ITAT Mumbai invalidates reassessment notice issued after 3 years for low-value escapement

Background of the dispute

The appeal in Senthilkumar Thangaraj Vs ITO (ITAT Mumbai) arose from a reassessment initiated under Section 147 pursuant to a notice issued under Section 148 of the Income Tax Act 1961 for AY 2016-17.

The assessee, a salaried individual, had originally filed a return under Section 139(1) declaring:

  • Total income: Rs. 7,01,880
  • Gross total income: Rs. 8,57,211
  • Deductions under Chapter VI-A: Rs. 1,55,330

Subsequently, the Assessing Officer (AO) formed a belief that income of Rs. 2,03,816 had escaped assessment and, on that basis, reopened the assessment by issuing a notice under Section 148 dated 27.07.2022.

During the reassessment proceedings, the assessee did not participate. The AO thus completed the reassessment ex parte, invoking Section 147 read with Section 144 and Section 144B, and made:

  • An addition of Rs. 47,00,000 towards alleged unexplained investment in purchase of immovable property; and
  • A complete denial of the assessee’s Chapter VI-A deduction claim of Rs. 1,55,330.

The assessee challenged the reassessment before the Commissioner of Income Tax (Appeals) [CIT(A)] / National Faceless Appeal Centre (NFAC), Delhi.

Order of the CIT(A) / NFAC

Before the CIT(A), the assessee contested:

  1. The legality and jurisdiction of the reopening under Section 148; and
  2. The merits of the additions made by the AO.

The CIT(A):

  • Rejected the legal grounds challenging the validity of the notice under Section 148 and the reassessment jurisdiction; but
  • Remitted the matter on merits to the AO for a fresh, de novo consideration of the additions, thereby setting aside the assessment on factual issues but upholding the legality of reassessment.

Dissatisfied with the adverse finding on jurisdiction, the assessee carried the matter further in appeal to the Income Tax Appellate Tribunal (ITAT), Mumbai.

Assessee’s primary contention: bar of limitation for escapement below Rs. 50 lakh

The learned Authorised Representative (AR) for the assessee focused exclusively on the legal issue of jurisdiction under Section 148. The key submissions were:

  • The entire basis for reopening, as recorded in the reasons, was that income of Rs. 2,03,816 had allegedly escaped assessment.
  • This sum is far below the monetary threshold of Rs. 50,00,000 prescribed in the amended Section 149 for extending the time limit for issuance of reassessment notices.
  • For AY 2016-17, the three-year period from the end of the assessment year ended on 31.03.2020.
  • The notice under Section 148 was issued on 27.07.2022, clearly beyond three years from the end of the relevant assessment year.
  • In the absence of escapement of income of Rs. 50 lakh or more, the AO had no jurisdiction under the post-Finance Act, 2021 regime to issue a notice beyond the three-year time bar.

The AR drew attention to the notice under Section 148 dated 27.07.2022 and the reasons recorded, both on record, to demonstrate that: