Kerala HC: Section 148A Proceedings Invalid If Income Escaped Is Under ₹50 Lakh and Notice Is Beyond 3-Year Limit

The Kerala High Court ruled that tax proceedings under Income Tax Section 148A are invalid if the income is less than INR 50 lakh and the notice is issued more than three years later.

Justice Ziyad Rahman A.A. said that “when the order of the assessing authority is found to be without jurisdiction and hit by the period of limitation, it is not necessary to relegate the party concerned to undergo the rigour of the statutory proceedings”.

Taxpayers are being provided the authority under Section 148A of the Income Tax Act, 1961, to furnish an explanation before the income tax department for any income that has not undergone assessment.

The taxpayer in this matter was served with notice (Ext.P1) under subsection 6 of section 133 of the Income Tax Act, 1961, demanding specific documents/information, as it was pointed out that the taxpayer failed to submit returns for the AY 2016-2017.

The taxpayer does not file the income tax return since the income obtained by him from the panchayat public market and comfort station taken in the auction by the taxpayer was less than the ceiling limit that obligates the compulsory ITR filing.

The amount referred to in the notice is related to the total transactions that the taxpayer had, and out of the said amount, the taxpayer had earlier remitted Rs. 26,47,575 to the panchayat with whom the applicant had entered into the contract. Therefore, the generated income via it was less than the ceiling contemplated under the Act.

After that, the taxpayer has received the notice (Ext.P4) under section 148A(b) of the Income Tax Act, 1961, and the said proceeding culminated in an assessment order (Ext.P6) even though the taxpayer furnished a detailed objection against the notice.

The taxpayer’s raised objections were that the proceedings u/s 148A are limited under the limitation contemplated under Section 149(1).

The bench admitted with the taxpayer that, according to section 149, the statutory time limit contemplated for initiating proceedings u/s 148 is 3 years from the end of the related assessment year. For the escaped assessment of Rs 50 lakhs or exceeding that, the duration could be up to 10 years. Hence, as the alleged amount to have escaped assessment is below Rs 50 lakh, no proceedings under any situation can be initiated, as it is cited to be legally unsustainable.

The pertinent AY is 2016-17, and therefore, under the law, the proceedings must have been started on or before 31.03.2020. The assessment order specifies that the amount allegedly escaped from the assessment was below 50 lakhs, and thus, the higher period as defined in subclause (b) of Section 149 (1) is not applicable, the bench mentioned.

The bench does not consider the case to be agitated before the assessing officer, as the department cited.

U/s 148A any proceeding or the resultant proceeding under 148 beyond the regulatory period contemplated under the provisions of the Income Tax Act. The bench ruled. The bench for the above permitted the petition.