High Court Quashes Reopening Under Section 148: No New Material, Mere Change of Opinion

Rao Tradelink Pvt. Ltd. challenged a Section 148 notice for AY 2017-18. Its return had already been scrutinised under Section 143(3), during which the AO repeatedly examined purchases and trade payables, including all dealings with Ruchita Chemicals LLP. The company produced ledgers, contra ledgers, bills and replies to multiple notices, and the AO accepted the assessment in 2019.

The later reopening was based only on statements recorded during a 2021 search on an unrelated entity, Invent Assets, from which the AO speculated that a Rs. 7 crore payment to Ruchita Chemicals LLP might form part of a diversion pattern. Even while disposing of objections, the AO admitted that the “exact quantum” of escapement was not known.

Main Issue: Whether a reassessment can be reopened when the same issues were fully examined in the original scrutiny and the Revenue has no new material connecting the assessee to the searched entity.

HC Held: The Court held that the reopening rested on pure conjecture. There was no tangible material linking the petitioner to Invent Assets or showing that the already-verified Rs. 7 crore payment was part of any diversion scheme. The AO’s uncertainty about escapement showed that there was no real “reason to believe”, only an exploratory suspicion.

Since the original scrutiny had already analyzed and accepted these very transactions, the reopening amounted to a prohibited change of opinion. The notice was quashed, and the writ petition allowed.

To Read Full Judgment, Download PDF Given Below