Reassessment notice u/s 148 quashed – Income below ₹50 lakh wrong sanctioning authority – ITAT Mumbai

Suman Jagannath Sankhe Vs CIT (Appeals) (ITAT Mumbai)

In Suman Jagannath Sankhe vs CIT(A) (A.Y. 2016-17), reassessment was initiated based on alleged cash deposits of ₹15 lakh. The assessee challenged jurisdiction on multiple legal grounds including limitation, absence of proper sanction u/s 151 and defects in procedure under the new reassessment regime.

The ITAT examined whether the notice u/s 148 issued on 19.07.2022 under the new law complied with section 151. It observed that income alleged to have escaped assessment was only ₹15 lakh, i.e., below ₹50 lakh, and the notice was issued beyond three years from the end of the relevant A.Y. As per the amended provisions, no reassessment notice can be issued after three years where escaped income is below ₹50 lakh. Further, sanction was granted by the Principal Commissioner instead of the higher specified authority, rendering the notice invalid.

Accordingly, the Tribunal held that non-compliance with section 151 made the notice u/s 148 and entire reassessment proceedings void ab initio. Since reassessment itself was quashed, issues on merits such as addition u/s 68 and taxation u/s 115BBE became academic. The assessee’s appeal was allowed.

FULL TEXT OF THE ORDER OF ITAT MUMBAI

Present appeal filed by assessee arises out of order dated 14/10/2025 passed by NFAC, Delhi [hereinafter “the Ld.CIT(A)”], for Assessment Year 2016-17 on following grounds of appeal:-

“ON NATURAL JUSTICE:

1.1 In the facts and circumstances of the case and in law, the order passed by the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC) [“the Ld. CIT(A)”] deserves to be quashed since the same is passed in gross violation of the principles of Natural Justice and also based on totally extraneous considerations while ignoring the relevant, material considerations and submissions made by the Appellant.

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ON VALIDITY OF REASSESSMENT:

2.1 In the facts and circumstances of the case and in law, re-assessment proceedings and the consequential assessment order passed by the Assessing Authority, National Faceless Assessment Centre [the Ld. AO], is bad in law and void for want of jurisdiction and the Ld. CIT(A) erred in affirming the same.

2.2 While passing the said order, the Ld. CIT(A) failed to appreciate that:

a. None of the necessary pre-conditions for initiation as well as completion of re-assessment under the Act are fulfilled / complied with in the present case;

b. The impugned re-assessment is initiated without first passing an order under section 148A(d) and serving the same on the Assessee and, in fact, the said order is not even uploaded on the portal and therefore the entire proceeding is bad in law;

c. The impugned re-assessment is barred by limitation since the same is initiated beyond a period of three years from the end of the relevant assessment year (A.Y. 2016-17) despite the fact that the alleged income escaping assessment is only Rs. 15,00,000/- and even the assessed income is only Rs. 20,25,144/-, which is well below Rs. 50 lakhs, and therefore the impugned re-assessment is barred by limitation;

d. The provisions pertaining to sanction under section 151 of the Act are not complied with in the present case since, as admitted by the Ld. AO himself, the sanction is obtained from the Principal Commissioner of Income Tax instead of the Chief Commissioner / Principal Chief Commissioner of Income Tax and therefore the entire proceeding is invalid and void ab initio;

e. The impugned Notice under section 148 is bad in law since the same is issued without providing the Appellant with the necessary information and material relied on by the AO;

f. The impugned re-assessment proceedings as well as the Notice under section 148 and the proceedings prior thereto including the Notice under section 148A(b) are bad in law since the same are issued in violation of section 151A read with Notification No. 18 of 2022;

g. The Notice under section 148 is void also because the same is issued without any Document Identification Number (DIN) as mandated by CBDT Circular No. 19 of 2019;

h. In any case, there is no income escaping assessment in the present case and therefore the entire exercise is bad in law even on this count.

2.3 In the facts and circumstances of the case and in law, the impugned re-assessment order deserves to be quashed and it is prayed accordingly.

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ON JURISDICTION:

3.1 In the facts and circumstances of the case and in law, the assessment order passed by the Ld. AO is bad in law and void, being in violation of section 144B of the Act and therefore the same deserves to be quashed.

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ON MERITS:

4.1 In the facts and circumstances of the case and in law, the Ld. CIT(A) erred in confirming the action of the Ld. AO in making an addition of Rs. 15,00,000/- in the hands of the Appellant under section 68 in respect of cash deposits, in gross violation of the provisions of the Act.

4.2 While doing so, the Ld. CIT(A) failed to appreciate that:

a. The Ld. AO wrongly applied the provisions of section 68 of the Act, whereas the same are not at all applicable in the present case;

b. The Appellant and her husband are both agriculturists and this fact is accepted by the Ld. AO himself;

c. The cash deposited was from past savings out of the agricultural income earned by the Appellant and her husband and could therefore not be treated as undisclosed;

d. In any case, the addition has been made by the Ld. AO simply on the basis of surmises and without any evidence refuting the claim of the Assessee and is therefore unsustainable.

4.3 In the facts and circumstances of the case and in law, the additions made by the Ld. AO deserve to be deleted in toto.

