Wrong Sanctioning Authority Under Section 151 Vitiates Reassessment: Mumbai ITAT Quashes Entire Proceedings

Messrs Siddhi Investments Vs ITO (ITAT Mumbai)

Wrong Sanctioning Authority Under Section 151 Vitiates Reassessment: Mumbai ITAT Quashes Entire Proceedings

The Mumbai ITAT held that a reassessment initiated beyond three years from the end of the relevant assessment year is invalid where the approval under section 151 was granted by the wrong authority. In the present case, the notice under section 148 and the order under section 148A(d) were approved by the Principal Commissioner of Income Tax (Pr. CIT), whereas, under the law as it stood prior to the amendment by the Finance Act, 2023, the competent authority after expiry of three years was the Principal Chief Commissioner/Chief Commissioner under section 151(ii). Since the reassessment was founded on an invalid sanction, the assumption of jurisdiction itself was held to be void.

The Tribunal relied upon the Bombay High Court decision in Alag Property Construction Pvt. Ltd. v. ACIT and the Mumbai ITAT decision in Shabbir Taheri v. ITO, which held that the proviso inserted in section 151 by the Finance Act, 2023 has only prospective effect and cannot cure defects in sanctions granted prior to 1 April 2023. The Tribunal reiterated that sections 149 and 151 operate in different fields—section 149 prescribes the limitation for issuing notice, whereas section 151 specifies the competent sanctioning authority. The extended limitation under section 149 cannot be imported into section 151 in the absence of an express statutory provision. Accordingly, the Tribunal quashed the notice under section 148, the order under section 148A(d), and the consequential reassessment proceedings. Since the reassessment itself was declared invalid, the additions on merits were not examined.

Cases Discussed

• Alag Property Construction Pvt. Ltd. v. ACIT (Bombay High Court), [2025] 179 taxmann.com 578 (Bom.)
• Shabbir Taheri v. ITO (ITAT Mumbai), ITA No. 1574/Mum/2025
• Agnello Oswin Dias v. ACIT (Bombay High Court), [2024] 161 taxmann.com 16 (Bombay)
• ACIT vs. Asha P. Kedia
• Albert Joseph Rozario vs. ITO
• Rajeev Bansal (Supreme Court of India)

FULL TEXT OF THE ORDER OF ITAT MUMBAI

The instant appeal of the assessee filed against the order of the NFAC, Delhi [for brevity “Ld. CIT(A)], order passed under Section 250 of the Income Tax Act, 1961 (for brevity ‘the Act’) for Assessment Year 2016-17, date of order 23.10.2025. the impugned order emanated from the order of the Assessment Unit Income Tax Department (for brevity ‘Ld. AO’) order passed under Section 147 r.w.s. 144 r.w.s. 144B of the Act, date of order 23.05.2023.

2. The brief facts of the case are that the assesse is a partnership firm has not filed the return of income. The information was duly received by the Ld. AO about the financial transactions and activities for FY 2015-16 relevant to A.Y. 2016-17 under AIMS/ITS maintained under module of ITBS system of the Department. It is seen that the assessee is non filer during the year under consideration. The Ld. AO issued notice u/sec. 148 of the Act with the prior approval u/sec. 151 of the Act from Ld. Pr. Commissioner of Income Tax 17, Mumbai. Accordingly, notice u/sec. 148A was issued to the assessee. Finally, the assessment was completed and the addition was made amount to Rs.12,11,00,000/- and Rs.44,28,490/- which comes total amount to Rs.12,55,28,490/-. The aggrieved assessee filed an appeal before the Ld. CIT(A). The Ld. CIT(A) rejected the appeal of the assessee. Being aggrieved assessee filed an appeal before us.

