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Facts
The Revenue filed an appeal and the Assessee filed a cross-objection against the order of the Ld.CIT(A) for AY 2018-19. The Assessee's cross-objection challenged the validity of the notice issued under Section 148 of the Income Tax Act, contending that it was issued without proper approval from the specified authority as per Section 151.
Held
The Tribunal held that the notice issued under Section 148 of the Act dated 22/04/2022 was not in compliance with the provisions of Section 151. The approval was obtained from the Principal Commissioner, which was not the appropriate authority for a notice issued beyond three years. This non-compliance rendered the notice bad in law.
Key Issues
Whether the notice issued under Section 148 of the Income Tax Act was validly issued in accordance with the provisions of Section 151, considering the time limits and the appropriate sanctioning authority.
Sections Cited
147, 148, 151, 148A, 68
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Income Tax Appellate Tribunal, “G” BENCH, MUMBAI
Before: SMT. BEENA PILLAI & SHRI ARUN KHODPIA
Per Smt. Beena Pillai, JM:
The present appeal filed by the Revenue and the cross- objection filed by Assessee arise out of the order dated 13/10/2025 passed by the Ld.CIT(A) for A.Y. 2018-19.
The revenue has raised the following grounds of appeal:-
C.O. No. 53/Mum/2026 “1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition made by the Assessing Officer by treating the receipt as dividend income, ignoring the fact that the mutual fund itself had declared and distributed the amount as dividend and discharged Dividend Distribution Tax thereon.
Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in accepting the assessee's contention that the receipt was a repayment of capital, whereas in the hands of the assessee, the character of the receipt is clearly dividend income and is taxable as such.
Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) failed to appreciate that the assessee, after treating the amount as repayment of capital, has claimed short term capital loss in the subsequent year by adopting full cost of acquisition of 23.00 crore without reducing the said amount, thereby enjoying double benefit.
Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in holding that the provisions of section 68 were not applicable, without appreciating that the addition was made not only under section 68 but on the ground that the receipt is taxable in the year of receipt as dividend income.
Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in relying on the assessee's explanation that the dividend was paid by the mutual fund out of capital funds, without appreciating that once the distribution is made as dividend and Dividend Distribution Tax is paid thereon, the character of the receipt in the hands of the assessee cannot be altered.
The appellant craves leave to amend or alter any ground or submit additional ground which may be necessary.”
2.1. The assessee has raised the following grounds of appeal in its cross-objection:-
“1. The Ld. CIT(A) ought to have appreciated that the reopening of assessment u/s. 147 of the Act and issue of notice u/s. 148 of the Act was invalid and void ab initio.
The Ld. CIT(A) ought to have appreciated that the approval obtained for reopening the assessment was not in accordance to the provisions of s. 151 of the Act and was invalid.
C.O. No. 53/Mum/2026 3. The respondent craves leave of Your Honour to add to, amend or alter the foregoing grounds of cross-objection.”
Since the issue raised in the cross-objection challenging the validity of the notice issued u/s 148 of the Act goes to the root of the assessment proceedings and strikes at the very jurisdiction assumed by the Ld. AO, we deem it appropriate to adjudicate the same at the outset. The validity of the reassessment notice being a foundational issue, its determination is essential before proceeding to examine the merits of the additions made in the impugned assessment order. Accordingly, we first take up the grounds raised in the cross-objection relating to the legality and validity of the notice issued u/s 148 of the Act.
The Ld.AR submitted that, assessee raised legal challenging the validity of the notice issued u/s 148 of the Act under the new regime for reopening of the assessment. He submitted that original notice u/s 148 issued under the old regime was dated 15/03/2022, to reopen the assessment. Thereafter, the said notice was treated as a deemed notice as per the decision of the Hon’ble Supreme Court in the case of Union of India vs Ashish Agrawal, reported in (2022) 444 ITR 1. The Revenue after following the procedure as per the new regime u/s 148A issued notice u/s 148 of the Act on 22/04/2022, which was approved by the Principal Commissioner of Income Tax– 20, Mumbai. The Ld.AR submitted that the notice issued under section 148A(b) and the order passed u/s 148A(d) of the Act are beyond three years.
C.O. No. 53/Mum/2026 4.1. The Ld. AR submitted that in present facts, the appropriate authority who has to approve the issuance of notice u/s 148 of the new regime, as per section 151 of the Act, would be the Principal Chief Commissioner of Income Tax or the Chief Commissioner of Income Tax. The Ld. AR placed reliance on the decision of the Hon’ble Supreme Court in the case of Union of India v. Rajeev Bansal, reported in [2024] 469 ITR 46, wherein it has been held that the sanctioning authority has to be in accordance with the provisions of section 151 of the Act, based on the new provisions u/s 148A of the Act.
