PCIT Approval Cannot Sustain Reopening After Three Years: ITAT Mumbai

Inderlok Infra Agro Pvt. Ltd. Vs ITO (ITAT Mumbai)

PCIT’s Approval Could Not Sustain Reopening After Three Years: Mumbai ITAT Quashes ₹1.26 Crore Disallowance

Sanction for the June 2022 notice had to come from the authority specified under section 151(ii)

An assessment may disclose a possible omission, but that does not dispense with the statutory approval required to reopen it. In Inderlok Infra Agro Pvt. Ltd. v. ITO, ITA No. 3829/Mum/2026, decided on 23 September 2026, the Mumbai ITAT quashed a reassessment because the AO had obtained approval from the Principal Commissioner of Income-tax (PCIT) when approval from the higher authority specified under section 151(ii) was required.

For AY 2016–17, the company filed its return declaring income of ₹1,57,870. Its case was selected for scrutiny, and an assessment under section 143(3) was completed on 7 December 2018, determining income at ₹1,86,130. Later, on re-examining the balance sheet, profit and loss account and audit report, the AO noticed compensation expenditure of ₹4,20,83,544 on which tax had allegedly not been deducted at source. The AO considered that a disallowance under section 40(a)(ia) should have been made in the original assessment.

The case proceeded through the reassessment mechanism following the Supreme Court’s decision in Union of India v. Ashish Agarwal. After considering the assessee’s objections, the AO passed an order under section 148A(d) on 30 June 2022 and issued a notice under section 148 on the same date. Approval for both actions had been obtained from PCIT-5, Mumbai. The reassessment completed on 3 May 2023 made a disallowance of ₹1,26,25,363 under section 40(a)(ia). The CIT(A) dismissed the company’s appeal.

Why the rank of the approving authority mattered

Before the Tribunal, the company argued that, by 30 June 2022, more than three years had elapsed from the end of AY 2016–17. The applicable approval was therefore the one prescribed by section 151(ii), which required sanction from the higher specified authority. Approval from a PCIT fell under section 151(i) and could not satisfy that requirement.

The Department maintained that the reassessment had been validly initiated and that any defect in approval was curable. The Tribunal rejected that position. It noted that both the section 148A(d) order and the section 148 notice had been issued after obtaining approval from the PCIT, although the case fell within section 151(ii).

The Tribunal relied particularly on the jurisdictional Bombay High Court decision in Ramesh Bachulal Mehta v. ITO, which had applied the Supreme Court’s ruling in Union of India v. Rajeev Bansal. Those decisions explain that approval by the specified authority is a condition for the AO to assume jurisdiction to issue a reassessment notice. The directions in Ashish Agarwal did not waive the approval required when passing an order under section 148A(d) or issuing the consequential notice under section 148.

The timing under the pandemic-related relaxation legislation, TOLA, did not assist the Revenue either. For AY 2016–17, the three-year period ended on 31 March 2020. Under the principle explained in Rajeev Bansal, the authority under section 151(i) could grant sanction, with the relevant extension, only up to 30 June 2021. The approvals in Inderlok’s case were obtained a year later, in June 2022. At that stage, the PCIT was not the specified authority under section 151(ii).

The Tribunal accordingly held that the section 148 notice lacked sanction from the competent authority. The notice and the proceedings founded upon it were invalid. It quashed the reassessment order, set aside the CIT(A)’s order and allowed the company’s appeal. Having decided the jurisdictional issue, it did not examine the other grounds.

Author’s comments

The amount disallowed in reassessment was ₹1.26 crore, but the appeal turned on who approved the reopening and when. The possible TDS default on the compensation expenditure was not decided on merits. Once the approval failed the section 151 test, the AO could not proceed to make the disallowance through that reassessment.

This decision is particularly useful in cases that moved from old-law reopening notices into the section 148A procedure after Ashish Agarwal. The sanction obtained for the later section 148A(d) order and section 148 notice must be checked against the authority specified on the date of those actions. An approval from a senior officer is not sufficient merely because it was formally obtained; it must be approval from the officer whom section 151 authorised at that stage.

