Steelex Vs ITO (ITAT, Mumbai Bench)
Wrong Signature, Dead Reopening: PCIT Approval Cannot Pass the Section 151(ii) Gate
Summary:
Relevant Facts
In Steelex v. ITO, the Mumbai ITAT examined reassessment for AY 2016–17. The partnership firm returned a loss of ₹40,51,456, processed u/s 143(1), before reopening under the substituted regime.
An order u/s 148A(d) was followed by notice u/s 148 dated 30 July 2022. Approval was granted by the Principal Commissioner of Income Tax on 27 July 2022. The ITAT prioritised this defect because it went to jurisdiction’s root.
More than three years had elapsed from the end of AY 2016–17 when the impugned notice was issued. Therefore, the assessee contended that approval had to come from the Principal Chief Commissioner or Chief Commissioner in accordance with section 151(ii), not from the PCIT. The NFAC rejected the assessee’s challenge, resulting in the appeal before the Tribunal.
Issue Before the Tribunal
The decisive issue was whether a notice u/s 148 issued after expiry of three years from the relevant assessment year could survive when sanction was obtained from the PCIT instead of the authority specifically designated u/s 151(ii).
The connected question was whether TOLA altered the competent authority or merely extended time up to 30 June 2021. If sanction was defective, every consequential proceeding would fail.
Assessee’s Submissions
The assessee argued that section 151 creates a clear time-linked approval hierarchy. Within three years, the authority specified in clause (i) may grant sanction. After three years, clause (ii) requires approval from the PCCIT or CCIT. Because the impugned notice was issued in July 2022, the PCIT lacked statutory authority to approve it.
The defect was not curable procedure. Correct prior sanction is a condition precedent to jurisdiction. Approval by another authority cannot be substantial compliance because Parliament assigned older cases to higher scrutiny.
Reliance was placed on the jurisdictional Bombay High Court decision in Anil Gupta (P.) Ltd. v. ITO, which dealt with the same AY & an identical PCIT approval. The assessee also relied on Union of India v. Rajeev Bansal & the Bombay High Court ruling in Skypak Travels (P.) Ltd. v. ITO.
Revenue’s Position
Revenue treated PCIT sanction as sufficient given COVID extensions & the transitional regime. However, no factual basis distinguished the binding Bombay High Court precedents governing the same defect.
ITAT’s Findings & Legal Reasoning
The Tribunal read section 151 as a complete jurisdictional framework. It held that once three years had expired from the end of the relevant assessment year, notice u/s 148 could be issued only after prior approval from the PCCIT or CCIT. It was undisputed that approval had instead been granted by the PCIT. The statutory mandate was therefore not complied with. The defect concerned statutory authority itself, not merely sanction wording.
The Bench treated Anil Gupta as directly controlling. That decision explained that the ordinary three-year period for AY 2016–17 ended on 31 March 2020. Since this date fell within the TOLA window, the authority specified in section 151(i) could grant sanction only up to 30 June 2021. TOLA extended time; it did not continue that authority’s competence indefinitely.
When the order u/s 148A(d) & notice u/s 148 were issued on 30 July 2022, the case had moved beyond the three-year category. Consequently, the higher authority specified in section 151(ii) alone could approve the action. The PCIT belonged to the clause (i) category & was not a lawful substitute for the PCCIT or CCIT.
The Tribunal emphasised that approval is not an empty formality. It safeguards older assessments & forms part of the AO’s jurisdictional foundation. Neither merits, Revenue information nor participation can cure non-compliance.
The Bombay High Court had already held in Anil Gupta, following Rajeev Bansal, that approval from the wrong authority vitiates the notice. Skypak Travels expressed the same view, while numerous other decisions followed this reasoning. Bound by jurisdictional precedent, the ITAT declared the notice invalid.
Consequently, the order u/s 148A(d), notice u/s 148, assessment order & first appellate order were quashed. Once the jurisdictional ground succeeded, all remaining grounds on merits became academic & were left open. The assessee’s appeal was allowed.
Practical Implications
The decision shows that reassessment scrutiny must begin with the sanction trail, not merely the escapement allegation. Taxpayers should obtain copies of the section 148A(d) order, approval note, sanction date & designation of the approving officer. For older years, three elements must be matched: the assessment year, effective limitation after TOLA & authority mandated on the actual approval date.
Revenue cannot defend wrong-authority approval as harmless error because hierarchical sanction is a substantive protection. TOLA may extend a deadline, but it does not rewrite section 151 or permit one authority to exercise another’s statutory power. Where approval comes from an incompetent authority, the notice is void at inception & every consequential order collapses with it.
Cases Discussed
- Anil Gupta (P.) Ltd. v. ITO, 185 taxmann.com 239 (Bom)
- Union of India v. Rajeev Bansal
- Skypak Travels (P.) Ltd. v. ITO, [2026] 185 taxmann.com 963 (Bom)
FULL TEXT OF THE JUDGMENT/ORDER OF ITAT, MUMBAI BENCH
This is an appeal by the assessee against order dated 31.03.2026, passed by the National Faceless Appeal Centre (‘NFAC’ for short), Delhi, for the assessment year (A.Y. for short) 2016-17.
