Sanath Kumar Murali Vs ITO (Karnataka High Court)
Petitioner challenged the order u/s 148A(d) for AY 2016-2017 & sought for quashing 148 notice before the Karnataka High Court.
Notice u/s 148A(b) was issued to the petitioner stating that information was received which suggested that income chargeable to tax for the AY has escaped assessment within the meaning of Section 147, . detailing the information along with the supporting documents related to sale of property for Rs55,77,700.
Petitioner replied to the said notice dt 16.03.2023 in which details were laid out, setting out the computation of capital gains giving the details of the Date of transfer[ 22.12.2015], Sale consideration [Rs 55,77,700], Date of acquisition [24/09/2011] and Cost Of Acquisition [Rs15,91,735]. After indexing the cost, the Taxable Capital gain was shown as Rs 33,85,769. Petitioner submitted that as the income escaping assessment did not exceed Rs 50 lakh in terms of Sec 149(1)(b), notice u/s 148 could not be issued. Time limit for issuance of such notice as per Sec 149(1)(a) would be 3 years from the end of the relevant AY and if the Dept seeks to justify the issuance of notice in the extended time provided u/s 149(1)(b) beyond three years, but not more than ten years, the Dept would have to demonstrate that the ‘income chargeable to tax’ which has escaped assessment is likely to amount to Rs 50 lakh or more.
Revenue contended that since the proceedings u/s 148 is at the initial stage and adjudication is to take place in terms of the procedure prescribed and provided u/s 148A, it would be premature to construe the contention relating to ‘income chargeable to tax’ as contended by the petitioner and that the income that has escaped assessment to be taken note of for the purpose of Section 149(1)(b) which would be the total sale consideration received as reflected in the sale deed , i.e.Rs.55,77,700/-. It is the income that has escaped assessment that has to be taken note of, which being above Rs.50 lakh, the extended period u/s 149(1)(b) would save such notice from the bar of the period prescribed to re-open provided u/s 149(1)(a). Revenue also relied upon the memorandum explaining the provisions in the Finance Bill, 2021 to justify such interpretation
After analyzing sections 148, 149 & 48, the Court held that the AO has not applied its mind to the reply filed, nor noticed the legal position while deciding as to the application of the extended period under Section 149(1)(b). A plain reading of Section 48 would provide that the entirety of sale consideration does not constitute ‘income’. The words found in Sect 149 which is ‘income chargeable to tax’ must be read in terms of ‘income’ as arising out of the ‘Capital Gains’ as provided u/s 48 and this is the only manner of understanding the words, ‘income chargeable to tax u/s 149(1)(b). Memorandum explaining the provisions of Finance Act, 2021 does not in any way lead to giving a different interpretation to the words, ‘income chargeable to tax’. The words used u/s 149 for the purpose of extended time limit is to be interpreted in terms of the plain wordings of Sec. 149 and cannot be construed differently while relying on any executive instruction. High Court allowed the Writ Petition setting aside the order u/s 148A(d) and the notice u/s 148.
FULL TEXT OF THE JUDGMENT/ORDER OF KARNATAKA HIGH COURT
The petitioner has challenged the order at Annexure-‘A’ dated 21.03.2023 passed under Section 148A(d ) of the Income Tax Act, 1961 (‘I.T. Act’ for brevity) for the Assessment Year 2016-2017 and has also sought for quashing of the impugned notice dated 21.03.2023 bearing DIN and Notice No. ITBA/AST/S/148_1/2022-23/1051076610(1 ) issued by respondent No.1 under Section 148 of the I.T. Act for the Assessment Year 2016-2017 at Annexure-‘B’.
2. On 03.03.2023, the notice under Section 148A(b) of the I.T. Act came to be issued to the petitioner stating that information was received which suggested that income chargeable to tax for the Assessment Year 2016-2017 has escaped assessment within the meaning of Section 147, detailing the information alongwith the supporting documents. The information is detailed in the Annexure in the form of a table, which is extracted below:
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