4.2. On the contrary, the Ld. DR relied on the orders passed by the authorities below.
We have perused the submissions advanced by both sides in the light of the records placed before this Tribunal.
The limited issue that has been raised by the assessee is to examine whether the notice issued u/s 148 of the Act under the new regime dated 22/04/2022, based on the order passed u/s 148A(d) passed on the even date, is after obtaining approval of the appropriate authority, in accordance with the provisions of section 151 of the Act.
5.1. The Ld. AR relied on the following observations from the decision of the Hon’ble Supreme Court in the case of Union of India v. Rajeev Bansal (supra):
“iii. Sanction of the specified authority
C.O. No. 53/Mum/2026 73. Section 151 imposes a check upon the power of the Revenue to reopen assessments. The provision imposes a responsibility on the Revenue to ensure that it obtains the sanction of the specified authority before issuing a notice under section 148. The purpose behind this procedural check is to save the assessees from harassment resulting from the mechanical reopening of assessments Sri krishna (P.) Ltd. v. ITO [1996] 87 Taxman 315/221 ITR 538 (SC)/[1996] 9 SCC 534. A table representing the prescription under the old and new regime is set out below:
Regime Time limits Specified authority Section 151(2) Before expiry of four years of the old from the end of the relevant Joint Commissioner regime assessment year
Principal Chief Section 151(1) After expiry of four years Commissioner or Chief of the old from the end of the relevant Commissioner or Principal regime assessment year Commissioner or Commissioner Three years or less than Principal Commissioner or Section 151(i) of three years from the end of Principal Director or the new regime the relevant assessment Commissioner or Director year Principal Chief Section 151(ii) More than three years have Commissioner or Principal of the new elapsed from the end of the Director General or Chief regime relevant assessment year Commissioner or Director General
The above table indicates that the specified authority is directly co- related to the time when the notice is issued. This plays out as follows under the old regime:
(i) If income escaping assessment was less than Rupees one lakh:
(a) a reassessment notice could be issued under section 148 within four years after obtaining the approval of the Joint Commissioner; and (b) no notice could be issued after the expiry of four years; and (ii) If income escaping was more than Rupees one lakh:
(b) after four years but within six years after obtaining the approval of the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner.
After 1 April 2021, the new regime has specified different authorities for granting sanctions under section 151. The new regime is beneficial to the assessee because it specifies a higher level of authority for the grant of sanctions in comparison to the old regime. Therefore, in terms of Ashish Agarwal (supra), after 1 April 2021, the prior approval must be obtained from the appropriate authorities specified under section 151 of the new regime. The effect of Section 151 of the new regime is thus:
(i) If income escaping assessment is less than Rupees fifty lakhs:
(a) a reassessment notice could be issued within three years after obtaining the prior approval of the Principal Commissioner, or Principal Director or Commissioner or Director; and (b) no notice could be issued after the expiry of three years; and (ii) If income escaping assessment is more than Rupees fifty lakhs:
(a) a reassessment notice could be issued within three years after obtaining the prior approval of the Principal Commissioner, or Principal Director or Commissioner or Director; and (b) after three years after obtaining the prior approval of the Principal Chief Commissioner or Principal Director General or Chief Commissioner or Director General.
Grant of sanction by the appropriate authority is a precondition for the assessing officer to assume jurisdiction under section 148 to issue a reassessment notice. Section 151 of the new regime does not prescribe a time limit within which a specified authority has to grant sanction. Rather, it links up the time limits with the jurisdiction of the authority to grant sanction. Section 151(ii) of the new regime prescribes a higher level of authority if more than three years have elapsed from the end of the relevant assessment year. Thus, non- compliance by the assessing officer with the strict time limits prescribed under section 151 affects their jurisdiction to issue a notice under section 148.
C.O. No. 53/Mum/2026 77. Parliament enacted TOLA to ensure that the interests of the Revenue are not defeated because the assessing officer could not comply with the pre conditions due to the difficulties that arose during the COVID-19 pandemic. Section 3(1) of TOLA relaxes the time limit for compliance with actions that fall for completion from 20th March 2020 to 31st March 2021. TOLA will accordingly extend the time limit for the grant of sanction by the authority specified under section 151. The test to determine whether TOLA will apply to Section 151 of the new regime is this: if the time limit of three years from the end of an assessment year falls between 20th March 2020 and 31st March 2021, then the specified authority under section 151(i) has an extended time till 30th June 2021 to grant approval. In the case of Section 151 of the old regime, the test is: if the time limit of four years from the end of an assessment year falls between 20th March 2020 and 31st March 2021, then the specified authority under section 151(2) has time till 31st March 2021 to grant approval.
The time limit for Section 151 of the old regime expires on 31st March 2021 because the new regime comes into effect on 1st April 2021.
