Gujarat High Court Quashes Reassessment Based On GST Proceedings Set Aside, Finds No Independent Material

The Gujarat High Court has quashed reassessment proceedings initiated against an individual taxpayer, holding that reopening of assessment was uncalled for where it was based on GST proceedings that had already been set aside by the appellate authority and where no independent material existed to indicate escapement of income.

“Apart from this, there is no other material which is in possession of the respondent No.1, which could prove that there has been an escapement of income and hence the reopening was necessitated. The petitioner had supplied the Appellate Order passed under Section 107 of the CGST Act. However, the respondent authority has failed to consider the same while passing the notice dated 29.06.2025 under Section 148 of the Act. Thus, in view of the categorical findings by the GST Appellate Authority in the order dated 29.03.2025, the reopening of the assessment was uncalled for,” the court said.

The petitioner, engaged in the business of trading in gold, silver, diamonds, and bullion through Pristine Jewels, had filed his return for Assessment Year 2021–22, declaring an income of Rs. 16.08 lakh.

Subsequently, the Income Tax Department issued a notice under Section 148A(1) alleging escapement of income exceeding Rs. 148 crore, primarily on the basis of information flagged from GST authorities alleging bogus input tax credit through non-genuine transactions. The foundation of these allegations was a GST show cause notice followed by the cancellation of registration in July 2023.

Before the Division Bench comprising Justice A.S. Supehia and Justice Pranav Trivedi, it was noted that the petitioner had challenged the GST cancellation, and the appellate authority, by order dated 29.03.2025, restored the registration, specifically recording that there was no fraudulent ITC and that the cancellation had been passed without proper verification and without granting an opportunity of hearing.

Despite this, the Income Tax Officer proceeded to pass an order under Section 148A(3) and issued a notice under Section 148 on 29.06.2025, reopening the assessment.

Challenging the same, the petitioner contended that once the very basis of the allegations, namely the GST cancellation, had been conclusively set aside, the reassessment proceedings could not survive.

It was argued that the reopening of the assessment by resorting to the provisions under Section 148A and 148 of the Act is premised entirely on GST collection, which stands conclusively adjudicated in favour of the petitioner, and hence the same are required to be quashed and set aside.

The Revenue, on the other hand, argued that the reassessment proceedings were based on investigation findings and that the petitioner would have an opportunity to substantiate the transactions during assessment.

The High Court, after examining the record, found that the entire basis for reopening the assessment emanated from the GST proceedings, which had already been decided in favour of the petitioner.

The bench stated that "The Appellate Order dated 29.03.2025, specifically holds that there was no fraudulent ITC claimed by the petitioner and neither there was any violation of GST Law under Section 73 or Section 74 of the CGST Act. Thus, this is a very vital aspect which was required to be considered while passing the impugned order under Section 148A(3) of the Act by the respondent authority."

The Court noted that the GST appellate authority had categorically held that there was no fraudulent ITC and no violation under the GST law, and such a crucial finding was completely ignored by the assessing officer. It further observed that no independent material existed within the department to justify the belief that income had escaped assessment.

The bench noted that although the petitioner had furnished the appellate order passed under Section 107 of the CGST Act, the assessing officer failed to take it into account while issuing the notice dated June 29, 2025, under Section 148, and in light of the categorical findings of the GST appellate authority, the reopening of the assessment was unwarranted.

The court thus held that reassessment proceedings under Sections 148A and 148 are unsustainable when they are solely based on proceedings that no longer survive and where binding appellate findings are disregarded, and accordingly quashed the impugned order and notice.

For Petitioner: Advocate, Dhinal A Shah

For Respondent: Advocate, Karan G Sanghani