Sanjana N Malpe Vs ITO (ITAT Bangalore)
Bangalore ITAT Quashes Reassessment: Notice Beyond Three Years Invalid Where Escaped Income Was Only ₹20.52 Lakh
The assessee sold an immovable property for ₹20.52 lakh during AY 2016-17. Alleging non-disclosure of the resultant capital gain, the AO initially issued a notice under Section 148 on 21 June 2021. Following the Supreme Court’s decision in Union of India v. Ashish Agarwal, the notice was treated as a show-cause notice under Section 148A(b), and a fresh Section 148 notice was issued on 29 June 2022.
The AO rejected the assessee’s contention that part of the property constituted a long-term capital asset and that the gain was eligible for exemption under Section 54. The entire sale consideration of ₹20.52 lakh was consequently assessed as short-term capital gain.
The Bangalore ITAT observed that under Section 149(1), a reassessment notice issued after three years but within ten years is permissible only where escaped income, represented in the prescribed form, amounts to or is likely to amount to ₹50 lakh or more.
Here, even the gross sale consideration and the eventual addition were only ₹20.52 lakh. Therefore, the escaped income could under no circumstances reach the statutory threshold of ₹50 lakh. The AO could issue notice only within three years from the end of AY 2016-17, whereas the impugned notice was issued on 29 June 2022.
Accordingly, the Tribunal held the notice to be barred by limitation and quashed the Section 148 notice, the entire reassessment proceedings and the consequential assessment order. The remaining jurisdictional and merits grounds were left open as academic.
List of Cases Discussed / Relied Upon
- Union of India vs. Ashish Agrawal reported in (2022) 444 ITR 1 (SC)
FULL TEXT OF THE ORDER OF ITAT BANGALORE
The assessee has filed the present appeal against the impugned order dated 17/02/2026, passed under section 250 of the Income Tax Act, 1961 (“the Act”) by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, [“learned CIT(A)”], for the assessment year 2016-17.
2. In this appeal, the assessee has raised the following grounds: –
1. The orders of the authorities below in so far as they are against the appellant are opposed to law, equity, weight of evidence, probabilities, facts and circumstances of the case.
2. The order of re-assessment is bad in law and void-ab-initio for want of requisite jurisdiction especially, the mandatory requirements to assume jurisdiction u/s 148 of the Act did not exist and have not been complied with and consequently, the re -assessment requires to be cancelled.
3. Without prejudice to the above, the learned NFAC/CIT[A] is not justified in upholding the initiation of proceedings vide manual notice issued u/s 148 of the Act without DIN, which notice issued is bad in law and therefore, the assessment order founded on the said notice requires to be cancelled.
4. Without prejudice to the above, the learned NFAC/CIT[A] is not justified in upholding the addition of Rs.20,52,000/- as Short Term Capital Gains under the facts and in the circumstances of the appellant’s case.
5. The learned NFAC/CIT[A] ought to have appreciated that the immovable property sold by the appellant consisted of land and residential building, which were 2 distinct capital assets that had different holding periods and that the land comprised in the immovable property was a long term capital asset under the facts and in the circumstances of the appellant’s case.
5.1. The learned NFAC/CIT[A] ought not to have refused deduction for indexed cost of acquisition of Rs. 2,29,042/- from the sale consideration of Rs. 4,52,000/- attributable to land under the facts and in the circumstances of the appellant’s case.
5.2. The learned NFAC/CIT[A] ought not to have refused deduction u/s 54 of the Act of Rs. 2,22,958/- and held that long term capital gain of the appellant was NIL under the facts and in the circumstances of the appellant’s case.
5.3. The learned NFAC/CIT[A] ought not to have refused to allow deduction of the cost of construction of building of Rs. 16,79,400/- from the sale consideration of Rs. 16,00,000/- attributable to the sale of the building under the facts and in the circumstances of the appellant’s case. 5.4. Without prejudice to the above, the addition made is highly excessive and requires to be reduced substantially.
6. Without prejudice to the right to seek waiver with the Hon’ble CCIT/DG, the appellant denies herself liable to be charged to interest U/s. 234-B, 234-C and 234-D of the Act, which under the facts and in the circumstances of the appellant’s case deserves to be cancelled.
3. During the hearing, the learned Authorised Representative (“learned AR”) submitted that in the present case, the income which is the alleged to have escaped assessment is less than INR 50 lakhs, therefore the notice dated 29/06/2022 issued under section 148 of the Act is barred by limitation as the same was issued after the expiry of 3 years from the end of the relevant assessment year. The learned AR by referring to the show cause notice dated 17/05/2022 issued under section 148A(b) of the Act, submitted that the reassessment proceedings were initiated on the basis that the assessee has sold non-agricultural immovable property for a sum of INR 20,52,000 but has not declared the capital gain arising on account of the above sale of property in the return of income filed for the year under consideration. It was submitted that even in the case of the sale of immovable property, only the capital gains can be added in the hands of the assessee, which in any case cannot be more than the sale consideration, which is only INR 20,52,000 in the present case. Thus, it was submitted that the income which can be alleged to have escaped assessment in the present case can under no circumstances be more than INR 50 lakhs, which is a precondition for issuance of notice after 3 years but not more than 10 years. Accordingly, the learned AR submitted that, as in the present case, notice under section 148 of the Act was issued on 29/06/2022, i.e., after the expiry of 3 years from the end of the relevant assessment year, the same is barred by limitation as per the provisions of section 149(1)(a) of the Act.
