Notice u/s 148 Beyond Three Years Not Allowed for Escaped Income Below Rs.50 Lakh: ITAT [Read Order]

The Bangalore Bench of Income Tax Appellate Tribunal(ITAT)ruled that a notice issued under Section 148 of the Income Tax Act,1961 beyond the prescribed three-year period is not valid when the escaped income is below ₹50 lakh.

Neelamma, appellant-assessee, had been in the flower business for 15 years but did not file a return for the relevant assessment year. The department received information about a ₹61,90,000 deposit in City Co-operative Bank Ltd., prompting the Assessing Officer(AO) to issue a notice under Section 148A(b) on March 22, 2022.

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In response, the assessee denied the alleged deposit, stating that only ₹12,38,000 had been deposited from her flower business earnings. The AO, in an order dated April 7, 2022, accepted this but still issued a notice under Section 148 on April 12, 2022, directing her to file a return.

After the return was filed, the AO assessed ₹12,38,000 as taxable under Section 69A of the Act.

The assessee appealed to the Commissioner of Income Tax(Appeals)[CIT(A)], stating that the source of ₹12,38,580 was explained. However, the CIT(A) upheld the AO's order.

Aggrieved by the decision of the CIT(A) the assessee appealed before the tribunal.

The assessee appealed before us, challenging the addition and the interest charges under Sections 234A, 234B, and 234C. The assessee also filed an application on September 4, 2024, questioning the AO’s jurisdiction under Section 148 and arguing that the notice was issued after the limitation period under Section 149(1)(b) of the Act.

The assessee's counsel argued that the notice issued on April 12, 2022, was barred by limitation, as the escaped income was ₹12,38,000 and the assessment year was 2018-19. In response,the revenue counsel referred to the third proviso to Section 148A, stating that the AO had an extended period of limitation.

The two member bench comprising Prakash Chand Yadav(Judicial Member) and Waseem Ahmed(Accountant Member) reviewed the submissions and found that the assessment year was 2018-19. The time limit for issuing a notice under Section 148 was March 30, 2022, as the escaped income was ₹12,38,000. Since the escaped income was less than ₹50 lakhs, the notice issued under Section 148 was barred by limitation. The third proviso cited by the ld. D.R. was not applicable.

Read More: No Applicability of Limitation Period of 3 Years u/s 149 (1)(a) of Income Tax Act when Income Escaped Assessment is More than Rs.50 lakhs: Kerala HC

The appellate tribunal’s decision was supported by the Jurisdictional High Court’s judgments in Sanat Kumar Murali (2023) and Prameela Mahadev Tadkase (2024). It also referenced a similar case where notices were not allowed after three years unless the escaped income exceeded ₹50 lakhs. Following these rulings, the tribunal allowed the appeal, and the other grounds related to the merit of the addition were considered academic

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