Reassessment Quashed as Sanction for Reopening Notice Was Obtained from an Incorrect Authority

Issue

The central issue is whether a reopening notice issued under section $148$ of the Income-tax Act, 1961, is legally valid if the sanction for its issuance, as required by section $151$ , is obtained from the Principal Commissioner instead of the statutorily mandated authority, the Joint Commissioner, for a notice issued after the expiry of four years from the end of the relevant assessment year.

Brief Facts

For the assessment year 2015-16, the Assessing Officer (AO) issued a reopening notice to the assessee on March 31, 2021. This notice was based on information suggesting the assessee had received accommodation entries in the form of bogus losses from penny stock transactions. The AO subsequently passed an order making an addition of ₹16.86 lakhs.

The assessee challenged the validity of the entire proceeding, arguing that the sanction to issue the notice was flawed. The notice was issued after four years from the end of the relevant assessment year (which ended on March 31, 2020). For such cases, a specific authority is prescribed to grant approval. The AO had obtained the sanction from the Principal Commissioner.

Decision

The court ruled decisively in favor of the assessee.

It was held that the sanction obtained for issuing the reopening notice was invalid, which in turn rendered the notice itself and the subsequent assessment null and void.

The court relied on the Supreme Court’s binding decision in UOI v. Rajeev Bansal. This precedent clarified that for cases where the four-year time limit from the end of the assessment year expired between March 20, 2020, and March 31, 2021, the specified sanctioning authority as per section $151(2)$ is the Joint Commissioner.

In the present case, the sanction was obtained from the Principal Commissioner, who was not the competent authority for this specific scenario. Since the mandatory condition of obtaining a valid sanction from the correct authority was not met, the jurisdictional notice under section $148$ was quashed. As a result, the entire reassessment was declared legally void.

Key Takeaways

Sanction is a Jurisdictional Prerequisite: Obtaining a valid sanction from the correct authority under section $151$ is a fundamental requirement that gives the AO the jurisdiction to issue a reopening notice. A defect in the sanction is not a curable irregularity but a fatal flaw.
Authority for Sanction is Not Interchangeable: The Income-tax Act specifies different sanctioning authorities based on the time elapsed since the end of the assessment year. These provisions must be adhered to strictly. Approval from a higher authority (Principal Commissioner) cannot cure the defect when the law requires approval from a specific lower authority (Joint Commissioner).
Procedural Compliance is Mandatory: The procedural safeguards laid out in the law for reopening a completed assessment are not mere formalities. Their non-compliance will lead to the entire proceeding being invalidated.

IN THE ITAT MUMBAI BENCH “F”

Sunidhi Securities & Finance Ltd.

Deputy Commissioner of Income-tax^*

Ms. Kavitha Rajagopal, Judicial Member
and Girish Agrawal, Accountant Member

IT Appeal No. 5938 (Mum.) of 2024
[Assessment year 2015-16]

AUGUST 26, 2025

Shashi Bekal for the Appellant. Pravin Salunkhe, Sr. DR for the Respondent.

ORDER

Ms. Kavitha Rajagopal, Judicial Member. – This appeal has been filed by the assessee, challenging the order of the learned Commissioner of Income Tax (Appeals) Delhi (‘ld. CIT(A)’ for short), National Faceless Appeal Centre (‘NFAC’ for short) passed u/s.250 of the Income Tax Act, 1961 (‘the Act’), pertaining to the Assessment Year (‘A.Y.’ for short) 2015-16.

2. The assessee has raised the following grounds of appeal:

Grounds of Appeal:

The Ld. C.I.T. (Appeals) erred in confirming the action of D.C.I.T. of reopening the assessment merely based on reason to suspect and not reason to believe and is therefore bad in law.

The Ld. C.I.T. (Appeals) erred in confirming the action of D.C.I.T. treating the trading in Steel Exchange India Limited through recognized Stock Exchange as bogus trading loss.

The Ld. C.I.T. (Appeals) erred in confirming the action of D.C.I.T. making addition merely on a general observation without substantiating the facts and reason for making addition and without pinpointing the involvement of the Appellant in booking bogus loss.

The Ld. C.I.T. (Appeals) erred in confirming the addition made of Rs. 16,86,282/

The Ld. C.I.T. (Appeals) erred in charging excess Interest u/s 234B of Rs. 9,42,564/-, while determining the tax liability & demand.

The Appellant reserves the right to add, to alter and to amplify the Grounds of Appeal.

3. The assessee has also raised additional grounds of appeal vide its application dated 28.01.2025 and the same is reproduced herein under:

“7. On the facts and circumstances of the case and in law, the Ld. Assessing Officer (AO) has erred in the issuance of Notice under section 148 of the Income-tax Act, 1961 (Act) with an incorrect sanction under section 151 of the Act in light of the decision of the Hon’ble Supreme Court in the case of UOI v. Rajeev Bansal [2024] 167 taxmann.com 70/301 Taxman 238/469 ITR 46 (SC) hence the reassessment is bad in law.

On the facts and circumstances of the case and in law, the Ld. AO has erred in the issuance of Notice 148 of the Act in the absence of any live nexus between the assessee and the recorded reasons.

