Loading judgment…
Facts
The assessee filed returns for AYs 2016-17 and 2017-18. The Assessing Officer (AO) initiated reassessment proceedings based on information about "non-genuine profit/losses on illiquid derivatives" and fictitious losses from options trading, leading to disallowance of F&O losses. The CIT(A) upheld the AO's action.
Held
The Tribunal held that the notices issued under Section 148 were invalid because the approval for their issuance was obtained from the Pr. CIT instead of the Pr. CCIT/DGIT, as required under Section 151 when more than three years have elapsed from the end of the assessment year. Consequently, the assessment orders are liable to be quashed.
Key Issues
Validity of reassessment proceedings initiated under Section 148 and the subsequent assessment order under Section 147 due to improper sanction/approval as per Section 151 of the Income Tax Act.
Sections Cited
148, 147, 148A, 68, 151
AI-generated summary — verify with the full judgment below
Before: SHRI SAKTIJIT DEY, VICE- & SHRI BIJAYANANDA PRUSETH
आदेश / O R D E R PER BIJAYANANDA PRUSETH, AM: These two appeals emanate from the separate orders dated 14.11.2025 and 26.11.2025 passed by the learned Commissioner of Income- tax (Appeals), National Faceless Appeal Centre, Delhi [in short ‘CIT(A)’], for the Assessment Years (AYs) 2016-17 and 2017-18 respectively. Since facts of the cases and the grounds taken up in the appeals are similar except variation in the amount, these appeals were heard together and a common order is passed for the sake of convenience and brevity.
is taken as the ‘lead case’.
Grounds of appeal raised by the assessee in are as under:
& 210/MUM/2025/AYs.2016-17 & 2017-18 Precel Solutions Pvt. Ltd. “1. The Learned CIT(A)- 54, Mumbai erred in confirming the Act of the Learned AO of issuing notice under section 148 of the Income-Tax Act, 1961 (‘Act’) without appreciating the facts of the case in right perspective.
2. The Learned CIT(A)-54, Mumbai has erred in confirming the action taken by the action taken by the Learned AO of disallowing F&O loss of Rs.70,70,522/- by treating it as accommodation entry of bogus loss through options trade without appreciating the facts of the case in the right perspective.”
Grounds of appeal
raised by the assessee in are as under:
1. The Learned CIT (A) 54, Mumbai erred in confirming the Act of the Learned AO of issuing notice under section 148 of the Income-tax Act, 1961 ('Act') without appreciating the facts of the case in right perspective.
2. The Learned CIT (A) -54, Mumbai has erred in confirming the action taken by the Learned AO of disallowing Advance towards sale of stock amounting to Rs. 73,00,000/- under section 68 of the Act by treating it as entered into accommodation entry without appreciating the facts of the case in the right perspective.”
The facts of the case in brief are that assessee filed its return of income for AY.2016-17 on 29.03.2017, declaring income of Rs.4,35,666/-. As per the information received from Investigation Wing, Mumbai under the “Project Falcon”, there was co-ordinated and premeditated trading in illiquid stock options. Huge losses were being generated by various clients by letting the options expire instead of acting upon the options. It was found by the Assessing Officer (in short, ‘AO’) that the assessee had indulged in “non-genuine profit/losses on illiquid derivatives” and generating fictitious losses of Rs.21,24,600/-. After recording reasons and obtaining approval from the Competent Authority, i.e., Addl. CIT, Range - 8(2), Mumbai, notice u/s 148 of the Act was issued on 21.06.2021. Pursuant & 210/MUM/2025/AYs.2016-17 & 2017-18 Precel Solutions Pvt. Ltd. to the directions of Hon’ble Supreme Court in the case of UOI vs. Ashish Agarwal, Civil Appeal No.3005/2022, the AO issued letter/deemed notice u/s 148A(b) of the Act on 28.05.2022. The assessee filed reply to the above notice on 11.06.2022. The order u/s 148A(d) of the Act was passed by the AO on 28.07.2022. The notice u/s 148 of the Act as per the new law was passed on 29.07.2022. The above order and notice were passed after obtaining approval of the Pr. CIT (Central) – 3, Mumbai. Subsequently, after hearing the assessee, order u/s 147 was passed by the AO u/s 147 of the Act by disallowing loss on F&O of Rs.70,70,522/-. The total income was determined at Rs.75,06,188/- against the returned income of Rs.4,35,666/-.
