The Delhi Income Tax Appellate Tribunal has invalidated a reassessment notice issued under Section 148 of the Income Tax Act, 1961, for failure to obtain mandatory approval from the prescribed higher authority under Section 151. This ruling reinforces procedural compliance as a jurisdictional prerequisite, not a mere formality, and sets a binding precedent for all reassessment proceedings initiated after April 1, 2021.
Background & Facts
The Dispute
The dispute arose from the Income Tax Department’s initiation of reassessment proceedings against VSM Township India Pvt. Ltd. for the assessment year 2016-17. The Assessing Officer (AO) made an addition of Rs. 54,60,000 under Section 68, treating funds received from M/s Golden Vyapaar (P) Ltd. as unexplained income. The AO relied on findings from a search and survey conducted on 08.03.2017 at the premises of Chartered Accountant Puneet Kultia, who was alleged to have facilitated unaccounted income inflows through shell entities. The Department issued a notice under Section 148 on 13.07.2022, leading to a reassessment order dated 22.05.2023.
Key Facts
- The assessee filed its original return for AY 2016-17 on 16.08.2016 declaring nil income.
- Search and survey under Sections 132 and 133A were conducted on 08.03.2017 at premises linked to Shri Puneet Kultia and associates.
- During post-search proceedings, it was alleged that M/s Golden Vyapaar (P) Ltd., controlled by Kultia, his wife, or his accountant, had provided accommodation entries to the assessee amounting to Rs. 54,60,000.
- A notice under Section 148 was issued on 13.07.2022, over five years after the end of the relevant assessment year.
- The reassessment was completed under Section 147 read with Section 144B on 22.05.2023, adding Rs. 54,60,000 as unexplained income.
- The Commissioner of Income Tax (Appeals) [CIT(A)] deleted the addition on merits but did not examine the validity of the notice under Section 148.
Procedural History
- 16.08.2016: Original return filed by assessee declaring nil income.
- 08.03.2017: Search and survey conducted under Sections 132 and 133A at premises of Shri Puneet Kultia.
- 19.04.2021: Date of issuance of notice under Section 148 (as per assessee’s submission).
- 25.05.2022: Notice under Section 148A(b) issued.
- 13.07.2022: Notice under Section 148A(d) issued.
- 13.07.2022: Notice under Section 148 issued by AO.
- 22.05.2023: Reassessment order passed under Section 147 read with Section 144B.
- 22.09.2025: CIT(A) order passed, deleting the addition under Section 68.
- 26.05.2026: Hearing before Delhi ITAT.
- 03.06.2026: Judgment pronounced.
The Parties' Positions
For the Assessee
The assessee contended that the notice under Section 148 was invalid because the requisite approval under Section 151 was obtained from the Principal Commissioner of Income Tax (PCIT)-7, New Delhi. The assessee argued that under the new regime effective from 01.04.2021, approval for notices issued more than three years after the end of the assessment year must come from the Principal Chief Commissioner or Principal Director General or Chief Commissioner or Director General. Since the income alleged to have escaped assessment exceeded Rs. 50 lakh, the approval from PCIT-7 was legally insufficient.
For the Revenue
The Revenue relied on the CIT(A)’s order and submitted that the reassessment was justified on merits, given the evidence from the search proceedings. It did not contest the procedural defect but argued that the addition was substantively valid.
Relief Sought
The assessee sought quashing of the notice under Section 148, the order under Section 148A(d), and the reassessment order dated 22.05.2023, on grounds of lack of jurisdiction. The Revenue sought to restore the addition of Rs. 54,60,000.
The Legal Issue
The central question was whether a notice issued under Section 148 of the Income Tax Act after the expiry of three years from the end of the relevant assessment year is valid if the prior approval under Section 151 is obtained from an authority lower than the one prescribed under the new regime effective from 01.04.2021.
