ILA KHIMJIBHAI DULLA,MUMBAI vs. WARD 41(4)(2), , KAUTILYA BHAVAN

The assessee has assailed the impugned reassessment proceedings primarily on jurisdictional grounds, contending that the notice issued under section 148 is barred by Ila Khimjibhai Dulla limitation inasmuch as the alleged income escaping assessment is admittedly below the statutory threshold of ₹50,00,000/- prescribed under section 149(1)(b) of the Act. It has further been contended that the notice was issued by the Jurisdictional Assessing Officer and not by the Faceless Assessing Officer. On merits, the assessee has also challenged the denial of exemption claimed under section 54 of the Act.

The material facts, necessary for the present adjudication, are as follows: The assessee is an unmarried lady residing with her brother and sister-in-law, and during the relevant assessment year, her total income was below the basic exemption limit. She derived income from other sources and long-term capital gains arising from the sale of an immovable property. The property was jointly owned, and pursuant to the agreement of sale, the assessee’s share of the sale consideration amounted to ₹45,00,000/-. The transaction was reported on the Insight Portal on multiple occasions, on the basis of which the case was picked up for action under the reassessment regime.

Based on such information, notice under section 148A(b) was issued on 31.03.2022, followed by an order under section 148A(d) and issuance of notice under section 148 dated 19.04.2022. It is an undisputed position on record that the notice under section 148 was issued beyond three years from the end of the relevant assessment year. On merits, the Assessing Officer computed the long-term capital gains at ₹14,23,934/-, which computation has been accepted by the Ila Khimjibhai Dulla learned Commissioner (Appeals) as well. However, the exemption claimed by the assessee under section 54 amounting to ₹13,50,000/- was denied on the ground that the investment in the residential property was made in the name of the assessee’s sister and not in the assessee’s own name.

We have carefully considered the rival submissions and perused the material placed on record. At the outset, we find that the jurisdictional issue raised by the assessee strikes at the very root of the reassessment proceedings and, therefore, merits adjudication in priority. The reassessment regime post the Finance Act, 2021, has consciously restricted the power of reopening beyond three years by prescribing a higher monetary threshold and stringent jurisdictional conditions under section 149(1)(b), thereby reflecting the legislative intent to balance the interests of the Revenue with the principles of certainty and finality in taxation.

In the present case, the very foundation of the reassessment rests on the sale of an immovable property for a consideration of ₹45,00,000/-. However, it is a settled proposition of law that sale consideration, by itself, does not constitute “income chargeable to tax”. What can be brought to tax is only the income component embedded therein, namely, capital gains computed in accordance with law. Significantly, the Assessing Officer himself has accepted the capital gains at ₹14,23,934/-, which is far below the statutory threshold of ₹50,00,000/- prescribed under section 149(1)(b) of the Act.

“149. (1) No notice under section 148 shall be issued for the relevant assessment year,— (a) ……………………………………………………………….. (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.”

The condition stipulated under section 149(1)(b) is not procedural but jurisdictional in nature. The Assessing Officer must be in possession of tangible material demonstrating that the income escaping assessment meets the prescribed monetary threshold. In the absence of such satisfaction, the assumption of jurisdiction beyond three years is rendered legally untenable.

This position stands fortified by the judgment of the Hon’ble Karnataka High Court in Sanath Kumar Murali v. ITO (2023) 152 taxmann.com 231, wherein it has been categorically held that the threshold under section 149(1)(b) has to be examined with reference to the income escaping assessment and not the gross sale consideration. A similar view has been expressed by the Hon’ble Madhya Pradesh High

Viewed thus, the impugned notice issued under section 148 dated 19.04.2022 has been issued in clear contravention of the statutory limitation prescribed under section 149(1)(b) of the Act. The jurisdictional condition precedent for reopening beyond the period of three years being absent, the entire reassessment proceedings stand vitiated and cannot be sustained in law.

In view of our finding on the jurisdictional issue, the grounds raised on merits, including denial of exemption under section 54 of the Act, are rendered purely academic and do not call for adjudication.

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