Mumbai ITAT Quashes Reassessment for Wrong Approval U/s 151(ii); Penalties U/s 270A & 271AAC Also Deleted

Swift Developers Vs ITO (ITAT Mumbai)

Mumbai ITAT Quashes Reassessment for Wrong Approval U/s 151(ii); Penalties U/s 270A & 271AAC Also Deleted

Summary: The ITAT Mumbai allowed the assessee’s appeals by admitting an additional legal ground challenging the validity of the reassessment for Assessment Year 2017-18. The Tribunal found that the notice under Section 148 was issued beyond three years from the end of the relevant assessment year and that the order under Section 148A(d) and the notice under Section 148 had been approved by the Principal Commissioner of Income Tax instead of the Principal Chief Commissioner of Income Tax as required under Section 151(ii). Relying on the Bombay High Court decision in Alag Property Construction (P.) Ltd. v. ACIT and the Supreme Court decision in Union of India v. Rajeev Bansal, the Tribunal held that obtaining approval from the prescribed authority is a jurisdictional requirement and that approval by the wrong authority rendered the notice under Section 148 and the order under Section 148A(d) invalid. Consequently, the reassessment framed under Sections 147 read with 144 was quashed as void ab initio. As the reassessment itself was quashed, the penalties levied under Sections 270A and 271AAC(1) were also deleted. All three appeals filed by the assessee were allowed.

The Mumbai ITAT quashed the reassessment proceedings for AY 2017-18 after holding that the mandatory approval for issuing notice u/s 148 and passing the order u/s 148A(d) had been obtained from the Principal Commissioner of Income Tax (PCIT) instead of the Principal Chief Commissioner of Income Tax (PCCIT), as required under section 151(ii) where more than three years had elapsed from the end of the relevant assessment year. The Tribunal admitted the additional legal ground challenging the validity of the reassessment, relying on the Supreme Court’s decision in NTPC Ltd. and held that no fresh investigation of facts was required.

Following the Bombay High Court’s decision in Alag Property Construction (P.) Ltd. and the Supreme Court’s ruling in Union of India v. Rajeev Bansal, the Tribunal observed that sanction by the prescribed authority is a jurisdictional pre-condition for reopening an assessment. Since the reassessment proceedings for AY 2017-18 were initiated after the prescribed three-year period, approval from the PCCIT was mandatory. Approval granted by the PCIT was held to be contrary to section 151(ii), rendering the notice u/s 148 and the order u/s 148A(d) invalid. Consequently, the reassessment framed u/s 147 r.w.s. 144 was declared void ab initio and quashed.

As the reassessment itself was set aside, the Tribunal further held that the penalties levied u/s 270A and 271AAC(1) could not survive and accordingly deleted both penalties. The assessee’s appeals against the assessment as well as the penalty orders were allowed.

Cases Discussed:

• Alag Property Construction (P.) Ltd. v. ACIT, (2025) 179 taxmann.com 578 (Bom.)
• Narendra Khimji Savla v. ITO, ITA No. 8720/Mum/2025 dated 09.03.2026
• ITO v. Himanshu Sarda, ITA No. 5862/Mum/2025 and CO No. 410/Mum/2025 dated 05.02.2026
• Union of India v. Rajeev Bansal, [2024] 167 taxmann.com 70 (SC) / [2024] 301 Taxman 238 (SC) / [2024] 469 ITR 46 (SC)
• Union of India v. Ashish Agarwal, [2022] 138 taxmann.com 64 (SC) / [2022] 286 Taxman 183 (SC) / [2022] 444 ITR 1 (SC); (2023) 1 SCC 617
• High Court Bar Association, Allahabad v. State of Uttar Pradesh, (2024) 6 SC 267
• Sri Krishna Pvt. Ltd. v. ITO, (1996) 221 ITR 538 (SC); (1996) 9 SCC 534
• National Thermal Power Co. Ltd. v. CIT, 229 ITR 383 (SC)
• CIT v. Western Rolling Mill Pvt. Ltd., 156 ITR 54 (Bom.)

FULL TEXT OF THE ORDER OF ITAT MUMBAI

These three appeals are filed by the Assessee against the orders of Learned Commissioner of Income Tax (Appeals), NFAC, Delhi [ “Ld. CIT(A)”] for the Assessment Years 2017-18.

