ITAT Amritsar Quashes Reassessment for Invalid Section 151 Approval by PCIT

Dharminder Sethi Vs ITO (ITAT Amritsar)

Sanction From a Senior Officer Is Not Enough; It Must Come From the Officer Named by Law: Reassessment & ₹29.32 Lakh Addition Quashed

The Amritsar ITAT has quashed reassessment proceedings for AY 2016-17 on the ground that the sanction for issuing notice u/s 148 was obtained from the PCIT instead of the specified authority prescribed u/s 151(ii). Since more than three years had elapsed from the end of the relevant assessment year, approval was required from the higher authority specifically named in Section 151(ii). Approval from an authority not empowered by the statute could not be treated as a curable procedural irregularity.

The assessee, Dharminder Sethi, filed his return for AY 2016-17 on 17.10.2016 declaring a total income of ₹3,76,060. The Department subsequently issued a notice under the erstwhile Section 148 during the period covered by the Supreme Court’s decision in Union of India v. Ashish Agarwal [2022] 444 ITR 1 (SC).

In Ashish Agarwal, the Supreme Court directed that reassessment notices issued under the old law during the transition to the new reassessment regime should be treated as deemed show-cause notices u/s 148A(b). The Department was required to furnish the information and material relied upon, provide an opportunity to the assessee, pass an order u/s 148A(d) and thereafter issue a consequential notice u/s 148, wherever permissible in law.

Following this procedure, an order u/s 148A(d) was passed and a consequential notice u/s 148 was issued in July 2022. The reassessment was ultimately completed u/s 147 read with Section 144B on 19.05.2023, determining the assessee’s total income at ₹33,08,025 after making an addition of ₹29,31,965 u/s 68 in respect of the sale consideration received from share transactions.

The assessee challenged the addition on merits by contending that the relevant documentary evidence, including bank statements, had been furnished and that the sale consideration could not be treated as an unexplained cash credit. However, before the Tribunal, the assessee raised a more fundamental challenge concerning the validity of the sanction obtained u/s 151.

The assessee argued that the consequential notice u/s 148 had been issued after the expiry of three years from the end of the relevant assessment year. Therefore, the case fell within Section 151(ii) and approval was required from the Principal Chief Commissioner or Principal Director General, or, where applicable, the Chief Commissioner or Director General.

In the present case, however, sanction had admittedly been granted by the Principal Commissioner of Income-tax. According to the assessee, the PCIT was not the specified authority for a notice issued after the expiry of three years and the reassessment was consequently without jurisdiction.

Reliance was placed upon the Supreme Court decision in Union of India v. Rajeev Bansal [2024] 469 ITR 46 (SC) and the Chandigarh ITAT ruling in Sara Wines v. ITO – ITA No. 620/Chd/2026, order dated 14.08.2026.

The Revenue contended that the reassessment proceedings had originated from the earlier notice issued under the old law. Following Ashish Agarwal, that notice was merely converted into a deemed notice u/s 148A(b). The subsequent proceedings were, therefore, only a continuation of the original proceedings and should not be treated as an independent initiation of reassessment.

It was further argued that approval from the PCIT should be considered sufficient and that the reassessment should not be invalidated on what the Department described as a technical objection concerning the sanctioning authority.

The Tribunal rejected the Revenue’s arguments. It held that Section 151 draws a clear distinction between cases where the notice is issued within three years and cases where it is issued after three years from the end of the relevant assessment year. Once the longer period is involved, approval must be obtained from the particular higher authority named in Section 151(ii).

The statutory requirement is not merely that approval should come from some senior officer of the Income-tax Department. Parliament has consciously identified the authority competent to grant sanction, and approval must come from that authority alone.

The Tribunal held that sanction u/s 151 is a jurisdictional safeguard. It must be validly obtained before the AO assumes jurisdiction to reopen an assessment. Where the statute designates a particular authority, sanction granted by any other authority cannot confer jurisdiction upon the AO. Jurisdiction cannot arise through consent, waiver or substantial compliance.

