Gross sale consideration is not "income escaping assessment"

Gross sale consideration is not “income escaping assessment” for invoking the extended limitation period under Section 149(1)(b).

Issue

Whether a reassessment notice issued under Section 148 on April 2, 2022, for the Assessment Year (AY) 2015-16 is barred by limitation under the provisions of Section 149 as amended by the Finance Act, 2021.
Whether the gross sale consideration received from the transfer of an immovable property can be treated as “income escaping assessment” to fulfill the jurisdictional monetary threshold of ₹50 lakhs under Section 149(1)(b) for invoking the extended limitation period, or if only the net taxable capital gains can constitute such escaped income.

Facts

The Transaction & Filing: The assessee, an individual, did not file an initial return of income under Section 139(1) for AY 2015-16. Information on the INSIGHT/NMS portal indicated that the assessee had received interest income of ₹0.86 lakh and had sold an immovable property for a gross consideration of ₹1.22 crores.
Reopening Action: The Revenue initiated proceedings under Section 148A and subsequently issued a reassessment notice under Section 148 on April 2, 2022.
Assessee’s Subsequent Return: In response to the proceedings, the assessee filed a return on February 26, 2024, declaring total income of ₹9.02 lakhs, which included a Long-Term Capital Gain (LTCG) of ₹7.44 lakhs after factoring in cost indexation and claiming a deduction under Section 54F.
AO’s Assessment: The Assessing Officer (AO) passed a reassessment order treating the entire gross sale consideration of ₹1.22 crores as Short-Term Capital Gains (STCG), denying cost indexation, improvement costs, and the Section 54F deduction. The AO used the gross sale value to justify the extended 10-year limitation period applicable to cases where escaped income exceeds ₹50 lakhs.

Decision

On Expiry of Limitation Period: Decided in favor of the assessee. The limitation period prescribed under the erstwhile provisions of Section 149 for AY 2015-16 expired on March 31, 2022. Since the impugned Section 148 notice was issued on April 2, 2022, it was hit by limitation under the amended scheme of the Finance Act, 2021, and was liable to be quashed.
On Gross Consideration vs. Taxable Capital Gains: Decided in favor of the assessee. Under the framework of the Income-tax Act, gross sale consideration received from a property transfer does not automatically equate to income. Only the net taxable capital gains can legally constitute “income escaping assessment.” Since the AO failed to compute the actual escaped income in accordance with capital gains taxation laws and merely relied on the gross sale figure, the jurisdictional pre-condition under Section 149(1)(b) remained unfulfilled. The reassessment was held invalid.

Key Takeaways

Strict Adherence to Reopening Deadlines: A delay of even two days beyond the statutory deadline (issuing a notice on April 2 instead of March 31) invalidates the entire reassessment exercise, making the notice void ab initio.
Gross Receipt is Not Escaped Income: For the purpose of triggering the extended 10-year limitation window under Section 149(1)(b) (where escaped income equals or exceeds ₹50 lakhs), the AO must look at the quantum of likely taxable income, not the gross turnover or transaction value.
Jurisdictional Conditions are Non-Negotiable: If the actual taxable component of a transaction falls below the statutory threshold of ₹50 lakhs, the AO cannot artificially inflate the “escaped income” by ignoring basic statutory deductions (like indexation or Section 54F) simply to keep the reassessment alive.

IN THE ITAT CHENNAI BENCH ‘A’

Kala Kumar

Income-tax Officer

Manu Kumar Giri, Judicial Member
and S.R.RAGHUNATHA, Accountant Member

IT Appeal No. 58 (Chny) OF 2026
[Assessment year 2015-16]

MAY 12, 2026

Y. Sridhar, F.C.A. for the Appellant. R. Raghupathy, Addl. CIT for the Respondent.

ORDER

Manu Kumar Giri, Judicial Member. – The captioned appeal by the assessee is arising out of the order of the Ld. Commissioner of Income Tax (Appeals)/NFAC, Delhi dated 27.11.2025 passed u/s. 147 r.w.s. 144B of the Income Tax Act, 1961 (‘Act’) for AY 2015-16.

2. The assessee has raised the following grounds of appeal:

The order of the Id. CIT(A) is without jurisdiction, contrary to law, facts and circumstances of the case and is opposed to the principles of natural justice.

The Ld. CIT(A) erred in law in upholding the reassessment initiated by notice u/s 148 dated 02.04.2022 for AY 2015-16, which is barred by limitation u/s 149 of the Act. The extended period u/s 149(1)(b) is not applicable, as the Ld. AO wrongly treated the gross sale consideration of Rs.1,22,08,000/- as ‘income represented in the form of an asset’, whereas, only taxable capital gains, if any, can constitute escaped income under the Act. The reassessment proceedings are therefore without jurisdiction and liable to be quashed.

