act is hereby quashed and set aside. Consequentially, the impugned notice under section 148 of the Act of even date is also quashed and set aside.
21. Rule is made absolute to the aforesaid extent. No order as to costs.
(BHARGAV D. KARIA, J) (PRANAV TRIVEDI,J) RAGHUNATH R NAIR Page 16 of 16 Uploaded by RAGHUNATH R NAIR(HC00196) on Thu Aug 28 2025 Downloaded on : Thu Aug 28 22:40:19 IST 2025