Sonu Mandhana Vs ITO (ITAT Bangalore)
Bangalore ITAT Quashes Reassessment: PCIT Not Competent to Sanction Notice Issued Beyond Three Years
The assessee declared income of ₹3.82 lakh for AY 2016-17. Based on Investigation Wing information alleging bogus long-term capital gains from a penny-stock transaction, the assessment was reopened and share-sale consideration of ₹32.25 lakh was added as unexplained cash credit under section 68.
The ITAT noted that the order under section 148A(d) and notice under section 148 were issued on 28 July 2022, after more than three years had elapsed from the end of AY 2016-17—even after considering the extension under TOLA up to 30 June 2021. Therefore, under section 151(ii), approval was required from the Principal Chief Commissioner, Chief Commissioner, Principal Director General or Director General.
However, approval had been obtained only from the Principal Commissioner of Income Tax, who was not the competent specified authority at that stage. Following the Bombay High Court ruling in Ramesh Bachulal Mehta and the Supreme Court decision in Rajeev Bansal, the Tribunal held that approval from the proper authority is a mandatory precondition for assuming reassessment jurisdiction.
Accordingly, the notice under section 148 was declared void ab initio, and the entire reassessment proceedings-including the assessment order under section 147 read with section 144B-were quashed. The grounds relating to the penny-stock addition and other jurisdictional issues were left open as academic.
List of Cases Discussed / Relied Upon
- Ramesh Bachulal Mehta vs. Income Tax Officer, reported in (2025) 177 taxmann.com 606 (Bombay)
- Union of India & Ors. v. Rajeev Bansal, reported in (2024) 469 ITR 46 (SC)
- Union of India vs. Ashish Agrawal, reported in (2022) 444 ITR 1 (SC)
- Swati Bajaj judgment
FULL TEXT OF THE ORDER OF ITAT BANGALORE
The assessee has filed the present appeal against the impugned order dated 13.04.2026, passed under section 250 of the Income Tax Act, 1961 (“the Act”) by the learned Commissioner of Income Tax (Appeals), National
Faceless Appeal Centre, Delhi, [“learned CIT(A)”], for the assessment year for the assessment year 2016-17.
2. In this appeal, the assessee has raised the following grounds: –
I. The order of the National Faceless Appeal Centre (“NFAC”), passed under Section 250 of the Income-Tax Act, 1961 (“the Act”) dated 13- Apr-2026, and the order of the Faceless Assessing Officer (“FAO”) passed under Section 147 r.w.s. 144B dated 20- May-2023, in so far as the same are against the Appellant, are opposed to law, facts, equity, and the weight of evidence on the facts and circumstances of the case.
II. That the orders passed by both the learned FAO and the learned NFAC are vitiated for having been made in gross violation of the principles of natural justice, rendering the proceedings null and void ab initio.
III. That on the facts and in the circumstances of the case and in law, the notice issued under section 148 of the Act, and the consequential reassessment proceedings initiated under section 147 of the Act are bad in law, void-ab-initio and liable to be quashed, as the same have been initiated beyond the time prescribed under the Act, without proper jurisdiction, without valid approval of the specified authority as mandated under section 151 of the Act, and without any valid tangible information or material suggesting escapement of income so as to justify reopening of the assessment.
IV. That on the facts and in the circumstances of the case and in law, the notice issued under section 148 and order passed under section 148A(d) of the Act are bad in law and void-ab-initio, since prior approval was obtained from an authority not competent under section 151 of the Act, thereby rendering the reassessment proceedings under section 147 of the Act invalid and liable to be quashed.
V. The notice issued under Section 148 and the order under Section 148A(d) of the Act by the Jurisdictional Assessing Officer (“JAO”), instead of the FAO, are without jurisdiction and legally unsustainable.
VI. That the learned JAO erred in issuing notice under section 148A(b) of the Act by relying upon incomplete and improper information/material and without furnishing the complete material relied upon, contrary to CBDT Instruction No. 1/2022 and the Apex Court’ s direction in Ashish Agarwal, thereby violating the principles of natural justice and denying the Appellant a proper opportunity of rebuttal.
VII. The notice issued under Section 148 of the Act dated 28-Jul-2022 for reopening of the assessment is time-barred, in accordance with the directions issued by the Hon’ble Supreme Court in the case of Ashish Agarwal v. Union of India, which were subsequently reaffirmed in the case of Rajeev Bansal.
VIII. That the notice issued under section 148 of the Act is bad in law and liable to be quashed, having been issued without a valid Document Identification Number (DIN) in violation of CBDT Circular No. 19/2019 dated 14-Aug-2019.
IX. The learned FAO, despite specific objections raised by the Appellant, failed to furnish any documentary evidence or material establishing the involvement of the Appellant in any alleged accommodation entry or bogus transaction. Further, the learned NFAC, having itself recorded that there was no direct evidence or specific information against the Appellant, erred in sustaining the additions merely on the basis of suspicion, conjectures, and surmises, without any supporting incriminating material on record.
X. That the learned NFAC erred in law and on facts in confirming the additions and rejecting the jurisdictional / technical grounds raised by the Appellant by incorrectly observing that the Appellant had not responded to the notices and that the alleged escapement of income exceeded Rs. 50 lakhs, whereas both the observations are factually incorrect and contrary to the records available on file.
XI. The learned NFAC erred in sustaining the addition under Section 68 of the Act without satisfying the mandatory conditions for invoking Section 68 of the Act in respect of sale consideration received on sale of listed shares through recognized stock exchange, duly supported by demat records, banking channels, and disclosed in the return of income.
XII. That the learned NFAC erred in confirming the addition under section 68 of the Act despite the Appellant having discharged the initial onus of proving identity, genuineness and creditworthiness, and in the absence of any cogent material brought on record by the Revenue against the Appellant.
XIII. The learned NFAC erred in confirming the impugned assessment order by denying the Appellant’s claim of exemption of long-term capital gains on sale of shares through a recognized stock exchange, eligible under section 10(38) of the Act, and by erroneously treating the entire sale consideration as unexplained cash credits under section 68 of the Act.
XIV. The learned NFAC erred in confirming the addition solely on the basis of general investigation reports relating to Sustar Realty Development Limited (“SRDL”) and alleged entry operators/exit providers, without any incriminating material or independent enquiry establishing any nexus between the Appellant and the alleged entities, and by drawing adverse inferences merely on suspicion and conjectures.
XV. That the learned FAO and the learned NFAC erred in denying exemption under section 10(38) of the Act and sustaining addition under section 68 of the Act in respect of alleged penny stock transactions despite the Appellant furnishing documentary evidence including bank statements, contract notes, demat statements and proof of payment of STT, and in the absence of any material establishing the Appellant’s involvement in price manipulation or any cash trail, while also denying opportunity of cross-examination of the persons relied upon.
XVI. Without prejudice to the above, the learned NFAC erred in sustaining the addition of the entire sale consideration amounting to Rs. 35,25,180/- under section 68 of the Act without allowing deduction towards the cost of acquisition and related transfer expenses, thereby resulting in impermissible double taxation of the Appellant’s disclosed investment contrary to settled principles of law.
XVII. The learned NFAC erred in sustaining / passing non-speaking and cryptic orders by merely relying upon and reproducing extracts from the investigation report and the judgment in Swati Bajaj judgment without independently examining the Appellant’s submission s, evidences and judicial precedents, contrary to the provisions of the Act.
3. During the hearing, the learned Authorised Representative (“learned AR”), inter alia, submitted that the sanction of the appropriate authority under section 151 of the Act was not sought prior to issuance of notice under section 148 of the Act. Thus, the assessment order passed under section 147 read with section 144B of the Act is void ab initio.
4. The brief facts of the case are that the assessee is an individual and for the year under consideration filed its return of income on 30.03.2017, declaring a total income of Rs.3,82,860/-. Subsequently, on the basis of the
information received from the Investigation Wing that the assessee is a beneficiary of an accommodation entry transaction of bogus long -term capital gains, the AO issued notice under section 148 of the Act on 31.05.2021.
5. Subsequently, in view of the decision of the Hon’ble Supreme Court in Union of India vs. Ashish Agrawal reported in (2022) 444 ITR 1 (SC), the original notice issued under section 148 of the Act on 31.05.2021 was deemed to be issued under section 148A(b) of the Act. Vide show cause notice dated 27.05.2022, the information and material relied upon by the Revenue were provided to the assessee and time was granted to the assessee to respond to the same before 13.06.2022 in terms of provisions of section 148A(b) of the Act.
