Aahan Trading Company Vs ITO (ITAT Rajkot)
Sanction After Notice Is Permission After the Act—Post-Facto Approval Cannot Rescue Reopening u/s 148
The Rajkot Bench of the ITAT has held that the statutory approval contemplated u/s 151 must be obtained before issuance of notice u/s 148. Where the AO issued the reopening notice on 29.03.2016 but the competent authority granted approval only on 30.03.2016, the jurisdictional requirement remained unfulfilled and the reassessment was void. A subsequent sanction cannot retrospectively validate a notice that was invalid when issued.
The Tribunal also observed that a sanction consisting merely of the word “Yes”, without reflecting independent consideration of the recorded reasons, was mechanical and incapable of curing the jurisdictional defect.
The assessee, Aahan Trading Company, was engaged in the business of transportation and earning commission income. The dispute before the Tribunal concerned reassessments for AYs 2009-10 & 2010-11, both completed u/s 143(3) r.w.s. 147.
For AY 2009-10, the assessment was reopened after the expiry of four years from the end of the relevant assessment year. In response to the notice u/s 148, the assessee filed its return declaring total income of ₹6,912.
The reopening was based upon information received from the Investigation Wing suggesting that the assessee had deposited cash of ₹16,82,880 in various bank accounts. During reassessment, the assessee explained that the deposits were properly recorded in its books and represented receipts from transportation business and commission activities. Supporting documents were also stated to have been furnished.
The AO rejected the explanation and made an addition u/s 69A. A striking discrepancy arose in the amount added: while the Investigation Wing’s information referred to cash deposits of ₹16.83 lakh, the AO made an addition of ₹1,67,55,880. The assessee challenged both the nature of the addition and the unexplained escalation in its amount. The CIT(A), however, sustained the assessment.
Before the ITAT, the assessee primarily challenged the very validity of the reopening. It produced the relevant records demonstrating that the notice u/s 148 had been issued on 29.03.2016, whereas the approval of the Principal CIT u/s 151 was obtained only on 30.03.2016.
Since the reopening was initiated beyond four years, the satisfaction of the specified authority was a mandatory condition to be fulfilled before the AO could issue the notice. The assessee argued that sanction obtained one day after the notice was no sanction in the eyes of law.
Reliance was placed upon the Supreme Court’s decision in ITO v. Tia Enterprises Pvt. Ltd., 167 taxmann.com 56, supporting the proposition that failure to obtain mandatory prior approval vitiates the notice and all consequential proceedings.
The Department supported the orders of the lower authorities but could not dispute the crucial chronology: notice first, approval later.
The ITAT held that s.151, as applicable to the relevant years, required the specified authority to examine the reasons recorded by the AO and record its satisfaction before issuance of notice u/s 148. Such approval was not a procedural formality capable of being completed after the event. It was a condition precedent to the AO’s assumption of jurisdiction.
On 29.03.2016, when the notice was issued, no approval existed. Therefore, the notice was invalid at its inception. Approval granted on the following day could not travel backwards and validate an act for which the AO lacked authority when it was performed.
The Tribunal also accepted the assessee’s alternative challenge to the quality of the sanction. The approval recorded by the Principal CIT merely stated “Yes” and did not reveal any independent consideration of the reasons recorded by the AO.
The ITAT emphasised that approval u/s 151 is intended to provide a meaningful supervisory safeguard against arbitrary reopening. The sanctioning authority must consider the AO’s reasons and reach the required satisfaction. A bare endorsement that does not demonstrate such application of mind reduces the statutory safeguard to an empty formality.
Thus, the approval suffered from two defects. It was chronologically late, having been granted after issuance of notice, and it was mechanical in substance, since it recorded no discernible consideration of the reasons.
Following the Supreme Court’s decision in Tia Enterprises, the Tribunal declared the notice u/s 148 invalid and quashed the reassessment for AY 2009-10. Since the assumption of jurisdiction itself failed, the ITAT found it unnecessary to adjudicate the merits of the addition u/s 69A.
The facts and jurisdictional issue for AY 2010-11 were stated to be identical. The Tribunal therefore applied its findings mutatis mutandis, set aside that reassessment as well and quashed all consequential proceedings. Both appeals were allowed.
Author’s Comments
The ruling highlights the difference between prior authorisation and subsequent ratification. Section 151 does not merely require that an approval should exist somewhere in the assessment file. It requires the approval to exist before the AO exercises the power to issue notice u/s 148.
