The monetary threshold for reopening an assessment is based on the net income that escaped tax, not the gross transaction value.

Issue

For the purpose of determining the time limit for issuing a reassessment notice under Section 149(1)(b), should the monetary threshold of ₹50 lakhs be applied to the gross receipts of a transaction or to the net income chargeable to tax that has escaped assessment?

Facts

The assessee did not file an income tax return for the Assessment Year 2016-17.
The Income Tax Department’s Insight Portal showed that the assessee had sold a property for ₹71 lakhs.
Based on this gross sale consideration, the Assessing Officer (AO) concluded that income exceeding ₹50 lakhs had escaped assessment and, after following the preliminary procedure, issued a notice under Section 148.
In response, the assessee filed a return declaring a long-term capital gain, claimed a deduction under Section 54, and showed a net taxable income below the ₹50 lakh threshold.
The AO disregarded the assessee’s computation and maintained that the full sale consideration of ₹71 lakhs represented the escaped income.

Decision

The High Court held that the reassessment proceedings were unsustainable in law and quashed them. It ruled that for determining the monetary limit under Section 149(1)(b), it is the net income chargeable to tax that must be considered, not the gross receipts or turnover. Since the assessee’s net taxable income from the transaction was below the ₹50 lakh threshold, the notice under Section 148 could not have been issued for the extended time period.

Key Takeaways

“Income Escaped” vs. “Gross Receipts”: The crucial term in Section 149(1)(b) is “income…chargeable to tax…represented in the form of an asset.” This refers to the final taxable amount after all legitimate deductions and exemptions, not the total value of the transaction.
Threshold is Based on Taxable Income: The jurisdiction to reopen an assessment for an extended period is determined by the quantum of the actual income that escaped the tax net, not the gross turnover or sale value.
AO Cannot Ignore Assessee’s Claims: The Assessing Officer cannot simply adopt the gross sale consideration as the escaped income and ignore the assessee’s valid claims for deductions (like Section 54) when determining the applicability of the monetary threshold for reopening an assessment.

IN THE ITAT MUMBAI BENCH ‘K (SMC)’

Vipendra Ravindra Mandal

ITO

Raj Kumar Chauhan, Judicial Member
and Om Prakash Kant, Accountant Member

IT Appeal No. 1819 (MUM) of 2025
[Assessment year 2016-17]

SEPTEMBER 22, 2025

V.P. Kothari for the Appellant. Bhagirath Ramawat, Sr. DR for the Respondent.

ORDER

Om Prakash Kant, Accountant Member.- This appeal by the assessee is directed against order dated 28.01.2024 passed by the Ld. Commissioner of Income-tax (Appeals) – National Faceless Appeal Centre, Delhi [in short ‘the Ld. CIT(A)’] for assessment year 2016-17, raising following grounds:

The learned CIT(A) NFAC has erred in law and on facts in dismissing the Ground No.1 in respect of the limitation for issue of Notice u/s 148 as provided u/s 149(1)(A) of Income Tax Act, 1961 without properly considering the interpretation of the law and judicial decisions relied by the appellant.

The learned CIT(A) NFAC has erred in law and on facts in dismissing the Ground No.3 in respect of allowing the deduction of Indexed improvement cost / expenses as claimed by the appellant without properly considering the facts and evidence submitted.

2. Briefly stated, the facts of the case are that the assessee did not file any regular return of income for the assessment year under consideration. Based on information received through the Insight Portal maintained by the Income-tax Department under the head “Risk Management Strategy – Non-filing of Return” formulated by the Central Board of Direct Taxes (CBDT), the Assessing Officer (hereinafter “AO”) noted that the assessee had sold an immovable property for a consideration of Rs. 71,00,000/-, yet had not filed a return of income. Consequently, a notice under Section 148A(b) of the Income-tax Act, 1961 (hereinafter “the Act”) was issued, calling upon the assessee to explain the income arising from the sale of the said property. As there was no compliance on the part of the assessee, the AO, after obtaining due approval from the prescribed authority, passed an order under Section 148A(d) of the Act and thereafter issued a notice under Section 148 of the Act requiring the assessee to file a return of income. In response, the assessee filed a return declaring long-term capital gains on the sale of the said property and claimed deduction under Section 54 of the Act. In computing the said gains, the assessee reduced the indexed cost of acquisition as well as the indexed cost of improvement from the sale consideration.

