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Facts
The assessee, engaged in civil works, filed a return for AY 2018-19. A search action u/s 132 was conducted, leading to reopening of assessment u/s 147. The approval for reopening by the PCIT(Central) was based on the premise that the assessee was a non-filer, which the assessee contended was factually incorrect.
Held
The Tribunal held that the PCIT(Central)'s approval for reopening under section 151 was based on a factually erroneous premise (assessee being a non-filer). The sanction was not based on an objective satisfaction but a mechanical assumption of facts. Consequently, the approval was not sustainable in law, vitiating the subsequent proceedings.
Key Issues
Whether the reopening of assessment u/s 147 was valid when the sanctioning authority's approval u/s 151 was based on a factual error regarding the assessee's status as a non-filer.
Sections Cited
148, 147, 151, 132, 37, 68, 28 to 44D, 148A, 250
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “A’’BENCH: BANGALORE
Before: SHRI PRASHANT MAHARISHI & SHRI KESHAV DUBEY
PER KESHAV DUBEY, JUDICIAL MEMBER:
This Appeal at the instance of the assessee is directed against the order of ld. CIT(A)-11, Bengaluru dated 10.02.2025 vide DIN: ITBA/APL/M/250/2024-25/1073090605 (1) passed u/s 250 of the Income Tax Act, 1961 (in short “The Act”) for the AY 2018-19.
The assessee has raised the following Grounds of appeal: -
ITA No.862/Bang/2025 Gopal Anil Kumar, Bengaluru Page 2 of 13
ITA No.862/Bang/2025 Gopal Anil Kumar, Bengaluru Page 3 of 13 3. Brief facts of the case are that the assessee is engaged in the civil works contracts by participating in tenders for Government agencies like Bruhat Bengaluru Mahanagara Palike (BBMP), Karnataka Rural Infrastructure Development Ltd. (KRIDL) under his proprietorship running in the name and style of M/s. Sri Chowdeshwari Enterprises. The assessee filed his return of income for the assessment year 2018-19 on 16.7.2018 declaring total income of Rs.83,45,360/-. A search action u/s 132 of the Act was conducted on 2.12.2021 at the premises of M/s. Sri Chowdeshwari Enterprises as well as the assessee’s residence. During the course of search, certain documents and loose sheets belonging to the assessee were seized. Since a search u/s 132 of the Act was initiated in assessee case, in accordance with Exp. 2(i) to section 148 of the Act, the proceedings were reopened after obtaining prior approval of the PCIT(Central). Thereafter, the AO issued a notice u/s 148 of the Act on 28.3.2022. In response to the said notice, the assessee filed return of income on 20.4.2022. Subsequently, the AO issued notice u/s 143(2) of the Act as well as notice u/s 142(1) of the Act on various dates. During the course of assessment proceedings, the AO after considering the details furnished through ITBA portal and also through personal hearings, concluded the assessment proceedings on a total assessed income of Rs.3,32,19,253/- by making total addition of Rs.2,48,73,893/- as summarized below:- Para Particulars Addition Addition Penalty No. u/s amount initiated u/s 7 Disallowance 28 to 44D 90,50,000 270A(9)(c) u/s 37 of IT Act 8 Unexplained 68 21,08,825 271AAC of credits the Act 9 Unexplained 68 96,90,000 271AAC of credits the Act 10 Business income 28 to 44D 40,25,068 270A(9)(c) 2,48,73,893/-
ITA No.862/Bang/2025 Gopal Anil Kumar, Bengaluru Page 4 of 13
The Assessment was concluded as below:
Income as per ROI dated 20.4.2022 83,45,360/- Additions as per table above 2,48,73,893/- Assessed income 3,32,19,253/-
Aggrieved by the assessment completed u/s 147 of the Act on 30.3.2023, the assessee preferred an appeal before the ld. CIT(A). The ld. CIT(A) partly allowed the appeal of the assessee by holding that the AO had not pointed out any discrepancies in the audited books of account to enhance the net profit to 10% of the turnover. Further, the books of account have not been rejected by the AO to make the addition. As the assessee himself declared to admit the net profit @8% of the Turnover, the same meets the ends of the justice. However, with regards to additions U/s 68 of the Act amounting to Rs. 1,17,98,825/- and addition u/s 37 of the Act amounting to Rs. 90,50,000/-, the same were confirmed by the ld.CIT(A).
