Jurisdictional Invalidity of Reassessment Notices due to Improper Sanction and Non-Disclosure
I. Issue: Sanction by Principal Commissioner instead of Joint Commissioner
The primary dispute focused on whether the Principal Commissioner was the “Specified Authority” to grant sanction for a reassessment notice issued during the COVID-19 extension period.
1. Impact of TOLA on Limitation
For AY 2015-16, the standard four-year limitation period ended on March 31, 2020. However, due to the COVID-19 pandemic, the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA) extended the time limit for issuing notices.
The Legal Fiction: Because of TOLA, a notice issued on March 31, 2021, is legally treated as if it were issued within the original four-year window.
The Consequence: Since the notice is deemed to be within four years, Section 151(2) (as it stood then) mandates that the sanction must be granted by the Joint Commissioner.
2. Invalid Sanction
The Revenue obtained approval from the Principal Commissioner (an authority specified for cases beyond four years).
The Ruling: The Court held that when the law prescribes a specific authority (Joint Commissioner), a sanction by a different authority—even if higher in rank—renders the notice void ab initio. Sanction is not a procedural formality but a “jurisdictional precondition.”
II. Issue: Failure to Allege Non-Disclosure under Section 147
The second part of the ruling addressed the “First Proviso to Section 147,” which acts as a shield for taxpayers after four years have passed.
1. The “Full and True Disclosure” Requirement
Where an assessment was originally completed under Section 143(3) (Scrutiny), the AO can only reopen the case after four years if there was a failure on the part of the assessee to disclose “fully and truly” all material facts.
The Fact: The AO reopened the case based on information about illiquid derivatives on BSE/USE.
The Flaw: In the “Reasons Recorded” for reopening, the AO failed to specifically allege that the assessee had suppressed or failed to disclose any material facts during the original assessment.
2. Mandatory Condition Not Satisfied
The Court emphasized that even if income has escaped assessment, the lack of an allegation regarding “failure to disclose” is fatal to the Revenue’s case.
Verdict: Since the mandatory condition of the First Proviso was not met, the reopening was held to be illegal.
Key Takeaways for Taxpayers
Verify the Sanctioning Officer: If you receive a notice for an older year (like AY 2015-16) during the TOLA extension, check if the sanction was given by the Joint Commissioner. A sanction by a Principal Commissioner in this specific window is a ground for quashing.
Check the “Reasons Recorded”: If your case was previously under Scrutiny and is being reopened after 4 years, look for the phrase “failure to fully and truly disclose.” If this allegation is missing or vague, the notice can be challenged in a Writ Petition.
TOLA is a Double-Edged Sword: While it extends the Revenue’s time to act, it also forces them to adhere to the legal requirements of the “deemed” time period (e.g., the 4-year sanction rules).
HIGH COURT OF BOMBAY
Global Earth Properties & Developers (P). Ltd.
v.
Union of India*
B. P. COLABAWALLA and FIRDOSH P. POONIWALLA, JJ.
WRIT PETITION NO. 1154 OF 2022
JANUARY 12, 2026
Madhur Agarwal for the Petitioner. Subir Kumar, Ms. Niyanta Trivedi and Ms. Diksha Pandey, Advs. for the Respondent.
ORDER
1. Rule. Respondents waive service. With the consent of the parties, Rule made returnable forthwith and the Petition is heard finally.
2. By this Petition, the Petitioner has challenged (i) the notice dated March 31, 2021 issued under section 148 of the Income-tax Act, 1961 (“the Act”) for Assessment Year 2015-16; (ii) the order dated January 31, 2022 rejecting the objections of the Petitioner to the reopening of the assessment for the Assessment Year 2015-16; (iii) the final assessment order passed under section 147 r.w.s 144 r.w.s 144B of the Act dated March 30, 2022; and (iv) the Show-Cause Notice issued under section 274 r.w.s. 271(1)(c) of the Act dated March 30, 2022 during the operation of the ad-interim stay granted by this Court on March 07, 2022.
