Gujarat High Court Sets Aside Move For Income Tax Reassessment In Land Sale, Bars Differing Stand On Evidence

The Gujarat High Court has set aside a tax reassessment notice issued in a land sale case, holding that the Income Tax Department cannot rely on the same evidence to take opposite positions against the buyer and the seller.

The Division Bench comprising Justice A.S. Supehia and Justice Pranav Trivedi was dealing with a writ petition challenging a notice issued under Section 148 of the Income Tax Act for Assessment Year 2020–21.

The case arose from a search conducted under Section 132 of the Income Tax Act in the B Safal Group and a real estate broker, during which certain inquiry registers were seized.

Based on an entry in such a register mentioning a survey number, area, and rate, the Assessing Officer alleged that the petitioner had received unaccounted cash consideration of over Rs. 8.54 crore on sale of land and proceeded to reopen the assessment.

The petitioner contended that the reopening was solely based on a vague noting in a third-party inquiry register, which neither mentioned his name nor established any actual transaction.

It was further argued that the same seized entry had already been relied upon by the department to initiate reassessment proceedings against the buyer of the very same land, which were quashed by the High Court earlier.

On the other hand, the Revenue argued that the seized registers were structured business records maintained by a broker and carried a statutory presumption of correctness. It was contended that the matching survey number created sufficient nexus to justify reopening, and that sufficiency of evidence could not be examined at the notice stage.

Rejecting the Revenue's stand, the Court held that the very foundation of the reopening collapsed in light of the earlier judgment quashing proceedings against the buyer.

It observed that if no “on-money” payment was established in the hands of the buyer based on the same material, it would be inherently contradictory to allege receipt of such on-money by the seller in the same transaction.

The bench stated that "The logical and necessary corollary of the said order is that the buyer did not pay any on-money in the said transaction. Since the same transaction is before this Court from both sides – the seller and the buyer – and this Court has already held that the buyer is not liable for any on-money in respect of the same property based on the same seized register entry, no unaccounted consideration could conceivably have been received by the petitioner as seller in the very same transaction."

The Court emphasized that the Revenue cannot “blow hot and cold simultaneously” by adopting inconsistent positions arising out of the same transaction and identical material.

The bench stated that "The revenue cannot blow hot and cold simultaneously: having failed to sustain the allegation of payment of on-money against the buyer, it cannot succeed in sustaining the allegation of receipt of on-money against the seller on the basis of the same material."

Further, the Bench noted that the seized inquiry register merely contained preliminary details of properties and did not conclusively reflect actual transactions. The statement of the broker also clarified that such entries were only indicative of market inquiries and that the status of transactions was not known. Crucially, the petitioner's name did not appear anywhere in the seized material, nor was any independent inquiry conducted to establish a link.

The bench stated that "the assessment has been sought to be reopened on the basis of conjectures and surmises. The seized inquiry register entry does not establish any live nexus with the petitioner. There is no direct or indirect link between the seized document and the present petitioner."

Holding that the jurisdictional requirement under Section 148 was not satisfied, the Court concluded that the reassessment proceedings were based purely on conjectures and surmises.

Accordingly, the impugned notice issued under Section 148 was quashed.

For Petitioner: Senior Advocate, Tushar Hemani with Advocate, Vaibhavi K 

For Respondent: Advocate Aaditya D Bhatt