Mr.Sanath Kumar Murali vs The Income Tax Officer
2023 Latest Caselaw 2527 Kant

                                               -1-
                                                        WP No. 7647 of 2023



                                                                              R
                 IN THE HIGH COURT OF KARNATAKA AT BENGALURU

                         DATED THIS THE 24TH DAY OF MAY, 2023

                                         BEFORE

                      THE HON'BLE MR JUSTICE S SUNIL DUTT YADAV

                         WRIT PETITION NO.7647 OF 2023 (T-IT)


                 BETWEEN:

                 1.    MR.SANATH KUMAR MURALI
                       AGED 39 YEARS,
                       SON OF MR M V SANATH KUMAR,
                       ADDRESS AT NO.102-A,
                       VANAKANAHALLI,
                       BANGALORE-562 106.
                                                           ... PETITIONER
                 (BY SRI. SANDEEP HUILGOL., ADVOCATE)


                 AND:

                 1.    THE INCOME TAX OFFICER
                       WARD 4(3)(3), BANGALORE,
                       BMTC BUILDING, 80 FT ROAD,
Digitally signed
                       6TH BLOCK, KORAMANGALA,
by VIDYA G R
                       BENGALURU-560 095.
Location: High
Court of         2.    PRINCIPAL COMMISSIONER OF INCOME TAX-4
Karnataka              BMTC BUILDING, 80 FT ROAD,
                       6TH BLOCK, KORAMANGALA,
                       BENGALURU -560 095.

                 3.    CENTRAL BOARD OF DIRECT TAXES
                       DEPARTMENT OF REVENUE,
                       MINISTRY OF FINANCE,
                       NORTH BLOCK,
                       NEW DELHI-110 002,
                       REPRESENTED HEREIN BY ITS CHAIRPERSON.

                 4.    PRINCIPAL CHIEF COMMISSIONER OF INCOME TAX
                       KARNATAKA AND GOA REGION,
                              -2-
                                       WP No. 7647 of 2023




    GROUND FLOOR,
    C R BUILDING,
    NO.1, QUEENS ROAD,
    BENGALURU-560 001.
                                        ... RESPONDENTS

(BY SRI. E.I. SANMATHI, ADVOCATE)

     THIS WRIT PETITION IS FILED UNDER ARTICLES 226
AND 227 OF THE CONSTITUTION OF INDIA, PRAYING TO
QUASH THE IMPUGNED ORDER DATED 21.03.2023 BEARING
DIN      AND      NOTICE     NO.ITBA/AST/F/148A/2022-
23/1051072381(1) PASSED BY THE 1ST RESPONDENT UNDER
SECTION 148A(D) OF THE INCOME-TAX ACT, 1961, FOR THE
ASSESSMENT YEAR 2016-17 (ANNEXURE-A) AND ETC.

     THIS WRIT PETITION COMING ON FOR PRELIMINARY
HEARING IN 'B' GROUP, THIS DAY, THE COURT MADE THE
FOLLOWING:
                         ORDER

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'.

WP No. 7647 of 2023

2. 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                Source            Amount
              description                                  (Rs.)
 1       TDS statement - sale     VENKATACHALAPATHI       5577700
        consideration on sale          DIBBUR
        of immovable property       VENKATESAIAH
            (Section 194IA)

This was followed up with another notice on

10.03.2023.

3. 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

WP No. 7647 of 2023

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 Acquisition details A - Sale consideration 55,77,700 B - Cost Of Acquisition 15,91735 Indexed Cost of Acquisition 21,91,931 1591735*1081/785

Taxable Capital gain (A-B) 33,85,769

4. 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

WP No. 7647 of 2023

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.

5. It is the submission of learned counsel for

the petitioner that the notice under Section 148 at

Annexure-'B' 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.

6. 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

WP No. 7647 of 2023

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.

7. 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/-.

8. It is submitted that what is of relevance

for the purpose of Section 148A is the information

WP No. 7647 of 2023

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.

9. Learned counsel appearing for the Revenue

has also relied upon the memorandum explaining the

provisions in the Finance Bill, 2021 to justify such

interpretation.

