Gujarat High Court Quashes Reassessment On Income From Property Sale After Fraudulent Deeds Cancelled

The Gujarat High Court has recently quashed reassessment proceedings initiated under Section 148A of the Income Tax Act agaisnt an individual taxpayer after noting that the Assessing Officer failed to consider that two sale deeds had been cancelled on account of fraud and that the sale consideration had been reversed.

Section 148A governs the procedure to be followed before reopening an assessment.

A bench of Justice A.S. Supehia and Justice Pranav Trivedi recorded that the sale deeds dated August 28 and 29, 2018, were subsequently cancelled by a competent authority because they had been executed by fraudulent persons.

The court also noted that the payments made under the deeds were reversed and corresponding effects were reflected in the revenue records and the assessee's bank accounts.

In an additional affidavit, the Revenue acknowledged that the cancellation documents were produced for the first time before the High Court and had not been furnished during the Section 148A proceedings. On that basis, the Department requested that the matter be remanded for fresh verification.

The Bench, however, declined to remand the matter. It referred to the Bombay High Court's decision in The Commissioner of Income Tax-8 v. Lok Housing & Constructions Ltd., which held that “no income could be said to have really accrued to the assessee” once the underlying agreements were cancelled. The Supreme Court dismissed the civil appeal against that judgment on April 24, 2025.

Quashing the impugned orders and notices, the court observed:

“Thus, in wake of the admitted fact that while passing the impugned orders and the notices, the Assessing Officer has not considered the factum of cancellation of sale deeds, the reversal of the payments and thus the impugned orders are hereby quashed and set aside.”

The court made the Rule absolute