6. Rejecting the objections filed by the assessee on 04.06.2022, an order under section 148A(d) of the Act was passed on 28.07.2022 declaring that it is a fit case for issuance of notice under section 148A of the Act. Thereafter, on the same date, i.e. on 28.07.2022, notice under section 148 of the Act was issued by the Jurisdictional Assessing officer. After considering the submissions of the assessee filed during the reassessment proceeding, the AO passed the order dated 20.05.2023 under section 147 read with section 144B of the Act, treating the scrip as penny stock and considering the sale consideration of Rs. 32,25,180 as unexplained cash credit under section 68 of the Act in the hands of the assessee.
7. The learned CIT(A), vide impugned order, dismissed the appeal filed by the assessee. Being aggrieved, the assessee is in appeal before us.
8. We have considered the submissions of both sides and perused the material available on record. Before proceeding further, it is essential to note the provisions of the Act that are relevant to the issue at hand. The relevant provisions of section 148 of the Act, as amended by the Finance Act 2021, read as follows: –
“148. Before making the assessment, reassessment or recomputation under section 147, and subject to the provisions of section 148A, the Assessing Officer shall serve on the assessee a notice, along with a copy of the order passed, if required, under clause (d) of section 148A, requiring him to furnish within a period of three months from the end of the month in which such notice is issued, or such further period as may be allowed by the Assessing Officer on the basis of an application made in this regard by the assessee, a return of his income or the income of any other person in respect of which he is assessable under this Act during the previous year corresponding to the relevant assessment year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed; and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139:
Provided that no notice under this section shall be issued unless there is information with the Assessing Officer which suggests that the income chargeable to tax has escaped assessment in the case of the assessee for the relevant assessment year and the Assessing Officer has obtained prior approval of the specified authority to issue such notice:
Provided further that no such approval shall be required where the Assessing Officer, with the prior approval of the specified authority, has passed an order under clause (d) of section 148A to the effect that it is a fit case to issue a notice under this section: ……….
Explanation 3.—For the purposes of this section, specified authority means the specified authority referred to in section 151.”
9. Therefore, as per the first proviso to section 148 of the Act, it is evident that for issuing notice under the section, the AO is required to obtain prior approval of the Specified Authority. The second proviso to section 148 further provides that no such approval shall be required where the AO, with the prior approval of the Specified Authority, has passed the order under section 148A(d) of the Act. Further, Explanation 3 clarifies that the Specified Authority for the purpose of section 148 shall be the Specified Authority as referred to in section 151 of the Act.
10. Section 151 of the Act deals with the Specified Authority for section 148 and section 148A of the Act, and the same reads as follows: –
“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 Chief Commissioner or Director General, if more than three years have elapsed from the end of the relevant assessment year.”
11. Therefore, from the plain reading of section 151 of the Act, it is evident that in a case where more than three years have elapsed from the end of the relevant assessment year, the Specified Authority for the purpose of granting prior approval, as required under section 148 of the Act, is Principal Chief Commissioner or Principal Director General or Chief Commissioner or Director General.
12. As per the assessee, in the present case, the period of three years from the end of the relevant assessment year, i.e., 2016-17, expired on 31.03.2020 and even if the extension granted by the Taxation and Other Laws (Regulations and Amendment of Certain Provisions) Act, 2020 (“the
TOLA”) is granted, the Specified Authority as per the provisions of section 151(i) of the Act, after its amendment by the Finance Act, 2021 could have granted the approval only till 30.06.2021. However, in the present case, the necessary approval, as per the provisions of section 151, for passing the order under section 148A(d) of the Act, was obtained after the aforesaid date from the Principal Commissioner of Income Tax. Accordingly, as per the assessee, the Revenue has not followed the mandatory provisions of the Act while initiating the reassessment proceedings, and the sanction of the Specified Authority is not in conformity with the law prevalent at the time of grant of sanction.
