The Jaipur Bench of the Income Tax Appellate Tribunal (ITAT) has quashed a reassessment concerning a ₹2.50 lakh political donation, holding that the Income Tax Department could not extend the limitation period by issuing a show cause notice under Section 148A when that procedure was excluded for the category of search-based information involved in the case.
The bench of T.R. Senthil Kumar (Judicial Member) and Prakash (Accountant Member) has observed that the reassessment notice issued under Section 148 on April 12, 2023, was beyond the three-year limitation period applicable to assessment year 2019–20. The Tribunal consequently quashed both the notice and the reassessment order.
Buy Now: Direct tax (Income Tax) E-Magazine September 2026
The dispute arose from a deduction claimed under Section 80GGC of the Income Tax Act, 1961, for a contribution made to the Rashtriya Samajwadi Party (Secular). The Tribunal decided the appeal on limitation and did not rule on whether the donation was genuine or whether the deduction was otherwise allowable.
The taxpayer, a salaried individual, filed his income tax return for assessment year 2019–20 on July 29, 2019, declaring total income of ₹63,47,300. The return included a deduction of ₹2.50 lakh under Section 80GGC for the political contribution.
On September 7, 2022, the department conducted a search under Section 132 on a group of 23 registered unrecognised political parties in Ahmedabad, including the party that received the contribution.
The Assessing Officer (AO) stated that information based on the search had been flagged on the department’s Insight Portal under the Central Board of Direct Taxes’ risk management strategy. A show cause notice under Section 148A(b) was issued on March 30, 2023. After receiving the taxpayer’s reply on April 6, the AO passed an order under Section 148A(d) and issued a reassessment notice under Section 148 on April 12, 2023.
During reassessment, the AO relied on material gathered in the search to conclude that the political party received donations through banking channels and returned the amounts to donors, mainly in cash, after retaining a commission.
The AO accepted that the taxpayer had made the contribution through banking channels and that the recipient continued to be a registered political party. Nevertheless, the AO treated the donation as bogus and disallowed the ₹2.50 lakh deduction.
The reassessment order dated January 23, 2025 determined the taxpayer’s total income at ₹65,97,300. The Commissioner of Income Tax (Appeals) upheld both the reopening and the disallowance, leading to the appeal before the Tribunal.
The taxpayer argued that the ordinary three-year period for issuing a notice under Section 148 for assessment year 2019–20 expired on March 31, 2023. The notice issued on April 12, 2023 was therefore late.
The taxpayer submitted that the longer period under Section 149(1)(b), as applicable when the notice was issued, was unavailable because the alleged escaped income was ₹2.50 lakh, below the statutory threshold of ₹50 lakh.
The taxpayer also argued that the information originated from a third-party search and that the case fell within an exception to the Section 148A procedure. On that basis, the time allowed for replying to the Section 148A(b) notice could not be excluded when calculating the limitation period.
On the merits, the taxpayer maintained that the contribution had been made by bank transfer to a registered political party and that no material specific to him had been brought on record. He also challenged the approval and the manner in which the notice was issued.
The department argued that the limitation objection had been raised for the first time before the Tribunal, although its representative accepted that a pure question of law arising from facts already on record could be raised at that stage.
The department maintained that the information had been flagged under the CBDT’s risk management strategy and qualified as information for reopening. It further submitted that the exception to Section 148A relieved the AO from following that procedure, but did not deprive the officer of jurisdiction if it was followed.
The revenue also argued that the taxpayer had participated in the Section 148A proceedings and filed a return in response to the reassessment notice without objection.
The Tribunal held that the limitation issue went to the root of the AO’s jurisdiction and arose from undisputed facts already on record. It therefore admitted the argument even though it had been raised for the first time before the ITAT.
The bench observed that a taxpayer’s participation in proceedings could not confer jurisdiction where the statute did not provide it.
The Tribunal found that, because the alleged escaped income was ₹2.50 lakh, the extended period under Section 149(1)(b) was not attracted. The Section 148 notice therefore had to be issued by March 31, 2023, unless the department could validly exclude time associated with the Section 148A proceedings.
The ITAT examined the exception in the first proviso to Section 148A, as applicable to the case. It noted that the exception covered specified circumstances involving assets, books or documents found in a search of another person on or after April 1, 2021, subject to the statutory satisfaction and approval requirements.
The bench found that the AO’s own assessment order identified the September 2022 search of the political party group as the source of the information. The disallowance also rested on material gathered in that search.
According to the Tribunal, the fact that the information reached the AO through the Insight Portal did not change its source or character. The bench held that the case belonged to the class covered by the exception and that the AO’s omission to record the specified satisfaction and approval could not be used to the revenue’s advantage on limitation.
The Tribunal rejected the argument that issuing a Section 148A notice could be treated as merely giving the taxpayer an additional opportunity. Where the statute excluded that procedure, the bench held, following it could not produce the benefit of excluding time for computing limitation.
Following the Mumbai ITAT decision in Amit Pahuja v. DCIT, the Jaipur bench held that the Section 148 notice issued on April 12, 2023 was time-barred. It quashed the notice and the reassessment order founded on it.
The Tribunal left open the merits of the ₹2.50 lakh deduction and the taxpayer’s other objections concerning approval under Section 151 and compliance with Section 151A. It held that the interest ground no longer survived after the reassessment was quashed.
Membership Required to Access Case Details & Order Copy
To view the complete Case Details and Download Order Copy, you must have an active membership. Please subscribe to continue.
