Proceedings U/S 148A of Income Tax Act not valid if Escaped Income below Rs.50 Lakh and notice issued after 3 years

The Kerala High Court has ruled that proceedings initiated under Section 148A of the Income Tax Act are not valid if the escaped income is less than ₹50 lakhs and the notice is issued after three years from the end of the relevant assessment year.

Court’s Observation

Justice Ziyad Rahman A.A., while delivering the judgment, stated that if the notice is issued without jurisdiction and beyond the limitation period, the assessee should not be forced to go through the entire tax proceeding process. In such cases, the court can step in to provide relief without sending the matter back to the tax authorities.

Background of the Case

In this case, the petitioner (assessee) received a notice under Section 133(6) of the Income Tax Act regarding the 2016–2017 assessment year. The Income Tax Department claimed that the assessee had failed to file his return and asked for supporting documents.

The petitioner responded, explaining that the income he earned was from a contract with the panchayat for managing a public market and comfort station, which he had taken on auction. He said the total income generated from this activity was below the taxable limit, and therefore, he was not required to file returns for that year.

He also pointed out that he had already paid ₹26,47,575 to the panchayat as part of the contract agreement. The amount referred to in the notice was the total transaction value, not the actual income.

Section 148A Notice and Assessment Order

Later, the department issued a notice under Section 148A(b) of the Income Tax Act, which allows the department to reopen cases if income is suspected to have escaped assessment. The petitioner submitted a detailed objection, but the department still went ahead and passed an assessment order under Section 148.

The petitioner raised a key objection — that the proceedings were barred by the limitation period set under Section 149(1) of the Income Tax Act.

Court Agrees with Petitioner on Limitation Period

The High Court examined the limitation rules under Section 149(1). It held that the time limit to issue notices under Section 148 is:

• 3 years from the end of the relevant assessment year in normal cases
• Up to 10 years only if the escaped income is ₹50 lakhs or more

Since the alleged escaped income in this case was less than ₹50 lakhs, the 10-year period was not applicable. The court observed that the assessment year was 2016–17, so the last date to initiate proceedings was March 31, 2020. The notice was issued after that, and hence, it was time-barred.

Court Rejects Tax Department’s Argument

The department argued that the issue should be taken up before the assessing officer. However, the High Court disagreed, saying that when the entire process itself is beyond legal time limits, there is no point in continuing with the proceedings.

Final Judgment

The Kerala High Court held that both the Section 148A notice and the final Section 148 assessment order were issued beyond the legal time frame and were not valid under the Income Tax Act. As a result, the court allowed the petition and quashed the proceedings.

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