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Facts
The assessee filed its return for AY 2016-17 on 09.11.2017, which attained finality. Reassessment proceedings were initiated by issuing a notice under section 148 on 09.07.2022, which was beyond three years from the end of the assessment year. The approval for this notice was granted by the Principal Commissioner of Income Tax.
Held
The Tribunal held that the notice under section 148, issued beyond three years, required approval from a higher specified authority as per section 151(ii) of the Act. Since the approval was granted by the Principal Commissioner, the same was legally unsustainable, rendering the notice void ab initio and the subsequent reassessment proceedings invalid.
Key Issues
Whether the notice under section 148, issued beyond the three-year period, is valid if the approval is granted by the Principal Commissioner of Income Tax instead of the higher specified authority under section 151(ii).
Sections Cited
147, 144, 10(38), 148, 68, 151, 151(ii)
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Income Tax Appellate Tribunal, ‘SMC’
आदेश / O R D E R PER AMIT SHUKLA (J.M):
This appeal has been preferred by the assessee against the order dated 26.08.2025 passed by the National Faceless Appeal Centre, Delhi, arising out of reassessment proceedings framed under section 147 read with section 144 of the Income-tax Act, 1961, for the assessment year 2016-17.
The assessee has assailed the impugned order on multiple grounds, prominently challenging the very jurisdictional validity of the reassessment proceedings, contending that the notice issued under section 148 of the Act is vitiated in law for want of proper sanction, inasmuch as the approval has been accorded by the Principal Commissioner of Income Tax, whereas the statute mandates approval by the higher specified authority, since the notice has been issued beyond the period of three years from the end of the relevant assessment year.
The facts germane to the adjudication of the legal issue are not in dispute. The assessee had filed its return of income for the assessment year 2016-17 on 09.11.2017, declaring a total taxable income of ₹2,42,100/- after claiming exemption in respect of long-term capital gains amounting to ₹23,52,914/- under section 10(38) of the Act. The return so filed was processed and attained finality. Subsequently, the assessment was sought to be reopened by issuance of notice under section 148 dated 09.07.2022. It is an admitted position on record that the said notice was issued after the expiry of three years from the end of the relevant assessment year.
In the reassessment proceedings, owing to alleged non- compliance, the Assessing Officer completed the assessment by making an addition of ₹24,32,220/- under section 68 of the Act, treating the long-term capital gains arising from sale of shares of Toyam Industries Ltd. as bogus and characterising the same as a penny stock transaction. In appeal, the learned Commissioner (Appeals) set aside the assessment and restored the matter to the file of the Assessing Officer for passing a fresh assessment order on merits; however, significantly, the foundational legal challenge to the validity of the reassessment itself was not adjudicated.
We have carefully considered the rival submissions and perused the material placed on record. At the outset, it is evident that the notice under section 148 has been issued on 09.07.2022 for assessment year 2016-17, clearly beyond the period of three years from the end of the relevant assessment year. The record further reveals that the approval contemplated under section 151 of the Act was accorded by the Principal Commissioner of Income Tax-17, Mumbai, vide order-sheet noting dated 26.05.2022, with approval stated to have been granted on 06.07.2022.
The statutory scheme post substitution of sections 147 to 151 by the Finance Act, 2021, read with the saving and transitional provisions, has now been authoritatively explained by the Hon’ble Supreme Court in Union of India v. Rajeev Bansal [(2024) 167 taxmann.com 70 (SC)]. The Hon’ble Supreme Court has clarified that in cases where the original limitation of three years expired between 23.03.2021 and 31.03.2021, the benefit of the extended limitation would be available only up to 30.06.2021, and thereafter, any notice issued would necessarily attract the rigours of section 151(ii), requiring sanction from the higher specified authority.
Section 151(ii) of the Act unambiguously provides that where more than three years have elapsed from the end of the relevant assessment year, the specified authority competent to grant approval is the Principal Chief Commissioner of Income Tax or Chief Commissioner of Income Tax or Principal Director General or Director General, as the case may be. The statute does not vest such power in the Principal Commissioner of Income Tax. The requirement of approval by the higher authority is not a mere procedural formality but a substantive jurisdictional safeguard, intended to prevent arbitrary or mechanical reopening of concluded assessments.
This legal position has been consistently reaffirmed by various High Courts, including the jurisdictional High Court. The Hon’ble Bombay High Court, in Pradeep Himatlal Shah v. ITO [(2024) 170 taxmann.com 471 (Bom.)] and Ramesh Bachulal Mehta v. ITO [(2024) 177 taxmann.com 606 (Bom.)], has categorically held that where notice under section 148 is issued beyond the period of three years, sanction by the Principal Commissioner of Income Tax is invalid, and such notice is liable to be quashed for want of jurisdiction. Similar views have been echoed by the Hon’ble Gujarat High Court in Dhanraj Govindram Kella v. ITO [(2024) 177 taxmann.com 194 (Guj.)].
In Ramesh Bachulal Mehta v. ITO (supra), which also pertained to assessment year 2016-17, the Hon’ble Bombay High Court, after examining the statutory framework and the judgment of the Hon’ble Supreme Court in Rajeev Bansal (supra), held in unequivocal terms that once the notice under section 148 is issued after expiry of three years from the end of the relevant assessment year, approval under section 151(ii) must necessarily be obtained from the higher specified authority, and any sanction accorded by the Principal Commissioner of Income Tax is legally unsustainable, rendering the notice itself void ab initio.
Applying the aforesaid settled legal principles to the facts of the present case, it is evident that the impugned notice under section 148, having been issued on 09.07.2022 for assessment year 2016-17, required prior approval from the higher specified authority under section 151(ii) of the Act. Since the approval has admittedly been granted by the Principal Commissioner of Income Tax, the very assumption of jurisdiction by the Assessing Officer stands vitiated. Once the jurisdictional foundation collapses, the consequential proceedings and the assessment framed pursuant thereto cannot survive.
In view of the foregoing discussion, we hold that the notice issued under section 148 of the Act is invalid in law and liable to be quashed. Consequently, the reassessment proceedings and the assessment order framed thereunder are annulled.
In the result, the appeal of the assessee is allowed on legal grounds.
Order pronounced on 30th December, 2025.