The sequence is jurisdictionally decisive:
Reasons recorded → application of mind by the specified authority → approval u/s 151 → notice u/s 148.
Reversing the last two stages defeats the statutory safeguard. A post-facto approval cannot cure the absence of jurisdiction on the date of notice, irrespective of whether the delay is one day or several months.
The Tribunal’s comments concerning the one-word approval are also important, though the prior-approval defect was sufficient by itself to invalidate the proceedings. A bare “Yes” is not necessarily invalid in every imaginable case if the surrounding records convincingly establish due consideration. However, where the approval form and assessment records reveal no meaningful scrutiny, such an endorsement supports the inference of mechanical sanction.
The cash-deposit addition was not deleted after examining its source. The Tribunal did not decide whether the deposits represented recorded business receipts, whether s.69A was applicable, or why the AO’s addition substantially exceeded the information received. The assessments were quashed solely because the foundational notices were invalid.
For practitioners, the approval sheet and notice chronology should always be obtained and compared. The relevant enquiry is not only who granted sanction, but also when it was granted and whether the record reflects application of mind.
The enduring principle is uncompromising: permission to reopen must precede reopening. Once the jurisdictional arrow has been fired, a sanction signed the next day cannot be tied to it retrospectively.
Cases Discussed
- ITO v. Tia Enterprises Pvt. Ltd. (Supreme Court) – The Supreme Court decision relied upon in the supplied text for the proposition that mandatory prior approval under section 151 must be obtained before issuance of notice under section 148.
FULL TEXT OF THE ORDER OF ITAT RAJKOT
The above-captioned appeals have been filed by the same assessee for two different assessment years against the separate orders passed by the Ld. CIT(A), National Faceless Appeal Centre (NFAC), New Delhi, both are dated 23.08.202 passed by National Faceless Appeal Centre (NFAC), New Delhi, arising out of the respective assessment orders passed under section 143(3) read with section 147 of the Income-tax Act, 1961 (“the Act”), both are dated 30.12.2016. Since both the appeals are filed by the same assessee and involve common and interconnected issues, except for variation in the assessment years, they were heard together and are being disposed of by this common order.
2. For the sake of convenience, we first take up ITA No. 355/Rjt/2023 for Assessment Year 2009-10. The findings recorded therein shall apply mutatis mutandis to the connected appeal being ITA No. 356/Rjt/2023.
3. Brief facts of the case are that the assessee is engaged in the business of transportation and commission income. The assessment was reopened under section 147 of the Act after expiry of four years from the end of the relevant assessment year. In response to notice under section 148 of the Act, the assessee filed the return of income declaring total income of Rs.6,912/-. The reopening was stated to be based on information received from the ADIT (Investigation), indicating that the assessee had deposited cash of Rs.16,82,880/- in various bank accounts. During the reassessment proceedings, the assessee duly explained that the cash deposits were duly recorded in the books of account and that the source thereof was also fully explainable from the books of account. The assessee furnished supporting documents in this regard. However, the Assessing Officer did not accept the explanation of the assessee and proceeded to make an a under section 69A of the Act. It was submitted before authorities below that, even as per the information received f the Investigation Wing, the amount of cash deposits was Rs.16,82,880, whereas the Assessing Officer made an addition of Rs.1,67,55,880, without properly explaining the basis for such substantial variation. The assessee further submitted that the deposits represented receipts arising from transportation business and commission income and were duly accounted for. The Assessing Officer, however, rejected the explanation of the assessee and completed the assessment making addition on account of
4. The assessee carried the matter in appeal before the Ld. CIT(A), but the appeal was dismissed and the addition was sustained.