Again, aggrieved by the order of ld. CIT(A) dated 10/02/2025, the assessee has filed the present appeal before this Tribunal. Before us, the assessee has also filed a paper book comprising 41 pages containing therein the written submission, copy of ITR V for the AY 2018-19, copy of ledger showing cash deposit and withdrawals for the period 1.4.2017 to 31.3.2018 and signed financial statements. Further, the assessee has also submitted a copy of approval dated 24.3.2022 u/s 151 of the Act for the AY 2018-19 separately.
Before us, the ld. A.R. of the assessee CA. Pooja Maru at the outset, by raising the legal ground vehemently submitted that the proceedings u/s 147 of the Act were initiated on a complete wrong
ITA No.862/Bang/2025 Gopal Anil Kumar, Bengaluru Page 5 of 13 assumption of facts. The ld. AR of the assessee also drew our attention to the Copy of the ITR-V for AY 2018-19 placed at page-25 of the paper book and vehemently submitted that in fact the assessee had filed his return of income for the assessment year 2018-19 on 16.7.2018 vide e-filing acknowledgement no.78892811160718 by declaring total income of Rs.83,45,360/-. The books of accounts of the assessee were also audited by a chartered accountant u/s 44AB of the Act & the same were also not rejected by the AO during the course of the assessment proceedings. Further, the ld. A.R. drew our attention to the Approval letter dated 24/03/2022 & submitted that the very basis of the approval/satisfaction of the ld. PCIT(Central) for reopening u/s 147 of the Act was that the assessee is a non filer which is absolutely baseless & absurd. Since the reassessment had been initiated on the basis of the sanction u/s 151 in a mechanical manner & without application of mind by the ld. PCIT(Central), the notice issued u/s 148 of the Act on the basis of such approval is void-ab-initio and accordingly vitiated the entire reassessment proceedings. The AR accordingly prayed that the assessment order passed u/s 147 of the Act dated 30/03/2023 may be set aside & quashed.
Per contra, Shri Balusamy N., ld. JCIT(DR) vehemently relied on the orders of the authorities below and vehemently submitted that the case was reopened on the basis of search action u/s 132 of the Act conducted at the premises of M/s. Shri Chowdeshwari Enterprises as well as at the assessee’s residence on 2.12.2021. During the course of search, the assessee Shri Anil Kumarji admitted that he has taken the services of M/s. Arjun Shouhardha Pattina Sahakara Niyamita and Mr. Sekhar V.R. such as cash to RTGS transfers and RTGS to cash. The assessee vide statement recorded under oath stated that he used to pay a commission to Mr.
ITA No.862/Bang/2025 Gopal Anil Kumar, Bengaluru Page 6 of 13 Sekhar V.R. for availing such services. The assessee Mr. Anil Kumar is a member of Arjun Souhardha since the financial year 2017-18 and has made huge transactions with the society over the period. The transactions done with Arjun Souhardha is not reported in the ITR and financials filed by the assessee. Since search was initiated u/s 132 of the Act in the case of assessee, in accordance with Explanation 2 to section 148, there was information deemed to have escaped assessment. As per the Proviso to Section 148A, the provisions of Section 148A are not applicable in case where a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A in the case of the assessee on or after the 1st day of April, 2021. Further, the ld. DR submitted that merely because there is an inadvertent error in the approval, the entire reassessment proceedings cannot be quashed.
