Reassessment Quashed as Approval Was Obtained Under the Wrong Statutory Provision.

Issue

Whether a reassessment notice issued after three years from the end of the assessment year is legally valid if the sanction for it was obtained under Section 151(i) (meant for notices within three years) instead of from the “specified authority” as mandatorily required by Section 151(ii) (for notices beyond three years).

Facts

Reassessment proceedings were initiated for the Assessment Year 2017-18.
The order under Section 148A(d) and the reassessment notice under Section 148 were both issued in August 2022.
This was clearly after the expiry of three years from the end of the relevant assessment year (which ended on March 31, 2021).
For notices issued beyond three years, the law (Section 151(ii)) requires approval from the “specified authority” (Principal Chief Commissioner/Chief Commissioner).
However, the Assessing Officer obtained approval from the Principal Commissioner under Section 151(i), the provision that applies only to notices issued within three years.

Decision

The High Court ruled decisively in favour of the assessee.
It held that obtaining the correct statutory approval is a fundamental jurisdictional requirement, and the non-compliance with Section 151(ii) vitiates the entire proceeding.
Since the notice was issued after three years, the only valid approval would be one granted by the “specified authority” under Section 151(ii).
An approval obtained under the incorrect provision (Section 151(i)) is legally invalid and amounts to no approval at all.
Consequently, the order under Section 148A(d) and the notice under Section 148 were quashed and set aside.

Key Takeaways

Approval Must Be Under the Correct Provision: The new reassessment regime has two distinct approval authorities based on the time elapsed. Using the wrong one is a fatal error.
Jurisdictional Requirement: Obtaining the correct sanction is not a mere procedural formality; it is a mandatory, jurisdictional prerequisite.
Time-Based Hierarchy:
- Notice Within 3 Years: Approval required under Section 151(i) (from PCIT/PDIT).
- Notice Beyond 3 Years: Approval required under Section 151(ii) (from the “specified authority,” i.e., PCCIT/CCIT).
Fatal Flaw: An assessment initiated with an incorrect or invalid sanction is void ab initio (from the beginning).

HIGH COURT OF BOMBAY

Alag Property Construction (P.) Ltd.

ACIT

B. P. COLABAWALLA and AMIT S. JAMSANDEKAR, JJ.

WRIT PETITION NO. 3938 OF 2022

SEPTEMBER 8, 2025

Devendra H. Jain and Shashank A. Mehta, Advs. for the Petitioner. Ms. Swapna Gokhale, Adv. for the Respondent.

ORDER

1. Rule. Respondents waive service. With the consent of the parties Rule made returnable forthwith and heard finally.

2. The present writ petition inter-alia challenges the order passed under section 148A(d) dated 18.08.2022 as well as the notice dated 23.08.2022 issued under section 148 of the Income Tax Act, 1961 (for short the “Act”). The assessment year in question is A.Y. 2017-18.

3. Amongst several jurisdictional grounds challenging the reopening of assessment for A.Y. 2017-18, the Petitioner has inter-alia contended [in Ground G of this petition] that the order passed under section 148A(d) and the notice issued under section 148 are bad in law because Respondent No.1 has not obtained appropriate prior approval/sanction of the Specified Authority as mandated under the provisions of section 151. It is in this light that the Petitioner seeks the following relief:

“(a) that this Hon’ble Court may be pleased to issue a Writ of Certiorari or a Writ in the nature of Certiorari or any other appropriate Writ, Order or direction, calling for the records of the Petitioner’s case and after going into the legality and propriety thereof, to quash and set aside the notice dated 20.04.2021 u/s 148 [now deemed as notice u/s 148A(b)] (Exhibit B), issue letter dated 21.05.2022 (Exhibit E2), order dated 18.08.2022 passed under section 148A(d) (Exhibit H) and the notice issued under section 148 of the Act dated 23.08.2022 (Exhibit I) and declare para 6 and 7 of the CBDT instruction no. 1 of 2022 dated 11.05.2022 (Exhibit E1) as ultra-vires the Act.”