Cases Discussed

• Union of India vs. Ashish Agarwal [Civil Appeal No. 3005 of 2022] — referred to regarding conversion of old-regime reassessment notices into show-cause notices under the substituted reassessment regime and the procedural requirements thereafter.
• Union of India vs. Rajeev Bansal [2024] 167 taxmann.com 70 (SC) — relied upon for the requirement that sanction must be obtained from the specified authority under section 151 and for the effect of TOLA on the applicable sanction period.
• Ramesh Bachulal Mehta vs. Income Tax Officer [2025] 177 taxmann.com 606 (Bombay) — jurisdictional High Court decision relied upon on invalidity of approval from an authority specified under section 151(i) where section 151(ii) applied.
• Alag Property Construction Pvt. Ltd. vs. ACIT, W.P. No. 3938 of 2022 — cited by the assessee in support of its challenge to the sanction.
• Vasantha Narayan Poojari vs. Income Tax Officer, ITA No. 9174/Mum/2025 — cited by the assessee on the section 151 approval issue.
• DCIT vs. Unify Texturisers Pvt. Ltd., ITA No. 5055/Mum/2025 — cited by the assessee on the section 151 approval issue.
• Sri Krishna (P.) Ltd. v. ITO [1996] 87 Taxman 315/221 ITR 538 (SC)/[1996] 9 SCC 534 — referred to in the extracted precedent concerning section 151 as a safeguard against mechanical reopening.
• High Court Bar Association v. State of UP [2024] 160 taxmann.com 32/299 Taxman 21 (SC)/[2024] 6 SCC 267 — referred to in the extracted precedent concerning the Supreme Court’s exercise of Article 142 jurisdiction.

FULL TEXT OF THE ORDER OF ITAT MUMBAI 

This appeal by the assessee, arises out of order dated 29.01.2026 of National Faceless Appeals Centre [NFAC] for the Assessment Year 2016-17.

2. In Ground Nos. 1 and 2, the assessee has challenged the validity of reopening of assessment under Section 147 of the Income Tax Act, 1961 (in short “the Act”) on account of lack of proper approval/sanction under Section 151 of the Act.

3. Before we deal with the specific issue, it is necessary to discuss the relevant facts. The assessee is a resident corporate entity. For the assessment year under dispute, the assessee filed its return of income on 10.10.2016, declaring income of Rs. 1,57,870/-. The return of income filed by the assessee was selected for scrutiny and assessment under Section 143(3) of the Act was completed on 07-12-2018, determining total income at Rs. 1,86,130/-. Long after, upon re-verification of the balance sheet, profit and loss account and audit report, the Assessing Officer found that the assessee had debited an amount of Rs.4,20,83,544/- towards compensation expenses. Whereas, the assessee had not deducted tax at source. Thus, according to the Assessing Officer, due to non-deduction of tax, this expenditure should have been disallowed under Section 40(a)(ia) of the Act. Whereas, no such disallowance was made while completing the original assessment. Hence, to that extent, there is escapement of income.

4. Based on such reasoning, the Assessing Officer reopened the assessment under Section 147 of the Act. Subsequently, based on the decision of the Hon’ble Supreme Court in the case of Union of India vs. Ashish Agarwal [Civil Appeal No. 3005 of 2022], he issued a show cause notice under Section 148A(b) of the Act. After receiving the show-cause notice, the assessee furnished its objections. Considering the objections of the assessee, the Assessing Officer passed an order under Section 148A(d) of the Act on 30.06.2022, after obtaining approval of Principal Commissioner of Income Tax (PCIT)-5, Mumbai. On the very same date, he issued notice under Section 148 of the Act with the approval of PCIT-5, Mumbai. Ultimately, the Assessing Officer completed the reassessment vide an order dated 03-05-2023, disallowing amount of Rs.1,26,25,363/- under Section 40(a)(ia) of the Act. Though, the assessee filed an appeal against the said order, however, the appeal was dismissed.

