High Court Quashes Reassessment Against Diamond Trader Based on Third-Party Allegations:

High Court Quashes Reassessment Against Diamond Trader Based on Third-Party Allegations The petitioner, M/s. R.D. Diamond, a partnership firm engaged in trading of rough as well as cut and polished diamonds, filed its return of income for Assessment Year 2019-20 on 18.10.2019 after undergoing tax audit, declaring a total turnover of Rs. 16.28 crore. The petitioner regularly maintained audited books of account and disclosed all transactions, including sales reflected in the profit and loss account. The Department alleged that the petitioner had entered into bogus purchase and sale transactions aggregating to Rs. 5,66,44,146/-. A show cause notice under Section 148A(1) was issued on 29.03.2025.  The Assessing Officer passed an order under Section 148A(3) and issued a notice under Section 148 on 29.06.2025, prompting the present writ petition. Main Issue: Whether reassessment proceedings under Sections 148A and 148 of the Income Tax Act are sustainable when the assessee has fully disclosed all transactions in its audited books and return of income, and the reopening is based solely on alleged non-cooperation of a third party. HC Ruled: The Gujarat High Court allowed the writ petition and quashed the impugned notice under Section 148 as well as the order passed under Section 148A(3). The Court observed that the petitioner had made full and true disclosure of all material facts which were duly reflected in the profit and loss account and offered to tax. The Court held that the reassessment proceedings were initiated only because the third party did not cooperate with the investigation and not because there was any material to show escapement of income in the hands of the petitioner. It was held that such proceedings amounted to a fishing and roving inquiry and failed to satisfy the statutory requirement of “reason to believe” under Section 147. Thus, the reopening was held to be uncalled for and without jurisdiction. To Read Full Judgment, Download PDF Given Below