Court holds that mere entry in seized register predating actual transaction and lacking direct nexus with assessee cannot sustain reopening of assessment under Section 148 of Income Tax Act, 1961
In a significant judgment dated October 8, 2026, the Gujarat High Court (Division Bench comprising Justices A.S. Supehia and Vaibhavi D. Nanavati) has quashed the reassessment notice issued under Section 148 of the Income Tax Act, 1961, to reopen the income tax assessment of Mr. Sanjaykumar Amrutlal Patel for the Assessment Year 2022-23. The notice was issued by the Income Tax Officer, Ward 1, Patan, based on an entry found in a seized inquiry register during a search operation at a real estate broker's premises.
The case arose from a search conducted under Section 132 of the Income Tax Act on September 28, 2021, at the office of City Estate Management India, a real estate broker for B Safal Group. During the search, inquiry registers were seized containing details of various lands and plots available for sale, including an entry dated January 16, 2020, referencing land at Moje Bhadaj, Ahmedabad. The entry mentioned multiple survey numbers, including Survey No. 509/A, and an asking rate, but did not name the petitioner or indicate any concluded transaction.
Mr. Patel, along with twelve other co-purchasers, had purchased Survey No. 509/A by a registered sale deed dated June 1, 2021, approximately one and a half years after the date of the seized entry. The Income Tax Department alleged that Mr. Patel had paid undisclosed "on-money" based on the discrepancy between the sale deed consideration and the inquiry register rate, issuing a notice under Section 148 to reopen the assessment.
The petitioner challenged the reopening notice, arguing that the seized inquiry register entry was a mere market survey of lands available for sale and did not pertain to any concluded transaction involving him. The register referred to a larger area and multiple survey numbers, and the names in the register did not correspond to the petitioner or the sellers. The petitioner also highlighted that the broker had admitted in his statement that the registers sometimes contained documents belonging to clients and that the entries were not conclusive evidence of transactions.
The Income Tax Department contended that the inquiry register was a structured business record, and the presence of the survey number matching the petitioner's purchased land provided sufficient information to justify reopening. They relied on statutory presumptions under Sections 132(4A) and 292C of the Act and Supreme Court precedents allowing reopening on "information suggesting escapement" without proving escaped income at the notice stage.
However, the Gujarat High Court held that for reopening under Section 148, there must be a "live nexus" or direct link between the seized material and the assessee. The Court observed that the entry predating the purchase by over a year could only be treated as an asking rate or market survey, not evidence of actual payment or transaction. The discrepancies in survey numbers, areas, and owner names in the register further weakened any connection with the petitioner. The broker's own admissions undermined the presumption of truthfulness of the seized registers as conclusive evidence.
The Court relied on its earlier decisions in similar cases arising from the same search, emphasizing that vague or conjectural material without direct or indirect nexus with the assessee cannot sustain reopening of assessment. It also noted that no inquiry had been conducted with the persons named in the register, and the department failed to establish a live link connecting the petitioner with the seized documents.
Consequently, the Court quashed and set aside the notice under Section 148 issued for the Assessment Year 2022-23, allowing the writ petition filed by Mr. Patel. The judgment reinforces the principle that reopening of income tax assessments must be based on tangible and relevant information connecting the assessee to escaped income, not on speculative or remote evidence.
Bottom Line:
Income Tax - Reassessment under Section 148 of the Income Tax Act cannot be sustained merely on the basis of a seized broker's inquiry register, when the entry predates the assessee's purchase, refers to multiple survey numbers and larger area, does not name the assessee, and no live nexus is established between the seized material and the assessee.
Statutory provision(s): Section 148, Section 131, Section 132, Section 132(4A), Section 292C, Explanation 2(iv) to Section 148 of the Income Tax Act, 1961; Article 226 of the Constitution of India