5. Before us, learned counsel appearing for the assessee submitted that since notice under Section 148 of the Act was issued after expiry of three years from the end of the assessment year under dispute, in terms of Section 151(ii) of the Act, the Assessing Officer should have obtained approval of Principal Chief Commissioner of Income Tax or Chief Commissioner of Income Tax and not PCIT. Thus, he submitted, lack of approval of the competent authority has vitiated the entire proceedings. Hence, the assessment order is void ab initio. In support of such contention, learned counsel relied upon the following decisions:

i. Union of India vs. Rajeev Bansal [2024] 167 taxmann.com 70 (SC).

ii. Ramesh Bachulal Mehta vs. Income Tax Officer, [2025] 177 taxmann.com 606 (Bombay)

iii. Alag Property Construction Pvt. Ltd. vs. ACIT, W.P. No. 3938 of 2022.

iv. Vasantha Narayan Poojari vs. Income Tax Officer, ITA No. 9174/Mum/2025.

v. DCIT vs. Unify Texturisers Pvt. Ltd. ITA No. 5055/Mum/2025.

6. Learned Departmental Representative (DR) submitted, the Assessing Officer has validly initiated proceeding under Section 147 of the Act and any defect with regard to approval under Section 151 of the Act is a curable defect.

7. We have considered rival submissions and perused the materials on record. We have also applied our mind to the ratio laid down in the judicial precedents cited before us. A careful reading of Section 151 of the Act as a whole and clause (ii) of the said provision in particular, make it clear that after expiry of three years from the end of the relevant assessment year, the authority competent to grant approval/sanction for issuance of notice under Section 148 of the Act is the Principal Chief Commissioner of Income Tax or Chief Commissioner of Income Tax. Whereas, in the facts of the present appeal, the order under Section 148A(d), as also the notice under Section 148 of the Act, was passed/issued after obtaining approval of PCIT, in complete violation of Section 151(ii) of the Act. In case of ‘Ramesh Bachulal Mehta vs. ITO [177 taxmann.com 606] Hon’ble jurisdictional High Court, while dealing with identical issue, has held as under

“7. The Petitioner has drawn our attention to the decision of the Hon’ble Supreme Court in the case of Union of India v. Rajeev Bansal [2024] 167 taxmann.com 70 (SC)/[2024] 301 Taxman 238 (SC)/[2024] 469 ITR 46 (SC) and we deem it appropriate to refer to the said judgment where the Hon’ble Supreme Court has, while dealing with the issue of approval from the specified authority in terms of Section 151 of the Act, made the following observations:

“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 assesses from harassment resulting from the mechanical reopening of assessments Sri krishna (P) Ltd. v ITO [1996] 87 Taxman 315/221ITR 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, non-compliance 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 2017-2018 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 was 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 showcause 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 taxmann.com 32/299 Taxman 21 (SC)/[2024] 6SCC267,

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.”

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 reassessment 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 the first stage under Section 148A(a); (ii) at the second stage under Section 148A(b); (iii) at the third stage under Section 148A(d); and (iv) 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 Sections 148A(a) and 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 issuing a notice under Section 148.

8.2 Under the new regime, if the 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) of 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 repsect 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.”

8. The other judicial precedents cited by learned counsel for the assessee express similar view. Thus, respectfully following the ratio laid down in the judicial precedents cited before us, we hold that the notice issued under Section 148 of the Act, since, lacks sanction of the competent authority as per the requirements of Section 151(ii) of the Act, is invalid. Consequently, the all proceedings in pursuance thereof are also invalid.

9. In view of the aforesaid, we quash the impugned assessment order. The order of the First Appellate Authority is hereby set aside. In view of decision on the legal issue, the other grounds having become academic, do not require adjudication.

10. In the result, appeal is allowed as indicated above.

Order pronounced in the open court on 23/09/2026.