The Bench also rejected the contention that the consequential notice issued after the procedure prescribed in Ashish Agarwal should be ignored while determining the competent sanctioning authority. Ashish Agarwal provided a mechanism to deal with notices issued during the transition from the old to the new reassessment regime. It did not dispense with the statutory requirements applicable to the consequential proceedings.

Once an order u/s 148A(d) was passed and a consequential notice u/s 148 was issued, such notice was still required to satisfy every mandatory jurisdictional condition, including approval from the specified authority u/s 151.

Following Sara Wines, the Tribunal held that sanction granted by the PCIT did not satisfy Section 151(ii). The notice u/s 148 was consequently invalid and the entire reassessment proceedings based upon it were quashed. The assessment order dated 19.05.2023 and the consequential addition of ₹29,31,965 u/s 68 were set aside.

Since the reassessment itself was quashed, the Tribunal did not adjudicate whether the share transactions were genuine or whether they represented accommodation entries. All findings on merits were left open.

Author’s Comment

The decision reiterates that sanction u/s 151 is not an empty administrative formality. It is a statutory check intended to ensure that stale assessments are reopened only after examination by the authority specifically entrusted with that responsibility.

The fact that approval was granted by a high-ranking officer does not cure the defect. The question is not whether the officer was sufficiently senior, but whether he was the specified authority under the applicable clause of Section 151. When the statute says that one authority must grant approval, approval by another authority amounts to no approval in the eyes of law.

The Ashish Agarwal directions saved certain reassessment notices from invalidity during the transition to the new regime. They did not grant the Revenue immunity from limitation, sanction or other jurisdictional requirements governing the consequential notice. The later notice must independently pass every statutory test.

There appears to be a minor inconsistency in the order regarding whether the consequential notice was issued on 12.07.2022 or 22.07.2022. The order also describes the three-year period using dates that may require arithmetical correction. However, these inconsistencies do not affect the ratio because, on either stated date, the notice was admittedly issued more than three years after the end of AY 2016-17.

The principle emerging is emphatic: sanction from the wrong authority is not a procedural crack that can be repaired; it is a jurisdictional failure that brings down the entire reassessment.

Cases Discussed

• Union of India v. Ashish Agarwal [2022] 444 ITR 1 (SC)
• Union of India v. Rajeev Bansal [2024] 469 ITR 46 (SC)
• Sara Wines v. ITO – ITA No. 620/CHD/2026, order dated 14.08.2026

FULL TEXT OF THE JUDGMENT/ORDER OF ITAT, AMRITSAR

1. This is an appeal filed by the assessee feeling aggrieved by the order passed by the ld. Commissioner of Income Tax (Appeals) NFAC [in short ‘the CIT (A)’] dated 29.04.2025 for the assessment year 2016-17 whereby the appeal of the assessee against the assessment order passed under section 147 read with section 144B of the Income-tax Act, 1961 (“the Act”) was dismissed. The present appeal has been filed by the assessee on the grounds mentioned in the appeal.

2. The assessee has challenged, inter alia, the addition of ₹29,31,965/- on merits, contending that the Assessing Officer erred in treating the sale consideration of shares as unexplained and that the assessee had furnished the relevant documentary evidence, including bank statements. The assessee also disputed the validity of the reassessment proceedings.

3. The ld. AR During the course of hearing before the Tribunal, challenged the validity of the notice issued under section 148 and the sanction under section 151 is proposed to be adjudicated, being a pure question of law going to the root of the jurisdiction of the Assessing Officer. In this regard, the ld. AR submitted that the reassessment proceedings were initially commenced pursuant to a notice issued under the erstwhile section 148 during the period covered by the judgment of the Hon’ble Supreme Court in Union of India v. Ashish Agarwal, 444 ITR 1 (SC). It was further contended that pursuant to the judgment of the Hon’ble Supreme Court, the original notice was required to be treated as a deemed notice under section 148A(b), followed by furnishing of the information/material, opportunity to the assessee, passing of an order under section 148A(d), and thereafter issuance of a consequential notice under section 148. Lastly it was submitted that the consequential notice under section 148 in the present case was issued on 22.07.2022.

