Sonali Dharmendra Mhatre Vs ITO (ITAT Mumbai)
The Income Tax Appellate Tribunal (ITAT), Mumbai Bench, has allowed an appeal filed by assessee Sonali Dharmendra Mhatre, quashing the reassessment proceedings initiated against her for the Assessment Year 2015-16. The Tribunal ruled that the notice issued under Section 148 of the Income Tax Act, 1961, was null and void as it was issued beyond the permissible time limit for cases where the escaped income does not exceed Rs. 50 lakhs.
The appeal was filed against an order dated October 15, 2024, passed by the National Faceless Appeal Center (NFAC)/Commissioner of Income Tax (Appeals).
Condonation of Delay:
At the outset, the ITAT addressed a delay of 71 days in filing the first appeal before the NFAC. The assessee explained that she was unwell due to blood pressure and other health issues, staying at her maternal home. Her husband, whose mobile number was linked to the e-filing portal, did not check messages regarding notices for the relevant assessment year. It was only in the third week of February 2024 that her husband discovered the assessment order dated November 24, 2023, passed under Section 147 of the Act. He immediately informed the tax consultant, who then filed the appeal.
The NFAC had earlier declined to condone the delay, stating that the assessee failed to provide specific details of her health issues or medical documents. However, the ITAT took a more lenient view, finding the reasons “bonafide, unintentional and reasonable,” and consequently condoned the 71-day delay.
Background of Reassessment Proceedings:
The Assessing Officer (AO) had initiated reassessment proceedings based on information from the ‘Insight portal’ under the Non-filing of Return (NMS) priority. The information indicated that the assessee had deposited Rs. 20,00,000/- or more with a banking company during the assessment year but had not filed any return of income. Subsequent inquiry revealed financial transactions totaling Rs. 90,64,850/-, comprising a time deposit of Rs. 86,64,850/- and a cash deposit of Rs. 4,00,000/-. The AO thus concluded that income of Rs. 90,64,850/- had escaped assessment.
A show cause notice under Section 148A(b) of the Act was issued on March 27, 2020.
Assessee’s Explanation and AO’s Shifting Stance:
In response to the Section 148A(b) notice, the assessee contended that the total income escaping assessment was below Rs. 50,00,000/-, which would trigger the three-year time limit for issuing a Section 148 notice. She explained that a time deposit of Rs. 37,63,399/- made with GP Parsik Sahakari Bank Ltd. on December 26, 2012, had matured during the assessment year in question. This principal amount, along with accrued interest of Rs. 5,69,026/-, totaling Rs. 43,32,425/-, was re-invested as a new time deposit. She argued that this was not fresh income but a re-investment of matured funds and interest thereon.
Initially, the AO did not accept this explanation in the order passed under Section 148A of the Act dated April 7, 2022, and consequently issued a notice under Section 148 on the same date.
However, during the subsequent assessment proceedings, the AO reversed his stance regarding the Rs. 43,32,425/-. The ITAT noted that the AO, in the final assessment order, accepted the assessee’s claim that this amount represented principal and interest from a matured time deposit that was re-invested, and therefore made no addition on this count.
Despite this, the AO still made additions of Rs. 17,85,848/- as unexplained money under Section 69A and Rs. 4,17,401/- as income from other sources.
Legal Challenge to Reassessment Validity:
The core of the assessee’s argument before the ITAT was that once the AO accepted the explanation regarding the Rs. 43,32,425/-, the actual income escaping assessment fell significantly below the Rs. 50,00,000/- threshold stipulated in Section 149(1)(b) of the Act.
Section 149(1) of the Income Tax Act, 1961, prescribes time limits for issuing notices under Section 148 for reassessment.
