Section 148 IT Act | Notice Beyond Limitation Period Invalid for Reopening Assessment Below ₹50 Lakh : ITAT Ahmedabad

The Income Tax Appellate Tribunal, Ahmedabad, recently delivered a significant ruling on the validity of reopening assessments under Section 147 of the Income Tax Act, 1961. The Tribunal set aside an assessment order where the Assessing Officer had treated the entire sale consideration of Rs. 1.24 crores as short-term capital gains without proper inquiry into the assessee's co-ownership status or cost of acquisition. The judgment underscores the importance of procedural fairness and accurate determination of taxable income, even in cases of non-compliance by the assessee.

Background & Facts

The Dispute

The appellant, Kamlesh Bhikhabhai Patel, a resident of Vadodara, did not file a return of income for Assessment Year (A.Y.) 2017-18. The Assessing Officer (AO) received information that the appellant had sold a property for Rs. 31,00,000, and the capital gains arising from this sale were not offered for taxation. Based on this information, the AO initiated reassessment proceedings under Section 147 of the Income Tax Act.

Key Facts

• The appellant did not file any return of income for A.Y. 2017-18.
• The AO received information regarding the sale of a property for Rs. 31,00,000, which was allegedly not disclosed for taxation.
• The AO issued a notice under Section 148 of the Act on 27.07.2022, after passing an order under Section 148A(d) of the Act.
• The AO treated the entire sale consideration of Rs. 1.24 crores as short-term capital gains (STCG) and added it to the appellant's income.
• The appellant claimed that the property was jointly owned, and the sale consideration attributable to him was only Rs. 31,00,000.

Procedural History

• 21.06.2021: The AO issued the first notice under Section 148 of the Act, within the three-year limitation period as extended by the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA).
• 27.07.2022: The AO issued a fresh notice under Section 148 after passing an order under Section 148A(d) of the Act, pursuant to the directions of the Supreme Court in Ashish Aggarwal.
• 26.05.2023: The AO completed the assessment under Section 147 read with Section 144 of the Act, treating the entire sale consideration of Rs. 1.24 crores as STCG.
• 17.12.2025: The Commissioner of Income Tax (Appeals) [CIT(A)] dismissed the appellant's appeal, primarily on the ground of delay in filing the appeal.
• 10.06.2026: The appellant filed the present appeal before the ITAT, Ahmedabad.

Relief Sought

The appellant sought the following reliefs:

• Quashing of the assessment order dated 26.05.2023 passed under Section 147 read with Section 144 of the Act.
• Quashing of the CIT(A)'s order dated 17.12.2025 dismissing the appeal on the ground of delay.
• A direction to the AO to recompute the capital gains after considering the appellant's co-ownership status and cost of acquisition of the property.

The Legal Issue

The primary legal issues before the Tribunal were:

1. Whether the reopening of assessment under Section 147 of the Act was valid, given that the notice under Section 148 was issued beyond the prescribed limitation period and for an amount below the monetary threshold of Rs. 50,00,000.
2. Whether the AO was justified in treating the entire sale consideration of Rs. 1.24 crores as short-term capital gains without verifying the appellant's co-ownership status or the cost of acquisition of the property.
3. Whether the CIT(A) erred in dismissing the appeal on the ground of delay without examining the merits of the case.

Arguments Presented

For the Appellant

The learned Authorised Representative (AR) for the appellant, Ms. Kinjal Shah, raised the following contentions:

• The notice under Section 148 dated 27.07.2022 was issued beyond the limitation period prescribed under Section 149 of the Act.
• The reopening was initiated for alleged escapement of Rs. 31,00,000, which was below the monetary threshold of Rs. 50,00,000 for reopening assessments. Thus, the reopening was invalid.
• The AO did not supply the reasons recorded for reopening the assessment, nor did he adhere to the provisions of Section 151 of the Act, rendering the proceedings void.
• On merits, the AO erred in treating the entire sale consideration of Rs. 1.24 crores as STCG, as the appellant was only a co-owner of the property, and the sale consideration attributable to him was only Rs. 31,00,000.
• The land in question was ancestral and held for many years, and any surplus, if at all, should be treated as long-term capital gains (LTCG), not STCG.

For the Revenue

The learned Senior Departmental Representative (SR-DR), Shri Rameshwar P Meena, contended as follows:

• The initial notice under Section 148 was issued on 21.06.2021, which was within the three-year limitation period as extended by TOLA.
• The subsequent notice issued on 27.07.2022 was in pursuance of the directions of the Supreme Court in Ashish Aggarwal and was thus valid.
• The appellant did not comply with the proceedings either before the AO or the CIT(A), and no affidavit or condonation application for delay was filed before the CIT(A).
• The AO was justified in treating the entire sale consideration as STCG in the absence of any compliance from the appellant.

