Pramila Mahadev Tadkase Vs ITO (Karnataka High Court)
Introduction: In a recent judgment, the Karnataka High Court addressed the validity of income tax reassessment notices issued beyond the statutory three-year period. The case involves Pramila Mahadev Tadkase and the Income Tax Officer (ITO), focusing on the reassessment for the Assessment Year 2016-17. The central issue revolves around the petitioner’s capital gain, with the reassessment initiated due to the absence of a return and unexplained income.
Detailed Analysis: The Income Tax Department issued notices under Section 148A(b) of the Income Tax Act on January 11, 2023, and February 24, 2023, for the Assessment Year 2016-17. The notices cited the sale of an immovable property during the financial year 2015-16 for Rs. 69,30,000, and since no return was filed, the income from capital gains was deemed unexplained and untaxed. The petitioner, a permanent resident of Canada, responded, providing details of the property transaction, including the deduction of Tax Deducted at Source (TDS) by the purchaser.
Despite the petitioner’s response, the second respondent issued an Adjudication Order on March 31, 2023, under Section 148A(d) of the IT Act, rejecting the explanation and opining that the entire TDS had been made in the petitioner’s name, requiring the corresponding income to be offered. The petitioner challenged this decision, arguing joint ownership of the property with her husband and the complete TDS being made in his name due to the lack of a PAN.
The court noted that as per Section 149 of the IT Act, a reassessment notice cannot be issued after three years unless the income amount likely to escape assessment is fifty lakh or more. The court also acknowledged that the entire sale consideration was received by the petitioner’s husband, and TDS was attributed to her PAN due to the husband’s lack of a PAN.
The court accepted the petitioner’s contention that, even if she received any part of the consideration, it could not exceed 50%, and thus, the income escaping tax would be below fifty lakh. The court provided a detailed computation, highlighting that the petitioner must succeed.
Conclusion: The Karnataka High Court’s judgment in the case of Pramila Mahadev Tadkase Vs ITO reinforces the principle that reassessment notices cannot be issued beyond three years unless the income likely to escape assessment is fifty lakh or more. The court quashed the notices and adjudication orders, emphasizing the petitioner’s joint ownership, the complete TDS in the husband’s name, and the computation of income escaping tax. This decision sets a precedent for cases where reassessment is challenged on procedural and substantive grounds, ensuring fair application of tax laws.
FULL TEXT OF THE JUDGMENT/ORDER OF KARNATAKA HIGH COURT
The petitioner has impugned the Notices dated 11.01.2023 and 24.02.2023 [Annexure-A1 and A2] issued under Section 148A(b) of the Income Tax Act, 1961 [for short, ‘the IT Act’] for the Assessment Year 2016-17 and the Orders dated 31.03.2023 [Annexure – A3 and A4] under Section 148A(d) of the IT Act for the Assessment Year 2016-17. The Notices under Section 148A(b) are issued for the following reasons:
Notices issued under Section 148A(b) of the Act dated 11.01.2023 [Annexure A1] |
Notices issued under Section 148A(b) of the Act dated 14.02.2 023 [Annexure – A2] |
As per the information available with red department in respect of your case that you have sold immovable property for Rs.69,30,000/- during the financial year 2015-16 relevant to the Assessment Year 2016-17.
Since, no return has been filed by you and income from capital gains on sale of immovable property stands unexplained/untaxed, which needs to be brought to tax by action under section 147 of the Act Therefore, it is proposed to reopen your case on the basis of information available with the Department. |
As per the information available with the department you have carried out the following transaction during the financial year 2015- 16 relevant assessment year 2016 72 however you have not filed the return of income for the year under consideration.
The Annexure refers to TDS statement on consideration on sale of immovable property [Section 1941A] |
These proceedings are essentially because of the sale transaction concluded by the petitioner with her husband under the sale deed dated 13.04.2015 for sale of an immovable property in Bangalore.