10. Heard both sides.

WP No. 7647 of 2023

11. What needs to be noted in the present

case is that the income stated to have escaped

assessment which has been taken note of seeking to

re-open the assessment for the Assessment Year

2016-2017 is the sale transaction with Sri D.V.

Venkatachalapathi. The time prescribed for such

reopening of assessment by virtue of proceedings

under Section 148 is provided under Section 149.

Relevant extract of Section 149 reads as follows:-

"149.(1) No notice under section 148 shall be issued for the relevant assessment year.-

           (a)    if three years have elapsed
       from      the   end   of     the   relevant

assessment year; unless the case falls under clause (b);

(b) if three years, but not more than ten years, have elapsed from the end of the relevant assessment year unless the Assessing Officer has in his possession books of accounts or other documents or evidence which reveal that the income chargeable to tax, represented in the form of -

(i) an asset;

WP No. 7647 of 2023

(ii) expenditure in respect of a transaction or in relation to an event or occasion; or

(iii) an entry or entries in the books of accounts, which has escaped assessment amounts to or is likely to amount to fifty lakh rupees or more"

12. It is clear that there is a bar prohibiting the

issuance of notice under Section 148 of I.T. Act if

three years has elapsed from the end of the relevant

Assessment Year unless the case falls under Clause-

(b). Accordingly, no notice under Section 148 could

be issued after three years from the end of

Assessment Year 2016-2017, is subject to the

exception of extended period of limitation of three

years, but not more than ten years from the end of

relevant Assessment Year, if the Assessing Officer has

material which would reveal that "the income

chargeable to tax" which has escaped the assessment

- 10 -

WP No. 7647 of 2023

amounts or is likely to amount to Rs.50.00 lakh

rupees or more.

13. In the present case, the enclosure to the

show cause notice in the Form at Annexure to the

notice reads as follows:-

ANNEXURE The case has been flagged by the Risk Management Strategy formulated by the Board in Insight Module under High Risk Category information/NMS cycle under RMS in your case. As per the details available with the undersigned in this office, it is seen that

1. You have not filed the return of income for the F.Y. 2015-16 relevant to A.Y. 2016-17.

2. The following information is available:

Sl.    Information               Source                               Amount
No.    Description                                                    (Rs.)
1      TDS      Statement     - VENKATACHALAPATYHI                    5577700
       Sales     consideration DIBBUR VENKATESAIAH
       on sale of immovable
       property       (Section
       194IA)

Since, as per the records in this office, you have not filed the return of income for the aforesaid Asst. Year, you are requested to explain

- 11 -

WP No. 7647 of 2023

along with documentary evidences why a notice u/s 148 should not be issued in order to assess the income that has escaped assessment.

As per the procedure laid down under section 148A of the Income Tax Act, 1961, it mandates that show-cause notice is to be issued based on the information/explanation provided by you on the above information to this office. Please note that the information provided by you will be necessary for arriving at the final conclusion for issuance of notice u/s 148.

14. It is clear that the notice is issued in the

context of sale consideration from sale of immoveable

property for an amount of Rs.55,77,700/-. As noted

above, the reply to the show cause notice, copy of

which is enclosed at Annexure-'F1' would reveal the

details of sale consideration and the cost of

acquisition would be the indexed cost of acquisition in

light of the sale leads to accrual of long term capital

gain.

- 12 -

WP No. 7647 of 2023

15. In the present case on hand, clearly, the

income that has escaped assessment is the proceeds

from the sale as made out from perusal of the

Annexure to the show cause notice at Annexure-'C'.

In case of income arising from the sale of property

which may fall within the purview of Section 48 so as

to amount to capital gains, it is relevant to notice that

Section 48 provides for mode of calculation of income

chargeable under the head 'Capital Gains'. Section 48

reads as follows:-

"48. The income chargeable under the head "Capital gains" shall be computed, by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset the following amounts, namely:-

(i) expenditure incurred wholly and exclusively in connection with such transfer,

(ii) the cost of acquisition of the asset and the cost of any improvement thereto;

(iii)in case of value of any money or capital asset received by a specified

- 13 -

WP No. 7647 of 2023

person from a specified entity referred to in sub-section (4) of section 45, the amount chargeable to income-tax as income of such specified entity under that sub-section which is attributable to the capital asset being transferred by the specified entity, calculated in the prescribed manner:

...