The reassessment proceedings are bad in law and void ab initio, as the notice u/s. 148A(b) was issued by the Jurisdictional Assessing Officer (JAO) instead of the Faceless Assessing Officer (FAO), in violation of the Faceless Assessment Scheme and CBDT’s binding instructions.

The Ld AO erred in holding that the sale consideration of immovable property amounting to Rs.1,22,08,000/- constitutes “income represented in the form of an asset” for the purpose of section 149(1)(b), whereas only the taxable capital gains, if any, could be regarded as income chargeable to tax.

Without prejudice, the Ld. CIT(A) erred in upholding the AO’s action of treating the capital gain on sale of inherited property as short-term, disregarding sections 2(42A) and 49 of the Act and the undisputed fact that the property was acquired by the appellant’s mother in 1967 and inherited by the appellant in 1995.

The Ld. CIT(A) further erred in denying the benefit of indexed cost of acquisition, indexed cost of improvement and exemption u/s. 54F, and in sustaining the addition of Rs. 1,22,08,000, without proper appreciation of facts, evidences furnished during written submission before the ld. CIT (A) and settled legal position.

That the appellant craves leave to add, amend or withdraw any ground at the time of hearing.

For the above reasons and reasons that may be adduced at the time of hearing, addition made may kindly be deleted in the interest of justice.

3. Brief facts of the case are that the assessee/appellant is an individual. For Assessment Year 2015-16, no original return of income was filed u/s. 139(1) of the Income-tax Act, 1961. Based on information received through the INSIGHT Portal under the category “NMS – Non Filers Monitoring System”, the Department noticed that during the relevant financial year the assessee had received interest income of Rs. 85,579/- and had sold an immovable property for a consideration of Rs. 1,22,08,000/-.

3.1 On the basis of the said information, proceedings u/s. 148A were initiated and notice u/s. 148 was issued on 02.04.2022 after passing order u/s. 148A(d).

3.2 In response to the notice u/s. 148, the assessee filed return of income on 26.02.2024 declaring total income of Rs. 9,02,230/-. In the said return, the assessee disclosed Long Term Capital Gain (LTCG) of Rs. 7,44,038/- arising from sale of immovable property.The assessee explained that the property originally belonged to her mother, who had acquired the property in the year 1967. The property was subsequently settled in favour of the assessee and other legal heirs in the year 1995. The assessee computed the capital gains as Long Term Capital Gain by considering indexed cost of acquisition, indexed cost of improvement and further claimed exemption u/s. 54F in respect of investment made in a residential house.

3.3 During the course of reassessment proceedings, the Assessing Officer called upon the assessee to furnish documentary evidences in support of the claim that the property sold was an inherited property and that the resultant gain was liable to be assessed as Long Term Capital Gain after allowing indexed cost of acquisition, indexed cost of improvement and deduction under section 54F of the Act. The assessee was specifically required to furnish supporting documents such as the complete sale deed, proof regarding inheritance/settlement of the property, evidences relating to cost of acquisition and improvement and documentary proof in support of investment made for claiming deduction under section 54F.According to the Assessing Officer, except furnishing the computation of income along with a brief explanation, the assessee did not furnish any supporting documentary evidences. The Assessing Officer observed that no complete sale deed was produced; no documentary proof evidencing inheritance or settlement of the property was filed; no material was furnished regarding cost of acquisition or cost of improvement; and no proof regarding investment eligible for deduction under section 54F was submitted.The Assessing Officer further observed that the assessee had not filed the original return of income under section 139(1) despite having entered into high-value financial transactions including sale of immovable property amounting to Rs. 1,22,08,000/-. Though the assessee claimed that the property had originally belonged to her mother and that the same was inherited through settlement, the Assessing Officer held that such claim remained unsubstantiated in the absence of supporting evidences.The Assessing Officer therefore rejected the assessee’s claim that the asset constituted a long-term capital asset and held that, in the absence of evidence establishing the nature and period of holding of the property, the gain arising on transfer was liable to be treated as Short Term Capital Gain. Consequently, the assessment was completed under section 143(3) read with sections 144B and 147 by treating the entire sale consideration of Rs. 1,22,08,000/- as Short Term Capital Gain and by denying the benefit of indexed cost of acquisition, indexed cost of improvement and exemption under section 54F. The said amount was accordingly added to the total income of the assessee.

4. Aggrieved by the assessment order, the assessee preferred appeal before the Commissioner of Income Tax (Appeals), NFAC. The ld. CIT(A) affirmed the validity of the reassessment proceedings as well as the addition made by the Assessing Officer. The appellate authority observed that despite sufficient opportunities having been granted during the appellate proceedings, the assessee failed to furnish supporting documentary evidences in substantiation of the grounds raised in appeal. In the absence of requisite evidences, the ld. CIT(A) held that there was no justification to interfere with the findings recorded by the Assessing Officer.

