The Income Tax Appellate Tribunal (ITAT), Rajkot Bench, has quashed reassessment proceedings initiated holding that the Income Tax Department could not invoke the extended limitation period where the alleged escaped income was less than ₹50 lakh. 

The bench of Dr. Arjun Lal Saini (Accountant Member) observed that the reassessment proceedings were initiated after the expiry of three years from the end of the relevant assessment year, while the alleged escaped income amounted to only ₹34.30 lakh, falling well below the statutory threshold prescribed under Section 149(1)(b) of the Income-tax Act, 1961. 

The appellant/assessee had originally filed its return of income for Assessment Year 2017-18 declaring a taxable income of merely ₹26,220. Subsequently, information available with the Income Tax Department indicated cash deposits aggregating ₹34,30,995, including ₹25,30,995 deposited during the demonetisation period, in the assessee’s bank account. 

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Based on this information, reassessment proceedings were initiated under Sections 147 and 148 after following the procedure laid down by the Supreme Court in the landmark Union of India v. Ashish Agarwal judgment.

The Assessing Officer alleged that the assessee failed to satisfactorily explain the source of the cash deposits despite multiple notices and ultimately treated the entire amount of ₹34.30 lakh as unexplained money under Section 69A, taxing it under the stringent provisions of Section 115BBE. 

The Commissioner of Income Tax (Appeals) upheld the reassessment, following which the assessee approached the ITAT.

Before the Tribunal, the assessee primarily challenged the very validity of the reassessment proceedings.

It was argued that the original reassessment notice was issued under the old law. Fresh proceedings under the amended reassessment regime were initiated after the expiry of three years. The alleged escaped income was only ₹34.30 lakh, which is below the mandatory threshold of ₹50 lakh required for reopening assessments beyond three years under the amended Section 149(1)(b). 

Accordingly, the assessee contended that the reassessment itself lacked jurisdiction.

After examining the statutory provisions and the chronology of notices, the Tribunal accepted the assessee’s contention.

It noted that Section 149, as amended by the Finance Act, 2021, clearly provides notices under Section 148 ordinarily cannot be issued after three years from the end of the relevant assessment year. The limitation can be extended up to ten years only if the Assessing Officer possesses evidence showing escaped income represented in specified forms amounting to ₹50 lakh or more.

Since the alleged escaped income in the present case was only ₹34,30,995, the Tribunal held that the statutory condition for invoking the extended limitation period was not satisfied. 

The Tribunal placed reliance on the Delhi High Court’s decision in Ganesh Dass Khanna v. ITO, wherein it was held that reassessment notices issued after three years cannot survive where the alleged escaped income is below ₹50 lakh.

The Rajkot Bench observed that the ratio of the Delhi High Court squarely applied to the present case and reinforced the legislative intent behind the amended reassessment provisions. 

The Tribunal categorically held that the Assessing Officer lacked jurisdiction to issue the impugned notice under Section 148 after the expiry of three years.

According to the Bench, since the escaped income did not cross the statutory threshold of ₹50 lakh, the reassessment notice dated 15 July 2022 was barred by limitation and therefore legally unsustainable. 

Consequently, the reassessment proceedings were quashed in their entirety.

Since the Tribunal invalidated the reassessment proceedings themselves, it declined to examine the merits of the additions relating to unexplained money under Section 69A, Taxation under Section 115BBE, Penalty proceedings, and Interest levied by the Assessing Officer.

The Bench observed that once the reassessment itself was void, all consequential additions automatically became academic and infructuous. 

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