Errors in Section 151 Approval Invalidate ₹50 Lakh Reassessment: Agra ITAT

ITO Vs Magcon Infratech Pvt. Ltd. (ITAT Agra)

Errors in Section 151 Approval Invalidate Reassessment: Agra ITAT Quashes ₹50 Lakh Addition

The Agra Bench of the Income Tax Appellate Tribunal (ITAT) has quashed reassessment proceedings after finding material inconsistencies in the approval obtained under Section 151 of the Income-tax Act, 1961.

In ITO v. Magcon Infratech Pvt. Ltd., ITA No. 540/Agr/2026, along with CO No. 04/Agr/2026, pronounced on 4 November 2026, the Tribunal invalidated the reopening and the consequential assessment carrying a ₹50 lakh addition under Section 69C.

The approval form referred to a different amount of escaped income and classified the proceedings under the extended limitation provision. The Tribunal held that the sanction could not survive in light of the precedent applicable to these discrepancies.

Background: Alleged Bogus Purchases Triggered Reopening

The Assessing Officer received information through the Insight Portal following a search involving Sanjay Jain, Giridhari Lal Mehta and others. According to the investigation material, certain entities were allegedly engaged in providing bogus purchase and sale entries. The officer noted that Jain Cement Udyog, stated to be controlled by Sanjay Jain, had recorded sales of ₹50 lakh to the assessee during Assessment Year 2019-20. An order under Section 148A(d) and a notice under Section 148 were issued on 12 April 2023, following approval from the Principal Commissioner of Income Tax, Agra-1. The reassessment was completed on 29 March 2025, adding ₹50 lakh under Section 69C on account of alleged bogus purchases.

CIT(A) Granted Relief on Merits and Validity

The assessee challenged the reassessment before the CIT(A), National Faceless Appeal Centre. The CIT(A) deleted the addition on merits and also accepted the challenge to the validity of the sanction under Section 151. However, it rejected the assessee’s separate contention that the reopening notice was barred by limitation. It considered the statutory exclusion of time allowed for responding to the Section 148A(b) notice and held that, after giving effect to that exclusion, the notice could not be treated as time-barred. The Revenue appealed against both the merits relief and the finding that the reassessment was invalid.

Tribunal Examined Sanction Before Purchase Dispute

The ITAT took up the sanction issue first because it went to the root of the reassessment proceedings. The Revenue maintained that the competent authority had granted approval after considering the facts and information available on record. It also relied on the Delhi High Court’s decision in Pr. CIT v. Agroha Fincap Ltd. to support its challenge. The assessee defended the CIT(A)’s order, drawing attention to specific inconsistencies within the approval form rather than merely disputing the authority’s conclusion.

Approval Mentioned ₹3.22 Crore Instead of ₹50 Lakh

The Tribunal examined the approval granted on 11 April 2023. It found that Column 7 of the approval form recorded escaped income of ₹3,21,96,881, whereas the reopening order concerned the alleged ₹50 lakh transaction. Further, Column 9 stated that the proceedings were covered by Section 149(1)(b), referring to the period exceeding three years but not exceeding ten years. Despite that classification, approval had been granted by the PCIT, Agra-1. The assessee argued that these entries demonstrated non-application of mind. If the extended-period classification recorded in the form were adopted, the applicable sanctioning authority would also require examination under the corresponding provision of Section 151.

Bombay High Court Precedent Applied

The Tribunal relied on Kartik Sureshchandra Gandhi v. ACIT, reported in [2023] 154 taxmann.com 193 (Bombay). That decision concerned a comparable approval form referring to Section 149(1)(b), despite sanction having been obtained from the PCIT. The Bombay High Court had treated the inconsistent approval as demonstrating a failure to apply the required scrutiny. It emphasised that the safeguards under Sections 148 and 151 could not be treated lightly. Applying that reasoning, the Tribunal found the approval in Magcon Infratech’s case similarly invalid. It also held that the authority relied upon by the Departmental Representative did not apply to the facts before it.

Reopening Notice and Assessment Quashed

The ITAT quashed the Section 148A(d) order dated 12 April 2023 and the Section 148 notice issued on the same date. Consequently, it also quashed the reassessment order dated 29 March 2025, which arose from that notice. The Revenue’s remaining grounds concerning the merits of the addition became academic. The Tribunal therefore left them open without adjudication. The Revenue’s appeal was dismissed. The assessee’s cross-objection supporting the CIT(A)’s order was also dismissed as infructuous.