5. Still, aggrieved, the assessee is in appeal before this tribunal. At the time of hearing, the Ld. AR primarily challenged the validity of the reopening itself. He submitted that the notice under section 148 of the Act was issued on 29.03.2016, whereas the mandatory approval under section 151 of the Act was obtained only subsequently, on 30.03.2016, from the Ld. Principal Commissioner of Income Tax, Rajkot. It was submitted that, the reopening having been made after expiry of four years from the end of the relevant assessment year, prior sanction of the competent authority was mandatory before issuance of notice under section 148 of the Act. In the absence of such prior approval, the notice itself was invalid and, consequently, all proceedings flowing therefrom were liable to be quashed. The Ld. AR drew our attention to the relevant approval placed at page 22 of the paper book and submitted that the chronology of events clearly establishes that the notice under section 148 was issued on 29.03.2016, whereas the approval under section 151 of the Act was recorded only on 30.03.2016. Thus, the statutory requirement of obtaining prior approval before issuance of notice was admittedly not complied with. In support of his contention, the Ld. AR relied upon the judgment of the Hon’ble Supreme Court in the case of ITO v. Tia Enterprises Pvt. Ltd., reported in 167 Taxmann.com 56 (SC), wherein the Hon’ble Supreme Court upheld the proposition that where the mandatory prior approval of the specified authority was not obtained before issuance of notice under section 148 of the Act, the notice and consequential proceedings could not be sustained. Alternatively, the Ld. AR submitted that even assuming, without admitting, that the approval dated 30.03.2016 could somehow be treated as sufficient compliance with the any independent application of mind by the sanctioning authority. It was submitted that the Principal Commissioner of Income Tax had merely recorded the expression “Yes” while granting approval, without recording any satisfaction or dealing with the reasons recorded by the Assessing Officer. Such mechanical approval, according to the Ld. AR, could not confer valid jurisdiction upon the Assessing Officer to reopen the assessment.
6. On the other hand the Ld. DR supported the orders of the authorities below. However, he could not dispute the chronology of the relevant documents placed on record, namely, that the notice under section 148 of the Act was issued on 29.03.2016 and the approval under section 151 of the Act was recorded on 30.03.2016.
7. We have heard the rival submissions and perused the material available on record. The undisputed chronology of events assumes significance in the present case. The notice under section 148 of the Act was issued on 29.03.2016, whereas the approval of the competent authority under section 151 of the act was recorded only on 30.03.2016. Section 151 of the Act, as applicable to the relevant assessment year, mandates obtaining the satisfaction of the specified authority on the reasons recorded by the Assessing Officer before issuance of notice under section 148 of the Act, particularly where the reopening is beyond the period of four years from the end of the relevant assessment year. Thus, the approval contemplated under section 151 of the Act is a condition precedent to the valid issuance of notice under section 148 of the Act. In the present case, the approval was admittedly subsequent to the issuance of notice. Therefore, the mandatory requirement of prior approval was not fulfilled. Consequently, the notice issued substantial force in the alternative contention of the Ld. AR. Even if the subsequent approval dated 30.03.2016 were to be considered, without admitting, as relevant for the purpose of assumption of jurisdiction, the approval placed on record merely records a bare “Yes” and does not disclose any independent consideration or satisfaction of the competent authority with regard to the reasons recorded by the Assessing Officer. The sanction under section 151 of the Act is not an empty formality. The statutory authority is required to apply its mind to the reasons recorded and thereafter arrive at the requisite satisfaction. A mechanical endorsement, without demonstrating such application of mind, cannot cure the fundamental defect in the assumption of jurisdiction.. The ratio laid down by the Hon’ble Supreme Court in ITO v. Tia Enterprises Pvt. Ltd. (supra) supports the legal position that where the mandatory approval contemplated under section 151 of the Act is not obtained prior to issuance of notice under section 148 of the Act, the notice and the consequential proceedings cannot be sustained. In view of the above discussion, we hold that the notice issued under section 148 of the Act on 29.03.2016, without obtaining the mandatory prior approval under section 151 of the Act, is invalid in law. Consequently, the reassessment proceedings initiated pursuant to such notice cannot be sustained. Since the very assumption of jurisdiction under section 147 of the Act fails, we do not consider it necessary to adjudicate upon the other grounds raised by the assessee on the merits of the addition. The assessment order passed pursuant to the invalid notice under section 148 of the Act is, accordingly, quashed.
8. In the result, ITA No. 355/Rjt/2023 for Assessment Year 2009-10 is
9. The facts and issue involved in ITA No. 356/Rjt/2023 are identical to those considered by us in ITA No. 355/Rjt/2023. Since the issue involved in both the appeals are identical and the appeal of the assessee in ITA No. 355/Rjt/2023 has been allowed by us, our findings recorded therein shall apply mutatis mutandis to the present appeal, i.e., ITA No. 356/Rjt/2023. Accordingly, following our decision in ITA No. 355/Rjt/2023, the assessment order passed in pursuance of the invalid notice issued under section 148 of the Act is hereby set aside and the consequential proceedings are quashed, and instant appeal of the assessee in ITA No.356/Rjt/2023 for Assessment Year 2010-11 is allowed.
10. In the result, both the appeals filed by the assessee are allowed.
Order pronounced in the open court on this 10th day of September, 2026.
