ITAT Quashes Section 148 Notice: Income Below ₹50 Lakhs and Jurisdictional Errors Lead to Reassessment Nullification

The case of Kalpana Vijay Kadam vs. Income Tax Officer Deals with a reassessment notice
issued by the Income Tax Department under Section 148 of the Income Tax Act, 1961. The
notice was based on the assumption that Kalpana Kadam had made unexplained
investments in a property jointly owned with her husband. The department alleged that she
failed to disclose an income exceeding ₹50 lakhs, triggering a reassessment after more than
three years from the relevant assessment year. However, the Income Tax Appellate Tribunal
(ITAT) found that the investment attributable to her was below the statutory threshold and
that the Assessing Officer failed to verify key facts—such as joint ownership and the
presence of a home loan—before issuing the notice. Consequently, the ITAT quashed the
reassessment proceedings, highlighting procedural lapses and jurisdictional overreach by
the tax authorities

Facts and Issues of the Case

In the case of Kalpana Vijay Kadam vs. Income Tax Officer, the Income Tax Appellate
Tribunal (ITAT) Pune Bench addressed the validity of a reassessment notice issued under
Section 148 of the Income Tax Act, 1961. The assessee, Kalpana Vijay Kadam, along with
her husband, jointly purchased a residential property in Pune for ₹66.95 lakhs. The property
was registered on May 29, 2015, with both spouses listed as co-owners. The payment for the
property was structured in multiple installments, corresponding to various stages of
construction.
The Assessing Officer (AO) initiated reassessment proceedings under Section 147, issuing a
notice under Section 148, alleging unexplained investment. This action was based on
information from the TDS portal and other risk management systems, which indicated that
Kalpana Vijay Kadam had not filed her income tax return for the Assessment Year (AY)
2016-17. The AO presumed that the entire investment amount was attributable solely to her,
without considering her 50% ownership and the existence of a home loan. Notably, the notice
was issued after more than three years from the end of the relevant assessment year.

Observations by the Tribunal

Upon reviewing the case, the ITAT observed that the AO failed to consider critical facts
before issuing the reassessment notice. Firstly, the property was jointly owned, and Kalpana
Vijay Kadam’s share amounted to ₹33.47 lakhs, which is below the ₹50 lakhs threshold
stipulated for reopening assessments beyond three years under Section 149(1)(b) of the
Income Tax Act. Secondly, the AO did not account for the home loan taken for the property
purchase, which further reduced the assessee’ s actual investment.
The Tribunal criticized the AO for relying on presumptions without verifying the facts, leading to an
unjustified reassessment. It emphasized that the AO’s actions lacked due diligence and failed to
adhere to the principles of natural justice. Consequently, the ITAT found the reassessment
proceedings to be invalid and quashed the Section 148 notice, deleting all additions made by the AO.

Law Applicable

The case primarily revolves around the interpretation of Sections 147, 148, and 149(1)(b) of
the Income Tax Act, 1961.
Section 147: Empowers the AO to assess or reassess income that has escaped assessment.
Section 148: Mandates the issuance of a notice before making such an assessment or
reassessment.
Section 149(1) (b): Specifies that no notice under Section 148 shall be issued if three years
have elapsed from the end of the relevant assessment year, unless the income chargeable to
tax that has escaped assessment amounts to or is likely to amount to ₹50 lakhs or more
In this case, since the alleged escaped income was less than ₹50 lakhs, the issuance of the
notice beyond the three-year period was barred by limitation under Section 149(1)(b). The
AO’s failure to consider the joint ownership and the home loan led to an incorrect assumption
of the escaped income amount, resulting in a notice that was legally untenable.

Conclusion by the Tribunal

The ITAT concluded that the reassessment proceedings initiated against Kalpana Vijay
Kadam were invalid due to the AO’s failure to adhere to statutory requirements and to verify
the factual matrix of the case. The Tribunal emphasized the importance of due diligence and
the necessity for tax authorities to base their actions on verified facts rather than
presumptions. By quashing the Section 148 notice and deleting all additions, the ITAT
reinforced the principle that procedural safeguards and statutory thresholds must be strictly
observed to ensure fairness and legality in tax assessments.