The Income Tax Appellate Tribunal, Bangalore, has delivered a significant ruling affirming that reassessment proceedings initiated beyond three years from the end of the relevant assessment year require strict compliance with the approval mechanism under Section 151(2) of the Income Tax Act. The Tribunal quashed an assessment order for failure to obtain approval from the statutorily designated authority, reinforcing that procedural lapses cannot be overlooked even in the context of revenue recovery.
Background & Facts
The Dispute
The assessee, Shri Suresh Bhatia (HUF), filed a return of income for Assessment Year 2016-17 on 17.10.2016 declaring a total income of Rs. Nil. The Income Tax Department, through its insight portal, identified that during Financial Year 2015-16, the assessee had claimed a short-term capital loss of Rs. 2,05,45,428 on the sale of mutual fund units. The Assessing Officer (AO) concluded that this loss had escaped assessment and initiated reassessment proceedings under Section 147 read with Section 144B of the Income Tax Act.
Key Facts
- The assessee’s return for A.Y. 2016-17 was filed on 17.10.2016
- The capital loss of Rs. 2,05,45,428 was claimed in FY 2015-16
- The notice under Section 148 was issued on 26.07.2022, which is more than three years after the end of A.Y. 2016-17 (i.e., 31.03.2017)
- The notice was issued after obtaining approval from the Principal Commissioner of Income Tax - 1, Bangalore
- The assessee did not file a return in response to the Section 148 notice
- A notice under Section 144 was issued on 28.03.2023
- The assessee filed the ITR on 04.04.2023
- A notice under Section 143(2) was issued on 06.04.2023
- The assessee responded on 12.04.2023
- The AO made an addition of Rs. 2,05,45,428 to the total income on 29.05.2023
- The CIT(A) dismissed the appeal on 30.07.2025
Procedural History
- 17.10.2016: Assessee filed original return declaring income of Rs. Nil
- 26.07.2022: Notice under Section 148 issued by AO
- 28.03.2023: Notice under Section 144 issued
- 04.04.2023: Assessee filed ITR in response to Section 144 notice
- 06.04.2023: Notice under Section 143(2) issued
- 12.04.2023: Assessee submitted reply
- 29.05.2023: AO passed reassessment order adding Rs. 2,05,45,428
- 30.07.2025: CIT(A) dismissed appeal
- 30.04.2026: ITAT Bangalore delivered judgment on appeal
Relief Sought
The assessee sought quashing of the reassessment order dated 29.05.2023 on the ground that the notice under Section 148 was issued without the mandatory approval of the authority specified under Section 151(2) of the Income Tax Act, as amended by the Finance Act, 2021.
The Legal Issue
The central question was whether a notice under Section 148 issued beyond three years from the end of the relevant assessment year is valid if the approval is obtained from an authority not designated under Section 151(2) of the Income Tax Act as amended w.e.f. 01.04.2021.
Arguments Presented
For the Appellant/Petitioner
The learned Advocate for the assessee contended that the notice under Section 148 dated 26.07.2022 was issued after the Finance Act, 2021 came into force, and therefore, the amended provisions of Sections 147 to 151 applied. Since the notice was issued beyond three years from the end of A.Y. 2016-17, Section 151(2) mandated approval from the Principal Chief Commissioner, Principal Director General, Chief Commissioner, or Director General. The approval obtained from the Principal Commissioner of Income Tax - 1, Bangalore, was not from any of these specified authorities. The learned AR relied on the Supreme Court’s judgment in Union of India & Ors. v. Ashish Agrawal to argue that procedural compliance under Section 151 is mandatory and jurisdictional, and failure to obtain the correct approval renders the notice and consequent assessment void ab initio.
For the Respondent/State
The learned DR did not dispute the factual position that the approval was obtained from the Principal Commissioner, not the authority specified under Section 151(2). The DR argued that since the AO had validly assumed jurisdiction and issued the notice, and the assessee had responded to subsequent notices, the assessment should be upheld. The DR contended that the error was technical and did not prejudice the assessee, and therefore, the assessment should not be quashed.
The Court's Analysis
The Tribunal examined the statutory framework introduced by the Finance Act, 2021, which came into effect on 01.04.2021. The Tribunal noted that the amendments to Sections 147 to 151 were designed to bring clarity, reduce litigation, and ensure procedural fairness in reassessment proceedings. The Supreme Court in Union of India & Ors. v. Ashish Agrawal had explicitly held that the amended provisions apply to notices issued on or after 01.04.2021, regardless of the assessment year.
"The substituted provisions of the IT Act vide Finance Act, 2021 being remedial and benevolent in nature... the benefit of new provisions shall be made available even in respect of the proceedings relating to past assessment years, provided section 148 notice has been issued on or after 1st April, 2021."
The Tribunal observed that Section 151(2) clearly specifies the authorities empowered to grant approval for notices issued beyond three years: Principal Chief Commissioner, Principal Director General, Chief Commissioner, or Director General. The Principal Commissioner of Income Tax - 1, Bangalore, is not included in this list. The Tribunal emphasized that the approval mechanism under Section 151 is not a mere formality but a jurisdictional precondition. Failure to comply with this requirement vitiates the entire reassessment process.
The Tribunal further noted that the CBDT’s Instruction No. 01/2022, issued to implement the Supreme Court’s judgment, explicitly directed that reassessment notices beyond three years must be issued only after obtaining approval from the authorities specified under Section 151(2). The Tribunal held that the AO’s reliance on an unauthorized authority rendered the notice invalid, and consequently, the assessment order under Section 147 read with Section 144B was without legal foundation.
The Tribunal rejected the Revenue’s argument that the error was technical and harmless, stating that the legislature had deliberately elevated procedural compliance to a jurisdictional requirement. The Tribunal concluded that the doctrine of substantial compliance cannot override a statutory mandate that is explicitly framed as a condition precedent.
The Verdict
The appeal was allowed. The Tribunal quashed the reassessment order dated 29.05.2023, holding that the notice under Section 148 issued on 26.07.2022 was invalid due to non-compliance with Section 151(2). The addition of Rs. 2,05,45,428 was set aside. No other relief was granted as the assessment was entirely void. The Tribunal directed that the matter be closed without any further proceedings on the reassessment.
What This Means For Similar Cases
Procedural Compliance Is Non-Negotiable
- Practitioners must verify the exact authority granting approval under Section 151(2) for notices issued beyond three years
- Approval from Principal Commissioner, Commissioner, or Deputy Commissioner is insufficient for notices issued after 01.04.2021
- Any reassessment order based on such approval is liable to be quashed, regardless of the merits of the case
Jurisdictional Defects Cannot Be Curated by Subsequent Conduct
- Filing of returns or responses to notices under Section 144 or 143(2) does not cure a jurisdictional defect under Section 151
- The assessee’s cooperation or lack of prejudice cannot validate an invalid notice
- Courts and Tribunals will not apply the doctrine of waiver or estoppel to override mandatory statutory procedures
Precautionary Steps for Practitioners
- Always cross-check the approval authority against Section 151(2) when reviewing reassessment notices issued after 01.04.2021
- If the approving authority is not Principal Chief Commissioner, Principal Director General, Chief Commissioner, or Director General, challenge the notice on jurisdictional grounds
- File objections at the earliest stage, preferably before the AO, to preserve the right to appeal
- Maintain a checklist of authorized authorities under Section 151(2) for quick reference during reassessment proceedings
