A Dubai-based Non-Resident Indian (NRI) has succeeded in challenging a tax demand related to a Rs 2.31 crore property purchase after the Income Tax Appellate Tribunal (ITAT), Mumbai, found a jurisdictional defect in the reassessment proceedings.
The case involved Vandana Vijay Kumar Chudamasa, who had not filed an income tax return for Assessment Year 2018-19. The Income Tax Department had detected a property transaction worth Rs 2.31 crore during financial year 2017-18 and subsequently initiated reassessment proceedings.
The Mumbai ITAT ultimately held that the approval obtained for the reassessment notice had come from an authority that was not the one specified under the applicable provision of Section 151. The tribunal therefore declared the notice invalid and quashed the consequential assessment proceedings.
How the Rs 2.31 Crore Tax Demand Arose
Chudamasa had moved to Dubai in August 2014 for employment, while her spouse shifted there in October 2014. Information available with the Income Tax Department showed that she had entered into a transaction for the purchase of an immovable property for Rs 2,31,20,000 during FY 2017-18.
A notice under Section 148A(b) was issued on March 22, 2022. An order under Section 148A(d) followed on April 2, 2022, along with a notice under Section 148.
Chudamasa did not file a return in response to the notice. The Assessing Officer subsequently issued notices under Section 142(1) in August and November 2023, followed by a show-cause notice proposing to treat the entire Rs 2,31,20,000 as unexplained investment under Section 69.
With no response from the assessee, the assessment was completed ex parte. The entire amount was consequently brought to tax.
Chudamasa later approached the Commissioner of Income Tax (Appeals), arguing that she was a non-resident living and working in Dubai and that the property had been purchased jointly with her spouse. The CIT(A), however, dismissed the appeal after finding that sufficient supporting evidence had not been produced.
Why ITAT Accepted the 148-Day Delay
Chudamasa then approached the Mumbai ITAT, but her appeal was filed 148 days beyond the prescribed period.
The tribunal considered her request for condonation of the delay under Section 253(5). Her counsel explained that Chudamasa and her husband were living in Dubai and had relied on a professional adviser to handle the tax proceedings. According to the explanation placed before the tribunal, the adviser had continued to assure her that the matter was being dealt with.
The tribunal considered the circumstances collectively, including her residence outside India, her dependence on the professional adviser and the adviser’s involvement in the earlier appellate proceedings. It also noted that the 148-day delay was not, by itself, excessive.
The ITAT consequently condoned the delay and admitted the appeal for consideration.
Approval Under Section 151 Became the Key Issue
The central issue concerned the authority that approved the reassessment proceedings.
The Section 148A(d) order and Section 148 notice were issued on April 2, 2022. The approval had been granted by the Principal Commissioner of Income-tax, Bengaluru-3, on April 1, 2022.
Chudamasa’s counsel argued that the three-year period from the end of Assessment Year 2018-19 had expired on March 31, 2022. Therefore, when the reassessment jurisdiction was assumed on April 2, 2022, the approval had to come from the authority specified under Section 151(ii)—the Principal Chief Commissioner or Principal Director General, as applicable.
The ITAT accepted this argument. It held that the Principal Commissioner who granted the approval was not the specified authority under Section 151(ii) for the circumstances of the case.
The tribunal concluded that the defect went to the root of the reassessment proceedings rather than being a mere procedural irregularity. It therefore held the Section 148 notice invalid and quashed the assessment order as well as the consequential appellate order.
What Happened to the Rs 2.31 Crore Property Investment?
The ITAT did not decide the underlying question of whether the property investment was unexplained because the reassessment proceedings themselves had already been declared invalid.
During the appeal, Chudamasa’s counsel argued that the Assessing Officer had treated the full agreed property consideration of Rs 2,31,20,000 as an investment made during FY 2017-18. According to the submission, the actual payments made during the year totalled Rs 1,85,14,527.
The amount was stated to comprise Rs 1,73,28,527 paid to the builder and Rs 11,86,000 towards registration charges and legal expenses. The counsel further submitted that the investment was funded through a housing loan of Rs 1,60,83,807, a Rs 1 lakh contribution from the assessee’s spouse and Rs 23,30,720 contributed by the assessee herself.
However, since the tribunal had already quashed the reassessment on jurisdictional grounds, it did not examine the admissibility or evidentiary value of those financial documents or decide the merits of the Section 69 addition.
Disclaimer
This article is for general informational purposes and should not be treated as legal, tax or financial advice. Tax proceedings depend on the specific facts and applicable law in each case. Readers should consult a qualified tax professional or legal adviser for advice concerning their individual circumstances.