Earlier Reassessment Regime Applies To Non-Searched Taxpayers In 2021-24 Searches: Gujarat High Court

The Gujarat High Court has held that the earlier reassessment regime can apply even where the assessee was not the person searched, provided the reassessment is founded on incriminating material recovered during a search conducted within the statutory transition period.

Applying that principle, the court quashed reassessment proceedings against a transporter after holding that the reopening notice had been issued beyond the applicable limitation period.

A division bench of Justice A.S. Supehia and Justice Vaibhavi D. Nanavati allowed the petition filed by Bipinkumar Girdharlal Parekh and quashed the order passed under Section 148A(d) as well as the consequential notice issued under Section 148.

"The provisions of Section 152(3) of the Act are not limited for undertaking the reassessment against searched person only, as projected before us by the Revenue, and not against other person, who is not subjected to search. The provision of Section 152(3) of the Act is applicable to all the assessee, where the reassessment proceedings are initiated, 'on the basis' or 'as a consequence' of a search conducted between 01.04.2021 and 01.09.2025, and against whom incriminating material is found. However, the re-opening of the assessment is subject to limitations as provided under Section 149 of the Act", the court held.

Parekh is engaged in the business of transportation and hires trucks to provide transportation services to M/s DCW Ltd. He filed his return of income for the assessment year 2021-22, which was processed under Section 143(1). On November 18, 2023, the Income Tax Department conducted a search under Section 132 against the DCW group.

Based on incriminating material recovered during that search, the department initiated reassessment proceedings against Parekh, alleging that he had received inflated transportation payments of about ₹32.71 lakh, withdrawn the excess amount in cash and returned it to a senior official of the company, resulting in income escaping assessment.

Before the court, Parekh argued that although no search had been conducted against him, the reassessment proceedings were founded entirely on material recovered during the search at the DCW group. He contended that the transitional provision therefore required application of the earlier reassessment framework.

Since the alleged escaped income was below ₹50 lakh, he submitted that the notice issued on May 23, 2025, for the assessment year 2021-22 was barred by the applicable three-year limitation period. He also argued that the approval required under the earlier regime had not been obtained.

The Revenue opposed the petition, contending that the amended reassessment provisions introduced by the Finance (No. 2) Act, 2024 governed the case because no search had been conducted against Parekh himself. It argued that the transitional provision did not apply since he was not the person searched.

The court rejected that submission. It observed that the reassessment proceedings against Parekh were "exclusively premised" on incriminating material recovered during the search conducted against the DCW group.

It further held that the transitional provision is not confined to searched persons and also applies where reassessment proceedings are initiated "on the basis" or "as a consequence" of incriminating material found during a search conducted within the specified period.

The court further held that because the alleged escaped income was below ₹50 lakh, the three-year limitation under the earlier reassessment regime applied. Since the notice was issued on May 23, 2025, for the assessment year 2021-22, it was beyond the prescribed period.

“The impugned notice under Section 148 of the Act has been issued on 23.05.2025 for A.Y. 2021-22, which is beyond the limitation of three years, and hence, the reopening of the assessment runs contrary to the provision of Section 149.”, the court held.

Accordingly, the court quashed the order passed under Section 148A(d) and the consequential notice issued under Section 148, and allowed the petition.

For Petitioner: Advocate Jaimin R. Dave, Advocate Manvi A. Damle with Advocate Yash B. Sikka; Advocate Hirva R. Dave

For Respondent: Senior Standing Counsel Aaditya D. Bhatt