13. We find that while deciding the similar issue the Hon’ble Bombay High Court in Ramesh Bachulal Mehta vs. Income Tax Officer, reported in (2025) 177 taxmann.com 606 (Bombay), after considering the decision of the Hon’ble Supreme Court in Union of India & Ors. v. Rajeev Bansal, reported in (2024) 469 ITR 46 (SC), held that after the expiry of three years from the end of the relevant assessment year, the Specified Authority as per the provisions of section 151 of the Act is Principal Chief Commissioner or Principal Director General or Chief Commissioner or Director General. The relevant findings of the Hon’ble High Court, in the aforesaid decision, are reproduced as follows: –
“8. On bare reading of the above extract of the judgment of Hon’ble Supreme Court in the case of Rajeev Bansal (supra), we find that the Hon’ble Supreme Court had clarified as under:
8.1 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: (i) at first stage under Section 148A(a); (ii) at second stage under Section 148A(b);
(iii) at third stage under Section 148A(d); and (iv) at 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 Section 148A(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.
8.2 Under 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 assessment year only after obtaining the prior approval of the Principal Chief Commissioner or Principal Director General or Chief Commissioner or Director General.
8.3 Section 151(ii) of the substituted provisions prescribes a higher level of authority if more than three years have elapsed from the end of the relevant assessment year. Thus, non -compliance with the provisions of section 151 vitiates the jurisdiction of the Assessing Officer to issue a notice under section 148.
8.4 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.
9. In the present case the period of three years from the end of the Assessment Year 2016-17 fell for completion on 31st March 2020. Since the expiry date fell during the time period of 20th March 2020 and 31st March 2021 contemplated under Section 3(1) o f 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 till 30th June 2021. On perusal of the order, dated 13.07.2022, 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 after the expiry of three years from the end of the Assessment Year 2016-17, 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(i) of the new regime instead of the authority specified under Section 151(ii) of the new regime.
10. The Hon’ble Supreme Court in the above case has drawn an illustration in paragraph 78 of it’s order in the context of Assessment Year 2017-18, wherein it is categorically held that the authority specified under section 151(i) 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 (here AY 2016 -17) expired on 30.06.2021, whereas the Respondent No.1, despite passing the order on 13.07.2022 in respect of Assessment Year 2016-17, has obtained approval of Respondent No.2 who is not the authority as prescribed under section 151(ii).
11. Non-compliance by Respondent No.1 with the provisions contained in Section 148A(d) read with Section 151(ii) vitiates the jurisdiction of the Respondent No. 1 to issue a notice under Section 148 of the Act.
12. We are clearly of the view that the present matter stands covered by the decision of Hon’ble Supreme Court in the case of UPI v. Rajeev Bansal (supra). We accordingly hold that the order dated 13.07.2022 passed under Section 148A(d) of the Act and the consequential notice issued under section 148 dated 15.07.2022 are bad in law for being violative of the provisions of Section 151(ii) of the Act. Hence they are required to be quashed and set aside.
13. We, accordingly, set aside the impugned order dated 13.07.2022 passed under section 148A(d), the Notice issued under Section 148 and all other proceedings/orders emanating therefrom and allow the writ Petition in terms of Prayer Clause (a) of the petition.”
14. From the perusal of the order dated 28.07.2022 passed under section 148A(d) of the Act, which forms part of the paper book from pages 18 to 21, we find that the same was issued after seeking approval from the Principal Commissioner of Income Tax. Furthermore, the three-year period from the end of the relevant assessment year, i.e., 2016-17, as extended by the provisions of the TOLA, also expired in the present case on 30.06.2021. Therefore, respectfully following the decision of the Hon’ble Bombay High Court cited supra, we are of the considered view that notice under section 148 of the Act issued on 28.07.2022 is in contravention of the provisions of section 151 of the Act, as the sanction of the concerned Specified Authority was not obtained. Accordingly, we are of the considered view that the notice issued under section 148 of the Act is void ab initio and bad in law. Therefore, the same is quashed. Consequently, the entire reopening proceedings and assessment order passed under section 147 read with section 144B of the Act are also quashed.
15. Since the relief has been granted to the assessee on the aforenoted jurisdictional aspect, the other grounds raised by the assessee in the present appeal on merits as well as on jurisdiction are rendered academic and therefore are kept open.
16. In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open court on 19-Aug-2026.
