Reassessment Quashed: Escaped Income Below Rs. 50 Lakh and Improper Sanction Under Section 151 Invalidate Section 148 Notice – ITAT Mumbai
Case Overview: Manish Jagdish Joshi Vs CIT(DRP-3) (ITAT Mumbai)
The Mumbai bench of the Income Tax Appellate Tribunal delivered a significant ruling in favour of the assessee by quashing the entire reassessment proceedings for Assessment Year 2017-18. The Tribunal determined that the notice issued under Section 148 of the Income Tax Act, 1961 was fundamentally flawed on two independent jurisdictional grounds — the alleged escaped income fell below the statutory threshold of Rs. 50 lakh prescribed under Section 149(1)(b), and the approval for initiating reassessment beyond the three-year window was granted by an authority not competent to do so under Section 151(ii).
Background and Factual Matrix
The assessee, a non-resident individual, had filed a return of income on 09/08/2017 declaring total income of Rs. 25,950. The case came under the Assessing Officer's radar when information was received from the office of the DIT (I&CI), Mumbai, which had obtained transaction data from the Sub-Registrar's office concerning immovable property dealings. The data indicated that the assessee had acquired an immovable property for nil consideration, whereas the stamp duty valuation of the said property by the Stamp Valuation Authority was recorded at Rs. 43,32,000.
The Assessing Officer formed a belief that the difference of Rs. 43,32,000 represented income chargeable to tax under Section 56(2)(vii)(b) of the Act that had escaped assessment. On this basis, a notice under Section 148 was issued on 15 June 2021.
Subsequent Procedural Steps
Following the Hon'ble Supreme Court's landmark ruling in Union of India v. Ashish Agarwal, Civil Appeal No. 3005 of 2022, and the consequent CBDT Circular No. 1 of 2022 dated 11/05/2022, the original notice dated 15 June 2021 was treated as a show-cause notice under Section 148A(b). Accordingly, a fresh show-cause notice under Section 148A(b) was served on the assessee on 23 May 2022, calling upon the assessee to explain why proceedings under Section 148 should not be initiated.
After the assessee's objections were considered and rejected, the Assessing Officer passed an order under Section 148A(d) on 18 July 2022, concluding that the matter warranted initiation of reassessment proceedings. This was followed by issuance of a fresh notice under Section 148 on 24 July 2022 by the Jurisdictional Assessing Officer.
The reassessment culminated in an addition of Rs. 43,32,000 under Section 56(2)(vii)(b), bringing the total assessed income to Rs. 43,57,950. The final assessment order was passed under Section 147 read with Section 144C(13) of the Income Tax Act, 1961, pursuant to directions dated 20/02/2024 issued by the Dispute Resolution Panel-3, Mumbai.
Grounds of Challenge Before the Tribunal
Before the ITAT, the assessee raised several jurisdictional and substantive challenges. The jurisdictional objections, being fundamental in nature, were taken up first by the Tribunal. The key grounds are reproduced from the order:
"1. Reopening of assessment is bad in law: The learned CIT(DRP-3) erred in upholding the reopening of assessment vide notice u/s 148 of the Act dated 15.06.2021 i.e. after expiry of three years from the end of the assessment year 2017-18 without appreciating that notice under 148 can be issued beyond 3 years only if income escapement is above 50 lacs, in fact of present case the impugned notice issued for AY. 2017-18 is for income escaped below Rs.50 lacs, i.e. Rs.43,32,000/-, therefore, reopening is bad in law.
3. The learned CIT (DRP-3) failed to appreciate that the AO issued reopening notice beyond period of three years, approval was required to be taken as per provisions of amended section 151 of the Act from Principal Chief Commissioner or Principal Director General or Chief Commissioner or Director General however approval is from PCIT."