2.1 In the reassessment order dated 25.01.2024, the AO, in the absence of supporting documentary evidence, disallowed the indexed cost of improvement of Rs. 21,35,398/- while computing the long-term capital gain. The AO, however, allowed the claim of deduction under Section 54 of the Act and also allowed deduction of Rs. 75,000/- towards interest on borrowed capital.

2.2 On appeal, the ld. CIT(A) granted partial relief in respect of the deduction claimed under Section 54, but sustained the disallowance of the indexed cost of improvement. Aggrieved with the additions sustained by the Ld. CIT(A), the assessee is in appeal before the Income-tax Appellate Tribunal (ITAT) raising the grounds as reproduced above.

3. Before us, the Ld. Counsel for the assessee filed a Paper Book containing pages 1 to 57.

4. In relation to Ground No. 1, it was submitted by learned counsel that the income chargeable to tax in the present case was below the monetary threshold of Rs.50 lakhs as prescribed for issuance of notice under Section 148 of the Act beyond a period of three years in terms of Section 149(1)(b). Reliance was placed on the judgment of the Hon’ble Madhya Pradesh High Court in Nitin Nema v. PCIT 276/458 ITR 690 (Madhya Pradesh), wherein it was held that the “income chargeable to tax” does not mean the gross sale consideration. It was argued that after giving effect to the indexed cost of acquisition/improvement and deduction under Section 54 of the Act, the resultant taxable income in the present case was below Rs.50 lakhs. Therefore, the issuance of notice under Section 148 on 15.03.2023, pertaining to assessment year 2016-17, was beyond the permissible three-year limit and thus void.

5. Per contra, learned Departmental Representative (DR) submitted that information from a credible source had been received regarding the sale of an immovable property for Rs.71 lakhs by the assessee who had not filed any return of income. Since no return of income was filed and the assessee didn’t comply to notice u/s 148A(b) of the Act, the AO had no record or material to ascertain whether, after allowing credit for indexed cost of acquisition/improvement or deductions if any, the taxable income would be less than Rs.50 lakhs. It was contended that the decision in Nitin Nema (supra) was distinguishable, as in that case the assessee had duly responded to the notice under Section 148A(b) and furnished computation showing taxable income below Rs.50 lakhs, whereas, in the present case, the assessee neither filed a regular return of income nor responded to the statutory notices.

6. We have considered the rival submissions and perused the material on record. The core issue is whether the impugned notice under Section 148 was issued beyond the limitation prescribed under Section 149(1)(b) of the Act. For ease of reference, the provision is extracted as under:

[Time limit for notices under sections 148 and 148A.

149. (1) No notice under section 148 shall be issued for the relevant assessment year,-

(a)

if three years and three months have elapsed from the end of the relevant assessment year, unless the case falls under clause (b);

(b)

if three years and three months, but not more than five years and three months, have elapsed from the end of the relevant assessment year unless the Assessing Officer has in his possession books of account or other documents or evidence related to any asset or expenditure or transaction or entries which show that the income chargeable to tax, which has escaped assessment, amounts to or is likely to amount to fifty lakh rupees or more.

(2) No notice to show cause under section 148A shall be issued for the relevant assessment year,-

(a)

if three years have elapsed from the end of the relevant assessment year, unless the case falls under clause (b);

(b)

if three years, but not more than five years, have elapsed from the end of the relevant assessment year unless the income chargeable to tax which has escaped assessment, as per the information with the Assessing Officer, amounts to or is likely to amount to fifty lakh rupees or more.]