3. The Ld. AR filed an Additional Ground related the validity of sanction granted u/sec. 151 of the Act for issuance notice u/sec. 148 of the Act. The Ld. AR invited our attention to the notice u/sec. issued 148 dated 07.04.2021 placed in record wherein the approval for issuance of the alleged notice u/sec 148 was accord by the Range 32(1) Mumbai. He further invited our attention in notice u/sec. 148A(d) dated 06.07.2022 placed in record, wherein the approval for issuance the said notice was accorded by the Principal Commissioner of Income Tax-17, Mumbai (Pr. CIT-17, Mumbai). In the alleged notice the Ld. AO noted

“8. The necessary approval for passing the order u/sec. 148A(d) and issuance notice u/sec. 148 has been taken from Pr. CIT-17, Mumbai vide order sheet entry dated 06.07.2022.” The Ld. AR contended that in the additional ground is related to challenging the validity of sanction of notice u/sec. 151 of the Act. As the sanction of the notice granted by the Pr. CIT 17 Mumbai beyond the prescribed period of three years from the end of relevant assessment year was contrary to law and, therefore, vitiated the entire reassessment proceeding.

4. In furtherance of his submissions, the Ld. AR placed reliance on the judgment of the Hon’ble Bombay High Court in the case of Alag Property Construction Pvt. Ltd. v. ACIT (2025) reported in 179 taxmann.com 578 (Boni), and reproduced the relevant paragraphs 11 to 14 thereof as under:

“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 up to 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(4)]

12. Non-compliance by Respondent No.1 with the provisions contained in Section 148A(d) read with Section 151(i) vitiates the jurisdiction of Respondent No.I 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 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.”

5. Respectful reliance was also placed on the decision of the Co-ordinate Bench of the ITAT, Mumbai — I Bench, in the case of Shabbir Taheri v. ITO, ITA No. 1574/Mum/2025, pronounced on 15.10.2025. The Hon’ble Vice President of the Mumbai Bench passed a concurrent order therein, and the relevant observations of the Bench are reproduced below:

“6. As could be seen from the provision contained u/s. 151 of the Act reproduced above, as per clause (i), in a case where action u/s. 148 and Section 148A of the Act is initiated before expiry of three years from the end of the relevant assessment year, the specified authority who can grant sanction/approval is the Principal Commissioner or Principal Director General or Commissioner or Director of Income Tax. However, as per clause (ii), if more than three years have elapsed from the end of the relevant assessment year, the specified authority, who can grant sanction is the Principal Chief Commissioner or Principal Director General or where no Principal Chief Commissioner or Principal Director General is available then Chief Commissioner or Director General of Income Tax. It is noteworthy, akin to third and fourth provisos, which were incorporated in Section 149(1) of the Act under the new regime effective from 01.04.2021, no corresponding amendment was made to Section 151 of the Act. By virtue of Finance Act, 2023 effective from 01.04.2023, the following proviso was added to Section 151 of the Act. “Provided that the period of three years for the purposes of Clause (i) shall be computed after taking into account, the period of limitation as excluded by the third, fourth and fifth provisos or extended by the sixth proviso to sub section (1) of Section 149 of the Act.”

7. Thus, as per Section 151 of the Act as it stood prior to its amendment by Finance Act, 2023, the limitation prescribed under Clause (i) of Section 151 of the Act was prior to expiry of three years from the end of the relevant assessment year and without benefit of further extension in terms with third, fourth or fifth proviso under sub section (1) of Section 149 of the Act.

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11. Similar view was reiterated by the Coordinate Bench in case of ACIT vs. Asha P. Kedia (Supra). It is relevant to observe, though the aforesaid decisions of the Coordinate Benches were rendered at a prior point of time and were available when the appeal of Albert Joseph Rozario (Supra) vs. ITO (Supra) was taken up before another Coordinate Bench, however, either knowingly or unknowingly, these decisions of the Coordinate Benches were not brought to the notice of the learned Bench. It appears so, because, there is no reference of these decisions in case of Albert Joseph Rozario vs. ITO (Supra). Had these decisions of Coordinate Benches been brought to the notice of learned Bench deciding the case of Albert Joseph Rozario (Supra), a different view might have been taken. In any case of the matter, the point of time from which the proviso to Section 151 of the Act would be applicable was considered by the Hon’ble Jurisdictional High Court in at least four judgments. Three of these judgments have already been referred to in the decision of my learned brother Accountant Member. Even in case of AgnelloOswin Dias vs. ACIT [2014] 161 taxmann.com 16 (Bombay), the Hon’ble Jurisdictional High Court, while reiterating the view that after expiry of three years from the end of the relevant assessment year, the specified authority in terms of Section 151(ii) of the Act is PCCIT, has held that the proviso to Section 151 of the Act having been inserted w.e.f. 01.04.2023 shall not be applicable prior to 01.04.2023. Meaning thereby, the proviso will not have retrospective effect. These decisions of the Hon’ble Jurisdictional High Court, being directly on the issue, constitute binding precedents.