For example, the three year time limit for assessment year 2017- 2018 falls for completion on 31st March 2021. It falls during the time period of 20th March 2020 and 31st March 2021, contemplated under section 3(1) of TOLA. Resultantly, the authority specified under section 151(i) of the new regime can grant sanction till 30th June 2021.
Under Finance Act 2021, the assessing officer was required to obtain prior approval or sanction of the specified authorities at four stages:
a. Section 148A(a) - to conduct any enquiry, if required, with respect to the information which suggests that the income chargeable to tax has escaped assessment; b. Section 148A(b) - to provide an opportunity of hearing to the assessee by serving upon them a show cause notice as to why a notice under section 148 should not be issued based on the information that suggests that income chargeable to tax has escaped assessment. It must be noted that this requirement has been deleted by the Finance Act 2022; c. Section 148A(d) - to pass an order deciding whether or not it is a fit case for issuing a notice under section 148; and
In Ashish Agarwal (supra), this Court directed that Section 148 notices which were challenged before various High Courts shall be deemed to have been issued under section 148-A of the Income-tax Act as substituted by the Finance Act, 2021 and construed or treated to be show-cause notices in terms of Section 148-A(b). Further, this Court dispensed with the requirement of conducting any enquiry with the prior approval of the specified authority under section 148A(a). Under Section 148A(b), an assessing officer was required to obtain prior approval from the specified authority before issuing a show cause notice. When this Court deemed the Section 148 notices under the old regime as Section 148A(b) notices under the new regime, it impliedly waived the requirement of obtaining prior approval from the specified authorities under section 151 for Section 148A(b). It is well established that this Court while exercising its jurisdiction under Article 142, is not bound by the procedural requirements of law High Court Bar Association v. State of UP [2024] 160 taxmann.com 32/299 Taxman 21 (SC)/[2024] 6 SCC 267.
This Court in Ashish Agarwal (supra) directed the assessing officers to “pass orders in terms of Section 148-A(d) in respect of each of the assesses concerned.” Further, it directed the assessing officers to issue a notice under Section 148 of the new regime “after following the procedure as required under section 148-A.” Although this Court waived off the requirement of obtaining prior approval under section 148A(a) and Section 148A(b), it did not waive the requirement for Section 148A(d) and Section 148. Therefore, the assessing officer was required to obtain prior approval of the specified authority according to Section 151 of the new regime before passing an order under section 148A(d) or issuing a notice under section 148. These notices ought to have been issued following the time limits specified under section 151 of the new regime read with TOLA, where applicable.”
5.1.1. On a bare reading of the above extract from the decision, it is noted that under the new provisions of Section 148A introduced by the Finance Act, 2021, the Ld. AO is required to obtain prior approval or sanction of the specified authority at four stages, namely:-
C.O. No. 53/Mum/2026 a. Section 148(a)-to conduct any enquiry, if required, with respect to the information which suggests that the income chargeable to tax has escaped assessment; b. Section 148A(b)-to provide an opportunity of hearing to the assessee by serving upon them a show cause notice as to why a notice under section 148 should not be issued based on the information that suggests that income chargeable to tax has escaped assessment. It must be noted that this requirement has been deleted by the Finance Act 2022; c. Section 148A(d)-to pass an order deciding whether or not it is a fit case for issuing a notice under section 148; and d. Section 148-to issue a reassessment notice.
5.2. Thus, the Ld. AO was required to obtain prior approval of the specified authority u/s 151 of the Act under the new regime before passing an order under section 148A(d) and issuing a notice u/s 148 of the Act.
5.3. The appropriate authority who could sanction the said notice, issued beyond a period of three years, should have been the Principal Chief Commissioner or the Principal Director General or the Chief Commissioner or the Director General. In the present facts of the case, the said notice has been approved by the Principal Commissioner, which does not satisfy the condition prescribed under section 151(ii)(b) of the Act.
C.O. No. 53/Mum/2026 6. This Tribunal is, thus, of the opinion that non-compliance with the provisions of section 151 renders the notice issued under section 148 of the Act dated 22/04/2022 to be bad in law and, hence, the same deserves to be quashed and set aside. As a consequence, the reassessment proceedings initiated thereafter also become bad in law.
Accordingly, the cross-objection filed by assessee stands allowed.
As the assessment proceedings stand quashed, the issues raised by the revenue on merits become academic at this stage.
In the result, the appeal filed by the revenue stands dismissed and the cross-objection filed by assessee stands allowed.
Order pronounced in the open court on 17/02/2026 Sd/- Sd/- (ARUN KHODPIA) (BEENA PILLAI) Accountant Member Judicial Member Mumbai Dated: 17/02/2026 SC Sr. P.S.
(1)The Appellant (2) The Respondent (3) The CIT (4) The CIT (Appeals) (5) The DR, I.T.A.T.