Gujarat High Court Quashes Reassessment Based On Presumption Drawn From Sister Concern's 'On-Money' Collection

The Gujarat High Court has quashed reassessment proceedings initiated under the Income Tax Act, holding that a completed assessment cannot be reopened merely on the presumption that an assessee collected unaccounted cash ("on-money") from buyers over and above the recorded sale price because its sister concern was found to have done so.

The court held that the reopening against Datta Projects was based entirely on presumptions and surmises, without any material linking the assessee to undisclosed income.

A Division Bench of Justice A.S. Supehia and Justice Vaibhavi D. Nanavati allowed the writ petition filed by Datta Projects Pvt. Ltd. and quashed the notice issued under Section 148 of the Income Tax Act for Assessment Year 2012-13.

The court observed, "It is not in dispute that the reopening of the petitioner is premised on presumptions and surmises, and the amount of alleged escapement of income is calculated on the basis of 50% of the actual sales consideration, in cash, on the basis of the firm M/s. Skyline Enterprises."

Datta Projects had filed its return for AY 2012-13 declaring an income of ₹39.18 lakh. The return was accepted after scrutiny under Section 143(3).

In 2019, the Assessing Officer reopened the assessment after relying on material recovered during survey proceedings. According to the revenue, the material showed that Skyline Enterprises,a sister concern, had received unaccounted cash ("on-money") in relation to its Sai Shangrila project.

Based on this, the Revenue presumed that Datta Projects had also received unaccounted cash from buyers. It estimated the escaped income at 50% of the actual sale consideration.

Datta Projects challenged the notice, saying there was no material to show it had received any on-money. It argued that the reassessment was based entirely on assumptions drawn from proceedings against another entity. The company also said the assessment could not be reopened after four years because it had fully disclosed all material facts.

The High Court was not convinced. It pointed out that the only connection between Datta Projects and Skyline Enterprises was that one of the petitioner's directors held a 25% profit-sharing interest in the partnership firm. That alone, the court held, was not enough to reopen a completed assessment. It therefore quashed the reassessment notice and allowed the writ petition.

For Petitioner: B.S. Soparkar.

For Respondent: Rutvij R. Patel