AMIT UPADHYAY,BANGALORE vs. THE ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE 3(3)(1), BANGALORE

The assessee has filed the present appeal against the impugned order dated 20/06/2025, passed under section 250 of the Income Tax Act, 1961 (“the Act”) by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, [“learned CIT(A)”], for the assessment year 2015-16.

In this appeal, the assessee has raised the following grounds: – 1. The impugned order passed by the Learned CIT(A) and AO, to the extent prejudicial to the Appellant, is not justified in law and on the facts and circumstances of the case. 2. The learned CIT(A) has erred in law and on facts in upholding the order of the Learned AO. 3. The reassessment proceedings by issue of a notice under section 148A beyond three years, from the end of the relevant assessment year is barred by limitation. 4. The Order under clause (d) of section 148A of the Act is bad in law as it has been passed by the AO without the requisite authority under section 151 of the Act. 5. The Notice under section 148 of the Act is invalid as the same has not been signed by the AO. 6. The Notice under section 148 of the Act is invalid as it is in violation of Section 151A of the Act and CBDT Notification No. 18/2022 dated 29.03.2022 7. The proceeding under sections 148, 147 and 144 of the Act which based on the invalid notice under section 148 also stand vitiated. 8. The order passed under section 147 r.w.s 144 r.w.s 144B is bad in law as a notice under section 143(2) has not been issued. 9. The learned CIT(A) has erred in law and on facts in passing the orders without providing an opportunity of being heard. 10. The Learned CIT(A) have erred in fact and in law in making the addition of Rs.8,08,869/- under section 69 of the Act without appreciating the background of the transaction. 11. The Learned CIT(A) and AO/CPC have erred in fact in law in disallowing the claim of HRA of Rs. 1,20,374/- under section 10(13A). 12. The learned CIT(A) has erred in law and on facts in passing the orders against the principles of natural justice and contrary to the provisions of section 250 of the Act and Para 12 of the Faceless Appeal Scheme, 2021 issued thereunder. 13. The impugned adjustments being merely based on presumption and surmises are to be deleted.

The learned CIT(A), vide impugned order, granted partial relief to the assessee in respect of the addition on account of the purchase of immovable property and restricted the addition to INR 3 lakh. As regards the disallowance of HRA, the learned CIT(A) affirmed the findings of the AO in the absence of any evidence being furnished by the assessee. Being aggrieved, the assessee is in appeal before us.

During the hearing, the learned Authorised Representative (“learned AR”) submitted that the reassessment proceedings under section 147 of the Act, in the present case, are time-barred as the income which has been alleged to have escaped assessment is below INR 50 lakh. Thus, the learned AR submitted that any reassessment notice issued after 3 years from the end of the relevant assessment year, i.e. 2015-16, is barred by limitation. Since the notice under section 148 of the Act, in the present case, was issued on 29/03/2022, the learned AR submitted that the same is barred by limitation, which expired on 31/03/2019. On merits, the learned AR, in support of the contention that the amount paid by the assessee over and above the bank loan was from the accumulated savings, placed on record the bank statements of the assessee’s accounts maintained with the State Bank of India and HDFC Bank. Accordingly, the learned AR submitted that, for the purchase of immovable property amounting to INR 56,08,869, the assessee paid INR 45 lakh from the bank loan obtained from the State Bank of India, and the balance of INR 9,08,869 was paid from the assessee’s own savings. As regards the claim of HRA disallowed by the lower authorities, the learned AR placed on record the copy of Form 16 issued by Oracle India Private Limited, the rent receipt issued by the lessor to the assessee, the pay slip for the month of April 2014 and the increment letter issued in November 2014. The learned AR submitted that the assessee's claim for HRA is in accordance with the provisions of section 10(13A) of the Act read with Rule 2A of the Income Tax Rules, 1962 (“the Rules”).

On the other hand, the learned Departmental Representative (“learned DR”) vehemently relied upon the order passed by the lower authorities.

At the outset, it is pertinent to note that during the year under consideration, the assessee earned a salary income of INR 19,45,505 and purchased an immovable property of INR 56,65,524. Despite the aforesaid transactions, the assessee did not file his return of income, and thus all these transactions remained unreported by the assessee till proceedings under section 148A of the Act were initiated. It is further pertinent to note that the assessee also did not respond to the show cause notice issued under section 148A(b), and even despite the issuance of notice under section 148 of the Act, did not file his return of income. Such being the facts, we are of the considered view that merely because the total income of the assessee was ultimately assessed at INR 28,42,347 vide assessment order after considering the documents filed by the assessee during assessment proceedings, the same cannot lead to the conclusion that the notice issued under section 148 of the Act is time-barred as on the basis of all the information available with the AO, as noted in the foregoing paragraphs, during the proceedings under section 148A of the Act the income chargeable to tax which escaped assessment amounted to more than INR 50 lakh and therefore the AO had time beyond 3 years but not more than 10 years for issuance of notice under section 148 of the Act in the present case. Therefore, we find no merit in the submissions of the learned AR that the notice issued under section 148 of the Act in the present case is barred by limitation, and we reject the said plea. Further, we find that the notice under section 148 of the Act was issued after the prior approval of the Principal Chief Commissioner of Income Tax, Karnataka and Goa, which we find to be in accordance with the provisions of section 151(ii) of the Act. As no other arguments were raised against the initiation of proceedings under section 148A/148 of the Act, all the grounds raised by the assessee in the present appeal challenging the proceedings under section 148A and notice issued under section 148 of the Act are dismissed. As a result, Grounds No. 3 and 4 raised in assessee’s appeal are dismissed.

Grounds No. 5-9 were not argued during the hearing. Therefore, these grounds are dismissed as not pressed.

On merits, the grievance of the assessee is confined to the addition on account of the purchase of immovable property and the disallowance of HRA.

Insofar as the addition on account of the purchase of immovable property is concerned, we find that it is the consistent plea of the assessee that the said property was purchased for a total consideration of Rs. 56,55,524 and the said amount was paid by the assessee by availing a home loan of INR 45 lakh from the State Bank of India and his personal savings. Insofar as the source of investment from the bank loan of INR 45 lakh is concerned, we find that the said plea of the assessee was accepted by the Revenue on the basis of the housing loan certificate submitted by the assessee during the assessment proceedings. However, the AO treated the balance amount of INR 9,08,869 as an unexplained investment, since the assessee could not satisfactorily prove the source of the investment. The said addition was reduced to INR 3 lakh by the learned CIT(A). In the appeal before us, in order to substantiate its submission that the balance amount of INR 9,08,869 was paid by the assessee from his personal savings, bank statements of the assessee’s accounts maintained with the HDFC Bank and State Bank of India are placed on record. Further, the assessee has provided the following breakup of payment: – Paid Mode of payment Date Amount Other Charges To the Seller

Having perused the aforesaid details and the bank statements placed on record by the assessee, we find merit in the submissions of the assessee that the balance amount of INR 9,08,869 was paid by the assessee from his personal savings in bank accounts maintained with HDFC Bank and State Bank of India. Therefore, having verified the necessary details placed on record, the addition sustained by the learned CIT(A) in respect of the purchase of immovable property by the assessee is deleted. As a result, Ground No.10 raised in the assessee’s appeal is allowed.

As regards the claim of HRA, from the Form 16 issued by the assessee’s employer, forming part of the paper book from pages 25-29, we find that the employer considered an exemption under section 10 of the Act in respect of HRA at INR 1,20,374. Further, as per the assessee, he paid INR 1,71,000 to the lessor towards house rent for the period April to December 2014. Thus, as per the assessee, the exemption claimed under section 10(13A) of the Act in respect of HRA is based on the actual rent paid by the assessee to his landlord. It is evident from the record that the lower authorities denied the HRA exemption of INR 1,20,374 claim by the assessee.

Before proceeding further, it is also pertinent to note the provisions of Rule 2A of the Rules, which provides the methodology for computation of exemption under section 10(13A) of the Act, and the same reads as follows:– “Limits for the purposes of section 10(13A). 2A. The amount which is not to be included in the total income of an assessee in respect of the special allowance referred to in clause (13A) of section 10 shall be— (a) the actual amount of such allowance received by the assessee in respect of the relevant period; or (b) the amount by which the expenditure actually incurred by the assessee in payment of rent in respect of residential accommodation occupied by him exceeds one-tenth of the amount of salary due to the assessee in respect of the relevant period; or (c) an amount equal to— (i) where such accommodation is situate at Bombay, Calcutta, Delhi or Madras, one-half of the amount of salary due to the assessee in respect of the relevant period; and (ii) where such accommodation is situate at any other place, two-fifth of the amount of salary due to the assessee in respect of the relevant period, whichever is the least.”

Therefore, as per the provisions of Rule 2A of the Rules, the exemption in respect of HRA is the least of the actual HRA received from the employer, the rent paid minus 10% of the salary, and 50%/40% of the salary depending upon the location in India.

From the pay slip of the assessee for the month of April, 2014, we find that the assessee’s basic salary was INR 54,878.48 per month. Further, the basic salary increased to INR 58,994 per month, after an increment in the month of November 2014. We also find that the HRA of INR 27,439 per month granted by the employer to the assessee in April 2014 increased to INR 29,497 from the month of November, 2014. Further, from the declaration issued by the lessor, it is evident that the assessee paid INR 19,000 per month to the lessor from 01/04/2014 to 31/12/2014.

In support of the claim of exemption under section 10 of the Act in respect of HRA at INR 1,20,374, the assessee furnished the computation. From the said computation, it is evident that 40% of the basic salary (considering basic salary of INR 54,878.48 per month from April to October, 2014 and INR 58,994 per month from November to March, 2015) comes to INR 2,78,233. Further, as per the assessee, INR 3,47,791 was received as total HRA for the year under consideration from the employer. Rent paid (i.e. INR 19,000 per month from April to December, 2014) in excess of 10% of the basic salary for the entire year comes to INR 1,20,375. Thus, we find that the HRA exemption of INR 1,20,374 (i.e., the least of the above) claimed by the assessee is in accordance with the provisions of section 10(13A) of the Act read with Rule 2A of the Rules. Accordingly, the addition on this issue is deleted and Ground No. 11, raised in assessee’s appeal, is allowed.

Grounds No. 12-14 were not argued during the hearing. Therefore, these grounds are dismissed as not pressed.

Ground No. 15 pertains to the initiation of penalty proceedings, which is premature at this stage. Therefore, this ground is dismissed.

Ground No.16 pertains to the levy of interest under sections 234A, 234B and 234C of the Act, which is consequential in nature. Therefore, the same requires no separate adjudication.

Grounds No. 1, 2, and 17 are general in nature and, in view of our aforesaid findings, require no separate adjudication.

In the result, the appeal filed by the assessee is partly allowed. Order pronounced in the open court on 21st July, 2026.