Pune ITAT Deletes ₹1.14 Crore Addition Based Solely on Hawala Operator’s Statement; Cross-Examination Denial Proves Fatal

Santosh Jaynarayan Sharma Vs ITO (ITAT Pune)

Pune ITAT Deletes ₹1.14 Crore Addition Based Solely on Hawala Operator’s Statement; Cross-Examination Denial Proves Fatal

The Pune ITAT upheld the deletion of an addition of ₹1.14 crore made under section 69C, holding that the Assessing Officer could not sustain an addition merely on the basis of statements of alleged hawala operators and WhatsApp chats without bringing any independent corroborative evidence on record.

The assessee, engaged in the footwear business, had imported goods from foreign suppliers. During assessment, the AO relied upon statements recorded from certain persons allegedly involved in accommodation-entry and foreign remittance operations, who claimed that the assessee had obtained accommodation entries against cash payments amounting to ₹1.14 crore. Based primarily on these statements and certain WhatsApp chats, the AO treated the amount as unexplained expenditure under section 69C.

The Tribunal noted that the assessee had furnished extensive documentary evidence including import invoices, letters of credit, bills of entry, customs clearance documents, transportation records, warehousing charges, insurance records, customs duty payment details, bank statements and sales invoices, demonstrating that the imports were genuine and payments were made through normal banking channels. The Revenue failed to point out any defect in these documents or establish any actual cash movement.

The Tribunal further observed that the entire addition rested on a third-party statement and alleged WhatsApp chats. Importantly, despite the assessee’s request, effective cross-examination of the person whose statement formed the basis of the addition was not provided, amounting to a violation of the principles of natural justice. Relying on the Supreme Court decision in Andaman Timber Industries, the Tribunal held that such evidence could not be used against the assessee without affording cross-examination.

Holding that the AO had failed to prove either the existence of unexplained expenditure or any cash payment by the assessee, the Tribunal affirmed the CIT(A)’s order deleting the addition of ₹1.14 crore. The Revenue’s appeal was dismissed. The Tribunal also condoned a 149-day delay in filing the assessee’s cross-objection but dismissed it as infructuous since the Revenue’s appeal itself had failed.

FULL TEXT OF THE ORDER OF ITAT PUNE

The captioned appeal at the instance of assessee pertaining to the Assessment Year 2016-17 is directed against the order dated 07.08.2025 of National Faceless Appeal Centre, Delhi passed u/s.250 of the Income-tax Act, 1961 (hereinafter also called ‘the Act’) arising out of the Assessment Order dated 09.03.2023 passed u/s.147 r.w.s.144 r.w.s. 144B of the Act.

2. Assessee has raised following grounds of appeal

“The following grounds are taken without prejudice to each other – On facts and in law,

1. The appellant submits that the assessment copy of the order passed u/s 148A(d) of the Income Tax Act, 1961 (the Act) and approval of Hon’ble CIT u/s 151 of the Act for issuing notice u/s 148 of the Act were not provided to the appellant alongwith notice issued u/s 148 of the Act for the assessment year 2015-16. Accordingly, the assessment proceedings completed u/s 147 of the Act are void and the consequential order passed u/s 147 of the Act is bad in law which kindly be quashed.

2. Without prejudice to the Ground no.1, the appellant submits that the Ld CIT (A), NFAC has erred in confirming addition of Rs.1,16,99,009/- u/s 69A of the Income Tax Act, 1961 for the assessment year 2016-17 in respect of cash deposited into account of the appellant held with M/s Renuka Mata Multi State Urban Co-operative Credit Society Ltd without appreciating the fact that the said cash deposited into the bank account represents cash sales of the appellant which are duly disclosed in the Income Tax Return filed for the assessment year 2016-17.

The appellant prays before Your Honour to kindly direct the Ld AO to delete the addition of Rs.1,16,99,009/- made in the income of the appellant u/s 69A.