2. The appeal filed by the assessee in ITA No. 3225/Mum/2026 relates to the assessment framed u/s 147 r.w.s. 144 of the Act. The appeals filed in ITAs No. 3226/Mum/2026 and 3227/Mum/2026 relate to the penalties levied u/s 271AAC(1) and 270A of the Act, respectively. First, we take up the appeal of the assessee in ITA No. 3225/Mum/2026 for adjudication as the decision on this appeal would have a bearing on the penalty appeals.

3. Ld. Counsel for the assessee submitted that an additional ground was filed challenging the very validity of the assessment order passed u/s 147 r.w.s. 144 of the Act, as it was passed without the approval of the appropriate authority. Ld. Counsel for the assessee submitted that since the ground challenging the very validity of the assessment is in question, is purely a legal ground requested that the additional ground be admitted for adjudication. Reliance was placed on the decision of the Hon’ble Supreme Court in the case of National Thermal Power Co. Ltd. vs. CIT reported in 229 ITR 383 (SC) and the decision of the Hon’ble Bombay High Court in the case of CIT vs. Western Rolling Mill Pvt. Ltd., reported in 156 ITR 54 (Bom.).

3. Heard rival contentions and perused the orders of the authorities below. The assessee has raised the following additional grounds challenging the very validity of the reassessment order passed u/s 147 r.w.s. 144 of the Act.

“1. On the facts and circumstances of the case and law, the Ld. CIT(A) erred in confirming reopening of assessment u/s 147 of Income Tax Act,1961 which is bad-in-law and required to be quashed

2. On the facts and circumstances of the case and law, the Ld. CIT(A) erred in confirming reopening of assessment without considering the fact that the proceedings for AY 2017-18 are time barred as per section 149(1)(b) of Income Tax Act, 1961

3. On the facts and circumstances of the case and law, the Ld. CIT(A) erred in confirming reopening of assessment without considering the fact that the notice for reopening u/s 148 was issued by Jurisdictional assessing officer which is in violation of Faceless Assessment Scheme formulated under section 151A of Income Tax Act, 1961

4. On the facts and circumstances of the case and law, the Ld. CIT(A) erred in confirming issue of notice u/s 148 without considering the fact that the notice issued without mentioning DIN number on notice which is in violation of CBDT Circular No. 19 of 2019 dated 14.08.2019

5. On the facts and circumstances of the case and law, the Ld. CIT(A) erred in confirming issue of notice u/s 148 without obtaining proper approval from appropriate authority under section 151 of Income Tax Act, 1961.”

5. The additional ground raised by the assessee is purely a legal ground and do not require any fresh investigation of facts. Thus, respectfully following the decision of the Hon’ble Apex Court in the case of National Thermal Power Co. Ltd. vs. CIT (supra), the additional ground is admitted for adjudication.

6. Ld. Counsel for the assessee submitted that in the case under consideration the assessment year involved is A.Y. 2017-18, and a notice u/s 148 was issued on 30.06.2021, which is beyond a period of three years from the end of the relevant assessment year. Referring to the said notice, which is placed at page 16 of the paper book, Ld. Counsel submitted that an order u/s 148A(d) was passed on 29.07.2022 with the prior approval of the Principal Commissioner of Income Tax – 20, Mumbai. Ld. Counsel submitted that in view of the provisions of section 151(ii) of the Act, the competent authority for granting approval for the issue of notice u/s 148/148A(d), in a situation where the assessment was reopened beyond a period of three years from the end of the relevant assessment year, shall be the Principal Chief Commissioner of Income Tax. However, in the case of the assessee, though the assessment for A.Y. 2017-18 was reopened beyond the period of three years by issue of a notice u/s 148 order dated 30.06.2021, the competent authority to grant approval was the Principal Chief Commissioner of Income Tax. However, the approval was obtained from the Principal Commissioner of Income Tax for the issue of notice, which is bad in law. Reliance was placed on the decision of the Hon’ble Bombay High Court in Alag Property Construction (P.) Ltd. vs ACIT, reported in (2025) 179 taxmann.com 578 (Bom.). Reliance was also placed on the decision of the Coordinate Bench in the case of Narendra Khimji Savla vs. ITO in ITA No. 8720/Mum/2025 dated 09.03.2026 and ITO vs. Himanshu Sarda in ITA No. 5862/Mum/2025 and CO No. 410/Mum/2025 dated 05.02.2026.