4. Initially, Respondent No.1 had issued a notice under section 148 (under the erstwhile law of re-assessment) on 20.04.2021 [Exhibit B of the Petition] for A.Y. 2017-18. Subsequently, because of the judgment of the Hon’ble Supreme Court in the case of Union of India v. Ashish Agarwal (SC)/[2022] 444 ITR 1 (SC)], a communication dated 21.05.2022 [Exhibit E2 of the Petition], was sent to the Petitioner intimating that the aforesaid notice issued under Section 148 of the Act (under the old regime) would be treated as the show-cause notice issued in terms of Section 148A(b) of the Act (under the new regime introduced by the Finance Act, 2021 w.e.f. 01.04.2021).

5. The Petitioner then filed its response to the said notice vide letter dated 06.06.2022 [Exhibit E3 of the Petition]. Thereafter, Respondent No.1 passed an order under section 148A(d) on 18.08.2022 [Exhibit H of the Petition] and a notice dated 23.08.2022 was also issued under section 148 of the Act [Exhibit I of the Petition]. Undisputedly, the above referred order under section 148A(d) and notice under section 148 were passed/issued in pursuance of the provisions of substituted law of re-assessment as amended by the Finance Act, 2021 and which came into force w.e.f. 01.04.2021.

6. In this factual backdrop, the Petitioner has contended that in the present case, the order passed under section 148A(d) dated 18.08.2022, was passed beyond three years from the end of the relevant A.Y. 2017- 18, and consequently, according to the provisions of section 151(ii) [i.e. when more than three years have elapsed from the end of the relevant assessment year], the specified authority for obtaining the approval was either the Principal Chief Commissioner(PCCIT), or Principal Director General (PDGIT), or where there is no PCCIT or PDGIT, the Chief Commissioner(CCIT), or Director General (DGIT). However, in paragraph 7 of the order dated 15.07.2022 passed under section 148A(d), and also in paragraph 3 of the notice dated 23.08.2022 issued under section 148 of the Act, Respondent No.1 has stated that prior approval of Respondent No.2 i.e. the Principal Commissioner of Income Tax-6, Mumbai was obtained and the said order was passed and the said notice was issued only thereafter. This aspect remains uncontroverted by the Respondents.

7. In these facts, the limited point to be examined is whether the order dated 18/08/2022 passed under section 148A(d) and the notice dated 23.08.2022 issued under section 148 of the Act for A.Y. 2017-18, after obtaining approval of Respondent No.2 [i.e. the PCIT-6, Mumbai], was in accordance with the provisions of section 151. In this regard, the Petitioner has drawn our attention to the decision of Hon’ble Supreme Court in the case of Union of India v. Rajeev Bansal (SC)/[2024] 469 ITR 46 (SC). The Hon’ble Supreme Court, while dealing with the issue of approval of the specified authority in terms of Section 151 of the Act, made the following observations:

“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 assessees from harassment resulting from the mechanical reopening of assessments. (Sri Krishna Pvt. Ltd v. ITO [(1996) 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 elapsed from 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.

75. After April 1, 2021, the new regime has specified different authorities for granting sanctions under section 151. The new regime is beneficial to the assessee because it specifies a higher level of authority for the grant of sanctions in comparison to the old regime. Therefore, in terms of Union of India v. Ashish Agarwal (SC)/[2022] 444 ITR 1 (SC); (2023) 1 SCC 617.], after April 1, 2021, the prior approval must be obtained from the appropriate authorities specified under section 151 of the new regime. The effect of section 151 of the new regime is thus:

(i)

If income escaping assessment is less than rupees fifty lakhs : (a) a reassessment notice could be issued within three years after obtaining the prior approval of the Principal Commissioner, or Principal Director or Commissioner or Director; and (b) no notice could be issued after the expiry of three years; and

(ii)

If income escaping assessment is more than rupees fifty lakhs : (a) a reassessment notice could be issued within three years after obtaining the prior approval of the Principal Commissioner, or Principal Director or Commissioner or Director; and (b) after three years after obtaining the prior approval of the Principal Chief Commissioner or Principal Director General or Chief Commissioner or Director General.

