The Delhi Bench of the Income Tax Appellate Tribunal has delivered a significant ruling affirming that reassessment notices issued beyond three years from the end of the relevant assessment year are invalid unless prior approval is obtained from the statutorily mandated higher authority. This decision reinforces procedural compliance as a jurisdictional requirement under the Income Tax Act, 1961, with direct implications for revenue authorities and taxpayers alike.
Background & Facts
The Dispute
The present matter involves a reassessment proceeding initiated by the Assessing Officer (AO) for the Assessment Year 2018-19 against M/s Vidya Metal Manufacturing Company, a private limited company. The AO reopened the assessment under Section 147 of the Income Tax Act, 1961, based on information alleging bogus purchases and sales amounting to Rs. 85,85,625/- from M/s RCI Industries and Technologies Ltd. An assessment order was passed on 29.05.2023 under Section 147 read with Section 144B, adding Rs. 85,85,625/- as unexplained income under Section 68. The assessee appealed before the Commissioner of Income Tax (Appeals) / National Faceless Appeal Centre (CIT(A)/NFAC), which allowed the appeal on 18.12.2024. The Revenue filed an appeal before the ITAT, while the assessee filed a cross objection challenging the validity of the notice issued under Section 148.
Key Facts
- The assessee filed its original return for A.Y. 2018-19 declaring total income of Rs. 1,19,74,950/-
- The notice under Section 148 was issued on 07.04.2022
- The notice was approved by the Principal Commissioner of Income Tax, Delhi-7 on 07.04.2022
- The relevant assessment year (2018-19) ended on 31.03.2019
- The notice was issued more than three years after the end of the assessment year (i.e., after 31.03.2022)
- The amount of income escaping assessment (Rs. 85,85,625/-) exceeded Rs. 50 lakhs
- The AO did not obtain approval from the Principal Chief Commissioner of Income Tax, Principal Director General, Chief Commissioner, or Director General as required under Section 151(ii)(b)
Procedural History
- 31.03.2019: End of Assessment Year 2018-19
- 07.04.2022: Notice under Section 148 issued by AO
- 07.04.2022: Approval granted by Principal Commissioner, Delhi-7
- 29.05.2023: Assessment order passed under Section 147 read with Section 144B
- 18.12.2024: CIT(A)/NFAC allowed the assessee’s appeal, setting aside the assessment
- 26.02.2026: Hearing before ITAT Delhi
- 15.04.2026: Judgment pronounced
The Parties' Positions
For the Revenue (Appellant)
The Revenue relied on the findings of the lower authorities and contended that the notice was validly issued. It argued that the approval granted by the Principal Commissioner, Delhi-7, was sufficient and that the procedural lapse, if any, was technical and did not prejudice the assessee. It further submitted that the reopening was based on credible information and that the substantive issue of unexplained income warranted the addition.
For the Assessee (Respondent/Cross Objection)
The assessee contended that the notice under Section 148 was invalid because the approval was granted by the Principal Commissioner, Delhi-7, whereas Section 151(ii)(b) of the Income Tax Act, as amended by the Finance Act, 2021, mandates that for notices issued after three years from the end of the assessment year, approval must be obtained from the Principal Chief Commissioner of Income Tax, Principal Director General, Chief Commissioner, or Director General. The assessee relied on the Supreme Court’s decision in Union of India v. Rajeev Bansal [2024] 469 ITR 46 to argue that non-compliance with Section 151 is a jurisdictional defect that renders the notice void ab initio.
Relief Sought
The assessee sought quashing of the notice under Section 148 dated 07.04.2022 and consequential setting aside of the assessment order dated 29.05.2023. The Revenue sought reversal of the CIT(A)’s order and restoration of the assessment order.
The Legal Issue
The central question was whether a notice issued under Section 148 of the Income Tax Act beyond three years from the end of the relevant assessment year is valid if the prior approval is granted by the Principal Commissioner of Income Tax, when the law requires approval from the Principal Chief Commissioner of Income Tax or higher authority under Section 151(ii)(b).
