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

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                           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.

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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

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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

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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

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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

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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.

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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

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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

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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.

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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

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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

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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

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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

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