4.4 In the facts and circumstances of the case and in law, the Ld. AO erred in computing the income of the Appellant as Rs. 35,25,144/- instead of Rs. 20,25,144/-, as assessed by him in his order under section 143(3) of the Act.

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5.1 In the facts and circumstances of the case and in law, the Ld. AO erred in taxing the additions made by him of Rs. 15,00,000/- under section 115BBE of the Act, in gross violation of the provisions of the Act and on a complete misreading of the said section 115BBE.

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6. The Appellant craves leave to add, amend, alter, delete or modify any or all of the above grounds of Appeal.”

2. Brief facts of the case are as under:-

The assessee had e-filed original return of income on 01/08/2017 for the A.Y.2016-17 u/s. 139 declaring total income of Rs. 1,99,760/- and subsequently on 06/08/2022 filed return of income in response to notice u/s. 148 dated 19/07/2022 declaring total income of Rs. 3,65,140/-. The assessee is a senior citizen aged 80 years and in A.Y. 2016-17, the assessee had offered interest income earned on savings and fixed deposits as income from other sources along with agriculture income earned from their ancestral agricultural land. The assessee case was selected for scrutiny u/s. 148 on basis of information received from ITO Ward 35(2) (1) w.r.t. Cash Deposits and investment in property for A.Y. 2016-17 and Ld. Income Tax Officer had issued notice accordingly. The assessee replied to the notices by making necessary submissions along with supporting documentary evidences for information called for from time to time to the Ld. A.O. Further, the assessee had personally visited the A.O. office and explained facts of case along with supporting documents, in response to the show-cause notice cum draft order of Ld. A.O. The assessee had submitted various documents including cash and bank summaries for relevant financial years, bank statements supporting cash withdrawals, details of agricultural income, etc. for explaining the source of cash deposit with NKGSB Co- Operative Bank, but Id. A.O. didn’t get satisfied with the same & added the amount treating as unexplained cash credit on account of Cash deposit of Rs. 15,00,000/-.

3. Aggrieved by the order of the Ld. AO, the assessee preferred an appeal before the Ld. CIT(A). Before the Ld. CIT(A), the assessee was issued three notices, against which there was no compliance. The Ld. CIT(A), after observing that the assessee was not interested in prosecuting the appeal, dismissed the issues raised therein.

Aggrieved by the order of the Ld. CIT(A), the assessee is in appeal before this Tribunal.

4. The Ld.AR submitted that, assessee has raised a legal issue challenging the validity of the notice issued u/s 148 of the Act under the new regime. He submitted that the original notice issued under the old regime was dated 15/05/2021, reopening 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 versus Ashish Agrawal, reported in (2022) 444 ITR 1 (SC). The Revenue thus issued a notice u/s 148 of the Act on 19/07/2022, which was approved by the Principal Commissioner of Income Tax–17, Mumbai, wherein the reasons recorded states that income chargeable to tax amounting to Rs.15,00,000/- had escaped assessment for the year under consideration. The Ld.AR submitted that the notice issued under section 148A(b) of the Act is beyond three years and that the income escaping assessment is observed to be Rs.15,00,000/-. He submitted that the approval for issuance of such notice has been obtained from the Chief Commissioner of Income Tax–5, Mumbai. The Ld. AR submitted that the appropriate authority who has to approve the issuance of notice under 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 (SC), 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.

4.1. On the contrary, the Ld. DR relied on the orders passed by the authorities below.

Perused the submissions advanced by both sides in the light of the records placed before us.

5. 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 19/07/2022, based on the order passed u/s 148A(d) 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 has 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

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:

74. 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:

(a) a reassessment notice could be issued within four years after obtaining the approval of the Joint Commissioner; and

(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.

75. 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.

76. 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, non­compliance by the assessing officer with the strict time limits prescribed under section 151 affects their jurisdiction to issue a notice under section 148.

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.

78. For example, the three year time limit for assessment year 2017­2018 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.

79. 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

d. Section 148 – to issue a reassessment notice.

80. 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 com 32/299 Taxman 21 (SC)/[2024] 6 SCC 267.

81. 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:-

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;

d. 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. It is noted that in the new regime, if the income escaping assessment is more than ₹50,00,000/-, a reassessment notice can be issued after the expiry of three years from the end of the relevant assessment year only after obtaining prior approval of the Principal Chief Commissioner or the Principal Director General or the Chief Commissioner or the Director General. It is also noted that if the income escaping assessment is less than ₹50,00,000/-, no reassessment notice can be issued after the expiry of three years, as per section 151(1)(b) of the Act.

5.3.1. In the present facts and circumstances of the case, the income alleged to have escaped assessment is ₹15,00,000/- and the notice issued under the new regime is beyond the period of three years. Accordingly, as per section 151(1)(b) of the Act, the notice issued on 19/07/2022 is bad in law.

5.4. Even otherwise, 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 again does not satisfy the condition prescribed under section 151(ii)(b) of the Act.

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 19/07/2022 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, Ground Nos. 2.1, 2.2 and 2.3 stand allowed.

As the assessment proceedings stand quashed, the issue raised by the assessee on merits becomes academic at this stage.

In the result, the appeal filed by the assessee stands allowed.

Order pronounced in the open court on 06/02/2026