Loonchand Dhanraj HUF Reopening: Gujarat High Court Quashes Notice As Mere Change Of Opinion

Reopening an assessment on a ground already examined during scrutiny amounts to an impermissible change of opinion, the Gujarat High Court has ruled while quashing reassessment proceedings against Loonchand Dhanraj HUF.

A Division Bench of Justice A.S. Supehia and Justice Vaibhavi D. Nanavati allowed the HUF’s writ petition on 19 August 2026, setting aside a notice under Section 148 of the Income Tax Act, 1961, and the subsequent order rejecting objections.

Background: A Scrutiny Already Conducted

For Assessment Year 2012-13, Loonchand Dhanraj HUF filed its return on 22 September 2012 and a revised return later, declaring total income. In its computation, it disclosed short-term capital gains from equity shares of Prissm Remedies Pvt. Ltd. The audit report mentioned the investment and sale of 3,10,000 equity shares.

The return was selected for scrutiny under Section 143(3). During these proceedings, the Assessing Officer (AO) issued multiple notices seeking details of the purchase and sale of these shares, including broker invoices, Demat entries, share prices, valuation reports, and board resolutions for bonus and split. The petitioner furnished bank statements, share certificates, valuation reports, and other documents. After considering the explanations, the AO completed the assessment on 9 March 2015.

The Reopening Notice

On 29 March 2019, the AO issued a notice under Section 148, alleging that income had escaped assessment. The reasons, supplied on 22 April 2019, relied on information from the Deputy Director of Income Tax (Investigation), Ahmedabad. The department claimed that the shares were split in the ratio 1:10, reducing the face value from Rs.110 to Rs.11 per share. It alleged that the petitioner wrongly used the original purchase price of Rs.110 per share to compute capital loss on sale at Rs.11 per share, resulting in a bogus loss of Rs.3,06,60,000. According to the revenue, this loss was set off against long-term capital gains and thus escaped assessment.

Arguments: Change of Opinion vs. Tangible Material

Petitioner’s counsel, Mr. Sudhir M. Mehta, argued that the reopening was a mere change of opinion. The same issue regarding undervaluation and share split had been raised and examined in the original scrutiny. The petitioner had supplied complete details, and the AO passed an order after satisfaction. No fresh tangible material justified reopening.

Senior Standing Counsel Mr. Dev D. Patel, appearing for the revenue, countered that the information from the investigation wing was new tangible material. The AO independently applied his mind and formed a reason to believe that the loss claimed was not genuine because of the share split.

Legal Analysis: No Fresh Material, No Suppression

The court scrutinised the record and found that during the original scrutiny, the AO had specifically sought explanations about the purchase and sale of Prissm Remedies shares. The petitioner was asked to explain why shares were sold at a lower price and to provide valuation reports. After a detailed exchange, the assessment was finalised.

The Division Bench noted that the reasons for reopening were based on the very same facts—the share split and the resulting capital loss—that were already examined. “For the self-same reasons, which were already examined in the scrutiny assessment proceedings, the reopening of the assessment is resorted to by the Assessing Officer, which is nothing but a mere change of opinion,” the court observed.

Quoting settled legal precedent, the bench held that reopening is impermissible unless the revenue possesses fresh tangible material showing income escaped assessment due to suppression of material facts by the assessee. No such suppression was established.

Key Observations

“Thus, for the self-same reasons, which were already examined in the scrutiny assessment proceedings, the reopening of the assessment is resorted to by the Assessing Officer, which is nothing but a mere change of opinion.”

“As per settled legal precedent, such an exercise of reopening assessment is impermissible unless it is shown that the revenue is in possession of fresh tangible material showing that the income chargeable to tax has escaped assessment and there has been suppression of material facts by the petitioner.”

Court’s Decision

The writ petition was allowed. The impugned notice dated 29 March 2019 under Section 148 and the order dated 4 October 2019 rejecting the petitioner’s objections were quashed. Rule was made absolute, reaffirming the principle that an issue already scrutinised cannot be reopened merely on a different perception of the same material.

The Gujarat High Court’s ruling reinforces the safeguard against reassessment on a change of opinion, a vital check on revenue’s power to reopen concluded assessments.