3. The facts relevant for the purpose of this petition are that the Petitioner filed its original return of income for the year under consideration on September 24, 2015, and subsequently filed a revised return of income on October 23, 2015, declaring a total income of Rs. 1,49,32,563/-. The Petitioner had claimed “Loss on derivatives” of Rs. 3,86,36,313/- under the head “other expenses” in the Statement of Profit & Loss forming part of the said return of income. The loss on derivatives is also disclosed in “Note 20: Other Expenses”, which provides a breakup of other expenses debited to the profit and loss account in the books of accounts of the Petitioner.
4. The case of the Petitioner was selected for scrutiny assessment, and the Assessing Officer called for and scrutinized various details in relation to the return filed by the Petitioner. The Assessing Officer then passed an assessment order u/s 143(3) on June 30, 2017 making certain additions to the returned income of the Petitioner.
5. Subsequently, the impugned notice under section 148 of the Act dated March 31, 2021 was issued by Respondent No. 3 alleging that he had reason to believe that income chargeable to tax for Assessment Year 2015-16 has escaped assessment. The impugned notice mentions that the said notice is issued after obtaining necessary satisfaction of the Principal Commissioner of Income-tax, Mumbai – 4, who is Respondent No. 5 in the present Writ Petition.
6. The Petitioner filed its return of income under protest pursuant to the said notice, and sought a copy of the reasons recorded prior to the initiation of the reassessment proceedings. A notice under section 143(2) of the Act, dated August 12, 2021, was issued to the Petitioner and the annexure to the said notice is stated to be the reasons recorded by Respondent No. 3 for initiating the reassessment proceedings. The reasons so provided to the Petitioner read as under:
“In this case, information is received with regard to non-genuine profits/loss on illiquid derivatives on BSE and USE, in which assessee is a beneficiary, the details of which are totaled up as under:
| S. No | Case Source | Packet Packet Description | Source Source Name | Information Type | value |
| 1 | Pilot Project | Non-Genuine Profits/Loss On Illiquid Derivatives On BSE And USE | Kayan Securities Pvt Ltd. | Fictitious losses Equity/ Derivative Trading | in Rs.3,34,26,750/- |
| 2 | Pilot Project | Non-Genuine Profits/Loss On Illiquid Derivatives On BSE And USE | Kayan Securities Pvt Ltd. | Fictitious losses Equity/ Derivative Trading | in Rs.9,98,400/- |
| Total | Rs. 3,44,25,100/- |
In view of the above facts and after due application of mind after analyzing all the relevant information in the case of the assessee in totality, I have reason to believe that income of Rs3,44,25,100/- has escaped assessment for A.Y.2015-16 and the same is therefore required to be reopenedfor scrutiny assessment. “
7. The Petitioner filed its objections dated August 24, 2021 against the reassessment proceedings initiated by the impugned notice. The Petitioner inter alia submitted that the impugned notice is issued beyond a period of four years from the end of relevant Assessment Year, and therefore, as per the proviso to section 147 of the Act (as it stood on the date of issuance of notice being March 31, 2021), no notice can be issued unless there is a failure on part of an assessee to disclose fully and truly all material facts necessary for assessment of such Assessment Year. The Petitioner pointed out that during the year under consideration, the Petitioner had claimed a loss on derivatives of Rs. 3,86,36,313/- under the head “other expenses” in its profit and loss account, and the same was also disclosed during the course of the original assessment proceedings. Therefore, there is no failure on part of assessee to disclose fully and truly all material facts necessary for assessment of such Assessment Year.
8. Respondent No. 4 passed an order dated January 31, 2022 disposing of the Petitioner’s objections, inter alia, by merely stating that the reasons recorded do reflect that there was failure on part of the assessee to disclose fully and truly all material facts. Respondent No. 4 further stated that jurisdiction of the competent authority under section 151 of the Act cannot be challenged. Respondent No.4 opined that the notice is issued within a period of four years from the end of the relevant Assessment Year, and therefore, the requirements of the proviso to section 147 of the Act are not attracted.