3. Without prejudice to the Grounds no 1 and 2 that Ld AO as well as Hon’ble CIT (A), NFAC failed to consider Peak Credit Theory while invoking provisions of section 69A of the Income Tax Act, 1961 in respect of cash deposited during the assessment year 2016-17 into the account of the appellant held with M/s Renuka Mata Multi State Urban Co-operative Credit Society Ltd.

4. The appellant craves leave to add, alter, amend or delete any of the above grounds of appeal at the time of hearing.

3. Assessee has also raised Additional Grounds of appeal which reads as under :

“On facts and in law,

Without prejudice to original grounds of appeal, –

1) The assessee submits that the notice u/s 148 for A.Y.2016 issued on 25.07.2022 i.e. after a period of three years from end of A.Y.2016-17 by obtaining the approval u/s 151 from Pr. CIT – 1, Nashik dated 22.07.2022 vide reference no. 1498, without obtaining the requisite approval u/s 151(ii) from Pr. CCIT/CCIT may be declared as null and void in law.

2) The assessee submits that the notice u/s 148 was issued on the basis of documents pertaining to the assessee seized during search action u/s 132 conducted on a third party i.e. M/s. Renuka Mata Multi State Urban Co-operative Credit Ltd. on 26.05.2017 and therefore, the asst. proceedings initiated under the general provisions of section 147 without following the special procedure prescribed u/s 153C are not sustainable in law and therefore, the notice u/s 148 issued in the instant case, may be declared as null and void in law.

3) The assessee submits that the notice u/s 148 dated 25.07.2022 issued by the Jurisdictional A.O. i.e. ITO, Ward 1, Dhule after 29.03.2022 was contrary to the mandate of section 151A read with CBDT Instruction dated 29.03.2022 and hence, the said notice u/s 148 may be declared as unsustainable in law.

4) The assessee submits that the notice u/s 148 dated 25.07.2022 did not contain DIN in the body of the notice as mandated vide CBDT Instructions and hence, the said notice u/s 148 may be declared as null and void in law.

The appellant submits that the above grounds are purely legal in nature and the relevant facts necessary for adjudicating this ground are discernable from the contents of the notice u/s 148 itself, which is already available on record and hence, it is prayed that the said additional ground may please be admitted in view of the ratio laid down by Hon’ble Supreme Court in case of National Thermal Power Corporation Ltd. [229 ITR 373 (SC)].”

4. At the outset, ld. Counsel for the assessee referring to Additional Ground No.1 submitted that proper approval u/s.151 of the Act has not been taken prior to issuance of notice u/s.148 and therefore the reassessment proceedings deserves to be quashed as null and void. Ld. Counsel for the assessee submitted that the assessment year under consideration is A.Y. 2016-17 and the AO while issuing notice u/s.148 of the Act has taken the approval of Principal Commissioner of Income Tax, Nashik. He submitted that for carrying out the reassessment proceedings beyond three years from the end of the assessment year, section 151(ii) of the Act provides that the approval needs to be taken from Principal Chief Commissioner of Income Tax or in case no Principal Chief Commissioner of Income Tax then Chief Commissioner of Income Tax and since the proper approval has not been taken, notice u/s.148 of the Act is bad in law. In support, he referred and relied on the following judicial pronouncements :

