ITAT Pune Quashes Reassessment Over Invalid Section 151 Approval

Mahesh Gokuldas Fulwani Vs ITO (ITAT Pune)

Summary: The Pune ITAT partly allowed the assessee’s appeal for AY 2017-18, holding that the reassessment proceedings were invalid because the notice under section 148 dated 26.07.2022 was issued beyond three years from the end of the relevant assessment year but had received approval from the PCIT, Nashik instead of the authority specified under section 151(ii) of the Income-tax Act, 1961.

The assessee had filed his return on 02.11.2017 declaring total income of Rs.6,79,450/-. The reassessment was initiated on information in the possession of the jurisdictional Assessing Officer. Following the direction of the Supreme Court in Union of India vs. Ashish Agarwal, a notice under section 148A(d) was issued and the reassessment proceedings ultimately resulted in an addition of Rs.1,81,34,250/- relating to deposits with M/s. Renuka Mata Multi State Urban Co-operative Credit Society Ltd. The CIT(A)/NFAC upheld the Assessing Officer’s action.

Before the Tribunal, the assessee pressed only ground No.1, challenging the validity of the reassessment proceedings on the ground of improper approval under section 151. The assessee relied, among other decisions, on Holiday Developers (P.) Ltd., Gigantic Mercantile (P.) Ltd. and Rajaram Jaju. The Departmental Representative submitted that the issue had not been raised before the Assessing Officer or CIT(A)/NFAC and sought restoration of the matter.

The Tribunal held that since the notice under section 148 was issued beyond three years from the end of AY 2017-18, the competent authority under section 151 was the Principal Chief Commissioner, Principal Director General, Chief Commissioner or Director General, as applicable. Since approval had instead been granted by the PCIT, the Tribunal held that the approval was not in accordance with law and that the reassessment proceedings were invalid. Relying on the decision in M/s. Karia Builders vs. ITO and the decisions referred to therein, the Tribunal quashed the reassessment proceedings. The remaining grounds were dismissed as not pressed, and the appeal was partly allowed.

ITAT Pune on Validity of Reassessment Approval under Section 151

Background and Reassessment Proceedings

Mahesh Gokuldas Fulwani, an individual, filed his return of income for assessment year 2017-18 on 02.11.2017 declaring total income of Rs.6,79,450/-. The jurisdictional Assessing Officer reopened the assessment on the basis of information in his possession.

In view of the direction of the Hon’ble Supreme Court in Union of India vs. Ashish Agarwal, Civil Appeal No.3005 of 2022, order dated 04.05.2022, a notice under section 148A(d) of the Income-tax Act, 1961 dated 30.05.2022 was issued to the assessee asking why notice under section 148 should not be issued. After considering and rejecting the explanations furnished by the assessee, the JAO passed the order under section 148A(d) on 26.07.2022.

The notice under section 148 was also issued on 26.07.2022 through the ITBA portal after obtaining approval from the PCIT. The Assessing Officer subsequently made an addition of Rs.1,81,34,250/- to the assessee’s total income on the ground that the source of Rs.1,81,34,250/- deposited with M/s. Renuka Mata Multi State Urban Co-operative Credit Society Ltd. had not been explained.

The CIT(A)/NFAC upheld the Assessing Officer’s action, following which the assessee appealed to the Tribunal.

Assessee’s Challenge to the Section 151 Approval

Although several grounds had been raised, the assessee’s counsel pressed only ground No.1. The assessee contended that the order under section 148A(d) and notice under section 148, both dated 26.07.2022, were void ab initio because approval had been obtained under section 151(i) from the Commissioner of Income Tax instead of the approval required under section 151(ii) from the higher specified authority.

The assessee relied upon Bombay High Court decisions in Holiday Developers (P.) Ltd., 159 taxmann.com 178, and Gigantic Mercantile (P.) Ltd. vs. ACIT, 165 taxmann.com 646, as well as the Pune ITAT decision in Rajaram Jaju, ITA No.1882/PUN/2024 dated 07.03.2025.

Before the Tribunal, the assessee’s counsel specifically submitted that the assessment year was 2017-18 and the section 148 notice was dated 26.07.2022. Referring to section 151 as it stood at the relevant time, he submitted that where the reassessment notice was issued beyond three years from the end of the relevant assessment year, approval was required from the Principal Chief Commissioner or Principal Director General or Chief Commissioner or Director General.

