The Income Tax Appellate Tribunal, Kolkata, has quashed a reassessment notice issued under Section 148 of the Income Tax Act, 1961, for Assessment Year 2018-19, holding that approval obtained from the Principal Commissioner of Income Tax (PCIT) after the expiry of the three-year limitation period was jurisdictionally invalid. The Tribunal ruled that where the order under Section 148A(d) and the notice under Section 148 are issued beyond three years from the end of the relevant assessment year, sanction must be obtained from the Principal Chief Commissioner or Chief Commissioner under Section 151(ii), and the proviso inserted by the Finance Act, 2023, with effect from 1 April 2023, cannot be applied retrospectively to validate such approvals.
Background & Facts
The Dispute
The Revenue filed an appeal challenging the order of the Commissioner of Income Tax (Appeals), Kolkata-27, dated 30 March 2025, which deleted additions made by the Assessing Officer for Assessment Year 2018-19. The assessee, Shivam Dhatu Udyog Private Limited, engaged in manufacturing and trading of pig iron, sponge iron, and direct reduced iron, filed its return of income on 29 October 2018 declaring nil income, which was processed under Section 143(1). The Assessing Officer received information suggesting income had escaped assessment and initiated reassessment proceedings.
Key Facts
- 29 October 2018: Assessee filed return of income for AY 2018-19 declaring nil income
- 31 March 2022: Expiry of three-year period under Section 149(1)(a) for AY 2018-19
- 14 March 2022: Show-cause notice under Section 148A(b) issued (within three-year period), with approval from PCIT, Central, Kolkata-2; information value exceeded Rs 50 lakh
- 25 May 2022: Order under Section 148A(d) passed (after three-year period)
- 25 May 2022: Notice under Section 148 issued (after three-year period), again citing PCIT approval
- 29 March 2023: Reassessment order framed under Section 147
- 30 March 2025: CIT(A) order deleting additions (Revenue's appeal against this order)
- 30 September 2026: Hearing before ITAT Kolkata
- 26 October 2026: Order pronounced
The assessee raised a legal issue under Rule 27 of the Income Tax Rules, 1963, challenging the validity of the notice under Section 148 and the consequent reassessment order on the ground that mandatory approval under Section 151 was wrongly obtained from PCIT (Central), Kolkata-2, instead of the prescribed appropriate authority - Principal Chief Commissioner/Principal Director General/Chief Commissioner/Director General.
Procedural History
- 29.10.2018: Return of income filed for AY 2018-19
- 14.03.2022: Show-cause notice u/s 148A(b) issued (within 3 years)
- 25.05.2022: Order u/s 148A(d) passed (after 3 years)
- 25.05.2022: Notice u/s 148 issued (after 3 years)
- 29.03.2023: Reassessment order u/s 147 framed
- 30.03.2025: CIT(A) order deleting additions
- 30.09.2026: Hearing before ITAT
- 26.10.2026: ITAT order pronounced
The Parties' Positions
For the Assessee (Respondent): The notice u/s 148 was issued on 25 May 2022, after the three-year period ended on 31 March 2022. Approval was obtained from PCIT, which is permissible only where less than three years have elapsed. Since more than three years had elapsed, approval should have been obtained from PCCIT/CCIT under Section 151(ii). The proviso to Section 151 inserted by Finance Act, 2023 (w.e.f. 1 April 2023) cannot be applied retrospectively to notices issued before that date. Relied on Hirus Trade Pvt Ltd v. ITO (ITAT Kolkata), Deloitte Consulting India (P) Ltd v. Assessment Unit (Telangana HC), PCIT-18 v. Pravesh Kumar Jaiswal (Calcutta HC), PCIT-13 v. Utkarsh Rai (Calcutta HC), and SC orders in ACIT v. LinkedIn Singapore Pte Ltd and ACIT v. Prakash Pandurang Patil.
