S. LINGAMOORTHY,CHENNAI vs. DCIT, CENTRAL CIRCLE-3(4), CHENNAI

The assessee is an individual engaged in the business of lending long-term loans. A search was conducted in the case of the assessee on 01.04.2021, during which cash of Rs.28,50,000/- was seized.

1. Subsequent to the search, the A.O initiated assessment proceedings u/s. 147 of the Act by issuing a notice u/s. 148 of the Act on 30.03.2023. In response to the notice, the assessee filed the return of income on 17.05.2023 declaring total income of Rs. 29,46,910/-. The assessee in the return of income has offered income under the head Long-Term Capital Gain (LTCG) arising from the transfer of property for a sale consideration of Rs. 36 lakhs, after claiming deduction u/s. 48 towards indexed cost of acquisition of Rs. 6,86,683/-. The assessee challenged the reopening before the A.O on the ground that the assessment being reopened is beyond three years, and the income being alleged to have escaped assessment is below Rs. 50 lakhs, therefore in view of Section 149(1)(b) of the Act, the case cannot be reopened and proceedings initiated u/s. 148 of the Act is to be dropped. However, the A.O proceeded with the assessment and assessed the total income at Rs. 29,96,528/- by making an addition of Rs. 49,618/-. Aggrieved by the same, the assessee carried the matter before the Ld. CIT(A) raising the ground that initiation of proceedings u/s. 147 of the Act by issuing notice u/s. 148 of the Act was invalid since, the alleged escapement was below Rs. 50 lakhs in violation of Section 149(1)(b) of the Act. The Ld. CIT(A), after examining the reasons recorded by the A.O, held that the A.O had recorded escapement of income of Rs.61,60,846/- based on information that the assessee had cash of Rs. 67,21,250/- as on 31.03.2014, out of which Rs. 36 lakhs was explained as sale consideration, while the balance of Rs. 31,21,250/- was not supported by any documentary evidence. The Ld. CIT(A) has concluded that the A.O at the time of reopening of assessment had information that escapement of income was above Rs. 50 lakhs, therefore upheld the addition.

At the outset, the Ld. Authorized Representative (A.R) submitted that the assessment was reopened beyond three years and the assessee had objected before the A.O that since the alleged escaped income was below Rs. 50 lakhs, therefore, reopening was barred in view of Section 149(1)(b) of the Act. The Ld. A.R drew our attention to the submissions made before the A.O on 09.12.2023, wherein it was explained that the A.O in the reason recorded for reopening has considered, cash balance of Rs.67,21,250/- as on 31.03.2014 as asset for escaped income. However, it has been noted that Rs.30,21,250/- out of above pertained to cash available as on 31.03.2013, i.e., the previous financial year. Therefore, only Rs. 37 lakhs related to A.Y.

2014-15, which was below Rs. 50 lakhs. Hence, as per Section 149(1)(b) of the Act, assessment proceedings for A.Y. 2014-15 could not have been initiated. The Ld. AR has argued that as the reopening is without jurisdiction, assessment needs to be quashed.

On the other hand, the Ld. Departmental Representative (DR), has relied on the orders of lower authorities.

We have heard the rival submissions, and perused the material available on record. The A.O, in the reasons recorded, has noted that the assessee possessed cash of Rs.67,21,250/- as on 31.03.2014, which was advanced as loans in subsequent years as part of the assessee’s money-lending business. The A.O also noted out of above Rs 36,00,000 was received from sale of immovable property and for balance of Rs. 31,21,250 no documentary evidence furnished. The AO has recorded reason for escapement of income of Rs.61,60,846/-, which represented income in the form of assets exceeding Rs. 50 lakhs. The assessee has challenged the reopening as per the decision of the Hon’ble Supreme Court in GKN Driveshafts (India) Ltd. v. ITO [2003] 259 ITR 19 (SC), as cash balance of Rs.67,21,250/- included Rs.30,21,250/- was already available as on 31.03.2013, therefore the escapement relatable to A.Y. 2014-15, after excluding the balance taxable in the preceding year, was below Rs. 50 lakhs. The A.O himself has accepted this fact in the final assessment, but not dropped the reopening proceeding. The A.O after making the addition of Rs.40,000/- has assessed the total income at Rs.29,96,528/-. In our considered opinion, the A.O ought to have accepted the assessee’s objections and dropped the reassessment proceedings in view of section 149(1)(b) of the Act as the assessment reopened was beyond three years and the escapement was below Rs.50 Lakhs. Consequently, the assessment made by the A.O after making addition of Rs.49,618/- is invalid and unsustainable. The addition made is accordingly deleted.

In the result, the appeal filed by the assessee is allowed. Order pronounced on 25th day of November, 2025 at Chennai.