Provided further that where long- term capital gain arises from the transfer of a long-term capital asset, other than capital gain arising to a non-resident from the transfer of shares in, or debentures of, an Indian company referred to in the first proviso, the provisions of clause (ii) shall have effect as if for the words "cost of acquisition" and "cost of any improvement", the words "indexed cost of acquisition" and "indexed cost of any improvement" had respectively been substituted:....

..."

16. The words used in Section 149(1)(b) is

that the 'income chargeable to tax' which has

escaped assessment amounts to or is likely to amount

- 14 -

WP No. 7647 of 2023

to fifty lakh rupees or more for that year. The income

chargeable under the head of 'capital gains' which

would arise in case of sale transaction is as provided

under Section 48, which provides that income

chargeable under the head of 'capital gains' shall be

computed by deducting from the full value of the

consideration, the cost of acquisition and in the event,

the property purchased has been held for a period

beyond three years in terms of second proviso to

Section 48, the words, 'cost of acquisition' is to be

substituted by the words, 'indexed cost of

acquisition'. This material is pointed out in the reply

at Annexure-'F1' furnished to the show cause notice,

which ought to be taken note of prior to the issuance

of notice under Section 148A of I.T. Act.

17. It must be noticed that before issuance of

notice under Section 148 to re-open the proceedings

with respect to the Assessment Year 2016-2017.

Section 148A provides:

- 15 -

WP No. 7647 of 2023

"148A. The Assessing Officer shall, before issuing any notice under section 148, --

(a) conduct any enquiry, if required, with the prior approval of specified authority, with respect to the information which suggests that the income chargeable to tax has escaped assessment;

(b) provide an opportunity of being heard to the assessee, with the prior approval of specified authority, by serving upon him a notice to show cause within such time, as may be specified in the notice, being not less than seven days and but not exceeding thirty days from the date on which such notice is issued, or such time, as may be extended by him on the basis of an application in this behalf, as to why a notice under section 148 should not be issued on the basis of information which suggests that income chargeable to tax has escaped assessment in his case for the relevant assessment year and results of enquiry conducted, if any, as per clause (a);

(c) consider the reply of assessee furnished, if any, in response to the show-cause notice referred to in clause (b);

(d) decide, on the basis of material available on record including reply of the assessee, whether or not it is a fit case to issue a notice under section

- 16 -

WP No. 7647 of 2023

148, by passing an order, with the prior approval of specified authority, within one month from the end of the month in which the reply referred to in clause

(c) is received by him, or where no such reply is furnished, within one month from the end of the month in which time or extended time allowed to furnish a reply as per clause (b) expires:

..."

Clearly when the procedure is followed

culminating in an order passed under Section

148(A)(d), the Authority is required to apply its mind

and consider the reply of the assessee and pass a

considered order. In the present case, the

respondent Authority has not applied its mind to the

reply filed, nor noticed the legal position while

deciding as to the application of the extended period

under Section 149(1)(b) of the I.T. Act.

18. 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

- 17 -

WP No. 7647 of 2023

and this is the only manner of understanding the

words, 'income chargeable to tax under Section

149(1)(b) of I.T. Act.

19. 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/-

ought 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

- 18 -

WP No. 7647 of 2023

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.

20. 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.

21. Accordingly, the order at Annexure-'A'

dated 21.03.2023 passed under Section 148A(d) of

the I.T. Act is set aside and the notice at Annexure-'B'

dated 21.03.2023 issued under Section 148 of the

- 19 -

WP No. 7647 of 2023

I.T. Act by the respondent No.1 for the Assessment

Year 2016-2017 is set aside.

The Writ Petition is accordingly allowed.

Sd/-

JUDGE

SMJ/VGR