Reopening notice beyond three years invalid as escaped income is below fifty lakh threshold

By | December 6, 2025
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Reopening notice beyond three years invalid as escaped income is below fifty lakh threshold

Issue

Whether a reassessment notice under Section 148 issued after the lapse of three years from the end of the relevant assessment year is valid when the alleged escaped income is less than the statutory threshold of Rs. 50 lakhs prescribed under Section 149(1)(b).

Facts

  • Transaction: The assessee traded in shares and claimed exemption on Long Term Capital Gains (LTCG) under Section 10(38) for the Assessment Year 2016-17.

  • Allegation: The Assessing Officer (AO) received information suggesting the assessee was a beneficiary of accommodation entries, converting unaccounted income into LTCG.

  • Reopening: Consequently, the AO issued a notice under Section 148 on 30-07-2022 to reopen the assessment.

  • The Addition: A reassessment order was passed treating the entire sale proceeds of shares, amounting to Rs. 19.31 lakhs, as unexplained cash credit under Section 68.

  • Timeline: The relevant Assessment Year ended on 31-03-2017. The standard three-year limitation for reopening expired on 31-03-2020.

Decision

  • Statutory Threshold: The Tribunal/Court examined Section 149(1)(b) of the Income-tax Act, which stipulates that a notice under Section 148 can be issued beyond three years (but up to ten years) only if the income chargeable to tax that has escaped assessment amounts to or is likely to amount to Rs. 50 lakhs or more.

  • Factual Position: In this case, the total income alleged to have escaped assessment was Rs. 19.31 lakhs, which is substantially below the mandatory threshold of Rs. 50 lakhs.

  • Lack of Jurisdiction: Since the notice dated 30-07-2022 was issued after the lapse of three years from the end of the relevant assessment year, and the monetary condition for the extended period was not met, the AO was completely divested of jurisdiction.

  • Ruling: The notice under Section 148 and the consequential reassessment order were held to be invalid and quashed.

Key Takeaways

The 50-Lakh Barrier: For any reassessment notice issued after 1st April 2021, if the time elapsed from the end of the assessment year is more than 3 years, the Revenue must prove that the escaped income is Rs. 50 lakhs or more.

Strict Jurisdiction: If the escaped income is even marginally below Rs. 50 lakhs (e.g., Rs. 49 lakhs), the Department is legally barred from reopening the case beyond the standard 3-year window.