1. Alag Property Construction Pvt. Ltd. v. ACIT [W.P. No. 3938/2022] [Bombay High Court dated 08.09.2025

2. Core Logistic Company v. ACIT [(2025) 9 NYPCTR 879 (Madras High Court)] dated 05.06.2025

3. Bhagwan Sahai Sharma v. DCIT [(2025) 9 NYPCTR 725 (Delhi High Court)] dated 14.05.2025

4. M/s. Soft Zone v. DCIT [ITA No. 724/PUNE/2025] dated 21.05.2025

5. Karia Builders v. ITO 214 ITD 161 (Pune)] dated 23.07.2025

6. Manish Bhuta v. ITO [ITA No. 502/PUNE/2025] dated 20.11.2025

7. ITO v. Rajaram Ramswarup Jaju [(2025) 39 NYPTTJ 568 (Pune)]

5. On the other hand, ld. DR supported the order of ld.CIT(A).

6. We have heard the rival contentions and perused the record placed before us. We observe that the assessee is an individual and return of income for A.Y. 2016-17 on 31.03.2017 declaring income at Rs.17,11,620/- and the return has been processed u/s.143(1) of the Act on 19.04.2017. Subsequently, based on the information received from the Investigation Wing about cash deposit, ld. Assessing Officer proceeded to reopen the assessee’s case and has issued notice u/s.148A(d), 148A(b) and u/s.148 of the Act.

7. So far as the legal issue raised in the additional grounds of appeal challenging that valid prior approval has not been taken by ld. AO, we note that ld. AO has taken prior approval of Principal Commissioner of Income Tax, Nashik for issuing notice u/s.148A(d) and 148 of the Act. It has been consistently held in plethora of judgments including that of Hon’ble Jurisdictional High Court that for reopening beyond three years from the end of relevant assessment year as per the applicable provisions u/s.151(ii) of the Act ld. AO was required take prior approval from the Principal Chief Commissioner of Income Tax/Chief Commissioner of Income Tax and if such prior approval is not taken from the prescribed authority provided u/s.151(ii) of the Act, then such notices have been held to be illegal and bad in law.

8. We take note of the decision of this Tribunal in the case of Rajaram Ramswarup Jaju Vs. ITO ITA No.1882/PUN/2024 and CO No.35/PUN/2024 order dated 07.03.2025 wherein dealing with very same issue this Tribunal has held as under :

“7. With regard to the above ground no.1, Ld. AR submitted before us that the Assessing Officer has not taken prior approval of the appropriate authority as specified in section 151 and, therefore, the order passed u/s 148A(b) and notice issued u/s 148 are bad in law & consequently the reassessment order passed is also illegal. Accordingly, it was requested that the reassessment proceedings are liable to be quashed.

8. With regard to the above ground no.1 raised by the assesse in his cross objection, Ld. DR appearing from the side of the Revenue submitted before us, that no such irregularity has taken place, therefore, the ground raised by the assessee needs to be dismissed.

9. With regard to the above ground no.1 raised by the assessee in his cross objection, we find that prior to issue of notice u/s 148, the Assessing Officer is required to take prior approval of the appropriate authority as specified in section 151 of the IT Act. In this regard, we refer to relevant provision of section 151, which are as under :-

“[Sanction for issue of notice.

151. 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.]”

10. From perusal of the above section, it is crystal clear that if the case is reopened within 3 years from the end of the relevant assessment year, the approval u/s 151(i) is to be obtained from the Pr. Commissioner of Income Tax and if the case is being reopened after 3 years from the end of the relevant assessment year, the approval u/s 151(ii) is required to be obtained from Pr. Chief Commissioner of Income Tax. In the instant case in hand, we find that the period involved is assessment year 2016-17 and the notice u/s 148 was issued on 17.06.2021 i.e. after three years from the end of relevant Assessment Year. Therefore, it is apparent that the case is reopened after 3 years and accordingly the approval was required to be obtained as per section 151(ii) from Pr. Chief Commissioner of Income Tax. In this regard, we find that the approval in the instant case was obtained from Pr. Commissioner of Income Tax. It was obviously not correct since the case was reopened after 3 years from the end of the relevant assessment year, the approval as per section 151(ii) was required to be obtained from Pr. Chief Commissioner of Income Tax. In support of this contention, Ld. AR has produced copy of notice issued u/s 148 of the Act on page no.28 of the paper book, wherein it has been specifically mentioned at Sr. No.3 that this notice is being issued after obtaining the prior approval of the Pr.CIT-1, Nashik accorded on 20.07.2022 vide Reference No.NSK/Pr.CIT-1/Appr. u/s148/Range-1, Abd./2022- 23/1476. Accordingly, we find force in the arguments of Ld. Counsel of the assessee that the approval to issue notice u/s 148 was not obtained from appropriate authority and therefore, the consequential reassessment order is illegal and void ab initio since the approval was not obtained from appropriate authority. In this regard, Ld. Counsel of the assessee further relied on the order passed by Hon’ble Supreme Court in the case of Union of India vs. Rajeev Bansal (Civil Appeal No.8629/2024) wherein Hon’ble Supreme Court has continuously emphasized the necessity for obtaining approval from the specified authority as mandated under the amended provisions of the IT Act. Ld. Counsel of the assessee further relied on the judgement passed in the case of Siemens Financial Services Pvt. Ltd. vs. DCIT, Circle-8(2)(1), Mumbai (WP No.4888 of 2022) dated 25.08.2023 wherein Hon’ble Bombay High Court has held as under :-