76. Grant of sanction by the appropriate authority is a precondition for the Assessing Officer to assume jurisdiction under section 148 to issue a reassessment notice. Section 151 of the new regime does not prescribe a time limit within which a specified authority has to grant sanction. Rather, it links up the time limits with the jurisdiction of the authority to grant sanction. Section 151(ii) of the new regime prescribes a higher level of authority if more than three years have elapsed from the end of the relevant assessment year. Thus, non-compliance by the Assessing Officer with the strict time limits prescribed under section 151 affects their jurisdiction to issue a notice under section 148.

77. Parliament enacted Taxation and other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 to ensure that the interests of the Revenue are not defeated because the Assessing Officer could not comply with the preconditions due to the difficulties that arose during the covid-19 pandemic. Section 3(1) of the Taxation and other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 relaxes the time limit for compliance with actions that fall for completion from March 20, 2020 to March 31, 2021. The Taxation and other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 will accordingly extend the time limit for the grant of sanction by the authority specified under section 151. The test to determine whether Taxation and other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 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 March 20, 2020 and March 31, 2021, then the specified authority under section 151(i) has an extended time till June 30, 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 March 20, 2020 and March 31, 2021, then the specified authority under section 151(2) has time till March 31, 2021 to grant approval. The time limit for section 151 of the old regime expires on March 31, 2021 because the new regime comes into effect on April 1, 2021.

78. For example, the three-year time limit for the assessment year 2017-2018 falls for completion on March 31, 2021. It falls during the time period of March 20, 2020 and March 31, 2021, contemplated under section 3(1) of the Taxation and other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020. Resultantly, the authority specified under section 151(i) of the new regime can grant sanction till June 30, 2021.

79. Under the Finance Act, 2021 ((2021) 432 ITR (Stat) 52), the Assessing Officer was required to obtain prior approval or sanction of the specified authorities at four stages:

(a)

Section 148A(a) – to conduct any enquiry, if required, with respect to the information which suggests that the income chargeable to tax has escaped assessment;

(b)

Section 148A(b) – to provide an opportunity of hearing to the assessee by serving upon them a show-cause notice as to why a notice under section 148 should not be issued based on the information that suggests that income chargeable to tax has escaped assessment. It must be noted that this requirement has been deleted by the Finance Act, 2022 ([2022] 442 ITR (Stat) 91) [Section 45, Finance Act, 2022.] ;

(c)

Section 148A(d) – to pass an order deciding whether or not it is a fit case for issuing a notice under section 148; and

(d)

Section 148 – to issue a reassessment notice.

80. In Union of India v. Ashish Agarwal (SC)/[2022] 444 ITR 1 (SC); (2023) 1 SCC 617.], this court directed that section 148 notices which were challenged before various High Courts “shall be deemed to have been issued under section 148A of the Income-tax Act as substituted by the Finance Act, 2021 ((2021) 432 ITR (Stat) 52) and construed or treated to be show-cause notices in terms of section 148A(b)”.

Further, this court dispensed with the requirement of conducting any enquiry with the prior approval of the specified authority under section 148A(a). Under section 148A(b), an Assessing Officer was required to obtain prior approval from the specified authority before issuing a show-cause notice. When this court deemed the section 148 notices under the old regime as section 148A(b) notices under the new regime, it impliedly waived the requirement of obtaining prior approval from the specified authorities under section 151 for section 148A(b) notices. It is well established that this court while exercising its jurisdiction under article 142, is not bound by the procedural requirements of law. (High Court Bar Association, Allahabad v. State of Uttar Pradesh [(2024) 6 SCC 267.])

81. This court in Union of India v. Ashish Agarwal (SC)/[2022] 444 ITR 1 (SC); (2023) 1 SCC 617.] directed the Assessing Officers to “pass orders in terms of section 148A(d) in respect of each of the assessees concerned”. Further, it directed the Assessing Officers to issue a notice under section 148 of the new regime “after following the procedure as required under section 148A”. Although this court waived off the requirement of obtaining prior approval under section 148A(a) and section 148A(b), it did not waive the requirement for section 148A(d) and section 148. Therefore, the Assessing Officer was required to obtain prior approval of the specified authority according to section 151 of the new regime before passing an order under section 148A(d) or issuing a notice under section 148. These notices ought to have been issued following the time limits specified under section 151 of the new regime read with the Taxation and other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020, where applicable.

