Meaning of “income chargeable to tax” for the purposes of the 149(1)(b) reopening time limit
Fact and issue of the case
The petitioner has challenged the order at Annexure-‘A’ dated 21.03.2023 passed under Section 148A(d ) of the Income Tax Act, 1961 (‘I.T. Act’ for brevity) for the Assessment Year 2016-2017 and has also sought for quashing of the impugned notice dated 21.03.2023 bearing DIN and Notice No. ITBA/AST/S/148_1/2022-23/1051076610(1 ) issued by respondent No.1 under Section 148 of the I.T. Act for the Assessment Year 2016-2017 at Annexure-‘B’
On 03.03.2023, the notice under Section 148A(b) of the I.T. Act came to be issued to the petitioner stating that information was received which suggested that income chargeable to tax for the Assessment Year 2016-2017 has escaped assessment within the meaning of Section 147, detailing the information alongwith the supporting documents. The information is detailed in the Annexure in the form of a table, which is extracted below
|S. No.||Information description||Source||Amount (Rs)|
|1||TDS Statement- sale consideration on sale of immovable property (Section 194IA)||VENKATACHALAPATHI DIBBUR VENKATESAIAH||5577700|
This was followed u p with another notice on 10.03.2023.
The petitioner is stated to have made out a reply to the said notice dated 16.03.2023 in which details were laid out, setting out the sale consideration relating to the sale deed of 22.11.2015 as Rs.55,77,700/- and also furnishing details of the sale deed by virtue of which the petitioner has purchased the property on 24.09.2011 for consideration of Rs.15,91,735/- (cost of acquisition). It was submitted that since the date of acquisition was in the year 2011 and the sale was in the year 2015 and therefore the long term capital gain would be as follows
|Long term capital gain of sale of site|
|Date of acquisition||24/09/2011|
|Date of transfer||22/12/2015|
|A- Sale consideration||55,77,700|
|B- Cost of acquisition||15,91,735|
|Indexed cost of acquisition 1591735*1081/785||21,91,931|
|Taxable capital gain (A-B)||33,85,769|
The ‘Capital Gain’, according to the petitioner in terms of the reply made out is Rs.33,85,769/-. It was submitted that, as the income escaping assessment did not exceed rupees fifty lakh in terms of Section 149(1)(b) of the I.T. Act, the notice under Section 148 could not be issued.
It is the submission of learned counsel for the petitioner that the notice under Section 148 at Annexure-‘8’ was issued on 21.03.2023 with respect to the Assessment Year 2016-2017 and the time limit for issuance of such notice in terms of Section 149(1)(a) would be three years from the end of the relevant Assessment Year and if the Department seeks to justify the issuance of notice in the extended time provided under Section 149(1)(b) beyond three years, but not more than ten years, the Department would have to demonstrate that the ‘income chargeable to tax’ which has escaped assessment is likely to amount to rupees fifty lakh or more.
It is further submitted that in the present case, as demonstrated in the reply since the income chargeable to tax calculated in terms of Section 48 would be less than rupees fifty lakh, the notice issued on 21.03.2023 in respect of the Assessment Year 2016-2017 would not fall within the extended time provided under Section 149(1)(b) of the I.T. Act.
Learned counsel appearing for the Revenue would submit that since the proceedings under Section 148 of I.T. Act is at the initial stage and adjudication is to take place in terms of the procedure prescribed and provided under Section 148A, it would be premature to construe the contention relating to ‘income chargeable to tax’ as contended by the petitioner and that the income that has escaped assessment to be taken note of for the purpose of Section 149(1)(b) which would be the total sale consideration received as reflected in the sale deed dated 22.12.2015 of Rs.55,77,700/-.
It is submitted that what is of relevance for the purpose of Section 148A is the information received and in terms of the information received, the consideration of sale as mentioned in the sale deed ought to be taken note of, which would reveal that an amount of Rs.55,77,700/- has escaped assessment and the same has been mentioned even in the enclosure alongwith the show cause notice dated 03.03.2023. Accordingly, it is submitted that it is the income that has escaped assessment that has to be taken note of, which being above Rs.50.00 lakh, the extended period under Section 149(1)(b) would save such notice from the bar of the period prescribed to re-open provided under Section 149(1)(a) of I.T. Act.
Observation of the court
Accordingly, in the present case, the words found in Section 149 which is ‘income chargeable to tax’ must be read in terms of ‘income’ as arising out of the ‘Capital Gains’ as provided under Section 48 and this is the only manner of understanding the words, ‘income chargeable to tax under Section 149(1)(b) of I.T. Act.
The contention of the Revenue that under Section 149 what is required to be taken note of, is the ‘income that has escaped assessment. being the entirety of sale consideration of Rs.55,77,700/-cannot be accepted, in light of the express words in the statutory provision ‘……….income chargeable to tax……which has escaped assessment amounts to or is likely to amount to fifty lakh rupees or more’. It cannot be stated that since the stage at which the notice is issued is at a premature stage, the entirety of consideration of Rs.55,77,700/-ou ght to be taken note of. A plain reading of Section 48 would provide that the entirety of sale consideration does not constitute ‘income’. The memorandum explaining the provisions of Finance Act, 2021 does not in any way lead to giving a different interpretation to the words, ‘income chargeable to tax’. The words used under Section 149 for the purpose of extended time limit is to be interpreted in terms of the plain wordings of Section 149 and cannot be construed differently while relying on any executive instruction.
Learned counsel appearing for the Revenue has relied on the judgment of Rajasthan High court in the case of Abdul Majeed v. Income Tax Officer passed in Civil Writ Petition.No.7853/2022. However, a close reading of the said judgment does not support the interpretation sought to be placed and the High Court of Rajasthan has also reiterated the same position as laid down above.
Accordingly, the order at Annexure-1A dated 21.03.2023 passed under Section 148A(d) of the I.T. Act is set aside and the notice at Annexure-181 dated 21.03.2023 issued under Section 148 of the I.T. Act by the respondent No.1 for the Assessment Year 2016-2017 is set aside.
The Writ Petition is accordingly allowed.
In the result, appeal of the assessee is allowed and ruled in favour of the assessee