9. The Petitioner, thereafter, filed the present petition challenging the impugned notice dated March 31, 2021 and the impugned order disposing of the objections dated January 31, 2022. This Court, vide order dated March 07, 2022, granted ad-interim relief to the Petitioner in terms of prayer clause (d) which read as under:
“that pending the hearing and final disposal of the present petition, this Hon’ble Court may be pleased to stay the operation of the notice dated 31/03/2021 (“Exhibit-O” hereto) issued by Respondent No. 3 and the order dated 31/01/2022 (“Exhibit-T” hereto) passed by Respondent No. 4 and grant an injunction restraining the Respondents, their subordinates, servants, agents, successors-in-office from taking any steps in furtherance or in implementation of the notice dated 31/03/2021 (“Exhibit-O” hereto) issued by Respondent No. 3 and the order dated 31/01/2022 (“Exhibit-T” hereto) passed by Respondent No. 4″
10. However, Respondent No. 4 issued a show cause notice, under section 144 of the Act, dated March 27, 2022, alleging that the Petitioner did not prove that the loss from derivatives is not fictitious. The Petitioner filed a response to the said notice providing a copy of the order of this Court granting ad-interim relief to the Petitioner. However, to the surprise of the Petitioner, Respondent No. 4 proceeded to pass the impugned final assessment order under section 147 r.w.s 144 of the Act dated March 30, 2022, making an addition of Rs. 3,44,25,100/-, being loss on derivatives, which was considered as fictitious.
11. Aggrieved, the Petitioner amended the present petition to challenge the subsequent notices as well as orders passed by Respondent No. 4.
12. In this factual backdrop, Mr. Agarwal, the learned counsel appearing on behalf of the Petitioner, at the outset, submitted that the impugned notice has been issued in respect of Assessment Year 2015-16 on March 31, 2021, and therefore the provisions of section 147 to 151 of the Act, as they stood prior to amendment with effect from April 01, 2021, are applicable. He submitted that the period of four years from the end of the relevant Assessment Year, i.e. Assessment Year 2015-16, would end on March 31, 2020, and since the date of issuance of notice falls within the period of March 20, 2020 and March 31, 2021, the time limit shall stand extended for grant of sanction in terms of section 151 of the Act as per the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020, (“TOLA”) as held in paragraphs 73, 74 and 77 of the judgment of the Hon’ble Supreme Court in the case of Union of India v. Rajeev Bansal [2024] 167 taxmann.com 70/301 Taxman 238/469 ITR 46 (SC).
13. He, therefore, submits that, as the reopening is treated to be within a period of four years from the end of the relevant Assessment Year, the specified authority as per section 151(2) of the Act is the Joint Commissioner of Income-tax, which authority ought to have granted sanction for issuance of the impugned notice under section 148 of the Act. The impugned notice under section 148 of the Act itself mentions that the said notice has been issued with the prior approval of the Principal Commissioner of Income-tax, Mumbai – 4. He submitted that since the authority at whose satisfaction the notice under section 148 of the Act must be issued, is not the Principal Commissioner, but the Joint Commissioner, the notice issued under section 148 of the Act on March 31, 2021 is liable to be quashed and set aside. Consequently, the final assessment order passed under section 147 dated March 30, 2022 also cannot be sustained and is liable to be quashed and set aside. In this regard, Mr. Agarwal relied on the decision of the Goa bench of this Court in case of Prabhakar Nerulkar v. Pr. CIT [2025] 177 taxmann.com 580 (Bom), where on identical facts, considering the decision of the Supreme Court in the case of Rajeev Bansal (supra), held that sanction by an authority other than the specified authority renders the notice invalid and liable to be quashed and set aside. He also relied upon the decision of this Court in the case of Ghanshyam K. Khabrani v. Asstt. CIT [2012] 20 taxmann.com 716/210 Taxman 75 (Mag)/ 346 ITR 443 (Bom), where the Court has held that when the statute mandates the satisfaction of a particular functionary for exercise of the power, the satisfaction must be of that Authority alone and cannot even be of a superior authority.
