Summary of this article
NRI bought a Rs 2.3 crore property without ITR.
ITAT quashed the tax notice due to jurisdictional error.
Buyers must declare real estate purchases in tax returns.
Purchasing property is a financial milestone for individuals in India. However, property buyers should also understand that real estate transactions have tax-related ramifications and need to be reported to the authorities to comply with the tax norms. Not filing them in income tax returns (ITRs) or misreporting such transactions can lead to extended legal proceedings.
In one such case, an individual who purchased a residential property valued at over Rs 2.30 crore, skipped filing her tax return. The matter went to court and led to extensive legal proceedings for her.
What Led To The Income Tax Probe
During the financial year FY 2017-18, Vandana Vijay Kumar Chudamasa, purchased a property for Rs 2,31,20,000. However, she did not file her tax return for the assessment year (AY) 2018-19.
This in turn, led to the Income Tax Department flagging the real estate investment. The Income Tax department noted that no corresponding tax return had been filed to declare or explain the real estate purchase. Acting on this information, the assessing officer (AO) initiated inquiry proceedings by issuing a notice under Section 148A(b) of the Income-tax Act, 1961 on March 22, 2022.
The Principal Commissioner of Income Tax, Bengaluru-3, granted approval for the proceedings on April 1, 2022, after which the tax officer passed an order under Section 148A(d) of the Income-tax Act, 1961 and issued a reassessment notice.
Even after receiving the notice, the taxpayer did not file a return of income. The AO then issued more notices in August and November 2023, and ultimately issued a final show-cause notice on December 22, 2023. The AO proposed to treat the entire purchase consideration of Rs 2,31,20,000 as unexplained investment under Section 69 of the Income-tax Act, 1961.
Following this development, Chudamasa appealed before the Commissioner of Income-tax (Appeals) (CITA). In her appeal, she explained that she had relocated to Dubai in 2014 and was a non-resident. She added that the property had been bought jointly with her spouse using a housing loan, foreign remittances, and family contributions. However, despite the explanation her appeal was dismissed on September 11, 2025, citing a lack of adequate documentary evidence.
What ITAT Said In The Matter
The taxpayer challenged the dismissal before the Mumbai Bench of the Income Tax Appellate Tribunal (ITAT). Although the appeal was delayed by 148 days, the tribunal condoned the delay after accepting her affidavit explaining that she resided in Dubai, remained dependent on a previous chartered accountant who failed to make proper compliances or advise her on further legal remedies, and had discovered the lapse when connected proceedings arose against her husband.
The Chudamasa’s representative stated before the ITAT that AY 2018-19 had ended on March 31, 2019, which would mean that the statutory three-year window for the tax-demand expired on March 31, 2022.
Under Section 151 of the Income-tax Act, 1961, if more than three years have elapsed from the end of the relevant assessment year, reopening approval for such a tax demand has to be granted by higher authorities, such as the Principal Chief Commissioner or Chief Commissioner, rather than the Principal Commissioner.
Highlighting that statutory sanctions are essential legal protections against arbitrary state action, the tribunal pointed out that obtaining approval from the correct authority is mandatory.
“Section 151 is not an empty formality. It is a statutory safeguard and check against arbitrary reopening. Non-compliance with that requirement strikes at jurisdiction itself,” ITAT Mumbai said.
Addressing whether obtaining sanction from the wrong officer could be excused as an inadvertent oversight, the tribunal clarified that the mistake dismantled the legal foundation of the case.
"The defect goes to the root of the assumption of jurisdiction and is not a mere procedural irregularity," the tribunal stated.
The tribunal also rejected the tax department's argument that having concrete data about an unexplained property transaction compensated for procedural shortcuts.
“Information regarding escapement cannot cure approval granted by an authority not empowered by section 151 (ii),” the ITAT said.
Consequently, the tribunal held that the notice issued on April 2, 2022, was invalid, and quashed both the reassessment notice and the resulting assessment order, effectively setting aside the Rs 2.31 crore addition.
What This Means For Property Buyers
This ruling shows that the Income Tax Department has to abide by statutory timelines and procedures. Thus when tax authorities initiate reassessment proceedings beyond statutory deadlines without obtaining sanction, the entire proceeding can be deemed void in court.
However, this ruling does not mean that property buyers are exempt from tax obligations or are free to skip filing their ITRs. The addition was struck down on a jurisdictional error and not because the taxpayer was not at fault. Thus, to avoid legal proceedings, property buyers should always file their ITRs and declare their property purchases even if they qualify as non-residents or have no taxable income in India.