Aggrieved by the order of AO, the assessee filed appeal before CIT(A). The appellant had raised grounds regarding validity of notice issued u/s 148 of the Act dated 29.07.25022 as well as merit of disallowance of Rs.70,70,552/- on F&O losses. The CIT(A) has dismissed the challenge to the re-opening of assessment by observing that the AO has formed a prima facie belief that income escaped assessment. He has relied on various decisions which are at para 5.3.2 of the appellate order. He has also dismissed the contention of the assessee that AO did not provide information at the time of issue of notice u/s 148A(b) of the Act, and hence, notice u/s 148A(b) of the Act, and hence, order u/s 148A(d) was illegal and bad in law. He has dismissed the appeal by stating that the AO has issued and passed the order after taking approval of the PCIT-3 (Central), Mumbai.
& 210/MUM/2025/AYs.2016-17 & 2017-18 Precel Solutions Pvt. Ltd. The CIT(A) has also dismissed the ground on merits of the disallowance. In result, the appeal of the assessee was dismissed.
Aggrieved by the order of CIT(A), the assessee has filed appeal before the Tribunal. The learned Authorized Representative (ld. AR) of the assessee, at the outset raised preliminary objection regarding validity of the notice issued u/s 148 of the Act. He submitted that original notices u/s 148 of the Act were issued for both years on 20.06.2021 as per the old regime [deemed to be notice u/s 148A(b) of the Act as per decision in Ashish Agarwal (supra)]. The said notices u/s 148A(b) of the Act were issued on 28.05.2022 and relevant material and information were provided to the assessee. The assessee filed reply to the above notices on 11.06.2022. Thereafter, order u/s 148A(b) of the Act was passed on 28.07.2022 and 30.07.2022 for AYs.2016-17 and 2017-18 by obtaining sanction from the Pr.CIT (Central) – 3, Mumbai on 29.07.2022 and 30.07.2022 respectively. The ld. AR submitted that the “Specified authority” to sanction the issue of notice is Pr. CIT, if three years or less than three years have elapsed from the end of the relevant assessment years. If more than three years have elapsed from the end of relevant assessment year, the specified authority is the Pr. CCIT of Income-tax or the Chief Commissioner or the Director General of Income-tax, if no PCCIT or Pr. DGIT is available. In appellant’s case, three years for AY.2016-17 elapsed as on 31.03.2022; but, the notice was issued on 29.07.2022. Similarly for AY.2017-18, the period of three years elapsed as on 31.03.2022; but, the notice was issued beyond three 4 & 210/MUM/2025/AYs.2016-17 & 2017-18 Precel Solutions Pvt. Ltd. years on 30.07.2022. Hence, the approval should have been obtained from the Pr. CCIT and not the Pr. CIT (Central)-3, Mumbai. Therefore, notices u/s 148 of the Act issued after three years for both AY.2016-17 and 2017-18 were invalid. As a result, the orders passed u/s 147 are also invalid and are liable to be set aside. The ld. AR on the decision of the ITAT, Mumbai in case of ACIT vs. Manish Financial, in & 5050/Mum/2024, dated 02.12.2024 and Ashok Amratlal Shah vs. ITO, in ITA No.4286 to 4288/Mum/2024, dated 31.12.2024 and submitted that under similar facts, the ITAT has allowed the appeal of the assessee for AY.2016-17.
On the other hand, the learned Senior Departmental Representative (ld. Sr. DR) for the revenue supported the order of lower authorities. He submitted that the AO had given adequate opportunities to the assessee before passing the order u/s 147 of the Act which is clear from the assessment order dated 24.03.2023. He also submitted that the CIT(A) has dealt with this issue at para 5 to 5.3.3 of the appellate order and dismissed the ground on validity of re-opening.