For the Revenue (Appellant): The show-cause notice u/s 148A(b) was issued on 14 March 2022, within three years. Therefore, approval from PCIT under Section 151(i) was correctly obtained. The PCIT rightly accorded approval for passing the order u/s 148A(d) and issuing notice u/s 148 beyond three years, as saved by the proviso to Section 151(i). The Revenue also challenged the CIT(A)'s deletion of additions on merits (purchases outside books, shell company findings, Section 69C and 115BBE applicability).
Relief Sought
The assessee sought quashing of the notice u/s 148 dated 25 May 2022 and the consequential reassessment order dated 29 March 2023. The Revenue sought setting aside of the CIT(A) order and confirmation of additions including Rs 7,55,43,860 (purchases outside books) and Rs 5,35,33,290 (purchases from alleged shell company M/s Maneet Trading Pvt Ltd) under Sections 69C and 115BBE.
The Legal Issue
The central question was whether, for Assessment Year 2018-19, where the order under Section 148A(d) and the notice under Section 148 were issued after the expiry of three years from the end of the relevant assessment year (i.e., after 31 March 2022), the approval mandated by Section 151 of the Act was required to be obtained from the Principal Chief Commissioner/Chief Commissioner under Section 151(ii), and whether the proviso to Section 151 inserted by the Finance Act, 2023 (effective 1 April 2023) could be applied retrospectively to validate PCIT approval obtained for post-three-year proceedings initiated before that date.
Arguments Presented
For the Assessee
The assessee contended that the three-year limitation under Section 149(1)(a) expired on 31 March 2022. The order u/s 148A(d) and notice u/s 148 were both issued on 25 May 2022, well beyond this period. Section 151(i) permits PCIT approval only where three years or less have elapsed; Section 151(ii) mandates PCCIT/CCIT approval where more than three years have elapsed. The proviso to Section 151, inserted by Finance Act, 2023 with effect from 1 April 2023, excludes the seven-day reply period under Section 148A(b) for computing the three-year limit. However, this proviso cannot operate retrospectively to validate approvals granted before its enactment. The assessee relied on the Telangana High Court decision in Deloitte Consulting India (P) Ltd v. Assessment Unit [2025] 178 taxmann.com 781, which held the proviso inapplicable to notices issued before 1 April 2023. The ITAT Kolkata's co-ordinate bench in Hirus Trade Pvt Ltd v. ITO (ITA No. 1058/Kol/2026, dated 13 July 2026) followed this ratio. The Supreme Court dismissed SLPs against Bombay High Court orders in ACIT v. LinkedIn Singapore Pte Ltd [2025] 180 taxmann.com 158 and ACIT v. Prakash Pandurang Patil (481 ITR 325), which quashed similar reassessments.
For the Revenue
The Revenue argued that since the show-cause notice u/s 148A(b) was issued on 14 March 2022 (within three years), the PCIT's approval under Section 151(i) was validly obtained. The PCIT's approval for the subsequent order u/s 148A(d) and notice u/s 148 (though issued after three years) was saved by the proviso to Section 151(i). The Revenue also defended the merit additions: purchases of Rs 7,55,43,860 outside books of account chargeable under Section 69C and Section 115BBE; purchases of Rs 5,35,33,290 from M/s Maneet Trading Pvt Ltd, found to be a shell company on independent inquiry, held bogus. The Revenue contended the CIT(A) erred in directing consideration of gross profit rate on such purchases and in failing to appreciate the AO's independent inquiry findings.
The Court's Analysis
The Tribunal examined the chronological sequence: the show-cause notice u/s 148A(b) was issued on 14 March 2022 (within three years), but the order u/s 148A(d) and notice u/s 148 were both issued on 25 May 2022 (after 31 March 2022). The approval for these post-three-year actions was obtained from PCIT, Central, Kolkata-2.
The Tribunal held that Section 151(i) permits PCIT approval only where "three years or less than three years have lapsed from the end of the relevant assessment year." Section 151(ii) requires PCCIT/CCIT approval where "more than three years have lapsed." Since the order u/s 148A(d) and notice u/s 148 were issued after 31 March 2022, PCCIT/CCIT approval was mandatory.
