Sudhir Gugalia vs. Central Board Of Direct Taxes

IN THE HIGH COURT OF MADHYA PRADESH AT JABALPUR BEFORE HON'BLE SHRI JUSTICE ALPESH Y. KOGJE, CHIEF JUSTICE & HON'BLE SHRI JUSTICE VIVEK JAIN ON THE 7th OF OCTOBER, 2026 WRIT PETITION No. 39685 of 2026 CNR No.: MPHC010703722026 SUDHIR GUGALIA Versus CENTRAL BOARD OF DIRECT TAXES AND OTHERS Appearance: Shri Sapan Usrethe - Advocate for the petitioner. Shri Siddharth Sharma - Advocate (through VC) and Shri Harpreet Singh Gupta - Advocate for the respondents. ORDER Per: Hon'ble Shri Justice Alpesh Y. Kogje, Chief Justice The present petition under Article 226 of the Constitution of India is filed praying inter alia for quashing of an order dated 30.06.2026 (Annexure P-4) passed by the respondent No.3- Assistant Commissioner of Income Tax Circle2(1), Jabalpur under Section 148A(3) of the Income Tax Act, 1961 (for short "the IT Act") as well as the notice dated 30.06.2026 issued under Section 148 of the IT Act, 1961 at Annexure P-5. 2. According to the petitioner, such proceedings are arbitrary and have been passed completely on a new issue travelling beyond the scope of the 1 WP-39685-2026 NEUTRAL CITATION NO. 2026:MPHC-JBP:80577 Signed by: CHRISTOPHER PHILIP Signing time: 13-10-2026 14:44:47 Signature Not Verified

notice and without appreciating the reply filed by the petitioner. It is submitted that in the order, there are no reasonings assigned for the reason to believe that the income tax returns filed by the petitioner have escaped an assessment. Without forming such an opinion, it was not open for the respondents to re-open the assessment once concluded. 3. It is submitted that when the income tax return was filed, the petitioner had disclosed under the income declared under section 44AD of the IT Act as property in business, thereby disclosing the gross receipts/turnover of Rs.10,86,000.00, gross receipts/turnover of Rs.80,00,000/- with the turnover of Rs.90,86,000/- and a deemed profit at Rs.86,880/- at the rate of 8% and Rs.4,80,000 at 6%, thereby declaring the net profit at Rs.5,66,880/-. Therefore, at the stage of filing return, there was complete disclosure. 4. It is contended that the Assessing Officer issued the impugned notice on an incorrect factual premise, as the petitioner had duly offered to tax the difference between the sale consideration and the stamp duty value in the original income tax return. Therefore, the question of escapement of income does not arise. It is further contended that an entirely new issue was raised in the impugned order without affording the petitioner any opportunity of hearing. It is a settled position of law that, once reasons have been recorded, the reassessment proceedings must be confined to the reasons so recorded, and the introduction of a new issue which did not form part of the original show-cause notice, is impermissible in law. 5. Learned counsel for the petitioner has relied upon a decision of 2 WP-39685-2026 NEUTRAL CITATION NO. 2026:MPHC-JBP:80577 Signed by: CHRISTOPHER PHILIP Signing time: 13-10-2026 14:44:47 Signature Not Verified

Gujarat High Court in case of Guruvayur Infratech Private Limited vs. Assistant Commissioner of Income Tax, Circle 1, Jamnagar in R/Special Civil Application No.11456 of 2025 dated 27.01.2026 to contend that the Assessing Officer could not have travelled beyond the original show cause notice and when the petitioner therein was never called upon by the Assessing Officer to explain the alleged bogus claim of expenditure, the order could not have been passed on such premise. Similarly, reliance is also placed on the decision of the Gujarat High Court in case of 03 Developers Private Limited Vs Income Tax Officer, Ward 3(1), Ahmedabad in R/Special Civil Application No.14096 of 2025 dated 09.06.2026 to submit that reopening of the assessment only on the presumption and assumption that the bank transactions are not in coherence with the business activities of the petitioner is impermissible and merely because there are high-value transactions in the bank accounts, the same would not ipso facto mean that there is escapement of the income chargeable to tax. 6. Lastly, learned counsel for the petitioner has also relied upon decision of the Delhi High Court in case of Jindal Saw Ltd Vs DCIT in W.P. (C) No. 17851 of 2024 dated 23.12.2024 again on the ground that variance in the allegations made in the order under Section 148A(d) of the IT Act as against notice set out in the impugned notice would make the order of assessment vulnerable. 7. As against this, learned counsel for the Revenue has argued that the contentions raised by the petitioner before this Court are in fact the contention which is open for the petitioner to raise upon re-opening of the 3 WP-39685-2026 NEUTRAL CITATION NO. 2026:MPHC-JBP:80577 Signed by: CHRISTOPHER PHILIP Signing time: 13-10-2026 14:44:47 Signature Not Verified

