Reassessment is unsustainable where the foundational GST cancellation is reversed by competent appellate authorities.

In brief

The question

1. Whether the Revenue can sustain reassessment proceedings under Sections 148A and 148 of the Act when the foundational material (GST cancellation) has been conclusively set aside by a competent Appellate Authority.

The court held

It held that the reopening of the assessment was "uncalled for" in light of the categorical findings by the GST Appellate Authority.

It also directed

The High Court allowed the writ petition, made the Rule absolute, and quashed and set aside the impugned order dated 29.06.2025 passed under Section 148A(3) and the consequential notice dated 29.06.2025 issued under Section 148 of the Act for AY 2021-22.

01Facts

The petitioner, a trader in gold, silver, and diamonds, filed a Return of Income for AY 2021-22

¶ 3.1

On 26.03.2025, Respondent No. 1 issued a notice under Section 148A(1) of the Income Tax Act, 1961 ("the Act"), alleging that income exceeding Rs. 1.48 crore had escaped assessment due to ineligible Input Tax Credit (ITC) and suspicious transactions flagged by GST data

¶ 3.2

The allegation was primarily based on a GST registration cancellation order dated 12.07.2023

¶ 3.3, 3.4

However, on 29.03.2025, the GST Appellate Authority reversed the cancellation, restoring the petitioner’s registration and holding that no fraud under Section 73 or 74 of the CGST Act was established

¶ 3.5

Despite the petitioner submitting this appellate order and supporting evidence in response to the Section 148A notice, Respondent No. 1 passed an order under Section 148A(3) and issued a reassessment notice under Section 148 on 29.06.2025

¶ 3.6, 3.8

02Issues

i.1. Whether the Revenue can sustain reassessment proceedings under Sections 148A and 148 of the Act when the foundational material (GST cancellation) has been conclusively set aside by a competent Appellate Authority.

¶ 4.1, 6.1

ii.2. Whether the impugned order under Section 148A(3) was valid given the failure of the Assessing Officer to consider the findings of the GST Appellate Authority.

¶ 6.1, 6.2

03Law Applied

The procedural requirements of Section 148A of the Income Tax Act, 1961, which necessitates an inquiry and consideration of the assessee’s reply before issuing a notice for escaped assessment under Section 148.

¶ 3.8, 4.1

Sections 73, 74, and 107 of the Central Goods and Services Tax (CGST) Act, 2017, regarding the adjudication of fraudulent ITC and appellate remedies.

¶ 3.5, 6.1

The core legal principle applied is that reassessment cannot be initiated on unverified suspicion or on a foundation that has been legally extinguished by a superior authority.

¶ 3.5, 6.1

Provisions in the judgment · 4 · Linked ones open on LawLens

Central Goods and Services Tax Act, 2017 Section 29 Section 73 Section 74 Section 107

04Reasoning

The Court observed that the entire basis for the Income Tax Department's reassessment proceedings was the GST department’s allegation of non-genuine purchases and bogus ITC.

¶ 6

The GST Appellate Authority’s order dated 29.03.2025 explicitly found that the petitioner had not claimed fraudulent ITC and that business activities were supported by genuine records.

¶ 6.1

The Court found that Respondent No. 1 possessed no independent material other than the discredited GST data to suggest escapement of income.

¶ 6.1

The Court criticized the respondent for passing a non-speaking order that failed to acknowledge the vital fact that the petitioner’s GST registration had been restored and the allegations of fraud disproved.

¶ 4.2, 6.2

Consequently, the Court determined that the very foundation of the reassessment was non-existent.

¶ 6.2