On the facts and circumstances of the case and in law, the Ld. AO has erred in the issuance of Notice 148 of the Act without coming to the conclusion that income chargeable to tax has escaped assessment.

10.

The Appellant craves leave to add, amend, alter or delete any or all the above grounds of appeal.”

4. Upon hearing both sides, we deem it fit to admit the additional grounds raised by the assessee as it goes to the very root of the case and the same is in accordance with the proposition laid down by the Hon’ble Apex Court in the case of National Thermal Power Co. Ltd. v. CIT [1998] 97 Taxman 358/229 ITR 383 (SC), where the additional grounds pertains to question of law arising from the facts which are already on record in the assessment proceedings.

5. Brief facts of the case are that the assessee company was engaged in the business of brokerage in shares, currency derivatives, WDM, Forex IPO broking, PMS and depository participant services. The assessee had filed its return of income dated 30.09.2015, declaring total income at Rs. 11,91,62,600/- and same was processed u/s. 143(1) of the Act. The assessee’s case was selected for scrutiny and assessment u/s. 143(3) was done, where the ld. AO vide order dated 28.12.2017, determined the total income at Rs. 12,28,72,992/- under the normal provisions and Rs. 17,78,20,642/- u/s. 115JB of the Act on the book profits. The assessee’s case was reopened vide notice u/s. 148 dated 31.03.2021, pursuant to the information received during the search and survey action conducted in the case of Shri Naresh Jain and his Associates who were engaged in providing accommodation entries in the form of long term capital gain (‘LTCG’ for short)/losses on transaction in penny stocks to various beneficiaries across the country and that the assessee is alleged to be one of the beneficiary of such accommodation entries. The learned Assessing Officer (ld. A.O. for short) then passed the assessment order u/s. 147 r.w.s. 144B of the Act, dated 26.03.2022, determining total income at Rs. 12,45,59,272/-, thereby making an addition/disallowance of Rs. 16,86,282/- as bogus loss.

6. Aggrieved the assessee was in appeal before the first appellate authority, who vide order dated 22.10.2024, dismissed the appeal filed by the assessee, thereby upholding the order of the ld. AO.

7. The assessee is in appeal before us, challenging the impugned order of the ld. CIT(A).

8. The learned Authorised Representative (ld. AR for short) for the assessee commenced his arguments on the additional grounds raised by the assessee where notice u/s. 148 of the Act was challenged on the basis of incorrect sanction by the authority u/s. 151 of the Act. The ld. AR brought our attention to the notice u/s. 148 dated 31.03.2021, where it is said that the same was issued after obtaining necessary satisfaction of the PCIT, Mumbai – 4. The Id. AR contended that the impugned notice is not in accordance with the provision of Section 151, where the old provision of Section 151(2) of the Act would be applicable, in which case the sanctioning authority is the Joint Commissioner and not the PCIT. The ld. AR relied on the decision of the Hon’ble Apex Court in the case of UOI v. Rajeev Bansal [2024] 167 taxmann.com 70/301 Taxman 238/469 ITR 46 (SC) and also the Tribunal decision in the case of Dy. CIT v. Lakhotia Transport Company (P.) Ltd [IT Appeal Nos. 1698 & 1699/KOL/2024, dated 20-12-2024].

9. The learned Departmental Representative (ld. DR for short) on the other hand controverted the said fact and stated that as the same falls under the old regime, the ld. PCIT was a sanctioning authority and that there was no infirmity in the sanction obtained for issuance of notice u/s. 148 as per the provisions of Section 151 of the Act. The ld. DR relied on the order of the lower authorities.

10. We have heard the rival submissions and perused the materials available on record. It is observed that for the year under consideration i.e., A.Y. 2015-16, the four years from the end of the relevant assessment year would expire on 31.03.2020 and the impugned notice u/s. 148 was issued on 31.03.2021, which was after prior approval of ld. PCIT as per Section 151 of the Act. Pursuant to the decision of the Hon’ble Apex Court in the case of Rajeev Bansal (supra) it was held that the time limit of four years from the end of the assessment year falls between 20.03.2020 and 31.03.2021 for Section 151 of the Act and the specified authority as per Section 151(2) of the Act would be ld. JCIT for the purpose of seeking prior approval for issuance of reassessment notice u/s. 148 of the Act.

11. In the present case in hand, notice u/s. 148 was issued after obtaining sanction from ld. PCIT and not ld. JCIT as per the provisions of the Act. The ld. AR placed reliance on the decision of the Hon’ble Jurisdictional High Court in the case of Ghanshyam K. Khabrani v. Asstt. CIT [2012] 20 taxmann.com 716/210 Taxman 75/346 ITR 443 (Bombay) wherein it was held that obtaining sanction of the Superior Officer instead of the Requisite Officer is held to be not a curable defect, where the legislature requires sanction of a particular authority for the purpose of reopening the assessment of the assessee. As it has been a settled proposition of law, we deem it fit to hold that the notice u/s. 148 is invalid and liable to be quashed for the above mentioned reason and the consequential assessment u/s. 147 is held to be null and void. We therefore allow ground no. 7 raised by the assessee.

12. As we have held the assessment to be null and void the other grounds of appeal raised by the assessee requires no further adjudication and is hereby rendered academic.

13. In the result, the appeal filed by the assessee is hereby allowed.