12. In any case of the matter, Sections 149 and 151 of the Act have been enacted for different purposes and operate in different situations. While Section 149 of the Act, prescribes limitation for issuance of notice u/s. 148 and 148A of the Act, Section 151 of the Act prescribes the timeline for the specified authority to grant sanction for Section 148 and 148A of the Act. At the cost of repetition, it needs to be observed that prior to insertion of proviso u/s. 151 of the Act by Finance Act, 2023 w.e.f. 01.04.2023, the specified authority who can grant sanction for initiating proceedings u/s. 148A and issuing notice u/s. 148 of the Act after expiry of three years from the end of the assessment year is PCCIT/CCIT in terms with Section 151(ii) of the Act. Hence, in absence of any enabling provision u/s. 151 of the Act, the 3rd, 4th and 5th or 6th provisos of Section 149(1) of the Act cannot be read into Section 151 of the Act to extend the time limit u/s. 151(i) of the Act.

13. In view of aforesaid, I fully agree with the decision of my learned brother Accountant Member that, both the order passed u/s. 148A(d) of the Act and notice issued u/s. 148 of the Act are invalid due to lack of sanction by the specified authority as specified u/s. 151(ii) of the Act. As a natural corollary, the assessment order passed in consequence thereof is also invalid. Hence, the ground is allowed.”

6. The Ld. DR argued and relied on the order of the revenue authorities. But the Ld. DR was unable to place any contrary judgment against the submission of the Ld. AR.

7. We have carefully considered the rival submissions and perused the material available on record. The Ld. AR has raised a preliminary legal objection challenging the validity of the sanction granted under section 151 of the Act for issuance of notice under section 148 of the Act. On examination of the notice dated 07.04.2021 and the subsequent order passed under section 148A(d) of the Act, it is evident that the approval for initiation of reassessment proceedings beyond three years from the end of the relevant assessment year was granted by the Ld. Principal Commissioner of Income Tax-17, Mumbai. The legal position with regard to the competent authority for granting sanction under section 151 of the Act, prior to its amendment by the Finance Act, 2023, is now well settled. The Hon’ble Bombay High Court in Alag Property Construction Pvt. Ltd.(supra) has categorically held that where the period of three years from the end of the relevant assessment year has expired, sanction under section 151(i) could not have been accorded by the Principal Commissioner, and such sanction renders the reassessment proceedings void ab initio. The said judgment, being rendered by the Jurisdictional High Court, is binding on us. We further find that the Co-ordinate Bench of the ITAT, Mumbai, in Shabbir Taheri (supra), after an exhaustive analysis of sections 149 and 151 of the Act, has reiterated that prior to 01.04.2023, sanction for issuance of notice under section 148 after expiry of three years could be granted only by the authority specified under section 151(ii) of the Act, namely the Principal Chief Commissioner or Chief Commissioner, and that the proviso inserted by the Finance Act, 2023 has no retrospective application. In the present case, it is undisputed that the sanction for issuance of notice under section 148 and for passing the order under section 148A(d) of the Act was granted by the Pr. CIT-19, Mumbai, who was not the competent authority prescribed under section 151(ii) of the Act. Consequently, the assumption of jurisdiction by the Assessing Officer is bad in law and vitiates the entire reassessment proceedings.

In view of the binding judicial precedents and the settled legal position, we hold that the notice issued under section 148 of the Act, the order passed under section 148A(d) of the Act, and all proceedings consequential thereto are invalid and unsustainable in law. Accordingly, the reassessment proceedings are hereby quashed.

8. As the reassessment itself is held to be invalid on Additional Grounds, the issues raised on merits & other Grounds do not survive for adjudication.

9. In the result, the appeal for the assessee bearing ITA No.9165/Mum/2025 is allowed.

Order pronounced in the open court on 16^th day of July 2026.