(emphasis supplied)

8. On bare reading of the above extract of the judgment of the Hon’ble Supreme Court in the case of Rajeev Bansal (supra), we find that the Hon’ble Supreme Court had clarified as under:

(a)

Under the substituted provisions of re-assessment as introduced by the Finance Act, 2021, the Assessing Officer is required to obtain prior approval or sanction of the ‘specified authority’ at four stages – at the first stage under Section 148A(a), at the second stage under Section 148A(b), at the third stage under Section 148A(d), and at the fourth stage under Section 148. In the case of Ashish Agarwal (supra) the Hon’ble Supreme Court waived off the requirement of obtaining prior approval under section 148A(a) and Section 148A(b) of the Act only. Therefore, the Assessing Officer was required to obtain prior approval of the ‘specified authority’ according to Section 151 of the new regime before passing an order under Section 148A(d) or for issuing a notice under Section 148.

(b)

Under the new regime, if income escaping assessment is more than Rupees 50 lakhs, a reassessment notice could be issued after the expiry of three years from the end of the relevant previous year only after obtaining the prior approval of the Principal Chief Commissioner or the Principal Director General or the Chief Commissioner or the Director General.

(c)

Section 151(ii) of the new regime prescribes an approval of a higher authority, if more than three years have elapsed from the end of the relevant assessment year. Thus, non-compliance by the assessing officer with the strict time limits prescribed under section 151 vitiates their jurisdiction to issue a notice under section 148.

(d)

Grant of sanction by the specified authority is a precondition for the assessing officer to assume jurisdiction under section 148 to issue a reassessment notice.

9. In the present case, the period of three years from the end of the A.Y. 2017-18 fell for completion on 31^st March 2021. As the expiry date fell during the time period of 20th March 2020 and 31st March 2021, under Section 3(1) of the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (for short “TOLA”), the authority specified under Section 151(i) of the new regime could have granted sanction only till 30th June 2021.

10. On perusal of the order dated 18.08.2022, passed under Section 148A(d) of the Act we find that the aforesaid order was passed after taking approval from Principal Commissioner of Income Tax (Respondent No.2). Since the aforesaid order was passed, as well as the notice under section 148 was issued, after the expiry of three years from the end of A.Y. 2017-18, as per the substituted provisions of re-assessment, the authority specified under Section 151(ii) of the Act (i.e. Principal Chief Commissioner or Chief Commissioner) was required to grant approval. Accordingly, we conclude that in the present case, the approval has been obtained from the authority specified under Section 151(i) of the new regime instead of the authority specified under Section 151(ii) of the new regime.

11. The Hon’ble Supreme Court in the above case has drawn an illustration in para 78 of its order in the context of A.Y. 2017-18 (which is also the relevant Assessment year in the present Writ Petition) wherein it is categorically held that the authority specified under section 151(i) can accord sanction only upto 30.06.2021. This illustration makes it absolutely clear that when the period of three years from end of relevant Assessment Year expired between 20.03.2020 and 31.03.2021, the extension by virtue of TOLA was upto 30.06.2021 and not beyond. Thus, it can be said that the period of three years from the end of the relevant Assessment Year (in the present case A.Y. 2017-18) expired on 30.06.2021, whereas Respondent No.1, despite passing order under section 148A(d) on 18.08.2022, and issuing notice under section 148 on 23.08.2022 [in respect of Assessment Year 2017-18], has obtained approval of Respondent No.2 who is not the authority as prescribed under section 151(ii).

12. Non-compliance by Respondent No.1 with the provisions contained in Section 148A(d) read with Section 151(ii) vitiates the jurisdiction of Respondent No.1 to issue a notice under Section 148 of the Act.

13. 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.

14. We accordingly set aside the impugned order dated 18.08.2022 passed under Section 148A(d) of the Act and the consequential notice issued under section 148 dated 23.08.2022, and all other proceedings/orders emanating therefrom.

15. Rule is made absolute in the aforesaid terms and the Writ Petition is also disposed of in terms thereof. No order as to costs.

16. 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.

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