We have heard the rival submissions and perused the materials available on record. The assessee in the present case is engaged in the civil works contracts by participating in tenders for Government agencies like Bruhat Bengaluru Mahanagara Palike (BBMP), Karnataka Rural Infrastructure Development Ltd. (KRIDL) under his proprietorship running in the name and style of M/s. Sri Chowdeshwari Enterprises. The assessee filed his return of income for the assessment year 2018-19 on 16.7.2018 declaring total income of Rs.83,45,360/-. The copy of the ITR-V is reproduced below for ease of reference & convenience-
ITA No.862/Bang/2025 Gopal Anil Kumar, Bengaluru Page 7 of 13
8.1 Thereafter, a search action u/s 132 of the Act was conducted on 2.12.2021 at the premises of M/s. Sri Chowdeshwari Enterprises as well as the assessee’s residence. Since the search u/s 132 of the Act was initiated in the case of the assessee, in accordance with explanation 2 to section 148 of the Act, the proceedings were reopened after obtaining prior approval of the PCIT(Central), Bengaluru. Now the AR of the assessee before us is challenging this Approval u/s 151 of the Act by alleging to be mechanical, without application of mind & based on completely
ITA No.862/Bang/2025 Gopal Anil Kumar, Bengaluru Page 8 of 13 wrong assumption of fact. Before proceeding further, it is apposite here to reproduce the copy of the approval granted u/s 151 of the Act as below-
On bare perusal of the above would show that the ld. PCIT(Central) has granted the approval on the ground that the assessee is a non- filer and accordingly the ld. PCIT(Central) was satisfied that it is a fit case for reopening u/s 147 of the Act & accordingly accorded sanction u/s 151 of the Act whereas as can be seen above the
ITA No.862/Bang/2025 Gopal Anil Kumar, Bengaluru Page 9 of 13 assessee had filed his return of income for the assessment year 2018-19 on 16.7.2018 declaring total income of Rs.83,45,360/-.
8.2 Even while passing the assessment order, the AO started by asserting that the assessee is a civil contractor & filed his return of Income. The 1st page of the assessment order passed u/s 147 of the Act dated 30/03/2023 is reproduced below for ease of reference-
Thus, as can be seen above, in opening line of the assessment order, the AO himself recorded that the assessee had filed his
ITA No.862/Bang/2025 Gopal Anil Kumar, Bengaluru Page 10 of 13 return of income for the Assessment year 2018-19 on 16/07/2018. The very basis of the sanction/approval u/s 151 of the Act is contrary to the facts recorded in the assessment order. We are of the considered opinion that the ld. PCIT(Central)’s sanction/approval is purely based on wrong assumption of facts. Further, on going through the approval u/s 151 of the Act dated 24/03/2022 we also take note of the fact that the ld. PCIT(Central) had granted the approval on the ground that the assessee is a non- filer and accordingly the ld. PCIT(Central) was satisfied that it is a fit case for reopening u/s 147 of the Act which in our opinion is completely baseless.
8.3 We are of the considered opinion that for issue of notice u/s 148 of the Act by the AO, sanction is required as provided u/s 151 of the Act. The necessity for such sanction was considered by the legislature so as to protect the taxpayers from the arbitrary and reckless reopening of the assessment proceedings. The sanction u/s 151 was considered equivalent to approval by the Higher Authority of the action of the AO in reopening the assessment. However, the language of the provision does not confine the duty of the sanctioning authority to merely approve the proposed action of the AO in reopening the assessment but puts some more burdens before granting such sanction/approval. The use of the word "satisfied" cast greater duty on such authority. The sanctioning authority has to satisfy himself that necessary prerequisite of section 147 of the Act that there is an escapement of income stood fulfilled; however in the present case the satisfaction itself was clearly on the wrong foundation that the assessee is a non filer. On going through the provisions of erstwhile section 151 of the Act applicable for the assessment year 2018-19, we are of the considered opinion that in the body of the section two expressions are important. One is "being satisfied on the reasons recorded"
ITA No.862/Bang/2025 Gopal Anil Kumar, Bengaluru Page 11 of 13 and other is, "that it is a fit case for the issue of such notice". The first expression indicates a process by which a conclusion is to be arrived at that it is a fit case. Therefore, the process as well as conclusion both must be reflected from the sanction.
