Gujarat HC Quashes Reopening for Demonetisation Cash Deposits: AO Lacked Foundational Facts to Assume Jurisdiction
The Gujarat High Court has recently quashed a reassessment notice issued under Section 148 of the Income Tax Act, stating that just cash deposits during the demonetisation period cannot justify the reopening of the assessment.
The petitioner, Ashapura Transport Co., is a partnership firm that provides transport services only for government agencies and the payment for giving these services is received through banking channels without the involvement of cash. The income tax department issued a show cause notice under Section 148A(b) as there were cash deposits of Rs 1,08,11,007 during the demonetisation period, to which the petitioner submitted a detailed reply, saying that the deposits were Rs 1,02,31,000 and not Rs.1,08,11,007 during the demonetisation period.
The petitioner submitted in the reply that the petitioner had cash on hand, which was made from the business activities. The petitioner also submitted an audit report, their bank account statement for the
year, and the cash book, but still the Income Tax Department issued the final order dated 30.07.2022 under section 148A(d) of the Act and concluded that this matter should be reopened for assessment and also issued a notice dated 30.07.2022 under section 148. Therefore, the petitioner approached the Gujarat High Court.
The petitioner argued that they did not hide any income, and the petitioner had a cash balance in the cash book, which was also audited, on the basis of which the ITR was also filed. The petitioner submitted that the investigation wing of the income tax department had issued multiple summons under Section 131A, which the petitioner complied with. The petitioner further argued that the assessing officer of the income tax department had wrongly concluded that a genuine businessman would never keep such a huge amount of cash idle at the business place.
The Income Tax Department, on the other hand, submitted that the petitioner had not given justification for such a large cash balance. They also submitted that the petitioner had an alternate remedy to file an appeal before CIT(A), and the court may not interfere.
The Bench comprising Mr. Justice Bhargav D. Karia and Mr. Justice Pranav Trivedi, observed that there is no record that suggests that the petitioner had made the cash deposits of Rs 1,08,11,007 during the demonetisation period, which is not part of the cash balance. The court stated that the AO’s conclusion that a prudent businessman would never keep such a huge amount as idle money does not give any justification to reopen the assessment.
The court also observed that the petitioner had submitted Bank statements, audited books of accounts, and a cash book, but still the AO ignored these submissions and concluded that it was fit cash for reopening the assessment. Since the Assessing Officer failed to give any justification to reopen the assessment, the High Court set aside the order of 30.07.2022 and the reassessment notice issued under section 148.
Citation: Ashapura Transport co Vs The Assistant Commissioner of Income Tax (Gujarat HC); C/SCA/2083/2023; 25/08/2025