IN THE ITAT HYDERABAD BENCH ‘B’
Assistant Commissioner of Income Tax
v.
Rajiv Gupta
Ravish Sood, Judicial Member
and Manjunatha G., Accountant Member
IT Appeal No. 278 (Hyd) of 2025
[Assessment year 2016-17]
NOVEMBER  14, 2025
Ms. SNSR Chinmai, Adv. for the Appellant. Dr. Sachin Kumar, Sr. AR for the Respondent.
ORDER
Ravish Sood, Judicial Member.- The captioned appeal filed by the revenue is directed against the order passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, dated 24/12/2024, which in turn arises from the order passed by the AO under section 147 r.w.s 144B of the Income-tax Act, 1961 (for short, “Act”), dated 25/05/2023 for the Assessment Year 2016-17. The revenue has assailed the impugned order on the following grounds of appeal before us:
“1. The CIT(A) has erred both in law and on facts of the case. Date: 20.02.2025
2. Whether on the facts and circumstances of the case and in law, the CIT(A) erred in the addition of Rs. 19,30,750/- u/s 68 and Rs. 59, 185/-for commission variation. The case involves bogus LTCG transactions through Penny Stocks (M/s Kushal), as per CBDT Circular No. 23 of 2019. Hence, monetary limits do not apply and further appeal is warranted.
3. Whether on the facts and circumstances of the case and in law, the CIT(A) erred in holding the notice u/s 148 as invalid without considering the extended time limits under the Taxation and other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA). The reopening u/s 147 was done within the permissible period, and approval u/s 151 was validly granted.
4. Any other ground(s) that may be urged at the time of hearing.”
2. Succinctly stated, the assessee had filed his return of income for the AY 2016-17 on 08/10/2016, declaring an income of Rs. 90,61,122/-. Subsequently, the case of the assessee was selected for scrutiny assessment under section 143(2) of the Act.
3. During the course of the assessment proceedings, the AO observed that the assessee, had during the subject year traded in the shares of M/s. Kushal Tradelink Limited through broker M/s. C.D Eqisearch Pvt Ltd., and had disclosed Long Term Capital Gains (LTCG) on the transfer of shares of Rs.19,72,828/- that was claimed as exempt under section 10(38) of the Act.
4. The AO, based on his deliberations, declined the assessee’s claim for exemption under section 10(38) of the Act and treated the entire amount of sale proceeds of shares of Rs. 19,30,750/- as an unexplained cash credit under section 68 of the Act. Apart from that, the AO held a conviction that the assessee would have incurred commission charges for availing the aforementioned accommodation entry and made a further addition of Rs.59,185/- on account of unexplained expenditure that would have been incurred towards commission charges under section 69C of the Act. Accordingly, the AO vide his order under section 147 r.w.s 144B of the Act, dated 25/05/2023 determined the income of the assessee at Rs. 1,10,51,057/-.
5. Aggrieved, the assessee carried the matter in appeal before the CIT(A), wherein he had,inter alia, assailed the validity of the jurisdiction assumed by the AO to issue notice under section 148 of the Act. Elaborating on his contention, it was the claim of the assessee that as the impugned income that had escaped assessment amounted to less than Rs.50 lakhs, therefore, as per the mandate of section 149(1)(b) of the Act, no notice under section 148 of the Act could have been issued beyond the period of three years from the end of the relevant assessment year. Accordingly, it was the claim of the assessee that the notice issued under section 148 of the Act, dated 30/06/2021 being beyond the period of three years from the end of the relevant assessment year, i.e., AY 2016-17 could not be sustained and was liable to be struck down.
6. We find that the CIT(A) found favour with the contentions advanced by the Ld. AR and quashed the notice issued under section 148 of the Act, dated 30/07/2022 by treating the same as invalid. The revenue being aggrieved with the order of the CIT(A) has carried the matter in appeal before us.
7. We have heard the Learned Authorized Representatives of both parties, perused the orders of the lower authorities and the material available on record.
8. Dr. Sachin Kumar, the Learned Senior Departmental Representative (for short, “Ld. Sr. DR”), at the threshold of hearing of the appeal had placed on record the CBDT Notification No. S.O.1432(E), dated 31/03/2021 and CBDT Instruction No. 01/2022, dated 11/05/2022 along with CBDT Circular No. 23 of 2019, dated 06/09/2019. Elaborating on his contention, the Ld. Sr. DR submitted that as per para 6.2(ii) of the CBDT Instruction No. 01/2022, the notice under section 148 of the Act, inter alia, for the AY 2016-17 could validly be issued. Apart from that, the Ld. Sr. DR had relied upon the CBDT Circular No. 23 of 2019, dated 06/09/2019 and submitted that the same carved out an exception with respect to cases where organized tax-evasion scam was noticed through bogus Long Term Capital Gains (LTCG)/Short Term Capital Loss (STCL) on penny stocks. Accordingly, the Ld. Sr. DR submitted that the CIT(A) had erred in observing that the AO had wrongly assumed jurisdiction and issued the notice under section 148 of the Act, dated 30/07/2022 beyond the period of three years from the end of the relevant assessment year.
9. Per contra, Shri SNSR Chinmai, Advocate, the Learned Authorized Representative (for short, “Ld. AR”) for the assessee, relied upon the order of the CIT(A). Apart from that, the Ld. AR had placed on record a work sheet which as per him reveals that the notice issued by the AO under section 148 of the Act was barred by limitation by a period of 52 days.
10. We have considered the contentions of the Learned Authorized Representatives of both parties in the backdrop of the orders of the lower authorities.
11. Before proceeding further, we deem it apposite to cull out the observations of the CIT(A), which reads as under:
“6.2 I have perused the assessment order, grounds of appeal and submission filed by the appellant carefully. I find that notice u/s 148 was issued on 30/07/2022 as per the order u/s 148A(d) dated 29/07/2022. However, since the relevant assessment year is 2016-17, the time limit of 3 years had expired from the end of assessment year therefore, unless the escaped income is more than Rs.50 lakhs, the AO was not empowered to issue notice u/s 148 as per the amended provisions of section 148A after 01.04.2021. In the present case, it is clear that the escaped income was Rs.19,30,750/- as per the order u/s 148A(d) and even as per assessment order, the AO has made the same addition plus small addition of Rs.59,185/- on account of commission paid to the entry operators. Thus, I find that this case was not fit for issue of notice u/s 148 after 01/04/2021 as per the amended provisions of section 148A since the escaped income was less than Rs. 50 lakhs. As such the notice u/s 148 issued on 30/07/2022 is not valid. Therefore, the grounds of appeal raised by the appellant are allowed. 7. Since the notice u/s 148 issued by the AO is treated as invalid, the subsequent assessment order also becomes invalid. Hence, the other grounds of appeal raised by the appellant are not adjudicated.”
12. On a careful perusal of section 149(1) of the Act (as was then available on the statute), we find that the same therein contemplated that no notice under section 148 of the Act shall be issued for the relevant assessment year if three years, but not more than ten years, have elapsed from the end of the relevant assessment year unless the AO has in his possession books of account or other documents or evidence which reveal that the income chargeable to tax, represented in form of, viz., (i) asset; (ii) expenditure in respect of a transaction or in relation to an event or occasion; or (iii) an entry or entries in the books of accounts, which has escaped assessment amounts to or is likely to an amount of Fifty Lakh Rupees or more.
13. As observed by the CIT(A), and rightly so, as the case of the assessee was reopened based on information that he was one of the beneficiaries who had brought his unaccounted income of Rs.19,30,750/- in the guise of Long Term Capital Gains, therefore, as the income that had escaped assessment was substantially less than the threshold limit of Rs.50 lakhs as contemplated in section 149(1)(b) of the Act, therefore, the AO was divested of his jurisdiction to have issued notice under section 148 of the Act, dated 30/07/2022, i.e., after lapse of a period of three years from the end of the relevant assessment year which expired way back on 30/03/2020.
14. Apropos, the CBDT Instruction No. 01/2022, dated 11/05/2022, the same in fact refers to the new provisions of section 149 of the Act and specifically states that the benefit of new law shall be made available even in respect of proceedings relevant to past assessment years. Also, we are unable to comprehend as to how the CBDT Notification No. S.O. 1432(E), dated 31/03/2022 will advance the case of the revenue before us.
15. As regards the CBDT Circular No. 23 of 2019, dated 06/09/2019 as had been pressed into service by the Ld. Sr. DR, we find that the same refers the monetary ceiling laid down by the CBDT under section 268A of the Act for filing of departmental appeals before the ITAT, High Courts and SLPs/Appeals before the Supreme Court.
16. Be that as it may, we are of a firm conviction that as the CIT(A) had rightly observed that the AO was not empowered to issue notice under section 148 of the Act, dated 30/07/2022, therefore, finding no infirmity in the view taken by him, we uphold his order.
17. Resultantly, the appeal filed by the revenue being devoid and bereft of any substance is dismissed.