7. Heard rival contentions and perused the orders of the authorities below. Undisputedly, the assessment for A.Y. 2017-18 was reopened beyond the period of three years from the end of the relevant assessment year by issue of notice u/s 148 of the Act dated 30.06.2021, and an order u/s 148A(d) was passed on 29.07.2022. Perusal of the order passed u/s 148A(d) shows that the approval was granted by the Principal Commissioner of Income Tax -20, Mumbai, for reopening the assessment.

8. The Hon’ble Bombay High Court in the case of Alag Property Construction (P.) Ltd. vs ACIT, reported in (2025) 179 taxmann.com 578 (Bom.), held as under:

“6. In this factual backdrop, the Petitioner has contended that in the present case, the order passed under section 148A(d) dated 18.08.2022, was passed beyond three years from the end of the relevant A. Y. 2017- 18, and consequently, according to the provisions of section 151(ii) ([i.e. when more than three years have elapsed from the end of the relevant assessment year), the specified authority for obtaining the approval was either the Principal Chief Commissioner(PCCIT), or Principal Director General (PDGIT), or where there is no PCCIT or PDGIT, the Chief Commissioner(CCIT), or Director General (DGIT). However, in paragraph 7 of the order dated 15.07.2022 passed under section 148A(d), and also in paragraph 3 of the notice dated 23.08.2022 issued under section 148 of the Act, Respondent No.1 has stated that prior approval of Respondent No.2 i.e. the Principal Commissioner of Income Tax-6, Mumbai was obtained and the said order was passed and the said notice was issued only thereafter. This aspect remains uncontroverted by the Respondents.

7. In these facts, the limited point to be examined is whether the order dated 18/08/2022 passed under section 148A(d) and the notice dated 23.08.2022 issued under section 148 of the Act for A.Y. 2017-18, after obtaining approval of Respondent No.2 [i.e. the PCIT-6, Mumbai], was in accordance with the provisions of section 151. In this regard, the Petitioner has drawn our attention to the decision of Hon’ble Supreme Court in the case of Union of India v. Rajeev Bansal [2024] 167 taxmann.com70 (SC)[2024] 301 Taxman 238 (SC)[2024] 469 ITR 46 (SC). The Hon’ble Supreme Court, while dealing with the issue of approval of the specified authority in terms of Section 151 of the Act, made the following observations:

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 assessees from harassment resulting from the mechanical reopening of assessments. (Sri Krishna Pvt. Ltd. v. ITO [(1996) 221 ITR 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 April 1, 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 Union of India v. Ashish Agarwal [[2022] 138 com64 (SC)[2022] 286 Taxman 183 (SC)/[2022] 444 ITR 1 (SC); (2023) 1 SCC 617], after April 1, 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

(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 Taxation and other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 to ensure that the interests of the Revenue are not defeated because the Assessing Officer could not comply with the preconditions due to the difficulties that arose during the covid-19 pandemic. Section883(1) of the Taxation and other ne (Relaxation and Amendment of Certain Provisions) Act, 2020 relaxes the time limit for compliance with actions that fall for completion from March 20, 2020 to March 31, 2021. The Taxation and other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 will accordingly extend the time limit for the grant of sanction by the authority specified under section 151. The test to determine whether Taxation and other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 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 March 20, 2020 and March 31, 2021, then the specified authority under section 151(i) has an extended time till June 30, 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 March 20, 2020 and March 31, 2021, then the specified authority under section 151(2) has time till March 31, 2021 to grant approval. The time limit for section 151 of the old regime expires on March 31, 2021 because the new regime comes into effect on April 1, 2021.

78. For example, the three-year time limit for the assessment year 2017-2018 falls for completion on March 31, 2021. It falls during the time period of March 20, 2020 and March 31, 2021, contemplated under section 3(1) of the Taxation and other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020. Resultantly, the authority specified under section 151(i) of the new regime can grant sanction till June 30, 2021.