The assessee therefore contended that approval granted by the PCIT, Nashik was not the approval prescribed by section 151 for the circumstances of the case. Reliance was also placed on the Pune ITAT decision in M/s. Karia Builders vs. ITO, ITA No.2401/PUN/2024 for AY 2017-18, order dated 23.07.2025.

Revenue’s Submission

The Ld. DR submitted that the issue had not been raised before the CIT(A)/NFAC or challenged before the Assessing Officer. The Department therefore sought restoration of the matter to the file of the CIT(A)/NFAC for an appropriate decision.

Tribunal’s Finding on Section 151 Approval

The Tribunal noted that the notice under section 148 dated 26.07.2022 for AY 2017-18 had been issued after obtaining prior approval from the PCIT, Nashik.

The Tribunal held that the notice had been issued beyond three years from the end of the relevant assessment year. It therefore applied section 151 and held that the competent authority for granting approval for issuance of the notice under section 148 was the Principal Chief Commissioner or Principal Director General or Chief Commissioner or Director General.

Since the approval in the present case had been granted by the PCIT instead of any of those authorities, the Tribunal held that the approval was not in accordance with law and that the reassessment proceedings were invalid.

Reliance on Karia Builders

The Tribunal noted that an identical issue had arisen before the Co-ordinate Bench in M/s. Karia Builders vs. ITO. In that case, the notice under section 148 for AY 2017-18 had been approved by the PCIT-4, Pune.

The Tribunal in Karia Builders considered section 151 as it stood at the relevant time, under which the specified authority was the Principal Commissioner or Principal Director or Commissioner or Director where three years or less had elapsed from the end of the relevant assessment year, and the Principal Chief Commissioner or Principal Director General or, where there was no Principal Chief Commissioner or Principal Director General, the Chief Commissioner or Director General where more than three years had elapsed.

The Tribunal in that decision held that because more than three years had elapsed, approval from the higher specified authority under section 151(ii) was required. Approval granted by the PCIT was therefore held not to be in accordance with law and the reassessment proceedings were held invalid.

The Tribunal also referred to the decision in Cipla Pharma and Life Sciences Ltd. Vs DCIT, in which the issue of approval by the specified authority under section 151 was considered in the context of a notice issued after more than three years.

The Tribunal further noted the decision of the Bombay High Court in Siemens Financial Services Pvt Ltd. Vs DCIT, as relied upon in Karia Builders.

Reassessment Proceedings Quashed

In the present case, the Tribunal found that the approval had admittedly been granted by the PCIT instead of the Principal Chief Commissioner or Principal Director General or Chief Commissioner or Director General. It therefore held that the approval was not a valid approval under section 151.

The Tribunal concluded that the improper approval obtained under section 151 vitiated the reassessment proceedings. It accordingly quashed the reassessment proceedings and allowed ground No.1 raised by the assessee.

Remaining Grounds Not Pressed

The Ld. Counsel for the assessee did not press the remaining grounds. The Tribunal therefore dismissed those grounds as “not pressed”. The appeal was accordingly partly allowed.

Cases Discussed

• Holiday Developers (P.) Ltd, 159 taxmann.com 178
• Gigantic Mercantile (P.) Ltd. vs. ACIT, 165 taxmann.com 646
• Rajaram Jaju ITA 1882/PUN/2024 dated 07/03/2025
• M/s. Karia Builders vs. ITO vide ITA No.2401/PUN/2024 for assessment year 2017-18, order dated 23.07.2025
• Union of India vs. Ashish Agarwal vide Civil Appeal No.3005 of 2022, order dated 04.05.2022
• Cipla Pharma and Life Sciences Ltd. Vs DCIT
• Siemens Financial Services Pvt Ltd. Vs. Deputy Commissioner of Income Tax & Ors.

FULL TEXT OF THE ORDER OF ITAT PUNE

This appeal filed by the assessee is directed against the order dated 28.01.2025 of the Ld. CIT(A) / NFAC, relating to assessment year 2017-18.