assessment. All these contentions will require some amount of fact finding and hence the right of the revenue may not be curtailed to undertake exercise of the assessment. It is submitted that the petitioner has never furnished any evidence, documentary or otherwise in the form of books of account and stock register to establish that the property was held as stock-in-trade and therefore, mere disclosure of the sale receipts under section 44AD of the IT Act in the return filed does not alter the true nature and character of the assets to establish that the transaction constitutes a business income, therefore, merely to take the advantage of the percentage assigned to the business income, the petitioner has categorized the receipt under Section 44AD of the IT Act. 8. In support of his contention, learned Advocate for the respondents has relied upon a decision of a Coordinate Bench of this Court in case of M/s Amrit Homes Private Limited Vs. Deputy Commissioner of Income, Writ Petition No.15244/2023 dated 09.08.2023. 9. At the outset, the Court may deal with the decision of the Division Bench of Gujarat High Court relied upon by the counsel for the petitioner in case of Guruvayur Infratech Pvt. Ltd. (supra), wherein the Court while dealing the matter considered the facts of that case in paras 4 and 5, which read as under:- "4. The petitioner is engaged in the business of civil construction. In the Financial Year 2020-21, the petitioner had entered into a deal for the purchase of cement with M/s.Dhairya Enterprise and M/s.Shree Enterprise. According to the terms of negotiation, the petitioner had paid amounts of Rs.17,75,00,000/- and Rs.3,75,00,000/- respectively. Subsequently, there was a survey by the Directorate General of GST Intelligence (DGGI), Gandhidham Regional Unit 4 WP-39685-2026 NEUTRAL CITATION NO. 2026:MPHC-JBP:80577 Signed by: CHRISTOPHER PHILIP Signing time: 13-10-2026 14:44:47 Signature Not Verified

(GRU), Gandhidham on 28.11.2020, and it was brought to the notice of the petitioner that the above firms were engaged in bogus billing. Unaware of these facts, the petitioner did not want to enter into litigation and had paid the sum of Goods and Service Tax (GST) credit together with interest and penalty amounting to Rs.5,13,02,342/-, as directed by the DGGI, GRU, Gandhidham. Subsequent thereto, no adverse proceedings were undertaken against the petitioner.

"16. Thus, upon an overall analysis of the facts and the amounts reflected in the ledger, we do not find that any income escaped assessment. On the contrary, the AO attempted to exhume the amount of Rs.3,67,43,973/- as bogus purchase from the amount of Rs.14,07,06,100/-. The amount of Rs. 3,67,43,973/- was claimed as a deduction not as part of bogus purchases, but on account of the payment of Rs. 5,13,02,342/- made subsequent to the survey by the DGGI. Even otherwise, the petitioner was never called upon by the AO to explain the alleged bogus claim of expenditure of Rs.3,67,43,973/- as GST on bogus purchases. Hence, the impugned order and notice are required to be quashed and set aside." Therefore, the Court had concluded that the Assessing Officer had 5 WP-39685-2026 NEUTRAL CITATION NO. 2026:MPHC-JBP:80577 Signed by: CHRISTOPHER PHILIP Signing time: 13-10-2026 14:44:47 Signature Not Verified

travelled beyond the scope of the notice under Section 148 of the IT Act. 10. The similar view was of the Delhi High Court in case of Jindal Saw Ltd. (supra) where also again it was found that there was a variance in the allegations made in the impugned order under Section 148(d) with that as was set out in the show cause notice under Section 148A(b) of the IT Act. It was also held that the amounts paid by the assessee i.e. M/s Jindal Saw Ltd. at Rs.79,17,086, which is in the form of expenditure, during the year under consideration be disallowed in its books of accounts accordingly. Therefore, amount paid by the assessee of Rs.79,17,086/- which is in the form of expenditure, has remained unexplained and has escaped assessment for assessment year 2018-19. As against this, the Assessing Officer went on to hold that the petitioner had sold scrap to one Mukesh Pitti and received a sum of Rs.79,17,086 , which was unexplained. 11. In the case of M/s Amrit Homes Pvt. Ltd., (supra) , the Division Bench of this Court in para 11 has held as under:- "11. Pertinently, the question of going into the veracity and genuineness of material/ evidence forming the opinion of the Assessing Officer suggesting that income of petitioner/ assessee has escaped assessment ought not to be gone into while exercising writ jurisdiction under Article 226 or supervisory jurisdiction under Article 227 of the Constitution. Thus the ground of reliability and tenability of the evidence/material is not considered herein." 12. Now the Court may take into consideration the controversy in the present case. It is noticed that proceedings under Section 148A of the IT Act, were initiated to afford an opportunity of being heard to the assessee. Accordingly, a show-cause notice under Section 148A(1) of the IT Act dated 31.03.2026 was issued to the assessee fixing the date 15.04.2026 for submission of his reply. By the said notice, the assessee was required to 6 WP-39685-2026 NEUTRAL CITATION NO. 2026:MPHC-JBP:80577 Signed by: CHRISTOPHER PHILIP Signing time: 13-10-2026 14:44:47 Signature Not Verified