Significance of the Ruling

The decision underscores that reassessment approval requires meaningful scrutiny of the proposal and its statutory basis. Material inconsistencies concerning escaped income, limitation classification and sanction cannot be overlooked as routine entries. The ₹50 lakh addition fell with the invalid reassessment. The Tribunal did not independently decide whether the disputed purchases were genuine.

Cases Discussed

1. Kartik Sureshchandra Gandhi Vs ACIT — Bombay High Court, [2023] 154 taxmann.com 193, decided 01.08.2023. Followed on invalid Section 151 approval.

2. LinkedIn Singapore Pte. Ltd. Vs ACIT — Bombay High Court, [2025] 179 taxmann.com 412. Cited in the CIT(A)’s reasoning; related Supreme Court SLP dismissal also noted.

3. Pr. CIT Vs Agroha Fincap Ltd. — Delhi High Court, ITA No. 60/2024, decided 06.10.2025. Relied upon by Revenue; distinguished as inapplicable.

FULL TEXT OF THE ORIGINAL ORDER OF ITAT AGRA

This appeal is directed against the impugned order dated 24.04.2026 passed in appeal No. NFAC/2018-19/10464845 by the ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as the “CIT(A)] u/s. 250 of the Income Tax Act, 1961 (hereinafter referred to as the “Act”) for the A.Y. 2019-20, wherein ld. CIT(A) has allowed the assessee’s appeal. Further, the assessee has filed the above CO to support the order of the Ld. CIT (A).

2. Brief facts of the case: In this case, the AO had information in the Insight Portal under High Risk CRIU/VRU that a search operation was carried out u/s 132 of the Act at 29 premises of Sanjay Jain, Giridhari Lal Mehta and Ors. wherein the AO noted that several documents, soft copies in laptop mobile phone WhatsApp chat, cash, Jewelry and other information related with bogus financial transaction under taken by these entities either directly by Sanjay Jain or through with associates was uploaded. On perusal of the report as well as the ledger account of M/s Jain Cement Udyog, it was noticed by the AO that M/s Jain cement Udyog (controlled by Shree Sanjay Jain) had sold goods to the assessee company during the year under consideration for a sum of Rs. 50,00,000/- wherein the DDIT investigation had clearly established that Sanjay Jain facilitated the bogus purchases and sales entries. An order u/s 148 A(d) of the Act was passed on 12.04.2023 and a notice u/s 148 of the Act dated 12.04.2023 was issued after taking prior approval PCIT, Agra-1. Thereafter, the assessment was completed on 29.03.2025 u/s 147 of the Act. and an addition of Rs. 50,00,000/- was made u/s 69 C of the Act on account of bogus purchases from Jain Cement Udyog.

3. Aggrieved with the said order, the assessee filed an appeal before the Ld. CIT(A), who allowed the appeal of the assessee. The Ld. CIT (A) deleted the addition on merit as well as allowed the legal plea of the assessee that the order of the sanction by the Ld. PCIT, Agra-1 u/s 151 of the Act was bad in law and the assessment proceedings were held to be invalid. The relevant extract order of the Ld. CIT(A) in sustaining the ground no. 5 and additional ground of appeal is reproduced as under:

5.2 Ground of Appeal No. 5 and Additional Ground – Validity of reassessment proceedings/limitation/sanction under section 151

Ground No. 5 and the additional ground of appeal challenge the validity of reassessment proceedings initiated vide notice issued under section 148 dated 12.04.2023 on the grounds of limitation and invalid sanction under section 151 of the Income-tax Act, 1961.

I have carefully considered the submissions of the appellant, the statutory provisions and the material available on record.

The appellant has contended that the notice issued under section 148 is barred by limitation. In this regard, the provisions of sections 148A and 149 have been examined. Prior to issuance of notice under section 148, the Assessing Officer is required to follow the procedure prescribed under section 148A including issuance of show cause notice under section 148A(b)

The proviso to section 149 provides that while computing the period of limitation, the time or extended time allowed to the assessee under notice issued under section 148A(b) is required to be excluded. Accordingly, after giving effect to the statutory exclusion contemplated under the proviso to section 149, the notice issued under section 148 dated 12.04.2023 cannot be said to be barred by limitation. Therefore, the objection of the appellant on the ground of limitation is rejected.

However, the appellant has further challenged the validity of sanction accorded under section 151 on the ground that the approval was granted without proper application of mind. In support thereof, reliance has been placed upon the decisions of the Hon’ble Bombay High Court.

