The Income Tax Appellate Tribunal (ITAT), Mumbai, has set a critical precedent on the jurisdictional validity of reassessment proceedings under the Income Tax Act. In a recent ruling, the Tribunal quashed reassessment proceedings for Assessment Year 2017-18, holding that approval for issuing a notice under Section 148 beyond three years from the relevant assessment year must be obtained from the Principal Chief Commissioner or Chief Commissioner, as prescribed under Section 151(ii). Failure to comply with this statutory mandate renders the reassessment proceedings null and void.
Background & Facts
The Dispute
The appellant, Mamta Amrish Jain, a taxpayer, filed her return of income for Assessment Year (AY) 2017-18 on 02.08.2017, reporting a total income of Rs. 17,19,430. The Assessing Officer (AO) initiated reassessment proceedings based on information received on the Insight Portal of the Income Tax Department, categorizing the appellant as a beneficiary of accommodation entries amounting to Rs. 1,28,63,625. The AO treated this amount as non-genuine credits under Section 68 of the Income Tax Act and made an addition of Rs. 2,57,272 as unexplained expenditure under Section 69C, representing 2% of the sale consideration as commission for alleged bogus long-term capital gains.
Key Facts
- The appellant filed her return for AY 2017-18 on 02.08.2017
- A search and survey action was conducted on a syndicate led by Shri Naresh Jain on 19.03.2019 by DDIT (Inv) units
- The AO issued a notice under Section 148 on 20.04.2021 under the erstwhile reassessment regime
- An order under Section 148A(d) was passed on 27.07.2022, recommending reopening of the case
- Approval for the notice under Section 148 was obtained from Principal Commissioner of Income Tax-1, Mumbai, vide reference no. Pr.CIT-1/MUM/148A(d)/2022-23, dated 26.07.2022
- The reassessment order was passed on 11.04.2023, making additions of Rs. 1,28,63,625 under Section 68 and Rs. 2,57,272 under Section 69C
Procedural History
- 02.08.2017: Return filed for AY 2017-18
- 20.04.2021: Notice under Section 148 issued under erstwhile regime
- 27.07.2022: Order under Section 148A(d) passed
- 26.07.2022: Approval obtained from Principal CIT-1, Mumbai
- 11.04.2023: Reassessment order passed
- 03.09.2025: CIT(A) upheld the reassessment order (Order No. ITBA/NFAC/S/250/2025-26/1080328323(1))
- 04.03.2026: Appeal heard by ITAT Mumbai
- 30.04.2026: ITAT pronounces order allowing the appeal
Relief Sought
The appellant challenged the reassessment proceedings on jurisdictional grounds, contending that:
- The approval for issuing the notice under Section 148 was obtained from an incorrect authority under Section 151(ii)
- The jurisdictional AO initiated proceedings instead of the Faceless Assessing Officer (FAO), rendering the proceedings invalid
- The AO failed to comply with Circular No. 19 of 2019 dated 14.08.2019 issued by the CBDT
The Legal Issue
The central question before the ITAT was whether the reassessment proceedings initiated beyond three years from the end of the relevant assessment year (AY 2017-18) were valid, given that the approval for issuing the notice under Section 148 was obtained from the Principal Commissioner of Income Tax instead of the Principal Chief Commissioner or Chief Commissioner, as mandated by Section 151(ii) of the Income Tax Act.
Arguments Presented
For the Appellant
The appellant contended that:
- The approval obtained under Section 151(ii) was invalid as it was granted by the Principal Commissioner of Income Tax instead of the prescribed authority (Principal Chief Commissioner or Chief Commissioner)
- The reassessment proceedings were initiated by the jurisdictional AO instead of the FAO, violating the e-Assessment of Income Escaping Assessment Scheme, 2022 notified under Section 151A
- The AO failed to comply with Circular No. 19 of 2019, which outlines procedural safeguards for reassessment proceedings
For the Respondent
The Senior Departmental Representative (DR) argued that:
- The approval process complied with the statutory requirements, and any procedural lapse did not vitiate the jurisdiction of the AO
- The reassessment proceedings were based on credible information regarding accommodation entries, justifying the additions under Sections 68 and 69C
- The SEBI order dated 25.08.2008 supported the AO’s findings, even though the appellant was not named in it
The Court's Analysis
The ITAT examined the jurisdictional issue in light of the Finance Act, 2021, which overhauled the reassessment provisions under the Income Tax Act. The Tribunal relied on the landmark judgments of the Supreme Court in Union of India v. Ashish Agarwal [2022] 130 taxmann.com 64 (SC) and Union of India v. Rajeev Bansal [2024] 167 taxmann.com 70 (SC), which clarified the procedural requirements for reassessment proceedings post-amendment.
