To address this issue, let us first understand an interplay of Sec 148,148A and 149(1)(b) and the relevant extracts are re-produced below:
Section 148 of the Act- income escaping assessment
Before making the assessment, reassessment or recomputation under section 147, and subject to the provisions of section 148A, the Assessing Officer shall serve on the assessee a notice, along with a copy of the order passed, if required, under clause (d) of section 148A, requiring him to furnish within 15 [a period of three months from the end of the month in which such notice is issued, or such further period as may be allowed by the Assessing Officer on the basis of an application made in this regard by the assessee], a return of his income or the income of any other person in respect of which he is assessable under this Act during the previous year corresponding to the relevant assessment year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed; and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139:Provided that no notice under this section shall be issued unless there is information with the Assessing Officer which suggests that the income chargeable to tax has escaped assessment in the case of the assessee for the relevant assessment year and the Assessing Officer has obtained prior approval of the specified authority to issue such notice
On perusal of the above section, it can be seen that the thrust is on the words “income escaping assessment”
Section 148A of the Act
“148A. Conducting inquiry providing opportunity before issue of notice under section 148.- The Assessing Officer shall, before issuing any notice under section 148 –
- 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;
- provide an opportunity of being heard to the assessee, 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);
- consider the reply of assessee furnished, if any, in response to the show-cause notice referred to in clause (b);
- 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 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).
The law requires an order to be passed under section 148A(d) of the Act by
- conducting an enquiry in the manner provided under section 148A of the Act and
- satisfaction to be arrived at on the basis of material available on record that income chargeable to tax has escaped assessment for the relevant assessment year.
But what does ‘material available on record’ mean?
The expression ‘material available on record’, has been consciously used by the legislature to put a fetter on the exercise of power in the manner that an order under section 148A of the Act deciding to issue notice under section 148 of the Act can be based only on the basis of material available on record.
Therefore, the decision in the enquiry as contemplated under section 148A of the Act needs to be based on material available on record. The words ‘material available on record’, in its just, fair and logical interpretation would only mean a tangible material and cannot be interpreted to mean remote likelihood of availability of material, it being taxing statute, requiring strict construction.
In the case of Abdul Masjeed v Income Tax Officer [High Court Of Rajasthan] (447 ITR 698) dated 29.06.2022, it was held that –
“[Para 22] Notice is proposed to be issued under section 148 of the Act after three years have elapsed from the end of the relevant assessment year that there should exist material available on record to reach to conclusion that some income chargeable to tax has escaped assessment, but the amount should be more than Rs. 50,00,000/-. Only on the basis that the cash deposits of Rs. 19,39,000/-chargeable to tax have escaped assessment, without anything more, the authority was not justified in jumping to the conclusion that the assessee may have more bank accounts. If such an interpretation is placed on the provision of section 148A(d) of the Act with reference to expression ‘material available on record’, then in that case, it will open flood gate and even without availability of any material, the authority would be initiating proceedings under section 148 of the Act, which will completely frustrate the object of incorporation of section 148A in the Act. It is well settled principle of interpretation that the taxing statute is required to be construed strictly”
But when can the proceedings be reopened after three years?
So, if this exercise is under taken beyond a period of three years with reference to the concerned assessment year, the proceedings under section 148 of the Act could be initiated only when the total amount of the alleged income represented in the form of asset which is said to have escaped assessment is more than Rs.50 lakhs otherwise such exercise may not lead to proceedings under section 148A of the Act because of statutory impediment under section 149 sub-section 1 clause (b) of the Act.
It is relevant to refer to the provision contained in section 149(1)(b) of theAct, which is reproduced herein as below:—
Section 149(1)(b) of the Act
“149. Time Limit for notice.-(1) No notice under section 148 shall be issued for the relevant assessment year,-
- ** ** **
- 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 account or other documents or evidence which reveal that the income chargeable to tax, represented in the form of-
- an asset;
- expenditure in respect of a transaction or in relation to an event or occasion; or
- an entry or entries in the books of account, which has escaped assessment amounts to or is likely to amount to fifty lakh rupees or more.”
What is the difference between “income” and “income chargeable to tax”?
The provisions which deal with computation of business income make it abundantly clear that definition of expression ‘income‘ and ‘income chargeable to tax’ are at variance to each other.
The expression ‘income’ is inclusively defined under section 2(24) whereas ‘income chargeable to tax’ obviously denotes an amount which is less than ‘income’. The ‘income chargeable to tax’ is arrived at after deducting the permissible deductions under IT Act from ‘income’. As such quantum of ‘income’ is invariably more than the income chargeable to tax. Infact, even in common parlance, the words Sales or Turnover and income are totally different.
MR. A has sold a land for Rs. 55 lakhs in AY 2019-20, with an indexed cost of acquisition of Rs.45 lakhs, so the capital gain chargeable to tax arising out of such sale is Rs.10 lakhs. So, can the said case be re-opened after issuing notice u/s 148 after 31.3.2023 on basis of information for sale?
Answer- In our opinion, the answer is NO!! This is because the amount of income chargeable to tax is Rs.10 lakhs and not the entire sales consideration of Rs.55 lakhs, and if the assesse escapes such gains assessment than section 148A r.w.s 149(1)(b)will not be attracted as the section says that the income chargeable to tax which has escaped assessment should be equal to or more than Rs.50 lakhs , which in this case is Rs.10 lakhs and not Rs.55 lakhs . So such transaction by Mr.A falls outside the purview of the aforesaid sections.
In the case of Nitin Nema v. Principal Chief Commissioner of Income-tax[MP HC] ( 458 ITR 690 ) dated 16.08.2023 it was held that:
“…it may not be out of place to mention that had the revenue arrived at the correct figure of income chargeable to tax instead of the gross receipts/consideration, the possibility of the amount of Rs. 72.05 lakhs coming down to a figure below Rs. 50 lakhs cannot be ruled out. From the aforesaid discussion what comes out loud and clear is that the revenue has failed to understand the fundamental difference between sale consideration on one hand and income chargeable to tax on the other. The revenue despite being assisted by thousands of experts in the field of finance and taxation, has committed such elementary mistake leading to harassment to the assessee who has been compelled to file the present avoidable piece of litigation. More so, this Court has been compelled to decide this frivolous matter wasting its precious time and energy which could have been utilized in more pressing matters. Thus, the revenue deserves to be saddled with exemplary cost and correspondingly the petitioner is entitled to compensatory cost.”
Further in the case of Sanath Kumar Murali v. Income-tax Officer [KARNATAKA HC] (455 ITR 370) dated 24.05.2023 it was held that
“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 lakhs 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 lakhs 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 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.[ para 19]”
So, based on the detailed explanation of the above sections and case laws, it can be said that a sale transaction under co-ownership amounting to Rs. 90 lakhs would give rise to a sales consideration of Rs. 45 lakhs to each assesse and it is expected that the Assessing Officer ought to apply his mind on basis of preliminary enquiries and if it comes to his knowledge that the income chargeable to tax escaping assessment is less than 50 lakhs, the re-opening proceedings should be dropped. Even if the sale consideration comes to more than Rs. 50 lakhs as per assessee’s own share of co-ownership, and if the assessee is able to demonstrate in response to notice u/s 148A(b) that after deducting the indexed cost of acquisition or cost of improvement, the resulting capital gain is less than 50 lakhs and three years have lapsed from the end of the assessment year, the re-assessment proceedings is liable to be dropped.