The Hon’ble Bombay High Court in Kartik Sureshchandra Gandhi v. Assistant Commissioner of Income-tax [2023] 154 taxmann.com 193 (Bom.) held that “therefore, it is rather clear that neither the issuing authority, i.e. the Assistant Commissioner, nor the sanctioning authority, i.e., Pr. Commissioner have applied their mind but have simply issued the notice mechanically” and further held that “on this ground alone, the order passed under section 148A(d) and notice issued under section 148 have to be quashed and set aside.” The aforesaid view was followed by the Hon’ble Bombay High Court in LinkedIn Singapore Pte. Ltd. v. Assistant Commissioner of Income-tax [2025] 179 taxmann.com 412 (Bom.), against which the Special Leave Petition came to be dismissed in Assistant Commissioner of Income-tax International Taxation v. Linkedin Singapore Pte. Ltd. [2025] 180 taxmann.com 158 (SC).

Considering the above judicial precedents and respectfully following the ratio laid down therein, the legal contention raised by the appellant regarding validity of sanction merits acceptance. Accordingly, the sanction accorded under section 151 is held to be invalid and, consequently, the notice issued under section 148 and proceedings Initiated pursuant thereto are held to be unsustainable in law.”

4. Aggrieved with the said order, the revenue has filed an appeal before us on the deletion of the addition on merits as well as in holding the assessment order invalid as reproduced above. Since, the ground challenging the above order of the Ld. CIT(A) in holding the assessment order invalid as reproduced above goes to the root of the matter, therefore, the same is taken up for adjudication first. The revenue has challenged the above order of the Ld. CIT(A) in ground no. 2 of the appeal and the same is reproduced as under:

2.That the Ld. CIT(A) has erred and treating the sanction accorded u/s 151of the act, has invalid whereas the sanction u/s 151 of the Act accorded by the competent authority was after considering all the facts, information available on record and with application of mind.”

5. At the time of hearing, the Ld. Sr. DR supported the above ground of appeal and stated that the Ld. PCIT, Agra-1 had granted the approval after due application of mind on the basis of the information available with the Ld. PCIT. The relevant extract of the submission of the Ld. Sr. DR is reproduced as under:

The Ld. CIT(A) has allowed the additional ground raised during the 1st Appellate stage on the issue of sanction accorded u/s 151 of the I.T. Act, 1961 without appreciating that the sanction u/s 151 of the Act accorded by the competent authority after considering all the facts information available with application of mind. Reliance is also placed on the judgment in ITA 60/2024 dated 06.10.2025 in the case of Pr. Commissioner of Income Tax-1 Vs. M/s Agroha Fincap Ltd. by the Hon’ble High Court of Delhi (copy enclosed).”

6. On the other hand, the Ld. AR supported the order of the Ld. CIT(A) and filed a written submission. The relevant extract of the same is reproduced as under:

Therefore, considering the above the time limit to issue the notice under section 148 of the Act was extended up to 17/18.04.2023 as per working hereunder.

Thus, in the case of the appellant notice issued under section 148 is within the extended time limit under section 149(1)(a) i.e within 3 years from the end of the relevant assessment year and accordingly the sanction was accorded by the specified Authority under section 151(i) i.e. PCIT-1, Agra.

However, the perusal of the sanction under section 151 of the I.T. Act will reveal that the approving authority’s non application of mind viz. Row 9-Time limit for current proceedings covered under section 149(1)(b) and Row 7- Quantum of income scaped assessment Rs. 3,21,96,881 instead of Rs. 50,00,000 as per order under section 148A(d).

The relevant portion is reproduced as under.

Approval u/s 151 of the IT Act, 1961

—

If the time limit as per sanction is to be taken in accordance with section 149(1)(b) of the Act, if more than three years have elapsed from the end of the relevant assessment year, then the same should have been by the Specified Authority under sub section (ii) i.e. PCCIT-Kanpur.”

6.1 In this regard, the Ld. AR relied upon the decision of the Hon’ble Bombay High Court in the case of Kartik Sureshchandra Gandhi vs. Asst, CIT Circle 4(2)(1), Mumbai and ors. [2023] 154 taxmann.com 193 (Bombay) to submit that on similar facts, the Hon’ble Court had quashed the impugned order passed u/s 148 A(d) of the Act and the impugned notice u/s 148 of the Act both dated 12.04.2023 wherein, the approval of the Ld. PCIT was taken wherein in column no. 8 of the said case for the approval proforma, it was mentioned that the approval was needed for order u/s 148(A)(d) and for issuance of notice u/s 148 of the Act and in the column 9 indicated the time limit for current proceedings covered u/s 149(1)(b) for more than 3 years but not more than 10 years.

