ACIT 41(1)(1), MUMBAI vs. MAHENDRA NIHALCHAND SURANA, MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL “E” BENCH MUMBAI BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI GIRISH AGRAWAL, ACCOUNTANT MEMBER ITA No. 3884/MUM/2026 Assessment Year: 2016-17 ACIT 41(1)(1), Mahendra Nihalchand Surana 304, Wing A Abrol Vastu Park, Mumbai Malad West Vs. Evershine Nagar Near Rayon International School, Mumbai - 400064 (PAN: AFAPS0184C) (Assessee) (Respondent) Present for: Assessee : Shri Himanshu Gandhi, CA Revenue : Smt. Sujatha Iyyanger, Sr. DR Date of Hearing : 01.07.2026 Date of Pronouncement : 07.07.2026 O R D E R PER GIRISH AGRAWAL, ACCOUNTANT MEMBER:

This appeal filed by the Revenue is against the order of ld. CIT(A), NFAC, Delhi, vide order no. ITBA/NFAC/S/250/2025-26/1085009101 (1), dated 21.01.2026, passed against the assessment order by Assessment Unit, u/s. 147 read with section 144 of the Income-tax Act, 1961 (hereinafter referred to as the “Act”), dated 25.05.2023, for Assessment Year 2016-17.

2 ITA No. 3884/Mum/2026 Mahendra Nihalchand Surana Assessment Year 2016-17 “1. Whether on the facts and in law, the Ld. CIT(A) erred in holding that the notice issued under section 148 dated 30.07.2022 was barred by limitation, without properly appreciating the applicability of the provisions of the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA) and the judgments of the Hon’ble Supreme Court in the cases of Union of India vs. Ashish Agarwal and Union of India vs. Rajeev Bansal? 2. Whether the Ld. CIT(A) erred in computing the limitation period by adopting an incorrect date of reply to notice issued under section 148A(b), thereby vitiating the conclusion regarding validity of reassessment proceedings? 3. Whether on the facts and in law, the Ld. CIT(A) was justified in quashing the reassessment proceedings without adjudicating the merits of the addition relating to alleged bogus long-term capital gains arising from penny stock transactions? 4. Whether the Ld. CIT(A) failed to appreciate that the extended limitation period under TOLA read with the legal fiction created by the judgment in Ashish Agarwal required exclusion of time till compliance of section 148A procedure, thereby validating the notice issued under section 148? 5. Whether on the facts and in law, the Ld. CIT(A) erred in deleting the addition made under section 68 on account of bogus long-term capital gains from penny stock transactions, without appreciating the findings of the Investigation Wing regarding organized tax evasion through price manipulation? 6. Whether the Ld. CIT(A) was justified in treating the transactions as genuine solely on the basis of documentary evidence such as demat statements and bank entries, ignoring the surrounding circumstances and doctrine of human probabilities laid down by the Hon'ble Supreme Court? 7. Whether the Ld. CIT(A) failed to appreciate that in cases of accommodation entries through penny stocks, apparent documentation cannot override the substance of the transaction and the findings of the Investigation Wing?”

3 ITA No. 3884/Mum/2026 Mahendra Nihalchand Surana Assessment Year 2016-17 web of transactions was carried out to book bogus LTCG/STCL entries to the beneficiaries. Accordingly, notice u/s. 148 was issued on 30.07.2022 for initiating the reopening proceedings. 3.1. Assessee has moved an application under Rule 27 of the Income- Tax (Appellate Tribunal) Rules, 1963 (the ITAT Rules) to contest on the ground that the impugned reassessment proceedings are beyond survival period and time barred in nature. According to the ld. Counsel, Rule 27 allows the assessee to support the order of ld. CIT(A) in an appeal filed by the Department. Also, according to the ld. Counsel for the assessee, requirements of section 151 of obtaining prior approval from the specified authority for passing order u/s 148A(d) and issuing notice u/s 148 has not been met. He referred to order passed u/s. 148A(d) dated 30.07.2022 wherein at para-8, it is stated that necessary approval for passing the said order and issuance of notice u/s. 148 was taken from ld. PCIT-17, Mumbai vide order sheet entry dated 29.07.2022. He also referred to notice u/s. 148, dated 30.07.2022 wherein also in para-3, it is mentioned that the said notice has been issued after obtaining prior approval of Pr.CIT accorded on 29.07.2022. Both the documents are placed in the paper book at page 10 and 11. Thus, there is no dispute on the factual position as noted above in respect of approval being obtained from Pr.CIT-17, Mumbai for the purpose of issuing notice u/s. 148. 4. We have heard both the parties and perused the judicial precedents relied upon for which relevant judicial orders are placed on record. We find that the issue in the present case is no longer res integra and is squarely covered by the decision of Hon’ble jurisdictional High Court of Bombay in the case of Pradeep Himatlal Shah vs. ITO [2025] 170 taxmann.com 471 (Bom). The relevant portion from this decision is extracted below:

4 ITA No. 3884/Mum/2026 Mahendra Nihalchand Surana Assessment Year 2016-17 “Where order under section 148A(d) and notice under section 148 were issued beyond a period of three years, sanction to pass order and issuance of notice was required to be accorded by Principal Chief Commissioner as provided under section 151(ii); sanction granted by Principal Commissioner was not proper and thus, reopening notice was invalid”

5 ITA No. 3884/Mum/2026 Mahendra Nihalchand Surana Assessment Year 2016-17 flagged on the portal in accordance with risk management strategy and that the Petitioner had sold property valued at Rs.2,29,23,500/-without filing any return of income. The Petitioner contends that the said notice was never served either physically or electronically. (c) Thereafter, an order dated 06 April 2022 came to be passed under Section 148A(d) of the IT Act and a notice dated 07 April 2022 came to be issued under Section 148 of the IT Act. The Petitioner contends that these were also never served. According to the Petitioner, the said notice and order themselves record that approval had been obtained from the Principal Commissioner of Income Tax.”

6.1. The finding given by the Hon'ble Court contained in para-13, 14 and 15 are as under: “13. The foundational facts are not in dispute. The present case pertains to Assessment Year 2018-19. The impugned order under Section 148A(d) is dated 06 April 2022 and the impugned notice under Section 148 is dated 07 April 2022. Both these actions are, therefore, beyond a period of three years from the end of the relevant Assessment Year. 14. Once this position is accepted, the consequence in law is clear. As Section 151 stood at the relevant time, where more than three years had elapsed from the end of the relevant assessment year, the specified authority was the authority contemplated by Section 151(ii), and not the authority mentioned in Section 151(i). Three years are to be counted from the end of the relevant assessment vear. In the present case, the impugned or and notice themselves indicate that the approval was granted by the Principal Commissioner of Income Tax. This fact is also admitted in the Reply Affidavit He was not the competent authority in law for a case falling beyond the three-year period from the end of the relevant assessment year. 15. The issue is directly covered by the decision of this Court in Vodafone Idea Limited(supra). In that case also, for Assessment Year 2018-19, the notice under Section 148 and the order under Section 148A(d) had been issued beyond three years and the sanction had been accorded by the Principal Commissioner. Incidentally, the notice in the said case was also dated 07 April 2022. This Court held that the sanctioning authority had to be the Principal Chief Commissioner as provided under Section 151(ii) and that the proviso to Section 151, inserted only with effect from 01 April 2023, would not apply. Consequently, the notice and order were quashed. Relevant paragraphs of the said judgment are as under: "3. The impugned order and the impugned notice both dated 7th April 2022 state that the Authority that has accorded the sanction is the PCIT, Mumbai 5. The matter pertains to Assessment Year ("AY") 2018-19 and since the impugned order as well as the notice are issued on 7th April 2022, both have been issued beyond a period of three years. Therefore, the sanctioning authority has to be the PCCIT as provided under Section 151 (ii) of the Act. The proviso to Section 151 has been inserted only with effect from 1st April 2023 and, therefore, shall not be applicable to the matter at hand. 4. In this circumstances, as held by this Court in Siemens Financial Services Private Limited v. Deputy Commissioner of Income Tax & Ors., the sanction is

6 ITA No. 3884/Mum/2026 Mahendra Nihalchand Surana Assessment Year 2016-17 invalid and consequently, the impugned order and impugned notice both dated 7th April 2022 under section 148A(d) and 148 of the Act are hereby quashed and set aside.'

6.2. The conclusion drawn by the Hon'ble Court in para-25 is as under: “Where notice under section 148 was issued beyond three years from end of relevant assessment year and approval was granted by Principal Commissioner instead of specified authority under section 151(ii), such notice and consequent order were invalid”

7.1. Keeping in juxtaposition the undisputed and the uncontroverted facts and the judicial precedent as stated above, we hold that sanction by specified authority has not been obtained by the ld. Assessing Officer in accordance with the provisions contained in section 151 of the Act under the new regime, since notice u/s.148 has been issued beyond three years from the end of the relevant Assessment Year. Accordingly,

7 ITA No. 3884/Mum/2026 Mahendra Nihalchand Surana Assessment Year 2016-17 the said notice issued is invalid and thus quashed. Resultantly, the impugned re-opening proceedings so initiated and the impugned re- assessment order passed thereafter are also quashed. Accordingly, ground raised by the Revenue in this regard is dismissed.

7.2. Since the impugned reassessment order has been quashed in terms of above finding, all the other grounds are rendered academic in nature and therefore, needs no separate adjudication.

Order is pronounced in the open court on 07 July, 2026

Sd/- Sd/- (Amit Shukla) (Girish Agrawal) Judicial Member (Accountant Member) Dated: 07 July, 2026 MP, Sr.P.S. Copy to : 1 The assessee 2 The Respondent 3 DR, ITAT, Mumbai 4 Guard File 5 CIT BY ORDER,

(Dy./Asstt.Registrar) ITAT, Mumbai