2. Although a number of grounds have been raised by the assessee, however, the Ld. Counsel for the assessee pressed only ground No.1 which reads as under:

1) On the facts and circumstances of the case and in law, it may please be held that the order u/s 148A(d) and notice u/s 148 both dated 26/07/2022 are void ab initio since the same are issued with approval/sanction u/s 151(i) from Commissioner of Income tax instead of mandatory requirement of approval u/s 151 (ii) from chief commissioner of Income tax. Accordingly, the reassessment Proceedings so initiated without valid approval/sanction may kindly be annulled.

a) Reliance placed on Bombay HC Holiday Developers (P.) Ltd, 159 taxmann.com 178

b) Bombay HC in case of Gigantic Mercantile (P.) Ltd. vs. ACIT, 165 taxmann.com 646

c) PUNE ITAT in Rajaram Jaju ITA 1882/PUN/2024 dated 07/03/2025

3. Facts of the case, in brief, are that the assessee is an individual and has filed his return of income for the assessment year 2017-18 on 02.11.2017 declaring total income of Rs.6,79,450/-. The case of the assessee was reopened by the jurisdictional Assessing Officer (JAO) on the basis of information in his possession. In view of the direction of Hon’ble Supreme Court in the case of Union of India vs. Ashish Agarwal vide Civil Appeal No.3005 of 2022, order dated 04.05.2022, a notice u/s 148A(d) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) dated 30.05.2022 was issued to the assessee asking him to explain as to why notice u/s 148 of the Act should not be issued in this case. Rejecting the various explanations given by the assessee, the JAO passed the order u/s 148A(d) of the Act on 26.07.2022. Accordingly, notice u/s 148 of the Act was issued on 26.07.2022 through ITBA portal after obtaining the approval from the PCIT. Rejecting the various explanations given by the assessee, the Assessing Officer made addition of Rs.1,81,34,250/- to the total income of the assessee on the ground that the assessee could not explain the source of Rs.1,81,34,250/- deposited with M/s. Renuka Mata Multi State Urban Co-operative Credit Society Ltd.

4. In appeal the Ld. CIT(A) / NFAC upheld the action of the Assessing Officer.

5. Aggrieved with such order of the Ld. CIT(A) / NFAC, the assessee is in appeal before the Tribunal.

6. The Ld. Counsel for the assessee at the outset submitted that the entire re- assessment proceedings are invalid on account of improper approval / sanction. He submitted that the assessment year in the instant case is assessment year 2017-18 and the 148 notice is dated 26.07.2022. Referring to the notice issued u/s 148 of the Act, copy of which is placed at page 1 of the paper book, he submitted that the approval was obtained from the PCIT, Nashik who accorded his approval on 22.07.2022. Referring to the provisions of section 151 of the Act as they stood at the relevant time, he submitted that as per the said provisions when the re- assessment notice is issued beyond a period of three years from the end of the relevant assessment year, the competent authority for granting the approval for issue of notice u/s 148 of the Act is the Principal Chief Commissioner or Principal Director General or Chief Commissioner or Director General. He submitted that since the approval in the instant case has been given by the PCIT instead of Principal Chief Commissioner or Principal Director General or Chief Commissioner or Director General, therefore, such re-assessment proceedings not being in accordance with law has to be quashed. For the above proposition, he relied on the decision of the Co-ordinate Bench of the Tribunal in the case of M/s. Karia Builders vs. ITO vide ITA No.2401/PUN/2024 for assessment year 2017-18, order dated 23.07.2025.

7. The Ld. DR on the other hand submitted that this issue was never raised before the Ld. CIT(A) / NFAC nor challenged before the Assessing Officer, therefore, the matter may be restored to the file of the Ld. CIT(A) / NFAC for taking a suitable decision.

8. We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and Ld. CIT(A) / NFAC and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. It is an admitted fact that the notice u/s 148 of the Act dated 26.07.2022 for the assessment year 2017-18, copy of which is placed at page 1 of the paper book was issued after obtaining the prior approval of the PCIT, Nashik. The said notice reads as under:

9. We find since the notice has been issued beyond the period of three years from the end of the relevant assessment year, therefore, in view of the provisions of section 151, the competent authority for granting the approval for issue of notice u/s 148 of the Act is the Principal Chief Commissioner or Principal Director General or Chief Commissioner or Director General. Since the approval in the instant case has been granted by the PCIT instead of any of the above authorities, therefore, such approval being not in accordance with law, the re-assessment proceedings are invalid.