14. This apart, Mr. Agarwal submitted that the reasons for re opening the assessment are completely vague, cryptic, and do not record any basis for formation of belief that income chargeable to tax in the case of the Petitioner has escaped assessment. The recorded reasons start with the phrase “information is received with regard to non-genuine profit/loss on illiquid derivatives on BSE and USE” and further states that the Petitioner is allegedly a beneficiary therein. He states that Respondent No. 3 has not even referred as to what is the information that is received; from which authority has this information been received; whether it is their case that the Petitioner has claimed illiquid profit or illiquid loss. Respondent No. 3 does not even record as to what tangible material has been relied upon by him to have a reason to believe that income chargeable to tax has escaped assessment. He submits that the recorded reasons are bald allegations made against the Petitioner, without any basis to substantiate the same. He further submitted that no information has been provided to the Petitioner to justify the reopening of the assessment.
15. Per contra, Mr. Kumar, the learned counsel appearing on behalf of the Respondents, submits that section 149(1)(b) of the Act would be applicable as the impugned notice under section 148 of the Act is dated March 31, 2021, which is issued beyond a period of four years from the end of the relevant Assessment Year 2015-16. Therefore, the Principal Commissioner of Income-tax is the specified authority for granting sanction under section 151(1) of the Act. He further states that all the conditions of section 147 of the Act have been satisfied and the Assessing Officer had reason to believe that income chargeable to tax in the case of the Petitioner has escaped assessment within the meaning of 147 of the Act. He further argued that the failure of the Petitioner to disclose fully and truly material facts is apparent from the reasons as recorded because the Petitioner has made an incorrect claim in the return of income. He therefore submitted that the validity of the impugned notice under section 148 of the Act, dated March 31, 2021 as well as the impugned final assessment order dated March 30, 2022, passed under section 147 of the Act, should be upheld. Mr. Kumar submits that mere absence of the sentence “Failure to disclose”in the reasons to believe would not make the notice under section 148 of the Act invalid. It is a matter of record that the petitioner failed to disclose the transactions in securities at the time of filing the return and even during the scrutiny proceedings. At the stage of issuance of notice under section 147, complete satisfaction under phrase “reasons to believe” is not required. In this regard, reliance is placed on the judgment of Hon’ble Supreme Court in the case of Asstt. CIT v. Rajesh Jhaveri Stock Brokers (P.) Ltd [2007] 161 Taxman 316/291 ITR 500 (SC). He accordingly submitted that the Writ Petition be dismissed.
16. In rejoinder, Mr. Agarwal, referred to paragraph 7 of the affidavit-in-reply to the present Petition filed by Respondent No. 3, wherein Respondent No. 3 has made the following averment:
“Further, the time limit prescribed under section 151(1) of the Act stood extended from 31.03.2020 to 31.03.2021. Therefore, the Petitioner’s claim that the notice was issued beyond four years from the end of the relevant assessment year is incorrect. “
17. Learned Counsel therefore stated that the learned Counsel appearing on behalf of the Respondents cannot make an argument contrary to the Affidavit-in-reply filed by the Assessing Officer. Learned Counsel further stated that the argument made by the Revenue is contrary to the stand taken by them in the Apex Court and also contrary to the decision of the Hon’ble Apex Court in case of Rajeev Bansal (supra). Without prejudice to the foregoing arguments, Mr. Agarwal submitted that even if the argument that the notice is issued beyond four years from the end of the relevant Assessment Year was to be accepted, the impugned notice under section 148 of the Act still suffers from manifest illegality. He submits that, as per proviso to section 147 of the Act, a notice under section 148 of the Act can be issued beyond a period of four years from the end of the relevant Assessment Year only if there has been a failure on the part of Petitioner to disclose fully and truly all material facts necessary for assessment of such Assessment Year. The reasons recorded prior to issuance of notice, as provided to the Petitioner, nowhere even remotely mention that there has been a failure on part of the Petitioner to disclose fully and truly all material facts necessary for assessment of such Assessment Year. He submits that the law on this aspect has been settled by this Court in case of Hindustan Lever Ltd. v. R.B. Wadkar [2004] 137 Taxman 479/268 ITR 332 (Bom), wherein it is opined that in the reasons recorded, the Assessing Officer is required to form his opinion and reach a conclusion that there has been a failure on the part of an Assessee to disclose fully and truly all material facts necessary for assessment of such Assessment Year when proceedings under section 147 are sought to be initiated beyond a period of four years from the end of the relevant Assessment Year. This view is also supported by a decision of this Court in case of Stock Holding Corporation of India Ltd. v. Asstt. CIT [2025] 178 taxmann.com 191 (Bom) where the Assessing Officer therein did not even mention in the reasons recorded that there has been a failure on the part of the Assessee to disclose fully and truly all material facts necessary for assessment of such Assessment Year, and followed the decision of the coordinate bench of this Court in case of Hindustan Lever Ltd. (supra). He submitted that the fact that the Petitioner had losses on derivatives has been mentioned in the return of income as well as in the books of accounts of the Petitioner.