4. On the other hand, the learned Departmental Representative eventually relied upon the order passed by the lower authorities.
5. We have considered the submissions of both sides and perused the material available on record. The brief facts of the case are that the assessee is an individual and for the year under consideration filed its return of income on 24/11/2016, declaring a tot al income of INR 2,92,530. Subsequently, on the basis of the information received from I&CI, it was noticed that the assessee sold immovable property for a sum of INR 20,52,000 and the capital gains arising on account of the sale of immovable property were not disclosed by the assessee in its return of income. Accordingly, notice under section 148 of the Act was issued on 21/06/2021.
6. Subsequently, in view of the decision of the Hon’ble Supreme Court in Union of India vs. Ashish Agrawal reported in (2022) 444 ITR 1 (SC), the original notice issued under section 148 of the Act on 21/06/2021 was deemed to be issued under section 148A(b) of the Act. Vide show cause notice dated 17/05/2022, the information and material relied upon by the Revenue were provided to the assessee and time was granted to the assessee to respond to the same within two weeks in terms of the provisions of section 148A(b) of the Act.
7. In response, the assessee submitted that the long-term capital gain, which arose from the sale of the immovable property, was further invested for the construction of the residential property, and thus, exemption under section 54 of the Act was claimed while filing the return of income. It was further submitted that as 3 years have elapsed from the end of the relevant assessment year and the amount involved is less than INR 50 lakh, no notice under section 148 of the Act can be issued in view of the provisions of section 149(1)(a) of the Act. The assessee also furnished its computation of income for the year under consideration along with the aforesaid submission.
8. Rejecting the objections filed by the assessee on 16/06/2022, an order under section 148A(d) of the Act was passed on 29/06/2022 declaring that it is a fit case for issuance of notice under section 148A of the Act. Thereafter, on the same date, i.e. on 29/06/2022, notice under section 148 of the Act was issued by the Jurisdictional Assessing Officer. After considering the submissions of the assessee filed during the reassessment proceedings, the AO passed the order dated 11/05/2023 under section 147 read with section 144B of the Act and added the entire sale consideration received by the assessee, amounting to INR 20,52,000, as short-term capital gain for the year under consideration.
9. The learned CIT(A), vide impugned order, dismissed the appeal filed by the assessee both on jurisdiction as well as on merits. Being aggrieved, the assessee is in appeal before us.
10. Before proceeding further, it is relevant to note the provisions of section 149 of the Act, which were in the statute during the relevant period, and the same reads as follows: –
“Time limit for notice.
149. (1) No notice under section 148 shall be issued for the relevant assessment year,—
(a) if three years have elapsed from the end of the relevant assessment year, unless the case falls under clause (b);
(b) if three years, but not more than ten years, have elapsed from the end of the relevant assessment year unless the Assessing Officer has in his possession books of account or other documents or evidence which reveal that the income chargeable to tax, represented in the form of—
(i) an asset;
(ii) expenditure in respect of a transaction or in relation to an event or occasion; or
(iii) an entry or entries in the books of account,
which has escaped assessment amounts to or is likely to amount to fifty lakh rupees or more:”
11. Therefore, from the plain reading of the provisions of section 149 of the Act, it is evident that no notice under section 148 of the Act can be issued if 3 years have elapsed from the end of the relevant assessment year. However, clause (b) of section 149(1) of the Act carves out an exception to the aforesaid time limit and provides that in cases where the income chargeable to tax amounts to or is likely to amount to INR 50 lakh or more, then notice under section 148 of the Act can be issued after 3 years but not more than 10 years.
12. In the present case, from the perusal of the record, it is evident that the income which was alleged to have escaped assessment was only INR 20,52,000, being the amount of consideration received by the assessee on the sale of immovable property. Further, even vide assessment order passed under section 147 read with section 144B of the Act, ultimately only an amount of INR 20,52,000 was added to the total income of the assessee, by considering the same as short -term capital gains and rejecting the contention of the assessee regarding the claim of exemption under section 54 of the Act. Therefore, in the present case, it is amply evident that the amount which has been alleged to have escaped assessment is less than INR 50 lakh. Thus, we are of the considered view that in the present case, the AO could have issued notice under section 148 of the Act only till the expiry of 3 years from the end of the relevant assessment year, i.e., up to 31/03/2020, in light of the provisions of section 149(1)(a) of the Act. Since in the present case notice under section 148 of the Act was issued on 29/06/2022, i.e. after the expiry of 3 years from the end of the relevant assessment year, we are of the considered view that the same is barred by limitation, and thus, it is quashed. Consequently, the entire reopening proceedings and assessment order passed under section 147 read with section 144B of the Act are also quashed.
13. Since the relief has been granted to the assessee on the aforenoted jurisdictional aspect, the other grounds raised by the assessee in the present appeal on merits as well as on jurisdiction are rendered academic and therefore are kept open.
14. In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open court on 17-Aug-2026.