On merits, the ld. CIT(A) observed that the assessee had failed to substantiate the claim that the property sold was an inherited property. It was further observed that no documentary evidence had been furnished in support of the claim of indexed cost of acquisition and indexed cost of improvement. The ld. CIT(A) also noted that no evidence was produced to substantiate the claim for exemption under section 54F of the Act.The ld. CIT(A) further held that since the assessee failed to establish that the property constituted a long-term capital asset, the Assessing Officer was justified in treating the gain arising from transfer of the property as Short Term Capital Gain. The appellate authority accordingly upheld the action of the Assessing Officer in treating the entire sale consideration of Rs. 1,22,08,000/- as Short Term Capital Gain without allowing any deduction towards indexed cost of acquisition, cost of improvement or exemption under section 54F.Accordingly, all the grounds raised by the assessee were dismissed by him.

Hence, the assessee is in further appeal before the Hon’ble Tribunal.

5. Before us, following legal issues are involved:

Whether the reassessment proceedings initiatedu/s. 148 for AY 2015-16 vide notice dated 02.04.2022 are barred by limitation u/s. 149 as amended by the Finance Act, 2021.

Whether the gross sale consideration of Rs. 1,22,08,000/- could be regarded as “income represented in the form of an asset” for the purpose of section 149(1)(b), or whether only the taxable capital gain, if any, could constitute escaped income.

Whether issuance of notice u/s. 148A(b) by the Jurisdictional Assessing Officer instead of the Faceless Assessing Officer renders the reassessment proceedings invalid.

Whether the capital gain arising on transfer of inherited property acquired by the previous owner in 1967 and settled upon the assessee in 1995 is assessable as Long Term Capital Gain in view of sections 2(42A) and 49 of the Act.

Whether the assessee is entitled to indexed cost of acquisition, indexed cost of improvement and deduction u/s. 54F.

Whether the Assessing Officer was justified in treating the entire sale consideration as Short Term Capital Gain without determining actual taxable capital gain in accordance with law.

6. The ld. AR for the assessee submitted that the reassessment proceedingsinitiatedu/s. 148 for AY 2015-16 by notice dated 02.04.2022 were barred by limitation in view of the first proviso to section 149 inserted by the Finance Act, 2021.

It was argued that under the unamended provisions applicable prior to 01.04.2021, reassessment for AY 2015-16 could not have been initiated after expiry of six years from the end of the relevant assessment year, i.e., after 31.03.2022. Since notice u/s. 148 was issued only on 02.04.2022, the proceedings were time-barred.

The ld. AR further submitted that the extended period contemplated u/s. 149(1)(b) was not applicable because the Assessing Officer had wrongly considered the entire sale consideration of Rs. 1,22,08,000/-as escaped income represented in the form of an asset. It was contended that only the taxable capital gain, if any, could constitute escaped income and not the gross sale consideration.

On merits, it was submitted that the property originally belonged to the assessee’s mother who had acquired the same in the year 1967 and the same was settled upon the assessee in 1995. Therefore, by virtue of sections 2(42A) and 49 of the Act, the period of holding of the previous owner was required to be considered and the resultant gain was assessable only as Long Term Capital Gain.

The ld. AR submitted that the authorities below erred in treating the entire sale consideration as Short Term Capital Gain without computing actual taxable gain in accordance with law. It was contended that the assessee was legally entitled to indexed cost of acquisition, indexed cost of improvement and deduction u/s. 54F.

It was further argued that the authorities below dismissed the claim merely for want of certain evidences without granting proper opportunity and without adjudicating the legal grounds raised by the assessee.

7. The ld. DR for the revenue supported the orders of the lower authorities. It was submitted that the assessee had failed to file return of income originally despite entering into substantial financial transactions including sale of immovable property. The ld. DR contended that despite repeated opportunities, the assessee failed to furnish complete documentary evidences such as sale deed, proof of inheritance, proof of cost of acquisition, proof of cost of improvement and proof of investment u/s. 54F.It was argued that in the absence of supporting documents, the Assessing Officer was justified in rejecting the claim of Long Term Capital Gain and in treating the amount as Short Term Capital Gain. The ld. DR further submitted that the reassessment proceedings were validly initiated on the basis of information received through the INSIGHT portal and after following due procedure prescribed u/s. 148A.