“As held by this court in J. M. Financials (Supra), Sidhmicro Equities (P) Ltd. (Supra) and confirmed by the Apex Court that any notice issued without the sanction of the correct sanctioning authority will be invalid. This court in Godrej Industries Limited v. DCIT 16 has held that an assessment can be reopened under section 147 and 148 of the Act only on the jurisdictional preconditions being satisfied strictly. This Court held that sanction of a superior officer to the reasons recorded in terms of section 151 should be obtained before issuing the notice under section 148 of the Act and all jurisdictional requirements are required to be satisfied cumulatively and even if one of the numerous jurisdictional requirements necessary for issuing the notice under section 148 of the Act are not satisfied, the reopening of an assessment would fail. Hence, in the present facts also since the approval of the specified authority in terms of section 151(ii) of the Act is a jurisdictional requirement and in the absence of complying with this requirement, the reopening of assessment would fail.”

11. Respectfully following the above decision passed by Hon’ble Bombay High Court (supra), which was also followed in subsequent judgement passed by Hon’ble Bombay High Court in the case of Gigantic Mercantile (P.) Ltd. vs. ACIT, 165 taxmann.com646 (Bombay), we allow the ground no.1 raised in the cross objection filed by the assessee and hold that the reassessment order passed by the Assessing Officer is not correct since the notice issued u/s 148 for which the approval was not obtained from the appropriate authority according to the provisions of section 151(ii) of the IT Act. Thus, this ground no.1 raised by the assessee in cross objection is allowed.”

9. Hon’ble Jurisdictional High Court in the case of Alag Property Construction Pvt. Ltd. Vs. ACIT (supra) dealing with very same taking note of the judgment in the case of Union of India vs. Rajeev Bansal (2024) 167 taxmann.com70 has observed as under :

“8. On bare reading of the above extract of the judgment of the Hon’ble Supreme Court in the case of Rajeev Bansal (supra), we find that the Hon’ble Supreme Court had clarified as under:

(a) Under the substituted provisions of re-assessment as introduced by the Finance Act, 2021, the Assessing Officer is required to obtain prior approval or sanction of the ‘specified authority’ at four stages at the first stage under Section 148A(a), at the second stage under Section 148A(b), at the third stage under Section 148A(d), and at the fourth stage under Section 148. In the case of Ashish Agarwal (supra) the Hon’ble Supreme Court waived off the requirement of obtaining prior approval under section 148A(a) and Section148A(b) of the Act only. 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 for issuing a notice under Section 148.

(b) Under the new regime, if income escaping assessment is more than Rupees 50 lakhs, a reassessment notice could be issued after the expiry of three years from the end of the relevant previous year only after obtaining the prior approval of the Principal Chief Commissioner or the Principal Director General or the Chief Commissioner or the Director General.