The ITAT noted that the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA) extended the time limit for issuing notices under Section 148 for cases where the three-year period expired between 20.03.2020 and 31.03.2021. However, this extension was limited to 30.06.2021, beyond which the specified authority under Section 151(ii) (Principal Chief Commissioner or Chief Commissioner) was required to grant approval.
The Tribunal observed that in the present case:
"An order u/s. 148A(d) was passed by Income Tax Officer, Ward- 1(1)(3), Mumbai, dated 27.07.2022 recommending the re-opening of the case u/s. 148, wherein, in para-4, it is noted that prior approval of PCIT-1, Mumbai, vide reference no. Pr.CIT-1/MUM/148A(d)/2022-23, dated 26.07.2022, was obtained."
The ITAT held that this approval was invalid, as the notice under Section 148 was issued beyond the three-year period from the end of AY 2017-18 (which expired on 31.03.2021). The Tribunal relied on the judgment of the Bombay High Court in Alag Property Construction Pvt. Ltd. v. ACIT [2025] 179 taxmann.com 578 (Bom), which dealt with an identical issue. The High Court had quashed reassessment proceedings where approval was obtained from the Principal Commissioner instead of the prescribed authority under Section 151(ii).
Key observations from the Bombay High Court’s judgment, as cited by the ITAT, include:
"Non-compliance by Respondent No.1 with the provisions contained in Section 148A(d) read with Section 151(4) vitiates the jurisdiction of Respondent No.1 to issue a notice under Section 148 of the Act."
"We are clearly of the view that the present matter stands covered by the decision of Hon'ble Supreme Court in the case of Rajeev Bansal (supra) and we are bound by it. Accordingly, we hold that the order dated 18.08.2022 passed under Section 148A(d) of the Act and the consequential notice issued under section 148 dated and 23.08.2022 are bad in law, and hence, are required to be quashed and set aside."
The ITAT concluded that the reassessment proceedings were vitiated due to non-compliance with Section 151(ii), rendering the notice under Section 148 and the subsequent reassessment order invalid.
The Verdict
The ITAT allowed the appeal filed by the assessee, quashing the notice issued under Section 148 dated 27.07.2022 and the reassessment order dated 11.04.2023. The Tribunal held that the approval obtained from the Principal Commissioner of Income Tax-1, Mumbai, was invalid as it did not comply with the requirements of Section 151(ii) of the Income Tax Act. Consequently, all proceedings emanating from the impugned notice and order were set aside.
What This Means For Similar Cases
Jurisdictional Compliance Is Non-Negotiable
- Approval Authority: Practitioners must ensure that reassessment proceedings initiated beyond three years from the end of the relevant assessment year comply with Section 151(ii). Approval must be obtained from the Principal Chief Commissioner or Chief Commissioner, not the Principal Commissioner of Income Tax
- Time Limits: The three-year period for reassessment is sacrosanct. If this period expires between 20.03.2020 and 31.03.2021, the time limit is extended to 30.06.2021 under TOLA. Beyond this date, Section 151(ii) applies strictly
- Faceless Assessment: Where the e-Assessment Scheme, 2022 is applicable, reassessment proceedings must be initiated by the Faceless Assessing Officer (FAO), not the jurisdictional AO
Procedural Safeguards Must Be Followed
- Circular No. 19 of 2019: The AO must comply with the procedural safeguards outlined in this circular, which prescribes guidelines for reassessment proceedings
- SEBI Orders: Reliance on SEBI orders or other external findings must be carefully scrutinized. If the assessee is not named in such orders, they cannot form the sole basis for additions under Sections 68 or 69C
Implications for Taxpayers and Practitioners
- Challenging Reassessment: Taxpayers can challenge reassessment proceedings on jurisdictional grounds if approval is obtained from an incorrect authority or if procedural lapses are evident
- Burden of Proof: The onus lies on the AO to demonstrate compliance with statutory provisions. Any deviation, however minor, can vitiate the proceedings
- Precedential Value: The ITAT’s reliance on Ashish Agarwal and Rajeev Bansal reinforces the binding nature of Supreme Court judgments on procedural compliance. Lower authorities cannot deviate from these rulings