8. We have carefully considered the rival submissions and perused the material available on record. At the outset, we find substantial force in the legal ground raised by the assessee challenging the validity of the reassessment proceedings. It is an undisputed fact that for Assessment Year 2015-16, the limitation prescribed under the erstwhile provisions of section 149 of the Income Tax Act, 1961 expired on 31.03.2022, whereas the notice under section 148 was issued only on 02.04.2022. In view of the first proviso to section 149 inserted by the Finance Act, 2021, no notice under section 148 could have been issued for AY 2015-16 after 31.03.2022 where such notice had already become time-barred under the erstwhile provisions of the Act.

9. The above legal position now stands conclusively settled by the Hon’ble Supreme Court in the batch of matters titled ITO v. Sai Kumar Mateti Civil Appeal No. 6922 of 2026 arising out of SLP (Civil) No. 8682 of 2024, dated 04-05-2026]. The Hon’ble Apex Court, while considering reassessment notices pertaining to AY 2015-16, categorically held that such notices would be barred by limitation in light of the decision rendered in Union of India &Ors. v. Rajeev Bansal, Union of India v. Rajeev Bansal [2024] (SC)/2024 SCC OnLine SC 2693. The Hon’ble Supreme Court observed that where the reassessment proceedings pertain to AY 2015-16, the notices are liable to be struck down outrightly as being time-barred.

The aforesaid order of the Hon’ble Supreme Court is as below:

ORDER

Delay condoned.

Leave granted.

This batch of civil appeals comprising 103 cases is slightly different than those cases which came to be disposed of by a three Judge Bench of this Court, including both of us (Surya Kant, CJI. and JoymalyaBagchi, J.), vide order dated 10.04.2026 passed in Civil Appeal No. 4716 of 2026 and connected matters.

The instant cases were segregated through the above-mentioned order on the premise that they may be pertaining to Assessment Year 2015-16. It is fairly conceded by Mr. N. Venkataraman, learned Additional Solicitor General of India, representing the Revenue, that in the assessment cases pertaining to the year 2015-16, the notices issued/proposed to be issued for reassessment would stand barred by time in light of the view taken by this Court in Union of India &Ors. v. Rajeev Bansal, Union of India v. Rajeev Bansal (SC)/2024 SCC OnLine SC 2693.

There is no quarrel that if the instant cases are found to pertain to Assessment Year 2015-16, then the impugned notices are liable to be struck down outrightly in terms of the concession on behalf of the Department recorded in paragraph 19(f) of Rajeev Bansal (supra) and reiterated before us by the learned Additional Solicitor General of India.

However, if it is found that these cases pertain to an assessment year other than 2015-16, the respondent-assessees shall be entitled to raise all the contentions that have been permitted by this Court vide order dated 10.04.2026. Ordered accordingly.

Consequently, keeping in mind the reasons set out in order dated 10.04.2026, the impugned judgment in each appeal is set aside and the instant appeals are disposed of by remitting the matters to the jurisdictional High Courts for redetermination of the issues. As observed above, the High Courts shall firstly determine whether the matters pertain to Assessment Year 2015-16. If it is found to be so, no further adjudicatory exercise shall be required to be undertaken by the High Court, except to declare the notices as being time-barred in light of Rajeev Bansal (supra). However, if it is found that the case does not pertain to Assessment Year 2015 16, then all the issues shall be resolved in terms of the order dated 10.04.2026 passed in Civil Appeal No. 4716 of 2026.

Pending application(s), if any, including application(s) for substitution and impleadment/intervention stand closed.

………………..CJI. (SURYA KANT)

………………..J. (JOYMALYA BAGCHI)

NEW DELHI;

MAY 04, 2026.

10. Respectfully following the ratio laid down by the Hon’ble Supreme Court, we hold that the impugned notice issued under section 148 on 02.04.2022 for AY 2015-16 is barred by limitation and therefore liable to be quashed.

11. We further find that the Assessing Officer proceeded on the erroneous premise that the entire sale consideration of Rs.1,22,08,000/- constituted “income represented in the form of an asset” for the purpose of section 149(1)(b) of the Act. Under the scheme of capital gains taxation, it is only the taxable capital gain, if any, that can constitute escaped income and not the gross sale consideration received upon transfer of a capital asset. Since the Assessing Officer failed to determine the escaped income in accordance with law and merely relied upon the gross sale consideration, the jurisdictional condition prescribed under section 149(1)(b) stood unfulfilled. On this ground also, the reassessment proceedings are liable to be held invalid.Accordingly, the reassessment proceedings initiated u/s. 148 of the Act vide notice dated 02.04.2022, is hereby quashed/set aside.

Since we have already quashed the reassessment proceedings initiated u/s. 148 of the Act as being barred by limitation, the adjudication on merits becomes merely academic. Therefore, we refrain from adjudicating the grounds raised on merits.

12. In the result, the appeal of the assessee stands allowed.