(c) Section 151(ii) of the new regime prescribes an approval of a higher 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 vitiates their jurisdiction to issue a notice under section 148.

(d) Grant of sanction by the specified authority is a precondition for the assessing officer to assume jurisdiction under section 148 to issue a reassessment notice.

9. In the present case, the period of three years from the end of the A.Y. 2017-18 fell for completion on 31 March 2021. As the expiry date fell during the time period of 20th March 2020 and 31st March 2021, under Section 3(1) of the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (for short “TOLA”), the authority specified under Section 151(i) of the new regime could have granted sanction only till 30th June 2021.

10. On perusal of the order dated 18.08.2022, passed under Section 148A(d) of the Act we find that the aforesaid order was passed after taking approval from Principal Commissioner of Income Tax (Respondent No.2). Since the aforesaid order was passed, as well as the notice under section 148 was issued, after the expiry of three years from the end of A.Y. 2017-18, as per the substituted provisions of re-assessment, the authority specified under Section 151(ii) of the Act (i.e. Principal Chief Commissioner or Chief Commissioner) was required to grant approval. Accordingly, we conclude that in the present case, the approval has been obtained from the authority specified under Section 151(1) of the new regime instead of the authority specified under Section 151(ii) of the new regime.

11. The Hon’ble Supreme Court in the above case has drawn an illustration in para 78 of its order in the context of A.Y. 2017-18 (which is also the relevant Assessment year in the present Writ Petition) wherein it is categorically held that the authority specified under section 151(1) can accord sanction only upto 30.06.2021. This illustration makes it absolutely clear that when the period of three years from end of relevant Assessment Year expired between 20.03.2020 and 31.03.2021, the extension by virtue of TOLA was upto 30.06.2021 and not beyond. Thus, it can be said that the period of three years from the end of the relevant Assessment Year (in the present case A.Y. 2017-18) expired on 30.06.2021, whereas Respondent No.1, despite passing order under section 148A(d) on 18.08.2022, and issuing notice under section 148 on 23.08.2022 [in respect of Assessment Year 2017-18], has obtained approval of Respondent No.2 who is not the authority as prescribed under section 151(ii).

12. Non-compliance by Respondent No.1 with the provisions contained in Section 148A(d) read with Section 151(ii) vitiates the jurisdiction of Respondent No.1 to issue a notice under Section 148 of the Act.

13. We are clearly of the view that the present matter stands covered by the decision of Hon’ble Supreme Court in the case of UOI vs. Rajeev Bansal (supra) and we are bound by it. Accordingly, we hold that the order dated 18.08.2022 passed under Section 148A(d) of the Act and the consequential notice issued under section 148 dated and 23.08.2022 are bad in law, and hence, are required to be quashed and set aside.

14. We accordingly set aside the impugned order dated 18.08.2022 passed under Section 148A(d) of the Act and the consequential notice issued under section 148 dated 23.08.2022, and all other proceedings/orders emanating therefrom.”

10. On examination of the facts of the instant case in light of above judgments, we find that the same are squarely applicable and it remains an uncontroverted fact that as per section 151(ii) of the Act ld. Assessing Officer was required to take approval from Principal Chief Commissioner of Income Tax/Chief Commissioner of Income Tax prior to issuance of notice u/s.148 of the Act whereas ld. Assessing Officer has taken approval of Principal Commissioner of Income Tax which is not in accordance with the provisions of section 151 of the Act. We accordingly hold that notice u/s.148 of the Act issued by ld. Assessing Officer is illegal and bad in law. Therefore, the reassessment proceedings being invalid deserves to be quashed and impugned addition stands deleted. Ground No.1 of the additional grounds of appeal stands allowed.

11. Since assessee succeeds on legal issue and reassessment proceedings have been quashed, dealing with remaining grounds would be merely academic in nature and do not warrant any adjudication.

12. In the result, the appeal of the assessee is allowed.

Order pronounced on this 19^th day of June, 2026.