The Income Tax Appellate Tribunal (ITAT) in Mumbai has invalidated a significant tax demand of Rs 2.31 crore against a Dubai-based Non-Resident Indian (NRI) who had not filed an income tax return for the assessment year 2017-18. The tribunal's decision hinged on a critical procedural lapse in how the reassessment notice was approved by the tax authorities.
Background of the NRI Tax Demand
Vandana Vijay Kumar Chudamasa, who relocated to Dubai for work in 2014, came under the Income Tax Department's scrutiny after purchasing a property valued at approximately Rs 2.31 crore during the financial year 2017-18. Despite the department issuing a notice under Section 148 on April 2, 2022, Chudamasa did not file her return. This led the Assessing Officer to issue further notices and eventually complete an ex parte assessment, bringing the entire Rs 2.31 crore to tax as an unexplained investment under Section 69.
Initial Appeal and Delay Condonation
Chudamasa first appealed to the Commissioner of Income Tax (Appeals), asserting her NRI status and that the property was jointly purchased with her husband. However, this appeal was dismissed due to a lack of supporting evidence. She then escalated the matter to the Mumbai ITAT, though her appeal was filed 148 days after the deadline.
The ITAT, exercising its powers under Section 253(5), condoned the delay. It acknowledged that Chudamasa and her husband resided and worked in Dubai and that she had entrusted the tax proceedings to a professional adviser. The tribunal found her reliance on the adviser, coupled with her overseas residence, constituted sufficient cause for the delay.
The Crucial Procedural Flaw in Reassessment
The core of Chudamasa's successful challenge against the tax demand rested on a jurisdictional issue concerning the approval process for the Section 148 notice. Her counsel argued that because the relevant three-year period for reassessment had expired on March 31, 2022, the approval required for the notice dated April 2, 2022, should have come from a higher authority.
Specifically, under Section 151(ii) of the Income Tax Act, approvals for notices issued beyond the three-year period must be granted by the Principal Chief Commissioner or Principal Director General. In this instance, the notice had been approved by the Principal Commissioner of Income Tax, Bengaluru-3.
The ITAT concurred with Chudamasa’s contention, ruling that the approval had not been granted by the statutorily specified authority. Consequently, the tribunal declared the Section 148 notice invalid and quashed the entire reassessment proceedings, along with the resulting tax demand.
Implications for the Investment
It is important to note that the tribunal's decision did not delve into the merits of whether the property investment itself was unexplained. Chudamasa's counsel had provided details suggesting the payments were largely funded through a housing loan and contributions from her and her husband. However, with the reassessment proceedings deemed invalid on procedural grounds, the ITAT considered the investment's merits as an academic point.
This case highlights the stringent requirements for statutory approvals and procedural safeguards within income tax reassessment proceedings, emphasizing that any deviation can render the entire process invalid.