8.4 We are also of the considered opinion that the provisions contained in section 151 of the Act are undoubtedly mandatory in nature. Such sanction is a jurisdictional prerequisite. In the absence of such sanction, the proceedings would fall to the ground for want of jurisdiction. This provision provides an important procedural safeguard against the arbitrary exercise of power of issuing a notice for reopening of assessment especially previously framed after scrutiny. This additional safe guard not only involves the application of mind on the part of the Chief Commissioner or the Commissioner whose satisfaction, should be based on the reasons recorded by the Assessing Officer, and such satisfaction should be that it is a fit case for issuance of the notice. Section 151 of the Act provides a supervisory check on the functioning of the AO and is not a mere formality. The Sanctioning Authority is required to apply his mind to the proposal put up to him for sanction in the light of the material relied upon by the AO. The said power cannot be exercised casually and in a routine manner. He has to examine whether facts mentioned in the reasons are correct, whether income has actually escaped assessment, whether such income would be taxable and it will be taxable whether the assessee has filed the return of income or not, and whether such alleged escaped income would be taxable in the concerned assessment year. Such requirement is envisaged in view of the word "satisfied" used in section 151 of the Act. The requirement is not mere mechanical approval but an objective satisfaction which warrant application of mind by the superior authority. Exercising power u/s 151 of the Act in a casual and routine or mechanical manner while granting
ITA No.862/Bang/2025 Gopal Anil Kumar, Bengaluru Page 12 of 13 sanction would show non-application of mind and such sanction cannot be upheld. The note about satisfaction while granting sanction must show which material; information; documents and which other aspects have been gone through and examined by the sanctioning authority.
8.5 The Hon’ble High Court of Gujarat in the case of Sagar Enterprises v. Assistant Commissioner of Income-tax reported in (Guj-HC) :(2002) 257 ITR 335 has held as under-
“4. On going through the entire reasons recorded, it can be seen that in the penultimate paragraph, the respondent has further recorded as under : "Further, the assessee was required to file the return of the income for assessment year 1991-92 which the assessee has failed. Moreover, it was the duty of the assessee to declare this transaction and to file the return of income for assessment year 1991-92. The assessee has failed on both these counts. Therefore, the escapement of assessment of income is solely attributable to the assessee." Therefore, it is apparent that the factor of non-filing of the return for the assessment year 1991-92 has overbearingly weighed with the respondent for arriving at the satisfaction about the failure on the part of the assessee and escapement of assessment of income. On the basis of the same, even for the sake of argument, if the contention raised by Mr. Joshi is taken into consideration, the settled legal position is that in such circumstances, it would not be possible to say with certainty as to which factor would have weighed with the officer concerned and once it is shown that an irrelevant fact has been taken into consideration, to what extent the decision is vitiated would be difficult to say. On this count alone, the petition requires to be accepted.”
8.6 In view of the above discussions & respectfully following the decision of the Hon’ble High Court of Gujarat, we are inclined to hold that since the action of the PCIT(Central) was based on a factually erroneous premise, we are of the view that the approval accorded u/s 151 of the Act for the AY 2018-19 is not sustainable in law. The proceedings arising from such invalid approval are also vitiated. In view of the above, the notice issued u/s 148 of the Act on 28/03/2022 & the corresponding order passed u/s 147 of the Act dated 30/03/2023 is hereby quashed.
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In the result the appeal filed by the assessee is allowed.
Order pronounced in the open court on 5th March, 2026
Sd/- Sd/- (Prashant Maharishi) (Keshav Dubey) Vice President Judicial Member
Bangalore, Dated 5th March, 2026. VG/SPS
Copy to:
The Applicant 2. The Respondent 3. The CIT 4. The DR, ITAT, Bangalore. 5 Guard file By order
Asst. Registrar, ITAT, Bangalore.