18. We have heard both parties at length and also perused the documents, proceedings and affidavits filed by the parties in the present petition.
19. We are in agreement with the primary contention of the Petitioner that the impugned notice issued under section 148 of the Act on March 31, 2021, for Assessment Year 2015-16, falls within the period of March 20, 2020 and March 31, 2021. Therefore, the relaxation on account of the provisions of TOLA stand applicable in respect of sanction under section 151 of the Act. Consequently, the impugned notice must be construed to have been issued within a period of four years from the end of the relevant Assessment Year 2015-16. In our view, the Apex Court in its decision in the case of Rajeev Bansal (supra) has settled the issue and held that TOLA extends the period of limitation with respect to sanction under section 151 of the Act. The Apex Court has been categoric in expressing its views in paragraphs 73, 74 and 77 of the said judgment, where the Court held as under:
“73. Section 151 imposes a check upon the power of the Revenue to reopen assessments. The provision imposes a responsibility on the Revenue to ensure that it obtains the sanction of the specified authority before issuing a notice under section 148.The purpose behind this procedural check is to save the assesses from harassment resulting from the mechanical reopening of assessments Sri krishna (P.) Ltd. v. ITO [1996] 87 Taxman 315/221 ITR 538 (SC)/[1996] 9 SCC 534. A table representing the prescription under the old and new regime is set out below:
| Regime | Time limits | Specified authority |
| Section 151(2) of the old regime | Before expiry of four years from the end of the relevant assessment year | Joint Commissioner |
| Section 151(1) of the old regime | After expiry of four years from the end of the relevant assessment year | Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner |
| Section 151(i) of the new regime | Three years or less than three years from the end of the relevant assessment year | Principal Commissioner or Principal Director or Commissioner or Director |
| Section 151(ii) of the new regime | More than three years have elapsedfrom the end of the relevant assessment year | Principal Chief Commissioner or Principal Director General or Chief Commissioner or Director General |
74. The above table indicates that the specified authority is directly co-related to the time when the notice is issued. This plays out as follows under the old regime:
| (i) | If income escaping assessment was less than Rupees one lakh: (a) a reassessment notice could be issued under section 148 within four years after obtaining the approval of the Joint Commissioner; and (b) no notice could be issued after the expiry of four years; and |
| (ii) | If income escaping was more than Rupees one lakh: (a) a reassessment notice could be issued within four years after obtaining the approval of the Joint Commissioner; and (b) after four years but within six years after obtaining the approval of the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner. |
……..
77. Parliament enacted TOLA to ensure that the interests of the Revenue are not defeated because the assessing officer could not comply with the pre conditions due to the difficulties that arose during the COVID-19 pandemic. Section 3(1) of TOLA relaxes the time limit for compliance with actions that fall for completion from 20 March 2020 to 31 March 2021. TOLA will accordingly extend the time limit for the grant of sanction by the authority specified under section 151. The test to determine whether TOLA will apply to Section 151 of the new regime is this: if the time limit of three years from the end of an assessment year falls between 20 March 2020 and 31 March 2021, then the specified authority under section 151(i) has an extended time till 30 June 2021 to grant approval. In the case of Section 151 of the old regime, the test is: if the time limit of four years from the end of an assessment year falls between 20 March 2020 and 31 March 2021, then the specified authority under section 151(2) has time till 31 March 2021 to grant approval. The time limit for Section 151 of the old regime expires on 31 March 2021 because the new regime comes into effect on 1 April 2021 ” (emphasis supplied).