6.1 On a plain reading, it is evident that where the alleged escapement of income represented in the form of an asset is less than Rs.50 lakhs, a notice under Section 148 can be issued only within a period of three years from the end of the relevant assessment year. The CIT(A), while placing reliance on the decision of the Hon’ble Delhi High Court in Rohit Kumar v. Income-tax Officer 506/476 ITR 691 (Delhi)/ (W.P.(C) No. 2830/2022), observed that at the stage of recording reasons, the AO can only proceed on the basis of the material available, and in the absence of a return or other details, may reasonably take the entire sale consideration as the amount of income which has escaped assessment. The CIT(A) further held that an assessee cannot take advantage of his own default in failing to file a return, and thereafter, upon reopening, claim that the taxable income would be below Rs.50 lakhs so as to render the proceedings invalid. The Ld. CIT(A) accordingly rejected the contention of the assessee observing as under:

“5.7 In the present case it is seen that at the time of reopening of assessment, the alleged escapement was Rs 71,00,000 which is more than 50 lakhs. It may be noted that as the appellant had not filed return of income for the year and therefore, with due respect to the various judicial decision that the income chargeable to tax cannot be the gross receipts/consideration in any business transaction, AO could not have known or worked out the capital gain as there was no information available with the AO in the form of return etc. Therefore, I am of the considered view that AO was correct in assuming the whole of the transaction as undisclosed and as income chargeable to tax. The appellant has the responsibility of filing the appeal within the due date and disclosing the transaction and income in the return of income but it failed to do so. An assessee cannot be allowed to take undue advantage of his own wrongi.enot filing return of income and on reopening claim that even if the total transaction was above Rs 50 lakhs, the income out if it less than Rs 50 lakhs and on technicalities be allowed to claim that the reopening is invalid. Hence, the appeal on this ground is thus treated as dismissed.”

6.2 In the present case, the AO issued a notice under Section 148A(b) giving the assessee an opportunity to explain the income corresponding to the sale consideration of Rs.71 lakhs. No response was forthcoming. In such circumstances, the AO, having no contrary material, proceeded to treat the full sale consideration as income that had escaped assessment. The order under Section 148A(d) was passed with the prior approval of the specified authority under Section 151 of the Act, and the notice under Section 148 was issued accordingly. The relevant observation made in the order u/s 148A(d) of the Act by the AO is reproduced as under:

“Order under clause (d) of section 148A of the Income-tax Act, 1961

In this case Information has been received in accordance with the Risk Management Strategy formulated by CBDT on Insight Portal maintained by the Income Tax Department under the Head RMS (Risk Management Strategy-Non filing of Return) for F.Y. 2015-16 (Α.Υ. 2016-17). In view of the explanation 1 to section 148, such information provided by Risk Management Strategy (RMS) constitutes/ suggest income chargeable to tax has escaped assessment for A.Y. 2016-17.

2. In this case, the information is available as under:

Information code	Information description	F.Y.	Amount (in Lakhs)
AIR-007	Sold immovable property valued at Rs. 30,00,000 or more	2015-16	71
TDS-194IA (R)	TDS Statement – Sales consideration on sale of immovable property (Section 194IA	2015-16	71

2.1. In view of the above information available with this office and verification of status of Return Of Income filed by the assessee from e-filing portal, it is found that the assessee is not filed its return of income. No assessment has been made earlier u/s 143(3)/147/144 of the IT. Act. It is seen that during the year under consideration, the assessee undertook above mentioned financial transactions wherein gross financial implication is Rs.71,00,000/-. Since, the assessee has not filed the Return Of Income for the relevant year, it is clearly evident that the assessee has not offered the receipts from sale of immovable property of Rs. 71,00,000/- as income for the year under consideration.

Further, in accordance with section 148A(b) of the I.T. Act, an opportunity of being heard was provided to the assessee, vide Showcause notice u/s 148A(b)of the I.T. Act along with information of insight portal dated 08.02.2023. The said notice was sent to the assessee through e-filing Portal and also through Speed Post requiring it to furnish the relevant details along with supporting documentary evidence with respect to the transactions as cited above, to this office by 17.02.2023. This notice was duly served upon the assessee. Vide the above said showcause notice the assessee was also asked as to why the subject transactions amount shall not be treated as income of the year under concerned and why the order u/s 148A(d) of the IT Act should not be passed and subsequently the notice under section 148 of the Act should not be issued to you on the basis of information which suggests that income chargeable to tax has escaped assessment in your case for the FY 2015-16 relevant to AY 2016-17.

