The Income Tax Appellate Tribunal, Delhi Bench, has set aside a reassessment order for Assessment Year 2017-18, ruling that the approval under Section 151(ii) of the Income Tax Act, 1961 must be obtained from the Principal Chief Commissioner or Principal Director General when more than three years have elapsed from the end of the relevant assessment year. This judgment reinforces the statutory requirement for strict compliance with approval hierarchies in reassessment proceedings.
Background & Facts
The Dispute
The appellant, Purshotam Anand, filed his return of income for Assessment Year 2017-18 on 05.02.2018, declaring a total income of Rs. 7,02,250. The return included income from business (Rs. 57,690), house property (Rs. 7,84,000), and other sources (Rs. 10,560). The Assessing Officer (AO) initiated reassessment proceedings under Section 147 of the Act after receiving information that the appellant was the beneficiary of cash deposits totaling Rs. 1,21,59,000 during the demonetization period, allegedly linked to the accounts of Shri Rajendra Kumar (deceased) and his wife, Smt. Pooja Manchanda.
Key Facts
- The appellant maintained a savings bank account (IndusInd Bank No. 100004130892) with credit entries of Rs. 1,08,46,769, which were not disclosed in his return
- Shri Rajendra Kumar expired on 17.02.2015, and Smt. Pooja Manchanda operated his business and bank accounts post-demise
- Cash deposits of Rs. 1,18,96,000 were made in the account of M/s Satyam Furnishers (Account No. 200004184755) and later transferred to Smt. Pooja Manchanda’s savings account (No. 100004258657)
- The AO issued a notice under Section 148 on 08.06.2021, reopening the assessment for AY 2017-18
- A subsequent notice under Section 148A(b) was issued on 26.05.2022, following the Supreme Court’s directions in Ashish Agarwal [2022] 444 ITR 1 (SC)
- The final notice under Section 148 was issued on 29.07.2022, with approval from the Principal Commissioner of Income Tax, Delhi
Procedural History
- 05.02.2018: Appellant filed return of income for AY 2017-18
- 08.06.2021: Notice under Section 148 issued by AO
- 26.05.2022: Notice under Section 148A(b) issued post-Ashish Agarwal judgment
- 29.07.2022: Final notice under Section 148 issued with approval from Principal Commissioner of Income Tax, Delhi
- 13.04.2023: AO completed assessment, adding Rs. 1,75,99,007 under Sections 56(2)(ix) and 69A of the Act
- 28.11.2025: Commissioner of Income Tax (Appeals)/NFAC dismissed the appellant’s appeal
- 28.04.2026: Appellant filed appeal before ITAT Delhi
Relief Sought
The appellant challenged the reassessment order on the ground that the approval under Section 151(ii) was obtained from an incompetent authority. Specifically, since more than three years had elapsed from the end of AY 2017-18, the approval should have been granted by the Principal Chief Commissioner or Principal Director General, not the Principal Commissioner of Income Tax.
The Legal Issue
The central question was whether the reassessment proceedings initiated under Section 147 of the Act were valid when the approval under Section 151(ii) was granted by an authority not specified for cases where more than three years have elapsed from the end of the relevant assessment year.
Arguments Presented
For the Appellant
- Relied on the judgment of the Delhi High Court in Twilight Infrastructure (P) Ltd. v. ITO (W.P.(C) 16524/2002), which held that for reassessment proceedings beyond three years, approval must be obtained from the Principal Chief Commissioner or Principal Director General under Section 151(ii)
- Argued that the approval granted by the Principal Commissioner of Income Tax was invalid as it did not comply with the statutory hierarchy
- Cited the Supreme Court’s decision in Union of India v. Ashish Agarwal [2022] 444 ITR 1 (SC), which mandated compliance with the new reassessment regime post-01.04.2021
For the Respondent
- Contended that the reassessment proceedings were initiated in compliance with the Supreme Court’s directions in Ashish Agarwal
- Submitted that the notice dated 29.07.2022 was issued with the approval of the Principal Commissioner of Income Tax, Delhi, and was therefore valid
- Sought liberty to reinitiate proceedings if the impugned order was set aside
The Court's Analysis
The Tribunal examined the statutory provisions under Section 151 of the Act, which prescribes the authority competent to grant approval for reassessment proceedings. The provision distinguishes between two scenarios:
- If three years or less have elapsed from the end of the relevant assessment year, approval may be granted by the Principal Commissioner or Principal Director, or Commissioner or Director
- If more than three years have elapsed, approval must be granted by the Principal Chief Commissioner or Principal Director General, or where such authority does not exist, by the Chief Commissioner or Director General
The Tribunal noted that in the present case, the notice under Section 148 was issued on 29.07.2022, more than three years after the end of AY 2017-18 (which ended on 31.03.2018). Therefore, the approval should have been obtained from the Principal Chief Commissioner or Principal Director General under Section 151(ii), not the Principal Commissioner of Income Tax.
The Tribunal relied on the Delhi High Court’s judgment in Twilight Infrastructure (P) Ltd. v. ITO, which held:
"Clause(i) and (ii) of section 151 of the amended Act clearly specify the authority whose approval can trigger reassessment proceedings. Thus, if three (3) years or less have elapsed from the end of the relevant AY, the specified authority who would grant approval for initiation of reassessment proceedings will be the Principal Commissioner or Principal Director Or Commissioner or Director. However, if more than three (3) years from the end of the relevant AY have elapsed, the specified authority for according approval for reassessment shall be the Principal Chief Commissioner or Principal Director General or, where there is no Principal Chief Commissioner or Principal Director General, Chief Commissioner or Director General."
The Tribunal further observed that the approval obtained from the Principal Commissioner of Income Tax was contrary to the statutory mandate, rendering the reassessment proceedings invalid. The judgment in Twilight Infrastructure was squarely applicable, as was the decision of the coordinate bench in Sampark Management Consultancy LLP v. DCIT (ITA Nos. 6025 & 6026/Del/2024), which quashed similar reassessment proceedings for non-compliance with Section 151(ii).
The Verdict
The Tribunal allowed the appeal, quashing the assessment order dated 13.04.2023. The reassessment proceedings were held to be non-est due to the invalid approval under Section 151(ii). The Tribunal kept the other grounds raised by the appellant open for adjudication, as they had become academic in light of the legal infirmity.
What This Means For Similar Cases
Strict Compliance with Approval Hierarchy Is Mandatory
- Reassessment proceedings initiated beyond three years from the end of the relevant assessment year must obtain approval from the Principal Chief Commissioner or Principal Director General under Section 151(ii)
- Approval from any lower authority, such as the Principal Commissioner of Income Tax, will render the proceedings invalid
- Practitioners should verify the approval authority before challenging or defending reassessment orders
Precedential Value of Twilight Infrastructure and Sampark Management
- The judgments in Twilight Infrastructure and Sampark Management establish that non-compliance with Section 151(ii) is fatal to reassessment proceedings
- These decisions reinforce the principle that statutory provisions, particularly those relating to approval hierarchies, must be strictly construed
- Taxpayers can rely on these precedents to challenge reassessment orders where approval was obtained from an incompetent authority
Liberty to Reinitiate Proceedings Does Not Cure Invalidity
- While the Tribunal noted that the revenue could reinitiate proceedings if deemed necessary, this liberty does not validate the original invalid proceedings
- Any fresh proceedings must strictly comply with the statutory requirements, including obtaining approval from the correct authority under Section 151(ii)
- Taxpayers should not assume that the revenue’s liberty to reinitiate proceedings diminishes the significance of the initial invalidity