Arguments Presented
For the Appellant (Revenue)
The Revenue argued that the approval granted by the Principal Commissioner, Delhi-7, was in substance sufficient and that the assessee had not suffered any prejudice. It contended that the purpose of Section 151 is to prevent mechanical reopenings and that the higher authority’s involvement was merely procedural. It further submitted that the Supreme Court in Ashish Agarwal had relaxed certain procedural requirements under Section 148A, implying that technical lapses should not invalidate notices if the substantive grounds for reopening are strong.
For the Respondent (Assessee)
The assessee relied on the Supreme Court’s ruling in Union of India v. Rajeev Bansal [2024] 469 ITR 46, which held that the authority specified under Section 151 is directly correlated with the time limit for issuing a notice. It emphasized that Section 151(ii)(b) mandates approval from the Principal Chief Commissioner or higher authority for notices issued after three years, and that the Principal Commissioner, Delhi-7, is not a statutorily designated authority under this provision. It further argued that compliance with Section 151 is not a mere formality but a jurisdictional precondition, and that non-compliance renders the notice void, regardless of the merits of the case.
The Court's Analysis
The Tribunal examined the statutory framework under Section 151 of the Income Tax Act as amended by the Finance Act, 2021. It noted that the new regime, effective from 01.04.2021, introduced a higher threshold for approval when the notice is issued after three years from the end of the assessment year. The Tribunal observed that for income escaping assessment exceeding Rs. 50 lakhs, the approval must be obtained from the Principal Chief Commissioner of Income Tax, Principal Director General, Chief Commissioner, or Director General.
"The purpose behind this procedural check is to save the assessees from harassment resulting from the mechanical reopening of assessments."
The Tribunal relied on the Supreme Court’s reasoning in Union of India v. Rajeev Bansal, which held that the authority to grant sanction is directly linked to the time limit for issuing the notice. The Court emphasized that non-compliance with Section 151 is not a mere procedural irregularity but a jurisdictional defect. The Tribunal further clarified that while the Supreme Court in Ashish Agarwal had waived certain procedural requirements under Section 148A(a) and (b), it explicitly preserved the requirement for approval under Section 151 for Section 148A(d) and Section 148. The Tribunal held that the approval granted by the Principal Commissioner, Delhi-7, did not satisfy the statutory mandate under Section 151(ii)(b), and therefore, the notice under Section 148 dated 07.04.2022 was invalid.
The Tribunal rejected the Revenue’s argument that the lapse was technical and inconsequential. It held that jurisdictional defects cannot be cured by the merits of the case or the absence of prejudice. The Tribunal concluded that the notice, being void ab initio, rendered the subsequent assessment order legally unsustainable.
The Verdict
The ITAT Delhi allowed the cross objection filed by the assessee and quashed the notice under Section 148 dated 07.04.2022. Consequently, the assessment order dated 29.05.2023 was set aside. The Revenue’s appeal was dismissed as infructuous. The Tribunal directed that no further proceedings under Section 147 or Section 148 shall be initiated for A.Y. 2018-19 on the same grounds without obtaining valid approval from the authority specified under Section 151(ii)(b).
What This Means For Similar Cases
Procedural Compliance Is Non-Negotiable
- Practitioners must verify the identity of the approving authority in every Section 148 notice issued after three years from the end of the assessment year
- Notices approved by Principal Commissioners (not Principal Chief Commissioners) after three years are void and can be challenged at any stage
- The burden of proving valid approval lies with the Revenue; failure to produce a valid sanction order renders the notice invalid
Jurisdictional Defects Cannot Be Waived by Merits
- Even if the income escaping assessment is substantial or the information is credible, a notice issued without proper sanction cannot be validated
- Courts and Tribunals will not entertain arguments that the assessee was not prejudiced - jurisdictional non-compliance is fatal
- Taxpayers should raise this issue at the earliest opportunity, even if the assessment appears substantively correct
Strategic Implications for Tax Litigation
- In pending cases where notices were issued after 31.03.2022, practitioners should immediately examine the sanction order and challenge it on jurisdictional grounds
- Revenue authorities must update internal protocols to ensure that only designated authorities (Principal Chief Commissioner or above) approve notices beyond the three-year limit
- The decision reinforces the principle that statutory mandates under the Income Tax Act are not advisory but mandatory for jurisdiction
