Gujarat High Court says Section 68 of Income Tax Act does not Apply without Unexplained Bank Statement Amounts
In a significant ruling, the Gujarat High Court stated that an assessee cannot be accused of income escapement if there is no unexplained amount in their bank statement. The judgment was delivered by Justices Bhargav D. Karia and Mauna M. Bhatt, who highlighted the lack of substantiated claims from the Assessing Officer regarding an alleged income of ₹3.25 crore.
The case involved the late Mahasukhlal Navnidhlal Parekh, whose legal heir challenged a reassessment notice issued under Section 148 of the Income Tax Act, 1961, for the 2015-16 tax year. Mahasukhlal filed his income tax return on August 31, 2015, before passing away on September 30, 2019.
In July 2022, tax authorities claimed that ₹3.25 crore was unaccounted for from a loan that Mahasukhlal had extended in 2015. However, the petitioner contended that the loan was issued on September 4, 2014, and repaid by September 21, 2015, arguing that there could be no income escapement for the year in question.
The bench noted that Mahasukhlal received the funds on September 4, 2014, from Mr. Hardik Parekh and transferred them via NEFT to Ms. Darshana Doshi on the same day. The amount was subsequently returned on September 19, 2015.
In their ruling, the justices asserted, “The reason given by the Assessing Officer for the alleged escapement of ₹3,25,00,000 is not sustainable since there is no unexplained amount in the bank statement on record. The assessee did not retain the amount, and as such, the provisions of Section 68 are not attracted.”
The High Court ultimately allowed the petition, emphasizing the need for clear evidence when making claims of income escapement. This ruling reinforces the importance of proper documentation and transparent transactions in tax matters.