7. We have heard both the parties and perused the material on record. In this case, the order u/s 148 A(d) of the Act was passed on 12.04.2023 and the notice u/s 148 of the Act was issued on 12.04.2023 for A.Y. 2019-20 after taking the approval u/s 151 of the Act on 11.04.2023 from the Ld. PCIT, Agra- 1. We further notice that the escaped income in the column no. 7 of the approval proforma which is part of assessee’s paper book on page no. 438 to 440 shows the escaped income at Rs. 3,21,96,881/-. In column no. 8 it is further mentioned that the approval is needed for order u/s 148(A)(d) and for issuance of notice u/s 148 of the Act. Further, the column 9 indicates the time limit for current proceedings covered under is stated to the u/s 149(1)(b) for more than 3 years but not more than 10 years. However, the approval was granted by ld. PCIT, Agra-1 only. On similar facts, the Hon’ble Bombay High Court in the case of Kartik Sureshchandra Gandhi vs. Asst, CIT Circle 4(2)(1), Mumbai and ors. (supra) vide order dated 01.08.2023 quashed and set aside the order dated 12.04.2023 u/s 148 A(d) of the Act and the notice dated 12.04.2023 u/s 148 of the Act. In this regard, the relevant extract of the order of the Hon’ble Bombay High Court is reproduced as under:

“14 Having considered the approval under Section 151 of the Act, we are satisfied that there is no valid sanction. There is no evidence that PCIT has even granted any valid sanction. If respondents say there was a sanction by respondent no.2, then it is an obvious case of utter non application of mind because he would otherwise have not granted sanction if he had only read and applied his mind to what is stated in box 9, i.e., the time limit for current proceedings covered under is stated to be under Section 149(1)(b), or he would have sent it back to respondent no.1 refusing to grant approval. It also goes to say that even respondent no.1, who has sought approval, has not applied his mind. We are of the opinion that if only respondent no.2 had read the report carefully, he would have never come to the conclusion that there is any material before him to treat it as a fit case to issue notice under Section 148 of the Act or pass order under Section 148A(d) of the Act. The safeguards provided in Sections 148 and 151 were lightly treated by respondent nos.1 and respondent no.2. Both of them appear to have taken the duty imposed on them under these provisions as of little importance.

On this ground alone, the order passed under Section 148A(d) and notice issued under Section 148 of the Act have to be quashed and set aside.

In view thereof, we do not wish to delve into the other issue of want of digital signature raised by petitioner on the sanction order issued under Section 151 of the Act. That can be considered in an appropriate case.

15 In the circumstances, we hereby quash and set aside order dated 12th April 2023 passed under Section 148A(d) of the Act and notice dated 12th April 2023 issued under Section 148 of the Act.

16 Petition disposed. No order as to costs.”

8. As noted above, in the present case also, Column 9 indicates the time limit for current proceedings covered under is stated to the u/s 149(1)(b) for more than 3 years but not more than 10 years and in column no. 7 the escapement of income has been mentioned at Rs. 3,21,96,881/-. However, the approval was granted by ld. PCIT, Agra-1, wherein, similar approval was held to be an invalid approval by the Hon’ble Bombay High Court in the above-mentioned case. In this regard, the case law relied upon by the Ld. Sr. DR is not applicable to the facts of the present case. Therefore, respectfully, following the above order of the of the Hon’ble Bombay High Court we quash and set aside the order dated 12.04.2023 u/s 148 A(d) of the Act and the notice dated 12.04.2023 u/s 148 of the Act in this case. Accordingly, we set aside and quash the assessment order dated 29.03.2025 passed in this case in consequence thereof said notice u/s 148 of the Act dated 12.04.2023. Ground no. 2 of the appeal is dismissed. In view of ground no. 2 of the appeal being dismissed, the other grounds become academic in nature and, hence, are not being adjudicated and are left open in this case.

9. In the result, the appeal filed by the revenue is dismissed.

10. In view of the department appeal being dismissed the CO filed by the assessee becomes infructuous and hence the same is also dismissed.

11. In the result, the appeal filed by the revenue and the CO filed by the assessee are dismissed.

Order pronounced in the open court on 04 /11 /2026.