On the proviso to Section 151 inserted by Finance Act, 2023 (w.e.f. 1 April 2023), the Tribunal adopted the Telangana High Court's reasoning in Deloitte Consulting: the proviso excludes the seven-day reply period for computing the three-year limit, but it came into force on 1 April 2023 and cannot be applied retrospectively. The Assessing Officer could not have assumed such exclusion while passing orders in May 2022. In taxing statutes, intendment cannot be assumed unless expressly enacted.
"In taxing statutes, intendment cannot be assumed unless specifically expressed in the provision enacted by the legislature."
The Tribunal noted the Bombay High Court in Vodafone Idea Ltd (WP No. 2768/2022) and Skypak Travel Pvt Ltd v. ITO (185 taxmann.com 1993) took identical views. The Supreme Court's dismissal of SLPs in LinkedIn Singapore and Prakash Pandurang Patil affirmed this position.
The Tribunal also observed that the notices/orders were silent on whether reopening was under Section 149(1)(a) or (b), and no record showed the AO availed the fifth/sixth proviso to Section 149 or the proviso to Section 151, especially given the information value exceeded Rs 50 lakh.
Accordingly, the Tribunal concluded the order u/s 148A(d), notice u/s 148, and consequential assessment u/s 147 suffered from jurisdictional error and were invalid. The assessee's Rule 27 ground was allowed. The Revenue's appeal on merits became infructuous and was dismissed.
The Verdict
The assessee succeeded on the jurisdictional challenge. The ITAT quashed the notice under Section 148 dated 25 May 2022 and the consequential reassessment order under Section 147 dated 29 March 2023 (referred to as 20.03.2024 in para 13, likely a typographical variance). The ground raised under Rule 27 was allowed. The Revenue's appeal (ITA No. 1435/Kol/2025) challenging the CIT(A)'s deletion of additions was dismissed as infructuous. No costs were awarded.
What This Means For Similar Cases
PCCIT/CCIT Approval Mandatory Post Three Years
- For reassessment proceedings where the order under Section 148A(d) and notice under Section 148 are issued after three years from the end of the relevant assessment year, approval must be obtained from the Principal Chief Commissioner or Chief Commissioner under Section 151(ii). PCIT approval is jurisdictionally insufficient.
- Practitioners must verify the date of the Section 148A(d) order and Section 148 notice against the three-year expiry date (31 March of the third subsequent year) and check the sanctioning authority's designation in the notice/order.
Finance Act 2023 Proviso Not Retrospective
- The proviso to Section 151 excluding the seven-day reply period under Section 148A(b) for computing the three-year limit applies only from 1 April 2023. It cannot validate approvals obtained for proceedings concluded before that date.
- For AY 2018-19 and similar years where Section 148 notices were issued between 1 April 2022 and 31 March 2023, the proviso is inapplicable. Any PCIT approval for post-three-year actions in this window is invalid.
Jurisdictional Error Renders Entire Proceeding Void
- Absence of competent authority approval under Section 151 is a jurisdictional defect, not a mere procedural irregularity. It vitiates the notice under Section 148 and the entire reassessment under Section 147.
- Merits of the addition (shell company, Section 69C, Section 115BBE) become irrelevant once the jurisdictional defect is established. The Tribunal left merit grounds open but dismissed the Revenue's appeal as infructuous.
Actionable Takeaways
- Check sanctioning authority: In every reassessment notice, verify whether the approval authority matches the temporal requirement of Section 151(i) vs (ii).
- Timeline audit: Map the Section 148A(b) notice date, Section 148A(d) order date, and Section 148 notice date against the three-year expiry.
- Challenge early: Raise the Section 151 approval defect at the first opportunity (before AO, CIT(A), or Tribunal) under Rule 27 or as a preliminary objection.
- Cite binding precedents: Deloitte Consulting (Telangana HC), Vodafone Idea (Bombay HC), LinkedIn Singapore and Prakash Pandurang Patil (SC SLP dismissals), and Hirus Trade (ITAT Kolkata) form a consistent line of authority.