4. The ld. AR submitted that for AY 2016-17, the relevant assessment year ended on 31.03.2016 and, consequently, three years from the end of the relevant assessment year expired on 31.03.2019. Thus, as on 22.07.2022, more than three years had elapsed from the end of the relevant assessment year.

5. The ld. AR accordingly submitted that the provisions of section 151(ii) were attracted and the approval was required to be obtained from the Principal Chief Commissioner/Principal Director General or, where applicable, Chief Commissioner/Director General, and not from the Principal Commissioner of Income-tax.It was submitted that in the present case approval had admittedly been granted by the ld. PCIT.

6. In the estimation of the ld. AR, the notice issued by the Revenue was barred by limitation and was also issued by the authority other than the specified authority provided under the Act. Therefore, the reopening of the assessment was bad in eyes of law. The ld. AR relied upon the judgment of the Hon’ble Supreme Court in Union of India v. Rajeev Bansal, 469 ITR 46 (SC), and particularly upon the subsequent decision of the Coordinate Bench of the Chandigarh Tribunal in Sara Wines, ITA No. 620/CHD/2026, AY 2017-18, order dated 14.08.2026.

7. The ld. DR, on the other hand, supported the orders of the authorities below. However, it was fairly conceded by the DR that the notice was issued on 12.07.2022 under the approval of the PCIT. It was submitted that the reassessment proceedings had their genesis in the original notice issued during the period covered by the judgment in Ashish Agarwal. According to the Revenue, the original notice was converted into a deemed notice under section 148A(b) and, therefore, the subsequent notice issued in July 2022 should not be regarded as an independent initiation of reassessment proceedings.

8. The ld. DR contended that the subsequent proceedings were merely in continuation of the original proceedings and that the limitation and approval requirement should be examined with reference to the original notice. It was further submitted that the approval obtained from the Principal Commissioner of Income-tax should be regarded as sufficient and that the reassessment should not be invalidated on a technical objection relating to the sanctioning authority. The ld. DR accordingly submitted that the jurisdictional ground deserved to be dismissed.

9. We have heard the rival contention of the parties and perused the material available on the record. Before adjudicating the controversy, we deem it appropriate to record the relevant chronology:

10. The abovesaid narration of dates are essential to determine the legal challenge to the validity of the re-assessment proceedings made by the assessee on two counts. Therefore, it is incumbent on us to decide the jurisdiction issue first as it goes to the root of the matter. As mentioned hereinabove, the return of income for AY 2016-17 was filed by the assessee on 17.10.2016. The relevant assessment year was closed on 31.03.2016. So, the three-year period counted from the end of that assessment year was completed on 31.03.2019. The reassessment proceedings in this case were started based on notices that had been issued under the old reassessment rules, and on the later steps that were taken following the judgment given by the Supreme Court in Union of India & Ors. v. Ashish Agarwal, 444 ITR 1 (SC). Undoubtedly as per the judgement in the case of Ashish Agarwal, the directions were issued by the Hon’ble Supreme Court wherein it was directed to the revenue to follow the procedure set out under section 148A of the Act. There is no quarrel to this. The abovesaid list and dates clearly show that pursuant to the directions of Hon’ble Supreme Court the notice was issued by the Assessing Officer on 12.07.2022. The assessee at page 4 of the written synopsis has given the chronology of events as per which it is clear that the approval was accorded by the PCIT on 04.07.2022 whereas the order u/s 148A (d) was issued on 12.07.2022.

11. Now the question is whether the approval to issue the notice under section 148 could validly have been given by the Principal Commissioner of Income-tax on 04.07.2022, or whether, since more than three years had already passed since the end of AY 2016-17, approval was required to be given instead by the higher authority named in section 151(ii).

12. As held by us in Sara wines the authority that must give approval for a notice under section 148 is clearly named in section 151, as amended by the Finance Act, 2021. A clear line is drawn by the statute between a case where three years or less have passed since the end of the relevant assessment year, and a case where more than three years have passed. Once more than three years have passed, approval must be given by the specific authority named in section 151(ii). So the requirement is not simply that approval must be given by some senior officer of the department; instead, a particular authority has been deliberately named by Parliament, and approval must come from that authority alone.