The Court's Analysis

The Tribunal examined the rival submissions and made the following observations:

1. Validity of Reopening: The Tribunal held that the reopening of assessment was valid. The original notice under Section 148 was issued on 21.06.2021, which was within the three-year limitation period as extended by TOLA. The subsequent notice issued on 27.07.2022 was in compliance with the directions of the Supreme Court in Ashish Aggarwal. Therefore, the monetary threshold of Rs. 50,00,000 contended by the appellant was not applicable, and the reopening was valid.

2. Merits of the Case: The Tribunal noted that the appellant did not make any compliance before the AO or the CIT(A). However, the CIT(A) erred in dismissing the appeal solely on the ground of delay without examining the merits of the case. The Tribunal relied on the judgment of the Gujarat High Court in Vareli Textiles Ltd (284 ITR 238 (Guj)), which held that a meritorious case should not be dismissed on technical grounds like limitation.

   The Tribunal observed that the AO's treatment of the entire sale consideration of Rs. 1.24 crores as STCG was incorrect. The AO failed to bring on record the date of purchase, purchase consideration, and the date of sale. Additionally, the appellant was only a co-owner of the property, and the AO did not determine the appellant's share in the sale consideration. Thus, the assessment order was unsustainable on merits.

3. Directions for Fresh Adjudication: In the interest of justice, the Tribunal deemed it proper to set aside the matter to the file of the Jurisdictional AO. The Tribunal directed the AO to allow another opportunity to the appellant to make compliance, subject to the payment of a cost of Rs. 10,000 to the Prime Minister National Relief Fund within two weeks from the date of receipt of the order. The appellant was directed to:

   • Produce evidence regarding the cost of acquisition of the property.
   • Provide the working of capital gains derived from the sale.
   • Comply with the directions of the Jurisdictional AO and produce the necessary documents and clarifications.

   The Jurisdictional AO was granted the liberty to make inquiries into the evidence brought on record by the appellant.

"The entire sale consideration could not have been treated as STCG without bringing on record the date of purchase, purchase consideration (being nil) and the date of sale, which was not done in the present case. Further, the assessee was only a co-owner and not the sole proprietor of the property."

The Verdict

The Tribunal partly allowed the appeal for statistical purposes. The key directions and outcomes were:

• The assessment order dated 26.05.2023 was set aside, and the matter was remanded to the Jurisdictional AO for fresh adjudication.
• The appellant was directed to pay a cost of Rs. 10,000 to the Prime Minister National Relief Fund within two weeks from the date of receipt of the order.
• The appellant was granted another opportunity to make compliance before the AO, including producing evidence of the cost of acquisition and the computation of capital gains.
• The Jurisdictional AO was directed to make inquiries into the evidence produced by the appellant and pass a fresh order in accordance with the law.

What This Means For Similar Cases

Procedural Fairness Over Technicalities

This judgment reinforces the principle that procedural fairness must prevail over technicalities like limitation. Practitioners should note:

• Courts and tribunals are inclined to remand cases for fresh consideration where the merits of the case have not been adequately examined, even if there is a delay in filing appeals.
• The reliance on Vareli Textiles Ltd underscores that dismissing appeals on technical grounds, without examining the merits, is not sustainable where substantial injustice may occur.

Accurate Determination of Taxable Income

• Co-ownership Matters: The Tribunal's observation that the assessee was only a co-owner highlights the importance of accurately determining the taxpayer's share in jointly owned properties. AO's cannot assume the entire sale consideration is taxable in the hands of one co-owner without verifying their share.
• Capital Gains Computation: The AO must bring on record the date of purchase, purchase consideration, and the date of sale to correctly compute capital gains. Failure to do so renders the assessment order unsustainable.

Compliance and Costs

• Opportunity to Comply: Even in cases of non-compliance, assessees must be given a reasonable opportunity to produce evidence and comply with proceedings. This judgment sets a precedent for remanding cases where such opportunities were not provided.
• Costs as a Condition: The Tribunal imposed a cost of Rs. 10,000 as a condition for remanding the case. Practitioners should be prepared for such conditions, which may be imposed to ensure serious compliance in remanded proceedings.

Key Takeaways for Practitioners

• For Assessees: Ensure timely compliance with notices and appeals. Even if there is a delay, argue the merits of the case vigorously, as tribunals may remand cases for fresh consideration.
• For Revenue: Avoid treating entire sale considerations as taxable income without verifying the assessee's share in jointly owned properties or the cost of acquisition. Ensure procedural fairness in all assessments.
• For Both Parties: Document all evidence related to capital gains computations, including dates of purchase and sale, purchase considerations, and co-ownership details, to avoid unsustainable assessments.