Income Tax Notice held invalid as escaped income was below Rs. 50 lakh: ITAT

A salaried taxpayer sold Kabra Drugs shares for Rs. 49.47 lakh, but the tax department treated it as a penny stock transaction, reopened the case, and added the amount as unexplained income under Section 68.

Fact of The Case:

The assessee, a salaried person who also invested in shares, claimed that he bought 70,500 physical shares of M/s Kabra Drugs Ltd. in 2009 and later sold 48,500 of them in the financial year 2014–15 for Rs. 49,47,850; however, the Income Tax Department flagged this company’s shares as a “penny stock” often used to convert unaccounted money into legal gains, which led the Assessing Officer to reopen the case under Section 147 by issuing notices under Section 148 in 2021 and 2022, and finally treat the entire sale amount as unexplained income under Section 68 of the Income Tax Act.

Issue Involved in the Case

Whether the reassessment notice for AY 2015–16 issued after 01.04.2021 was time-barred under the new Section 149, whether the extended time limit could be applied when the alleged escaped income was below Rs. 50 lakh, and whether the addition of Rs. 49,47,850 under Section 68 was justified.

Decision of the Tribunal

The Tribunal held that the reassessment notice for A.Y. 2015–16 was time-barred since the normal three-year limit ended on 31.03.2019, and the extended period under Section 149 could not be applied as the alleged escaped income of Rs. 49,47,850 was below Rs. 50 lakh; relying on the Supreme Court ruling in Union of India vs. Rajeev Bansal, where the Revenue itself accepted that such notices issued after 01.04.2021 must be dropped, the Tribunal quashed the reassessment as void ab initio and allowed the assessee’s appeal.