13. In this case, the relevant assessment year is AY 2016-17, which ended on 31.03.2016. As a result, the three-year period was completed on 31.03.2019. However, the notice under section 148 was not issued until 12.07.2022. So, by the time this notice was issued, more than three years had already passed since the end of the relevant assessment year. This case is therefore covered by the second category set out in section 151(ii) of the Act.

14. It is further seen, from the material that has been placed on record, that approval for issuing the notice under section 148 was given by the Principal Commissioner of Income-tax. It has not been shown by the Revenue that approval was obtained, before the notice dated 12.07.2022 was issued, from the authority named in section 151(ii). So, the statutory requirement about the correct approving authority has not been met.

15. The argument made by the Revenue’s counsel, that the defect in sanction is merely a procedural one, cannot be accepted. The requirement to obtain approval under section 151 is a safeguard that has been built into the law by Parliament, and it must be satisfied before jurisdiction to reopen an assessment can be assumed by the Assessing Officer. Where a particular authority has been named by the statute as the one competent to give such approval, approval given by any other authority cannot be treated as good enough compliance. Jurisdiction of the Assessing Officer must be derived from the statute itself; it cannot be created by consent, by waiver, or by approval being obtained from an authority not named in the law.

16. No merit is found either in the argument that the later notice dated 12.07.2022 should be completely disregarded, for the purpose of deciding the correct approving authority, simply because these reassessment proceedings began from an earlier notice issued under the old law. A mechanism for handling notices issued under the old regime, during the move to the new reassessment rules, was provided by the Supreme Court’s judgment in Ashish Agarwal. But once an order under section 148A(d) was passed by the Revenue and a further notice under section 148 was issued as a result, the validity of that notice must still meet the statutory conditions for assuming jurisdiction — including the requirement that sanction be obtained under section 151.

17. It is found that this issue has already been directly dealt with by a Coordinate Bench of the Tribunal, in the case of Sara Wines, ITA No. 620/CHD/2026. On facts that are materially similar to the present case, the effect of the Ashish Agarwal judgment, as well as the later legal position explained in Union of India v. Rajeev Bansal, was considered by that Bench. It was held by the Coordinate Bench that, where more than three years had passed since the end of the relevant assessment year, sanction had to be obtained from the authority named in section 151(ii), and that approval given by the Principal Commissioner could not satisfy this requirement. The reasoning of the Coordinate Bench is respectfully agreed with.

18. When this principle is applied to the facts of the present case, it is found that the notice under section 148 dated 22.07.2022 was issued more than three years after the end of AY 2016-17, while approval for this notice was obtained only from the Principal Commissioner of Income-tax. Because approval was not obtained from the authority named in section 151(ii), the mandatory requirement for valid jurisdiction was not fulfilled. As a result, the notice issued under section 148 dated 22.07.2022 cannot be upheld in law.

19. Once the notice itself under section 148 is held to be invalid, because sanction was not given by the competent authority, the entire reassessment proceedings that are based on it cannot be allowed to continue. So, the assessment order passed under section 147 read with section 144B on 19.05.2023 must be treated as having been passed without valid jurisdiction, and it is liable to be set aside. As a result, the addition of ₹29,31,965/- made by the Assessing Officer under section 68, and upheld by the CIT(A), can no longer be supported.

20. Since the reassessment proceedings have been set aside on this jurisdictional ground, it is not considered necessary to decide the other grounds raised by the assessee against the addition on its merits. The findings recorded by the Assessing Officer and the CIT(A), about whether the share transactions were genuine, the alleged accommodation entries, and whether section 68 applies, are therefore treated as academic and are left open.

21. As a result, the notice issued under section 148 dated 22.07.2022 is held to be invalid, and the reassessment proceedings started because of it are set aside. Consequently, the assessment order dated 19.05.2023, passed under section 147 read with section 144B, is set aside, and the addition of ₹29,31,965/- made in it cannot stand.

22. Accordingly, the appeal filed by the assessee is allowed.

Order pronounced on 10th September,2026.