Reassessment is unsustainable if based on GST violations reversed by the competent appellate authority.

The Petitioner, a trader in gold, silver, and diamonds, filed a Return of Income for Assessment Year (AY) 2019-20

On 24.03.2025, Respondent No. 1 issued a notice under Section 148A(1) of the Income Tax Act, 1961 (“the Act”), alleging that income exceeding ₹5.27 crore had escaped assessment

The allegation was based on GST Department data suggesting the Petitioner availed ineligible Input Tax Credit (ITC) from non-genuine parties

While the Petitioner’s GST registration had been cancelled on 12.07.2023, the GST Appellate Authority subsequently allowed the Petitioner’s appeal on 29.03.2025, restoring the registration and holding that no fraudulent ITC was established

The Petitioner submitted this Appellate Order to the Income Tax Department; however, the Respondent ignored this and proceeded to pass an order under Section 148A(3) and issued a reassessment notice under Section 148 on 29.06.2025

1. Whether the Income Tax Department can validly initiate reassessment proceedings under Section 148 of the Act when the sole factual foundation (GST irregularities) has been conclusively adjudicated in favor of the assessee by a competent Appellate Authority.

The court applied the procedural requirements of Section 148 and Section 148A of the Income Tax Act, 1961, which necessitate valid "information" suggesting that income chargeable to tax has escaped assessment

It also considered the impact of adjudicatory finality under Section 107 of the Central Goods and Services Tax (CGST) Act, 2017, regarding the genuineness of business transactions and ITC claims

The Court reasoned that the entire basis for the reassessment proceedings was the GST cancellation order dated 12.07.2023. Once the GST Appellate Authority reversed that cancellation on 29.03.2025—holding that there was no fraudulent ITC and no violation of Sections 73 or 74 of the CGST Act—the foundation for the Income Tax Department's suspicion was entirely removed.

The Court found that the Respondent failed to exercise due diligence by ignoring the Petitioner’s submission of the GST Appellate Order. Since the Respondent possessed no independent material other than the now-disproved GST allegations to suggest an escapement of income, the Court determined that the decision to reopen the assessment was "uncalled for" and lacked a legal basis.

The High Court allowed the Special Civil Application and quashed the impugned order dated 29.06.2025 passed under Section 148A(3) and the notice of the same date issued under Section 148 of the Act. Rule was made absolute.