10. We find an identical issued had come up before the Co-ordinate Bench of the Tribunal in the case of M/s. Karia Builders vs. ITO (supra) where the Tribunal has observed as under:

“21. Even otherwise also, a perusal of the notice u/s 148 of the Act dated 28.07.2022 issued for the assessment year 2017-18 shows that the same has been approved by the PCIT-4, Pune vide letter dated 27.07.2022 which is mentioned at page 2 of the notice u/s 148 and which reads as under:

INCOME TAX DEPARTMENT
OFFICE OF INCOME TAX OFFICER, WARD 14(3)

Room no.430, 4thfloor, Aayakar Sadan, Bodhi Tower, 548/28, Salisbury Park,
Gultekdi, Atur Sangtani Park, Lane No.1, Pane 411037

Email: [email protected]

Phone: 020-24264430

To

Karia Builders,
402, 3rdFloor, Konark Indrayu,
Kondhwa Khurd, Pune
411001

Notice under section 148 of the Income tax Act, 1961

Sir / Madam / M/s

1……

2. I, therefore, propose to assess or reassess such income or recompute the loss or the depreciation allowance or any other allowance or deduction for the Assessment Year 2017-18 and I, hereby, require you to furnish, within 30 days from the service of this notice, a return in the prescribed form for Assessment Year.

3. This notice is being issued after obtaining the prior approval of the Pr.CIT- 4, Pune accorded on date: 27/07/2022 vide Reference No.PN/Pr.CIT4/148/Proposal/2022-23/1272.

Sd/-
(Ritesh Kumar)
ITO Ward-14(3), Pune”

22. Even the Assessing Officer at page 4 of the assessment order has also mentioned as under:

“The assessee replied during the proceedings, but the Jurisdictional Officer was not satisfied with his reply and therefore, the JAO concluded the following in his order U/s 148 A(d) of the IT Act dated 28.07.2022:

06. In view of the above facts, the information in my possession as mentioned above suggests that by not showing cash loan of Rs.1,00,00,000/-, the assessee has not shown its correct income. Therefore, assets to the tune of Rs.1,00,00,000/- has escaped assessment. Therefore this is a fit case for issue of notice u/s 148.

07. This order is passed with prior approval of Pr.CIT-4, Pune vide Letter No.PN/PCIT-4/Proposal/2022-23/1272 dated 27/07/2022.”

23. Provisions of section 151 as it stood at the relevant time read as under: “Sanction for issue of notice. 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:]

[Provided that the period of three years for the purposes of clause (i) shall be computed after taking into account the period of limitation as excluded by the third or fourth or fifth provisos or extended by the sixth proviso to sub-section (1) of section 149.]

24. Since the notice has been issued beyond the period of three years from the end of the relevant assessment year, therefore, in view of the provisions of section 151, the competent authority for granting the approval for issue of notice u/s 148 of the Act is the Principal Chief Commissioner or Principal Director General or Chief Commissioner or Director General. Since the approval in the instant case has been granted by the PCIT instead of any of the above authorities, therefore, such approval being not in accordance with law, the re-assessment proceedings are invalid. For the above proposition, we rely on the decision of the Hon’ble Delhi High Court in the case of Bhagwan Sahai Sharma vs. DCIT (supra) where it has been held that section 151 mandates that where more than three years have elapsed from end of relevant assessment year, notice under section 148 requires prior approval of the Principal Chief Commissioner or Principal Director General or where there is no Principal Chief Commissioner or Principal Director General, Chief Commissioner or Director General. The Hon’ble High Court further held that TOLA would have no relevance for determining the specified authority whose approval was mandatory under section 151 for issuance of a notice under section 148 and the bifurcation of those powers would continue unaltered and unaffected by TOLA.

25. We find the Hon’ble Bombay High Court in the case of Cipla Pharma and Life Sciences Ltd. vs. DCIT (supra) has held as under:

“8. On a plain reading of Section 148A it is clear that the Assessing officer before issuing any notice under section 148 is required to follow the procedure as set out in clauses (a) to (d) of Section 148A. One of the pre- conditions as ordained by clause (d) of Section 148A is that an order under such provision can be passed by the Assessing Officer only with the approval of “Specified Authority”. Thus, necessarily when clause (d) of Section 148A provides for prior approval of specified authority, it relates to the provisions of Section 151 of the Act providing for ‘Specified authority for the purposes of Section 148 and Section 148A of the Act’. In the present case, Section 151 as amended by the Finance Act, 2021 and Section 148A as also introduced by Finance Act, 2021 have become applicable, as although the assessment year in question is 2016-17 in respect of which the assessment is sought to be reopened by issuance of notice under section 148, which is dated 30 July, 2022. Such amended provision would squarely become applicable the date of notice under section 148 itself being 30 July, 2022.

