ITAT Mumbai Invalidates Reopening Under Section 148 for Escaped Income Below Rs. 50 Lakh

Background of the Dispute

The Mumbai Bench of the Income Tax Appellate Tribunal recently adjudicated cross appeals in the case of Krishna Deep Builders Vs ITO (ITAT Mumbai), relating to Assessment Year 2017-18, arising from an order passed by the Commissioner of Income Tax (Appeals), NFAC.

Both the assessee and the Revenue were before the Tribunal:

• The assessee disputed:
  • The very validity of the reassessment proceedings initiated under Section 148 read with Section 148A.
  • An addition of Rs. 32,78,500 made under Section 56(2)(vii)(b) towards the difference between the stamp duty valuation and the actual purchase price of an immovable property, asserting that the land was in a no-development zone and had no municipal road access.
• The Revenue contested:
  • The deletion of an addition of Rs. 87,93,925 made under Section 69 with respect to source of investment in the same property, which the Assessing Officer (AO) had treated as unexplained and taxed under Section 115BBE.

The assessee, a partnership firm, had originally filed its return of income on 03.07.2017 declaring nil income. Subsequently, based on third-party information, the AO reopened the assessment, alleging that income had escaped assessment.

Facts Leading to Reassessment

Original Transaction and Information Trigger

The case was reopened on the basis of information received from the Sub-Registrar’s Office that the assessee had purchased an immovable property on 04.04.2016:

• Declared purchase consideration: Rs. 80 lakh
• Stamp duty valuation: Rs. 1,12,78,500
• Alleged difference: Rs. 32,78,500

Relying on these inputs, the AO formed a belief that income chargeable to tax had escaped assessment to the extent of the difference between the stamp duty value and actual consideration, thereby invoking Section 56(2)(vii)(b).

Reopening Proceedings

The sequence of events was as follows:

1. Order under Section 148A(d) dated 30.07.2022 was passed, recording reasons that income of Rs. 32,78,500 had escaped assessment on account of the above-mentioned property transaction.
2. Notice under Section 148 dated 15.06.2021 was issued to reopen the assessment for A.Y. 2017-18, which was beyond three years from the end of the relevant assessment year but within ten years.
3. The assessee filed a return in response to the notice under Section 148, again declaring nil income.

Reassessment Order

The AO completed reassessment under Section 147 read with Section 144B by order dated 12.05.2023 and determined total income at Rs. 1,20,72,425 by:

• Adding Rs. 32,78,500 under Section 56(2)(vii)(b) as income from other sources on account of difference in stamp duty value and purchase price.
• Adding Rs. 87,93,925 under Section 69 read with Section 115BBE as unexplained investment in the immovable property.

Order of CIT(A) – Partial Relief

On appeal, the assessee produced documents evidencing the source of funds used for purchasing the property. The CIT(A), NFAC, vide order dated 08.10.2024:

• Sustained the addition of Rs. 32,78,500 under Section 56(2)(vii)(b), holding that the assessee did not satisfactorily justify the variance between stamp duty value and the actual consideration, despite arguing that the property was located in a no-development zone with limited access.
• Deleted the addition of Rs. 87,93,925 under Section 69, accepting that the assessee had subsequently furnished relevant documentary evidence establishing the genuineness and source of investment which could not be produced earlier before the AO due to time constraints.

This led to cross appeals: