Bangalore ITAT Strikes Down Reassessment: Notice Issued Beyond Three-Year Window Unsustainable for Escaped Income of ₹20.52 Lakh

Case Background

Case Name: Sanjana N Malpe Vs ITO (ITAT Bangalore)
Appeal Number: ITA 715/BANG/2026
Date of Order: 17/08/2026
Assessment Year: 2016-17

Overview of the Dispute

The Bangalore Bench of the Income Tax Appellate Tribunal delivered a significant ruling in the matter of Sanjana N Malpe Vs ITO, holding that a reassessment notice issued under Section 148 of the Income Tax Act, 1961 was time-barred and legally unsustainable. The core reason: the alleged escaped income amounted to merely ₹20.52 lakh, which is well below the statutory threshold of ₹50 lakh prescribed for invoking the extended ten-year limitation period under Section 149(1)(b).

This ruling reinforces a foundational principle of reassessment law — that the Assessing Officer cannot stretch the limitation window beyond three years simply because the escaped income relates to an asset transaction, unless the quantum of such income meets or is likely to meet the prescribed monetary limit.

Factual Background

The assessee, an individual, had filed her return of income for Assessment Year 2016-17 on 24/11/2016, declaring a total income of ₹2,92,530. In the course of subsequent proceedings, the Income Tax Department received information from its Intelligence and Criminal Investigation (I&CI) unit indicating that the assessee had sold an immovable property for a consideration of ₹20.52 lakh during the relevant assessment year, without disclosing the resultant capital gains in her return of income.

Acting on this information, the Assessing Officer initially issued a notice under Section 148 of the Income Tax Act, 1961 on 21/06/2021.

Impact of the Supreme Court's Ruling in Union of India vs. Ashish Agrawal

Following the landmark Supreme Court pronouncement in Union of India vs. Ashish Agrawal reported in (2022) 444 ITR 1 (SC), the original notice dated 21/06/2021 issued under Section 148 was deemed to have been issued under Section 148A(b) of the Act. Pursuant to this, a show-cause notice dated 17/05/2022 was served upon the assessee, furnishing the information and material relied upon by the Revenue and granting a two-week window to respond.

Assessee's Response to Show-Cause Notice

In her reply to the show-cause notice, the assessee raised two primary contentions:

1. Substantive Ground: The immovable property sold comprised two distinct capital assets — land and a residential building — each carrying different holding periods. The land was a long-term capital asset, and the long-term capital gain arising therefrom had been invested in construction of a residential property, making the gain eligible for exemption under Section 54 of the Act. The assessee also sought deduction of indexed cost of acquisition and cost of construction of the building from respective components of the sale consideration.

2. Jurisdictional Ground: Since more than three years had elapsed from the end of Assessment Year 2016-17, and the amount involved was less than ₹50 lakh, the issuance of a notice under Section 148 was impermissible in view of Section 149(1)(a) of the Act.

The assessee also submitted a detailed computation of income in support of her contentions.

Action Taken by the Assessing Officer