ITAT Sets Aside Reassessment, Says Rs 3.5 Lakh Escaped Income Below Rs 50 Lakh Threshold for Extended Limitation

The ITAT Agra quashed the entire reassessment proceedings in the Rs 3.50 lakh deduction disallowance case, noting the Section 148 notice was time-barred. The tribunal highlighted that the alleged escaped income was only Rs 3.50 lakh, which was below the limit of Rs 50 lakh required for invoking the extended time limit under Section 149(1)(b).

In the present case, the income tax authorities had reopened the assessee’s case via a notice passed under Section 148 of the Income Tax Act after taking approval from the relevant competent authority.

The tax authorities had noted that the assessee is a salaried employee who draws his salary from RBL Bank Limited and during the year in consideration he also made a donation amounting to Rs 3.50 lakh to the Manavadhikar National Party and claimed a deduction for the same under Section 80GGC of the Act. The tax authorities treated the donation as bogus and disallowed the claim by relying on a search conducted on September 07, 2022, under Section 132 of the Act by the Investigation Wing of the Income Tax Department on Registered Unrecognised Political Parties. The AO held that “the donations were found to be in the nature of a scam for claiming bogus deductions and intended to defraud the legitimate tax of the assessee.”

Being aggrieved with the AO’s order, the assessee filed an appeal before the ITAT Agra, the assessee challenged the validity of reassessment proceedings, claiming the notice dated April 10, 2023, issued under Section 148 of the Act was time-barred; consequently, it is liable to be set aside. The assessee claimed that as per the provisions of Section 149(1)(a), the notice could have been issued only up to March 31, 2023. Even after excluding the period allowed for replying to the notice issued under Section 148A(b), the extended deadline expired on April 7, 2023. Since the notice was issued on April 10, 2023, it was beyond the statutory limitation period.

The tribunal, when analysing the case, agreed with the arguments served by the assessee. It was noted that the alleged escaped income was only Rs 3.50 lakh, far below the Rs 50 lakh threshold required for invoking the extended time limit under Section 149(1)(b). The Tribunal further held that, after considering the exclusion period provided under the fifth proviso to Section 149, the department had time only up to April 7, 2023, to issue the notice. Since the notice was issued three days later, it was invalid.

Accordingly, the tribunal held that the reassessment proceedings were legally unsustainable and allowed the assessee’s legal ground of appeal. The tribunal did not examine the Rs 3.50 lakh deduction disallowance claim on merits, as the reassessment was itself quashed.