9. The record clearly indicates that the sanction in the present case was issued by the Principal Commissioner which can only be in respect of cases if three years or less than three years have elapsed from the end of the relevant assessment year, as would fall under the provisions of clause (i) of Section 151 of the Act. As in the present case the assessment year in question is 2016-17 and the impugned notice itself has been issued on 30 July, 2022, it is issued after a period more than 3 years having elapsed from the end of the said assessment year, hence, clause (ii) of Section 151 of the Act was applicable, which required the sanction to be issued by either Principal Chief Commissioner or Principal Director General or where there is no Principal Chief Commissioner or Principal Director General, Chief Commissioner or Director General for issuance of notice under Section 148 of the Act.

10. As rightly pointed out at the bar, such issue fell for consideration of the Division Bench of this Court in Siemens Financial Services Pvt. Ltd. (supra), wherein the Division Bench considered the provisions of Section 151 of the Act read with the provisions of Section 148A(b), the latter provision clearly providing that prior to issuance of any notice under Section 148 of the Act, the assessing officer shall provide an opportunity of being heard to the assesse only after considering the cumulative effect of Section 148A(b) read with Section 151 of the Act and as provided under sub-clause (d), the assessing officer shall decide on the basis of material available on record including reply of the assessee, whether or not it is a fit case to issue a notice under Section 148 by passing an order, with the prior approval of specified authority within one month from the end of the month in which the reply is received. It is held that the sanction of the specified authority has to be obtained in accordance with the law existing when the sanction is obtained and, therefore, the sanction is required to be obtained by applying the amended section 151(ii) of the Act and since the sanction has been obtained in terms of section 151(i) of the Act, the impugned order and impugned notice are bad in law and should be quashed and set aside.

11. Insofar as the respondent’s case based on the notification dated 31 March, 2020 issued under the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (for short, ‘TOLA’) was concerned, the Court held that such notification was a subordinate legislation and it could not override the statute enacted by the Parliament and in that regard, the position in law was discussed by the Division Bench in paragraph 27 of the said decision.

12. In the present case, it is not in dispute that an appropriate sanction of the specified authority as per the provisions of Section 151(ii) of the Act was not obtained and for such reason, certainly, as held by this Court in Siemens Financial Services Pvt. Ltd. (supra), the impugned notices would be rendered bad and illegal. The petition accordingly needs to succeed on such ground of the Court requiring to delve on such issues of challenge as raised by the petitioner as also prior procedure adopted in that regard.

13. In the light of the above discussion, the petition needs to succeed. It is accordingly allowed by the following order:-

Order

i. The impugned notice dt. 30th July, 2022 issued under s. 148 of the Act is quashed and set aside, as also the impugned order dt. 30th July, 2022 passed by the AC under s. 148A(d) of the Act is quashed and set aside. ii. Rule is made absolute in the aforesaid terms.

iii. Since we have disposed of the petition on the limited ground, we have no considered the other grounds.

iv. Disposed of. No costs.”

26. The various other decisions relied on by the Ld. Counsel for the assessee also supports his case to the proposition that the improper approval obtained u/s 151 of the Act vitiates the entire reopening proceedings. We, therefore, hold that the re-assessment proceedings being not in accordance with law, have to be quashed.”

11. Since admittedly in the instant case the approval has been granted by the PCIT instead of Principal Chief Commissioner or Principal Director General or Chief Commissioner or Director General, therefore, such approval being not in accordance with law is not a valid approval. Therefore, such improper approval obtained u/s 151 of the Act vitiates the re-assessment proceedings. We, therefore, hold that the re-assessment proceedings being not in accordance with law, has to be quashed. We accordingly quash the re-assessment proceedings. Ground No.1 raised by the assessee challenging the re-assessment proceedings is accordingly allowed.

12. Since the Ld. Counsel for the assessee did not press the remaining grounds, we dismiss the these grounds as ‘not pressed’. The appeal filed by the assessee is accordingly partly allowed.

13. In the result, the appeal filed by the assessee is partly allowed.

Order pronounced in the open Court on 30th July, 2025.