In a recent ruling, the Karnataka High Court quashed an income tax reassessment notice issued to the petitioner where the full sale consideration was considered in calculating capital gains without applying an indexed cost adjustment.
Devanur Thimmasetty Srinivasa, the petitioner received a notice under Section 148A(b) of the Income Tax Act, 1961, concerning income for the assessment year 2015-16. This notice was issued as part of reassessment proceedings.
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The petitioner noted that the assessment incorrectly considered the entire sale consideration as capital gains without factoring in the indexed cost of acquisition and the sale should be associated with the 2016-17 assessment year, not 2015-16.
Consequently, the petitioner challenged the notice before the court arguing that the reassessment should relate to the 2016-17 assessment year since the sale deed in question was dated July 20, 2015.
The reassessment took the entire sale consideration as capital gains without accounting for the indexed cost, which the petitioner’s counsel argued was inaccurate and unfair and the petitioner was not informed by his accountant, explaining his lack of response to the notice.
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On the contrary, the respondent’s counsel argued that the petitioner could not justify the lack of participation in the proceedings simply by stating that the accountant did not inform him. The respondent’s counsel argued that the notice was issued correctly under the authority of the Income Tax Act, 1961.
Justice S Sunil Dutt Yadav heard both side’s arguments and observed that the sale transaction dated July 20, 2015, appeared more relevant to the 2016-17 assessment year. The court also observed that the assessment order did not account for the indexed cost of acquisition in calculating capital gains which prima facie seemed to disadvantage the petitioner.
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Therefore, the court set aside the orders under Sections 148A(d), 148 of the Income Tax Act, 1961, and the penalty orders. The petitioner was allowed to respond to the Section 148A(b) notice, and all contentions remained open for further assessment. The petitioner was directed to present his response to the notice by appearing before the Income Tax Officer on August 22, 2024.
The writ petition was disposed of with the above directions.
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