2. The assessee has raised multiple grounds, on legal and jurisdictional issues, challenging the validity of reopening of assessment u/s.147 of the Act, as also on merits. One of the grounds raised by the assessee is on the validity of notice issued u/s.148 of the Act due to lack of proper approval. It is the case of the assessee that though more than three years have expired from the end of the relevant assessment year, however, the approval u/s. 151 of the Act was granted by Principal Commissioner of Income Tax, as against Principal Chief Commissioner of Income Tax or Chief Commissioner of Income Tax, in terms with Section 151(ii) of the Act. In our view, the aforesaid legal and jurisdictional issue raised by the assessee goes to the root of the matter, hence, has to be addressed at the very outset.
3. Undisputedly, the facts on record reveal that the assessee a partnership firm, filed its return of income for the assessment year under dispute, declaring loss of Rs.40,51,456/-. The return of income filed by the assessee was processed u/s.143(1) of the Act. Subsequently, the assessment was reopened u/s.147 of the Act under the new regime. Notice u/s.148 of the Act was issued to the assessee on 30.07.2022, after order u/s.148A(d) was passed on 27.07.2022. A perusal of the order passed u/s.148A(d) of the Act dated 30.07.2022 clearly reveals that it was passed with the approval of Principal Commissioner of Income Tax, granted on 27.07.2022. Even notice dated 30.07.2022 issued u/s.148 of the Act, a copy of which is placed at page number 49 of the paper book, clearly reveals that it was issued after obtaining approval of PCIT, as against PCCIT or CCIT. A reading of section 151 as a whole and clause (ii) in particular, makes it clear that after expiry of three years from the end of the relevant assessment year, notice u/s. 148 of the Act can be issued only with the prior approval of PCCIT or CCIT.
Admittedly, the statutory mandate of section 151(ii) has not been complied in the present case.
4. Therefore, the issue which arises for consideration is, non-compliance with the statutory mandate whether invalidates the reopening of assessment. In our view, the issue is no more res integra because of a number of judicial precedence available before us, including the decisions of Hon’ble Jurisdictional High Court in case of Anil Gupta (P.) Ltd. vs. ITO 185 taxmann.com 239 (Bom) which is for the very same assessment year. The Hon’ble jurisdictional High Court while deciding identical issue has held as under:
9. In the present case, the period of three years from the end of the Assessment Year 2016-17 fell for completion on 31st March 2020. Since the expiry date fell during the time period of 20th March 2020 and 31st March 2021 contemplated under Section 3(1) of 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 till 30th June 2021. On a perusal of the order dated 30.07.2022, passed under Section 148A(d) of the Act, we find that the aforesaid order was passed after taking approval from the Principal Commissioner of Income Tax (Respondent No.4). Since the aforesaid order was passed after the expiry of three years from the end of the Assessment Year 2016-17, 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 the 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.
10. The Hon’ble Supreme Court in the above case has drawn an illustration in paragraph 78 of it’s order in the context of Assessment Year 2017-18, wherein it is categorically held that the authority specified under Section 151(i) 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 (here AY 2016-17) expired on 30.06.2021, whereas Respondent No.1, despite passing the order on 30.07.2022 in repsect of Assessment Year 2016-17, has obtained approval of Respondent No.4 who is not the authority as prescribed under Section 151(ii).
11. Non-compliance by Respondent No.1 with the provisions contained in Section 151(ii) vitiates the jurisdiction of Respondent No. 1 to issue a notice under Section 148 of the Act.
12. We are clearly of the view that the present matter stands covered by the decision of Hon’ble Supreme Court in the case of Union of India vs. Rajeev Bansal (supra). We accordingly hold that the order dated 30.07.2022 passed under Section 148A(d) of the Act and the consequential notice issued under Section 148 also dated 30.07.2022, are bad in law for being violative of the provisions of Section 151(ii) of the Act. Hence they are required to be quashed and set aside.
13. We, accordingly, set aside the impugned order dated 30.07.2022 passed under Section 148A(d), the Notice issued under Section 148 also dated 30.07.2022, and all other proceedings/orders emanating therefrom, and allow the Writ Petition in terms of Prayer Clause (a) of the Petition.
5. Identical view has been expressed by Hon’ble jurisdictional High Court in case of Skypak Travels (P.) Ltd. vs. ITO [2026] 185 taxmann.com 963 (Bom). There are plethora of other decisions expressing identical view. Thus, respectfully following the ratio laid down by Hon’ble jurisdictional High Court in the decisions referred to above, we declare the notice issued u/s.148 of the Act invalid due to lack of proper approval by the competent authority. Consequently, all proceedings in pursuance to such invalid notice cannot survive. Accordingly, we quash the impugned assessment order and the order of first appellate authority is set aside. In view of our decision in the foregoing paragraphs, the rest of the grounds having become academic are kept open.
6. In the result, the appeal is allowed.
Order pronounced in the open court on 31.08.2026.