explain why the difference of Rs. 10,86,000/- between the stamp duty value and the sale consideration should not be treated as income chargeable to tax under the head “Capital Gains” in accordance with the provisions of Section 50C of the IT Act. The assessee was also called upon to show cause as to why an order under Section 148A(3) of the Act should not be passed and a notice under Section 148 of the Act should not be issued for the assessment year under consideration. In response to the said notice, the petitioner/assessee submitted his reply on 21.04.2026, enclosing a copy of the registered sale deed. 13. It is also revealed from the perusal of record that the petitioner in response to the show cause notice submitted that the property sold during the year, situated at Municipal Ward No. 75, Mauja Maharajpur, N.B. 664, P.H.N. 17/20 new 60, R.N.M. Maharajpur, Tehsil Adhartal, District: Jabalpur bearing Khasra No. 2/1 & 2/4 measuring total 0.849 hectare land, was part of his business stock-in-trade and not a capital asset. The petitioner further submitted that he is engaged in the business of real estate/property transactions and the said sale has been carried out in the ordinary course of business. The contention of the petitioner was further that during the year the petitioner/assessee had opted for presumptive taxation scheme u/s 44AD of the Act and had declared presumptive income taking turnover at Rs.90,86,000/- (being the stamp duty value of the property under question). Therefore, entire value of the property including alleged difference of Rs.10,86,000/- has already been considered while computing taxable income. 14. A perusal of impugned order passed by the respondent No.3 - 7 WP-39685-2026 NEUTRAL CITATION NO. 2026:MPHC-JBP:80577 Signed by: CHRISTOPHER PHILIP Signing time: 13-10-2026 14:44:47 Signature Not Verified

Assistant Commissioner of Income Tax indicates that the petitioner has taken a stand that the property constituted stock-in-trade and the receipts have been offered under Section 44AD of the IT Act. However, the material available on record does not substantiate this claim. The property appears to have been held by the petitioner for several preceding years i.e. since 2008 as mentioned in the registered sale deed and there is no material on record to indicate that it was converted into stock-in-trade or formed part of the assessee's regular business inventory. No books of account, stock register, or other documentary evidence has been furnished to establish that the property was held as stock-in-trade. Mere disclosure of the sale receipts under, Section. 44AD in the return of income does not, by itself, alter the true nature and character of the asset or establish that the transaction constitutes business income. Accordingly, the contention of the petitioner remains unsubstantiated and requires further verification in reassessment proceedings. No evidence has been furnished to demonstrate the date and manner of conversion of the capital asset into stock-in-trade, if any, or the accounting treatment thereof in the earlier years. In the absence of such evidence, the claim that the. property was stock-in-trade, cannot be accepted. 15. The Assessing Officer, while passing the impugned order, has also recorded that the receipts declared by the petitioner under Section 44AD of the Income-tax Act pertain exclusively to the sale of the property and no other business receipts have been disclosed by the petitioner/assessee. The petitioner has sought to characterise the property as stock-in-trade merely on the basis of the disclosure of the sale proceeds under Section 44AD. 8 WP-39685-2026 NEUTRAL CITATION NO. 2026:MPHC-JBP:80577 Signed by: CHRISTOPHER PHILIP Signing time: 13-10-2026 14:44:47 Signature Not Verified

(ALPESH Y. KOGJE) CHIEF JUSTICE (VIVEK JAIN) JUDGE However, the material available on record does not establish that the petitioner was engaged in the business of dealing in immovable properties or that the property in question was held as stock-in-trade. On the contrary, the registered sale deed indicates that the property had been held by the petitioner since 2008 i.e. for several preceding years. The AO also found that no evidence has been brought on record to establish that the property was subsequently converted into stock-in-trade. In these circumstances, the mere disclosure of the sale proceeds under Section 44AD, by itself, cannot be regarded as conclusive of the nature of the transaction or the character of the asset. Accordingly, in the absence of cogent evidence establishing that the property was held as stock-in-trade in the course of business, the petitioner's claim in this regard cannot be accepted. 16. In view of above discussion, this Court does not find any error in the impugned order of the Assessing Officer in reopening the assessment and there does not appear to be any procedural error as well. The petition accordingly deserves to be and is hereby dismissed. C

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