Mahesh Pulaveni Vs ITO (ITAT Hyderabad)
Section 151: PCIT Approval Cannot Sustain a Section 148 Notice Issued Beyond Three Years—Reassessment Quashed
Background of the Dispute
The assessee challenged a reassessment completed under section 147 read with sections 144 and 144B on 13 December 2023, which had been sustained by the Commissioner (Appeals), NFAC.
The proceedings originated from information in the Insight Portal indicating substantial financial transactions despite non-filing of the return.
The Assessing Officer issued a show-cause notice under section 148A(b) on 20 March 2022, requiring a response by 27 March 2022. Since no response was furnished, an order under section 148A(d) was passed on 31 March 2022.
The subsequent section 148 notice was issued on 2 April 2022, after obtaining approval from PCIT-2, Hyderabad.
The decisive issue was whether that authority could sanction the notice when more than three years had elapsed from the end of assessment year 2018-19.
Substantial Bank Credits Formed the Assessment Dispute
The principal assessment addition concerned ₹2,32,44,505 credited to an ICICI Bank current account, treated as unexplained money under section 69A.
In his grounds, the assessee claimed that the credits represented digital transfers arising from customers using a POS or swiping machine to obtain cash against their credit cards. He contended that his income consisted of commission rather than the entire amounts transferred.
Other grounds challenged reopening based on bank withdrawals, compliance with section 151A and the adequacy of the Commissioner’s reasoning.
The Tribunal did not decide these substantive and alternative grounds. It first examined the validity of sanction under section 151.
Three-Year Boundary Changed the Specified Authority
For assessment year 2018-19, the period of three years from the end of the assessment year expired on 31 March 2022.
The assessee argued that the notice issued on 2 April 2022 therefore required approval from the authority specified under section 151(ii), as applicable at that time.
That provision required sanction from the Principal Chief Commissioner or Principal Director General, or the Chief Commissioner or Director General in the circumstances specified by the then provision.
Approval from the Principal Commissioner, applicable to the shorter period under section 151(i), could not support the later notice.
The assessee drew attention to the notice itself, which recorded PCIT approval dated 2 April 2022.
Revenue’s Reliance on Limitation Decisions Distinguished
The Revenue relied on decisions including Chandra Shekhar, BKR Capital and Rajmani Securities, concerning the computation of limitation and exclusion of time connected with section 148A proceedings.
The Tribunal distinguished BKR Capital and Rajmani Securities because those decisions concerned exclusion of an extended response period sought by the taxpayers.
In the present case, the assessee had not sought any extension for replying to the section 148A(b) notice. Those decisions therefore did not resolve the issue in the Revenue’s favour.
Regarding Chandra Shekhar, the Tribunal rejected the contention that dismissal of the special leave petition amounted to Supreme Court affirmation of the High Court’s reasoning.
Referring to Kunhayammed v. State of Kerala and Khoday Distilleries Ltd., it explained that a non-speaking refusal of special leave does not attract merger or convert the underlying reasoning into a Supreme Court declaration of law.
Jurisdictional High Court Decision Supported the Assessee
The Tribunal relied particularly on the Telangana High Court’s decision in Deloitte Consulting India Pvt. Ltd. v. Assessment Unit, W.P. No. 4061 of 2024, dated 25 September 2025.
That decision concerned assessment year 2018-19 and a notice issued in April 2022 with PCIT approval after the three-year period had expired.
The High Court had held that sanction from the higher specified authority was necessary.
It also rejected retrospective application of the proviso inserted in section 151 by the Finance Act, 2023, effective from 1 April 2023, concerning computation after statutory exclusions or extensions.
The later amendment could not retrospectively validate the sanction obtained for the April 2022 proceedings.
Reassessment Quashed for Invalid Assumption of Jurisdiction
Applying the statutory position and jurisdictional precedent, the Tribunal held that the Assessing Officer was required to obtain approval under section 151(ii).
Since approval had instead been obtained from PCIT-2, Hyderabad, the reassessment lacked a valid jurisdictional foundation.
The reassessment order was quashed and the appeal allowed. All remaining contentions were left open.
Author’s Comments
The decision highlights the distinction between the date of the preliminary show-cause notice and the date of the statutory action requiring sanction.
Here, the section 148A proceedings began before 31 March 2022, but the section 148 notice crossed the three-year boundary. The competent approving authority had to be determined accordingly under the law then applicable.
Sanction is a jurisdictional requirement, not a formality satisfied by approval from any senior officer.
The ruling remains tied to the applicable statutory version and dates. It also provides no finding that the bank credits were genuine commission-business receipts. The assessee succeeded because the reassessment itself was invalidly initiated, leaving the underlying income dispute undecided.
Cases Discussed
- Chandra Shekhar / Chandra Sekhar v. PCIT — (2025) 173 taxmann.com 591 (Patna); SLP (2025) 179 taxmann.com 341 (SC)
- BKR Capital (P.) Ltd. v. ITO — (2026) 187 taxmann.com 10 (Delhi); (2026) 187 taxmann.com 1073 (SC)
- Rajmani Securities (P.) Ltd. v. ITO — (2026) 187 taxmann.com 101 (Delhi); (2026) 187 taxmann.com 1077 (SC)
- Kunhayammed v. State of Kerala — (2000) 245 ITR 360 (SC)
- Khoday Distilleries Ltd. v. Sri Mahadeshwara Sahakara Sakkare Karkhane Ltd. — (2019) 4 SCC 376
- Union of India & Ors. v. Ashish Agrawal — Civil Appeal No. 3005/2022, 4 May 2022
- GKN Driveshafts (India) Ltd. v. ITO — (2003) 1 SCC 72
- Deloitte Consulting India Pvt. Ltd. v. Assessment Unit — W.P. No. 4061 of 2024, 25 September 2025 (Telangana HC)