20. The coordinate bench of this Court in the case of Prabhakar Nerulkar (supra) has also followed the decision in Rajeev Bansal (supra). The facts in Prabhakar Nerulkar (supra) are almost identical to the facts of the Petitioner’s case. Accordingly, we are unable to accept the argument of the of the Respondents that the impugned notice issued under section 148 of the Act falls beyond the period of four years from the end of the relevant Assessment Year 2015-16. Firstly, such an argument is contrary to the decision of the Apex Court in case of Rajeev Bansal (supra). Secondly, the argument of the learned counsel of the Respondents cannot be accepted because it is contrary to the averment made by Respondent No. 3 in the affidavit-in-reply to the present Petition, because Respondent No. 3 has made a categorical averment that the contention of the Petitioner that the impugned notice being beyond a period of four years from end of relevant Assessment Year is incorrect.
21. Hence, the case of the Petitioner is governed by Section 151(2), where it is the Joint Commissioner, who should be satisfied with the reasons recorded by the Assessing Officer that it is a fit case for issuance of notice under section 148 of the Act. However, the notice under section 148 of the Act has been issued after obtaining the sanction of Respondent No. 5 i.e. the Principal Commissioner of Income-tax, Mumbai – 4, who is not the competent Authority to grant sanction under section 151 of the Act to the impugned notice dated 31st March 2021 issued under section 148 of the Act. Where the Income-tax Act has conferred the power of sanction to a specified and distinct Authority, then the mandate of the statute must be strictly followed, and when the statute mandates the satisfaction of a particular functionary for exercise of the power, the satisfaction must be of that Authority alone and not of any other authority. This view is also supported by the decision of the coordinate bench of this Court in case of Ghanshyam K. Khabrani (supra). Hence, the Petition is liable to succeed on this ground alone.
22. Be that as it may, even assuming that the argument of the learned counsel of the Respondents is to be considered, namely, that the impugned notice under section 148 of the Act dated March 31, 2021 was issued beyond a period of four years, then, in view of the first proviso to section 147 of the Act, the said notice could have been issued only if there is a failure on part of the assessee to disclose fully and truly all material facts necessary for assessment. We say this because in the present case an assessment order was already passed on June 30, 2017 under section 143(3) of the Act. In the reasons as recorded for issuing the notice under section 148 of the Act, we see that there is not even an allegation that the income of the Petitioner has escaped assessment on account of failure on the part of the Petitioner to disclose fully and truly any material fact in relation to Assessment Year 2015-16. Further, there is nothing in the reasons which would even indicate that there is any failure to disclose any material fact necessary for the assessment. In the reasons recorded, Respondent No. 3 must disclose which fact or material was not disclosed by the assessee fully and truly necessary for assessment. Further, it is settled law that the reasons are required to be read as they were recorded by the Assessing Officer and cannot be allowed to be improved subsequently. The law, in this regard, has been settled by the decision of the coordinate bench of this Court in the case of Hindustan Lever Ltd (supra). The same is, in fact, followed by decision of this Bench (B. P. Colabawalla and Firdosh P. Pooniwalla, JJ) in case of Stock Holding Corporation of India Ltd. (supra).
23. In view of what is set out above, the impugned notice under section 148 of the Act dated March 31, 2021, the impugned order disposing objections dated January 31, 2022, and the impugned assessment order dated March 30, 2022, cannot be sustained and are quashed and set aside.
24. In view of the above findings, it is not necessary for us to go into the various other grounds raised in the Petition or contentions urged by Mr. Agarwal, which are expressly left open for consideration should the need so arise in this or some other appropriate case.
25. Rule is accordingly made absolute in the aforementioned terms, and the Writ Petition is also disposed of in terms thereof. However, there shall be no order as to costs.
26. This order will be digitally signed by the Private Secretary/personal Assistant of this Court. All concerned will act on production by fax or email of a digitally signed copy of this order.