Arguments Presented
For the Appellant/Petitioner
The assessee relied on the Supreme Court’s decision in Union of India v. Rajeev Bansal (2024) SCC Online SC 2693, which held that the new regime under Section 151 mandates higher-level approvals for reassessments initiated after three years. The assessee argued that since the alleged escaped income exceeded Rs. 50 lakh and the notice was issued more than three years after AY 2016-17, approval must have come from the Principal Chief Commissioner or Director General. The approval from PCIT-7 was therefore invalid, rendering the notice and subsequent assessment void ab initio. The assessee also cited multiple Delhi and Mumbai ITAT decisions affirming this interpretation.
For the Respondent/State
The Revenue did not dispute the procedural flaw but argued that the substantive grounds for the addition under Section 68 were strong, based on the search findings. It contended that the CIT(A) had correctly appreciated the facts and that technical defects should not override substantive justice. However, it offered no legal rebuttal to the jurisdictional challenge under Section 151.
The Court's Analysis
The Tribunal conducted a detailed analysis of Section 151 as amended effective 01.04.2021, distinguishing between the old and new regimes. It emphasized that Section 151 is not a procedural formality but a jurisdictional safeguard designed to prevent arbitrary reopening of assessments. The Court noted that the Supreme Court in Rajeev Bansal had clearly delineated the hierarchy of approving authorities based on the time elapsed and the quantum of escaped income.
"Section 151 imposes a check upon the power of the Revenue to reopen assessments. The purpose behind this procedural check is to save the assessees from harassment resulting from the mechanical reopening of assessments."
The Tribunal observed that the notice under Section 148 was issued on 13.07.2022, more than five years after the end of AY 2016-17. The alleged escaped income of Rs. 54,60,000 exceeded Rs. 50 lakh. Under the new regime, such a notice required approval from the Principal Chief Commissioner or Director General. The approval obtained from PCIT-7, New Delhi, was therefore legally inadequate.
The Tribunal further held that the invalidity of the notice under Section 148 rendered the entire reassessment process void, as jurisdiction cannot be conferred by mere consent or substantive correctness. The CIT(A) erred in not examining this jurisdictional defect, and the Tribunal was bound to correct it.
The Court also rejected the Revenue’s argument that the merits of the addition should prevail, stating that procedural compliance under Section 151 is a condition precedent to jurisdiction. Without a valid notice, no assessment can be lawfully completed.
The Verdict
The assessee succeeded. The Delhi ITAT quashed the notice dated 13.07.2022 under Section 148 of the Income Tax Act, the order dated 13.07.2022 under Section 148A(d), and the reassessment order dated 22.05.2023. The appeal of the Revenue was dismissed. The Tribunal held that the entire reassessment proceedings were void for want of jurisdiction due to non-compliance with Section 151. No monetary relief or direction for recalculation was ordered, as the assessment was set aside in its entirety.
What This Means For Similar Cases
Procedural Compliance Is Non-Negotiable
- Practitioners must verify the approving authority’s rank against the date of notice issuance and the quantum of escaped income.
- For notices issued after 01.04.2021 and beyond three years, approval must come from Principal Chief Commissioner or Director General if escaped income exceeds Rs. 50 lakh.
- Any reassessment notice issued with lower-level approval is void, regardless of the strength of substantive evidence.
Jurisdictional Defects Cannot Be Waived
- Courts and tribunals are obligated to examine jurisdictional defects even if not raised by the assessee.
- Substantive correctness of an addition cannot cure a jurisdictional flaw under Section 148/151.
- Practitioners should file cross-objections on jurisdictional grounds even if the lower authority has ruled in favor of the assessee on merits.
Timing and Authority Are Interlinked
- The applicable approval authority is determined by the date of notice issuance, not the date of search or initiation of proceedings.
- A notice issued on 02.04.2021 or later must comply with the new Section 151 regime, even if the search occurred earlier.
- Tax officers must maintain a clear record of approval dates and authorities to avoid invalid notices.