2. The petitioner is issued with notice under Section 148A(b) of the IT Act. The petitioner has filed reply to such notices contending that she is a permanent resident of Canada; that she and her husband have purchased an immovable property in Bengaluru way back in the year 1996 under the Sale Deed dated 08.04. 1996; that on 13.04.20 15, that she and her husband have transferred the subject property for a total consideration of Rs.69,30,000/-; that the Tax Deducted at Source [TDS] is deducted by the purchaser under the Sale Deed dated 13.04.20 15; that because her husband [Sri. Mahadev Shivshankar Tadkase] did not have his PAN, her PAN is furnished and the TDS corresponding to the total sale price is uploaded to her PAN.
3. The second respondent, notwithstanding this response, has issued the Adjudication Order dated 31.03.2023 under Section 148A[d] of the IT Act opining that the petitioner has sold the property for a total consideration of Rs.69,30,000/- and the explanation offered cannot be accepted in law. The second respondent has opined thus:
The reply furnished by the assessee has been verified. it is noticed that the assessee’s submission that the assessee has sold the immovable property of Rs.69,30,000/- during the year. The assessee in her submission stated about ignorance of law, which is not an excuse. Since the entire TDS has been made in the assessee’s name, hence corresponding income should have been offered by the assessee. Now the issue which arises is regarding the resulting capital gain on sale of said property which was not disclosed by the assessee by filing a ROI for the year under consideration. The assessee during the course of the proceedings under section 148 A(b) was accorded with sufficient opportunity to disclose the capital gain, if any, with supporting documents. However, despite the same the Assessee has not responded or furnished any explanation w r t the same and in the absence of the supporting documents viz. purchase deed, sale deed of property cost of construction /improvement etc., the resulting capital gain on sale of second property cannot be ascertained.
4. Sri. A. Shankar, the learned Senior counsel for the petitioner, canvasses the following.
[A] The petitioner and her husband have jointly purchased the subject immovable property under the Sale Deed dated 08.04.1996 [Annexure – J] and they, as equal co-owners of this property, have transferred the same under the sale deed dated 13.04.2015 [Annexure – K 1] for a total sale consideration of Rs.69,30,000/- setting forth the details of the receipt.
[B] The petitioner’s husband has received the entire sale consideration in his account.
[C] Even if it could be opined that the petitioner has received any part of the consideration, it cannot be more than 50% thereof; and in that event, the income that could be alleged to have escaped tax would be below 50,00,000/-, and therefore, the whole proceedings must fail.
5. As per the terms of Section 149 of the IT Act, notice under Section-148 of the IT Act cannot be issued, after three years have elapsed from the end of the relevant assessment year, unless income chargeable to tax which has escaped assessment is likely to amount to Rupees Fifty Lakh or more, and as such, Sri. E. I. Sanmathi, the learned standing counsel for the respondents, does not contest the third limb of the petitioner’s case as canvassed by Sri.A Shankar.
6. Further, Sri. E.I. Sanmathi, given the details of the payment of the sale consideration of Rs.69,30,000/- as set forth in the Sale Deed dated 13.04.2015, cannot dispute that the entire consideration is received by the petitioner’s husband and because he did not have PAN, the TDS could be uploaded to the petitioner’s PAN. It would be reasonable to opine that the petitioner could only have received 50% of the sale consideration [Income], and in that event, the relevant computation will be as under:
Particulars |
Amount in Rs. | Amount in Rs. |
Sale consideration | 69,30,000 | |
Less: Indexed Cost (2,89,710 x 1081/305) | 10,26,808 | (13,10,349) |
Less: Cost of Improvement
(80,000 x 1081/305) |
2,83,541 | |
Capital Gain (both Shares) | 56,19,651 | |
Capital Gains (50% share of the petitioner) | 28,09,825 |
In the light of the circumstances discussed, the petitioner must succeed, and the petition must be allowed quashing the impugned notices as well as the order. Hence, the following:
ORDER
The petition is allowed, and the impugned the Notices dated 11.01.2023 and 24.02.2023 issued under Section 148A(b) of the Act [AnnexureA1 and A2] and the Adjudication Orders dated 31.03.2023 [Annexure – A3 and A4] under Section 148A(d) of the IT Act for the Assessment Year 2016- 17 are quashed.