However, till date no response has been received from the assessee against the opportunity provided u/s 148A(b) of the Income tax Act, which establishes that assessee has no explanation for issue discussed above. The assessee has not filed its ITR despite having high value of financial transaction involving evasion of tax. It is also evident from information available with Assessing Officer that the income chargeable to tax for A.Y.2016-17 has escaped assessment mentioned above. Accordingly, it is concluded that this is a fit case for issuing notice u/s 148 of the I.T. Act.

5. Further, it is to be mentioned that the escapement to the tune of Rs. 71,00,000/- from sale proceeds credited into bank account represents in the form of asset as per provisions of Section 149(1) of the I.T. Act.”

6. The Order u/s. 148A(d) is passed with the prior approval of the specified authority (Pr. Chief Commissioner of Income Tax, Mumbai) u/s. 151 of the Income Tax Act, 1961. The Notice u/s. 148 of the Income Tax Act for reopening of the assessment proceedings for A.Y. 2016-17 is issued accordingly

6.3 In the case of Nitin Nema (supra) the Hon’ble Madhya Pradesh High Court observed that revenue authorities are not supposed to consider sale consideration of the property as income chargeable to tax. The relevant finding of the Hon’ble High Court is reproduced as under:

“9. From the aforesaid discussion what comes out loud and clear is that the Revenue has failed to understand the fundamental difference between sale consideration on one hand and income chargeable to tax on the other. The Revenue despite being assisted by thousands of experts in the field of finance and taxation, has committed such elementary mistake leading to harassment to the assessee who has been compelled to file the present avoidable piece of litigation. More so, this Court has been compelled to decide this frivolous matter wasting its precious time and energy which could have been utilized in more pressing matters.

9.1 Thus, the Revenue deserves to be saddled with exemplary cost and correspondingly the petitioner is entitled to compensatory cost.”

6.4 The ratio laid down by the Hon’ble Madhya Pradesh High Court in Nitin Nema (supra) makes it abundantly clear that, for the purposes of determining the monetary limit of income escaping assessment under section 149(1)(b) of the Act, it is the net income which is to be reckoned, and not the gross receipts. In the present case, it is an admitted position that the net income likely to have escaped assessment falls below the threshold of Rs.50,00,000/-. Consequently, no notice under section 148 of the Act could validly be issued against the assessee for reopening an assessment beyond the period of three years.

6.5 The statutory threshold of Rs.50,00,000/- in respect of net income escaping assessment continues to operate, notwithstanding the fact that the assessee did not make a representation during the proceedings under section 148A. During the reassessment proceedings, the assessee categorically explained that the net income likely to have escaped was less than Rs.50,00,000/-. The learned CIT(A), however, placing reliance on the judgment of the Hon’ble Delhi High Court in Rohit Kumar (supra), held that at the stage of recording reasons, the Assessing Officer was justified in treating the entire sale consideration as income escaped, in the absence of further details.

6.6 We are, however, guided by the principle laid down by the Hon’ble Supreme Court in CIT v. Vegetable Products Ltd. [1973] 88 ITR 192 (SC), wherein it was held that if two views are possible on the interpretation of law, the view favorable to the assessee should be adopted. Respectfully following the above dictum of the Hon’ble Supreme Court, we prefer to adopt the view taken by the Hon’ble Madhya Pradesh High Court in Nitin Nema (supra), which directly supports the assessee’s case.

6.7 In the light of the admitted factual position that the net income chargeable to tax, represented in the form of assets, is below the monetary threshold of Rs.50,00,000/-, we hold that no notice under section 148 of the Act could have been issued. Accordingly, the reassessment proceedings initiated in the case of the assessee are held to be unsustainable in law. Ground No. 1 of the assessee’s appeal is, therefore, allowed.

6.8 Since we have already held the reassessment proceedings as unsustainable in law the consequent ground on merit is not required to be adjudicated and same is rendered infructuous.

7. In the result, the appeal of the assessee is allowed.