The Income Tax Appellate Tribunal has clarified a critical limitation on reassessment powers, holding that proceedings initiated under Section 148 are invalid if the escaped income is below ₹50 lakh and the notice was issued after March 31, 2021, for assessment year 2014-15. This decision reinforces statutory timelines and curbs arbitrary reopening of closed assessments, offering significant relief to individual taxpayers.
Background & Facts
The Dispute
The assessee, Madhu Devi, filed her income tax return for AY 2014-15 declaring total income of ₹4,26,800 and claimed deductions under Chapter VI-A. The Assessing Officer (AO) issued a notice under Section 148 of the Income Tax Act, 1961, alleging that she had made an unexplained investment of ₹75,28,370 in immovable property. The AO treated this as unexplained income under Section 69, despite the assessee disclosing the purchase in her audited balance sheet and providing the deed of conveyance. The AO concluded that the source of funds was not explained and made an addition accordingly.
Procedural History
- 2014-15: Original return filed showing income of ₹4,26,800
- March 31, 2021: Notice under Section 148 issued for reassessment
- 2022: Assessment order passed under Section 147 read with Section 144 adding ₹75,28,370 as unexplained income
- 2024: Commissioner of Income Tax (Appeals) set aside the order, directing remand to AO for fresh adjudication, citing failure to consider documents submitted during appeal
- 2025: Appeal filed before ITAT challenging the remand order
Relief Sought
The assessee sought quashing of the reassessment proceedings on grounds of limitation, lack of reasonable belief under Section 147, and procedural irregularities. She argued that the notice was time-barred and that the AO had already accepted the investment disclosure in the original assessment under Section 143(1).
The Legal Issue
The central question was whether a reassessment notice issued under Section 148 for AY 2014-15 on March 31, 2021, is valid when the escaped income is below ₹50 lakh, and whether the AO had sufficient grounds to believe that income had escaped assessment.
Arguments Presented
For the Appellant
The assessee contended that the reassessment was barred by limitation under Section 148(1) read with Section 148A, as the escaped income was less than ₹50 lakh and the notice was issued after March 31, 2021, the cut-off date for reopening cases below this threshold. She relied on the disclosure of land purchase in the audited balance sheet and the acceptance of such disclosure in the original assessment under Section 143(1), arguing that the reopening amounted to a mere change of opinion, which is impermissible under Section 147. She further cited CIT v. Kelvinator of India Ltd. to establish that reassessment cannot be based on reappreciation of evidence already on record.
For the Respondent
The Department argued that the AO had reason to believe income had escaped assessment because the assessee failed to substantiate the source of funds despite disclosure of the transaction. It contended that disclosure in the balance sheet does not equate to explanation of source, and that the remand by the CIT(A) was procedurally correct. The Department did not dispute the timing of the notice but maintained that the AO’s discretion under Section 147 was validly exercised.
The Court's Analysis
The Tribunal examined the interplay between Section 148 and the amendments introduced by the Finance Act, 2021, which restricted reassessment for cases where escaped income is below ₹50 lakh and notice is issued after March 31, 2021. The Tribunal noted that the notice in this case was issued precisely on the last permissible date under the old regime, but the escaped income was below the threshold. The Court held that the legislative intent behind the amendment was to prevent reopening of small cases and to reduce litigation burden.
"The legislature has clearly drawn a line at ₹50 lakh for reassessment notices issued after March 31, 2021. This is not a procedural technicality but a substantive limitation on the revenue’s power to reopen."
The Tribunal further observed that the AO had already accepted the investment disclosure in the original assessment under Section 143(1), and the subsequent reliance on lack of source explanation amounted to reappreciation of evidence already available. The CIT(A)’s remand order was upheld not because the reassessment was valid, but because the AO had failed to consider submissions made during appeal. The Tribunal emphasized that the remand was procedural, not substantive, and did not validate the underlying reassessment.
The Verdict
The appeal was dismissed. The Tribunal confirmed the CIT(A)’s order remanding the case, but held that the reassessment proceedings initiated under Section 148 were legally unsustainable due to the limitation period. The assessee is entitled to raise all defenses before the AO on remand, but the reopening itself is invalid if the escaped income remains below ₹50 lakh.
What This Means For Similar Cases
Reassessment Notices Below ₹50 Lakh Are Time-Barred
- Practitioners must immediately challenge any reassessment notice issued after March 31, 2021, for AYs prior to 2015-16 where escaped income is under ₹50 lakh
- The limitation is absolute and not subject to waiver, even if the taxpayer participated in proceedings
- File applications under Section 264 or writ petitions to quash such notices on grounds of statutory bar
Disclosure in Balance Sheet + Acceptance Under Section 143(1) Precludes Reopening
- If the AO has accepted a disclosure in the original assessment under Section 143(1), subsequent reopening based on the same disclosure is a change of opinion
- Taxpayers should retain copies of original assessment orders to prove prior acceptance of disclosures
- Argue that Section 147 requires new information, not re-evaluation of existing records
Remand Orders Do Not Validate Illegal Proceedings
- A remand by CIT(A) does not cure jurisdictional defects in the original reassessment
- The Tribunal’s confirmation of the remand order was procedural, not substantive
- Practitioners must distinguish between procedural correction and substantive validity of the reassessment
