NRI bought Rs 2.31 crore property, skipped ITR; why ITAT struck down tax demand

A Dubai-based non-resident Indian (NRI) who did not file an income tax return for assessment year 2017-18 was able to get a tax demand linked to a Rs 2.31 crore property purchase quashed by the Income Tax Appellate Tribunal (ITAT), Mumbai. The tribunal found that the reassessment proceedings were invalid because the notice was not approved by the authority specified under the law, the Economic Times reported.

How the tax department raised the demand

Vandana Vijay Kumar Chudamasa had moved to Dubai in August 2014 for work, while her spouse shifted there in October that year. The Income Tax Department subsequently detected that she had purchased a property worth about Rs 2.31 crore during financial year 2017-18.

A notice under Section 148 was issued on April 2, 2022. Chudamasa did not file her return even after the notice, following which the Assessing Officer issued further notices in August and November 2023. With no response, the assessment was completed ex parte and the entire Rs 2.32 crore was brought to tax under Section 69 as unexplained investment.

Chudamasa approached the Commissioner of Income Tax (Appeals), arguing that she was a Dubai-based NRI and that the property had been purchased jointly with her husband. The appeal was dismissed for lack of supporting evidence.

Why ITAT condoned the 148-day delay

Chudamasa then approached the Mumbai ITAT, but her appeal was filed 148 days late. The tribunal nevertheless condoned the delay under Section 253(5), which permits an appeal to be admitted after the prescribed period where sufficient cause is established.

The tribunal noted that Chudamasa and her husband were residing and working in Dubai and that she had entrusted the tax proceedings to a professional adviser. Her counsel argued that the adviser had assured her that the proceedings were being handled.

The ITAT said the explanation was not based merely on her overseas residence, but also on her dependence on the professional adviser and the circumstances surrounding the proceedings. It also noted that the 148-day delay was not excessive.

The jurisdictional issue that changed the case

The key issue was the approval obtained before issuing the Section 148 notice. The notice dated April 2, 2022 had been approved by the Principal Commissioner of Income Tax, Bengaluru-3.

Chudamasa’s counsel argued that the relevant three-year period had expired on March 31, 2022. Consequently, the approval required under Section 151(ii) had to come from the Principal Chief Commissioner or Principal Director General, rather than the Principal Commissioner.

The ITAT accepted this contention and held that the approval had not been granted by the statutorily specified authority. It therefore declared the Section 148 notice invalid and quashed the reassessment proceedings and the resulting tax demand.

What happened to the Rs 2.31 crore investment?

The tribunal did not decide whether the property investment was actually unexplained. Chudamasa’s counsel had submitted that payments during the year totalled about Rs 1.85 crore, funded through a Rs 1.61 crore housing loan, her husband’s Rs 1 lakh contribution and her own Rs 23.31 lakh contribution.

Since the reassessment itself was held invalid, the tribunal treated the merits of the addition as academic. The case underscores the importance of statutory approvals and procedural safeguards in reassessment proceedings.