We have heard both the parties and perused the materials available on record. We have also deliberated upon the decisions relied upon by both parties. There is no dispute regarding the various dates on which the notices were issued by the AO. The same has already been narrated above. To recapitulate, it may be stated that original notice u/s 148 of the Act was issued on 21.06.2021, which was sanctioned by Addl. CIT - 8(2), Mumbai. However, the subsequent order u/s 148A(d) and notice u/s 148 of the Act 5 & 210/MUM/2025/AYs.2016-17 & 2017-18 Precel Solutions Pvt. Ltd. were passed and issued on 28.07.2022 and 29.07.2022 respectively. There is no dispute that the notices u/s 148 of the Act for AY.2016-17 and 2017-18 were sanctioned by Pr.CIT (Central)–3, Mumbai on 28.07.2022 and 29.07.2022 respectively vide reference No. PCIT(C)-3/Order u/s 148A(d)/2022-23). This is evident from page 46 of the paper book filed by the assessee for AY.2016-17 and page 22 of the paper book for AY.2017-18. It is clear that the period of three years from the end of the assessment year 2016-17 expired on 31.03.2020 and the same for AY.2017-18 expired on 31.03.2021. However, the notices were issued on 29.07.2022 and 30.07.2022 for AY.2016-17 and 2017-18 respectively. As per the clear and unambiguous provisions of section 151 of the Act, Pr. CCIT/Pr. DGIT or CCIT/DGIT should have sanctioned the issue of notice in these cases and not the Pr. CIT(Central)-3, Mumbai. Therefore, we find that the notices have been issued without obtaining prior approval from the appropriate sanctioning authority. Hence, they are not valid in the eyes of law. The decision of Manish Financial (supra) is directly on the issue. Under similar facts, the ITAT held that the assessment is liable to be quashed after discussing in detail the decisions of the Hon’ble Supreme Court in cases of UOI vs. Rajeev Bansal, Civil Appeal No.8629 of 2024 and Ashish Agarwal (supra) and the relevant provisions of the Act. The relevant part of the decision is reproduced below for ready reference and clarity: “14. We heard the parties and perused the material on record. In assessee's case for AY 2016-17 pursuant to the directions of the Hon'ble Supreme Court in the case of Ashish Agrawal, the AO passed an order under section & 210/MUM/2025/AYs.2016-17 & 2017-18 Precel Solutions Pvt. Ltd. 148(d) of the Act and issued a notice under section 148 on 30.07.2022. From the above observations of the Hon'ble Supreme Court it is clear that the though the prior approval under section 148A(b) and 148(d) were waived in terms of the decision of Ashish Agarwal (supra), for issue of notice under section 148A(a) and under section 148 on or after 1 April 2021, the prior approval should be obtained from the appropriate authorities specified under Section 151 of the new regime. The provisions of section 151 of the Act under the new regime read as under: Sanction for issue of notice.
Specified authority for the purposes of section 148 and section 148A shall be,— (i) Principal Commissioner or Principal Director or Commissioner or Director, if three years or less than three years have elapsed from the end of the relevant assessment year; (ii) Principal Chief Commissioner or Principal Director General or where there is no Principal Chief Commissioner or Principal Director General, Chief Commissioner or Director General, if more than three years have elapsed from the end of the relevant assessment year.
In assessee's case from the perusal of para 3 of the notice issued under section 148 for AY 2016-17 we notice that the same is issued with the prior approval of Pr.CIT-19 Mumbai accorded on 29.07.2022 vide reference No.Pr.Cit-19/148/2022-23 and this fact is not contravened by the ld DR. For AY 2016-17, the period of three years have elapsed as of 31.03.2020 and the notice is issued beyond three years on 30.07.2022. Therefore as per the decision of the Hon'ble Supreme Court, the approval should have been obtained under the amended provisions of section 151(ii) of the Act i.e. the approval should have been obtained from the Principal Chief Commissioner whereas the approval has been obtained from Pr.CIT as stated in the notice under section 148 itself. Therefore we see merit in the contention of the assessee that the notice under section 148 for AY 2016-17 is issued without obtaining the prior approval from the appropriate authority. Accordingly we hold that the notice under section 148 is invalid and the consequent assessment under section 147 is liable to be quashed.”
Since, the facts of the case are similar and also pertain to the same assessment year, following the decision in above case cited supra, the ground of the assessee is allowed and order of CIT(A) is set aside. It may be stated that ITAT, Mumbai has followed the above decision in Ashok Amratlal Shah (supra) and allowed the appeal of the assessee.
& 210/MUM/2025/AYs.2016-17 & 2017-18 Precel Solutions Pvt. Ltd. 10. In the result, appeal of the assessee is allowed.
(AY.2017-18): 11. The facts and grounds taken up by the assessee in this appeal are similar and identical as in for AY.2017-18, decided above. Following the reasons given in the said appeal, the order of the CIT(A) is also set aside. 12. In the result, the appeal of the assessee is allowed. 13. In the combined result, appeals of the assessee are allowed. Order pronounced on 20/05/2025 in the open court.