79. Under the Finance Act, 2021 ((2021) 432 ITR (Stat) 52), 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 has been deleted by the Finance Act, 2022 ([2022] 442 ITR (Stat) 91) [Section 45, 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 Union of India v. Ashish Agarwal [[2022] 138 taxmann.com64 (SC)[2022] 286 Taxman 183 (SC)/[2022] 444 ITR 1 (SC); (2023) 1 SCC 617.], this court directed that section 148 notices which were challenged before various High Courts “shall be deemed to have been issued under section 148A of the Income-tax Act as substituted by the Finance Act, 2021(2021) 432 ITR (Stat) 52) and construed or treated to be show-cause notices in terms of section 148A(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) notices. 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, Allahabad v. State of Uttar Pradesh ((2024) 6 SC 267.J)

81. This court in Union of India v. Ashish Agarwal [[2022] 138 taxmann.com64 (SC)(2022) 286 Taxman 183 (SC)[2022] 444 ITR 1 (SC); (2023) 1 SCC 617] directed the Assessing Officers to “pass orders in terms of section 148A(d) in respect of each of the assessees 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 148A”. 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 thetime limits specified under section 151 of the new regime read with the Taxation and other 189 (Relaxation and Amendment of Certain Provisions) Act, 2020, where applicable.

(emphasis supplied)

8. On bare reading of the above extract of the judgment of the Honble Supreme Court in the case of Rajeev Bansal (supra), we find that the Hon’ble Supreme Court had clarified as under:

(a) Under the substituted provisions of re-assessment 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 – at the first stage under Section 148A(a), at the second stage under Section 148A(b), at the third stage under Section 148A(d), and 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 section 148A(a) and Section 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 for issuing a notice under Section 148.

(b) Under the new regime, if 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 previous year only after obtaining the prior approval of the Principal Chief Commissioner or the Principal Director General or the Chief Commissioner or the Director General.

(C) Section 151(ii) of the new regime prescribes an approval of a higher 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 vitiates their jurisdiction to issue a notice under section 148.

(d) Grant of sanction by the specified 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 A.Y. 2017-18 fell for completion on 31″ March 2021. As the expiry date fell during the time period of 20th March 2020 and 31st March 2021, under Section 3(1) of the 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 only till 30th June 2021.

10. On perusal of the order dated 18.08.2022, 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, as well as the notice under section 148 was issued, after the expiry of three years from the end of A.Y. 2017-18, 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, 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.

11. The Hon’ble Supreme Court in the above case has drawn an illustration in para 78 of its order in the context of A.Y. 2017-18 (which is also the relevant Assessment year in the present Writ Petition) wherein it is categorically held that the authority specified under section 151(l) 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 (in the present case A.Y. 2017-18) expired on 30.06.2021, whereas Respondent No.1, despite passing order under section 148A(d) on 18.08.2022, and issuing notice under section 148 on 23.08.2022 [in respect of Assessment Year 2017-18], has obtained approval of Respondent No.2 who is not the authority as prescribed under section

12. Non-compliance by Respondent No.1 with the provisions contained in Section 148A(d) read with Section 151(ii) vitiates the jurisdiction of Respondent No.1 to issue a notice under Section 148 of the Act.

13. We are clearly of the view that the present matter stands covered by the decision of Hon’ble Supreme Court in the case of Rajeev Bansal (supra) and we are bound by it. Accordingly, we hold that the order dated 8.8.2022 passed under Section 148A(d) of the Act and the consequential notice issued under section 148 dated and 23.08.2022 are bad in law, and hence, are required to be quashed and set aside

14. We accordingly set aside the impugned order dated 18.08.2022 passed under Section 148A(d) of the Act and the consequential notice issued under section 148 dated 23.08.2022, and all other proceedings/orders emanating therefrom.”

9. The above decision of the Hon’ble Jurisdictional High Court squarely applies to the assessee’s case. Following the said decision, we hold that, since the approval for reopening of the assessment had been granted by the Principal Commissioner of Income Tax and not by the Principal Chief Commissioner of Income Tax as mandated under the provisions of section 151(ii) of the Act, such notice u/s 148 and the order passed u/s 148A(d) are bad in law. Consequently, the reassessment framed is void ab initio. Accordingly, the reassessment framed for A.Y. 2017-18 u/s 147 r.w.s. 144 of the Act is quashed.

10. Coming to the penalty appeals in ITAs No. 3226/Mum/2026 and 3227/Mum/2026, since we have quashed the reassessment proceedings, the penalties levied u/s 270A and 271AAC(1) will not survive and accordingly the same are deleted.

11. In the result, all the three appeals of the assessee are allowed.

Order pronounced in the open court on 10/07/2026