Reassessment beyond Three Years Invalid as Escaped Income Below ₹50 Lakh Threshold: ITAT quashes Order [Read Order]

The Ahmedabad Bench of the Income Tax Appellate Tribunal (ITAT) quashed a reassessment order and ruled that proceedings initiated beyond the three year limitation period are invalid if the income likely to have escaped assessment is below the ₹50 lakh threshold mandated by Section 149(1)(b) of the Income Tax Act.

Ashokbhai Anbabhai Kachadiya (assessee) operates a fruit and vegetable commission agency under the name "Akshit Trading". For the Assessment Year 2013-14, the assessee did not file a return, stating his income remained below the basic exemption limit.

The Assessing Officer (AO) later received information regarding cash deposits totaling ₹2,75,59,500 in the assessee's bank accounts. Consequently, a notice under Section 148 was issued on July 30, 2022 beyond three years from the end of the relevant assessment year.

During the proceedings, the assessee clarified that the actual deposits were ₹1,74,81,925 and represented gross receipts from his commission business, not personal income. However, the AO rejected the books of account under Section 145(3) and treated the activity as trading rather than a commission agency.

The AO applied Section 44AD to estimate income at 8% of the deposits and resulted in an addition of ₹13,98,554. Aggrieved by the AO’s order, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)].

The CIT(A) set aside the assessment due to violations of natural justice but remanded the matter back to the AO for fresh adjudication. Aggrieved by the CIT(A)’s order, the assessee appealed to the ITAT, arguing the entire proceeding was barred by limitation.

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The two-member bench, comprising Dr. B.R.R. Kumar (Vice President) and Siddhartha Nautiyal (Judicial Member), observed that under Section 149(1)(b), assessments older than three years can only be reopened if the escaped income is likely to be ₹50 lakh or more.

The tribunal noted that the AO estimated the escaped income at only ₹13,98,554 and noted that even using a higher estimate of 25%, the amount would not have reached the ₹50 lakh limit.

The Bench observed that the phrase "likely to amount to" did not allow the AO to initiate proceedings based on gross transaction figures without a preliminary analysis of whether the actual income component meets the threshold.

Relying on the precedent set in Prakash Babulal Bhandari v. ITO, the tribunal concluded that the AO failed to carry out the required analysis before triggering the reassessment. The tribunal held the proceedings to be without jurisdiction and quashed the orders of both the AO and the CIT(A). The appeal of the assessee was allowed.

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