Reassessment notice issued beyond three years with PCIT approval instead of specified higher authority is invalid.

ORDER

Laliet Kumar, Judicial Member.- This is an appeal filed by the assessee feeling aggrieved by the order passed by the ld. Commissioner of Income Tax (Appeals) NFAC [in short ‘the CIT (A)’] dated 29.04.2025 for the assessment year 2016-17 whereby the appeal of the assessee against the assessment order passed under section 147 read with section 144B of the Income-tax Act, 1961 (“the Act”) was dismissed. The present appeal has been filed by the assessee on the grounds mentioned in the appeal.

2. The assessee has challenged, inter alia, the addition of Rs. 29,31,965/- on merits, contending that the Assessing Officer erred in treating the sale consideration of shares as unexplained and that the assessee had furnished the relevant documentary evidence, including bank statements. The assessee also disputed the validity of the reassessment proceedings.

3. The ld. AR During the course of hearing before the Tribunal, challenged the validity of the notice issued under section 148 and the sanction under section 151 is proposed to be adjudicated, being a pure question of law going to the root of the jurisdiction of the Assessing Officer. In this regard, the ld. AR submitted that the reassessment proceedings were initially commenced pursuant to a notice issued under the erstwhile section 148 during the period covered by the judgment of the Hon’ble Supreme Court in UOI v. Ashish Agarwal 444 ITR 1 (SC). It was further contended that pursuant to the judgment of the Hon’ble Supreme Court, the original notice was required to be treated as a deemed notice under section 148A(b), followed by furnishing of the information/material, opportunity to the assessee, passing of an order under section 148A(d), and thereafter issuance of a consequential notice under section 148. Lastly it was submitted that the consequential notice under section 148 in the present case was issued on 22.07.2022.

4. The ld. AR submitted that for AY 2016-17, the relevant assessment year ended on 31.03.2016 and, consequently, three years from the end of the relevant assessment year expired on 31.03.2019. Thus, as on 22.07.2022, more than three years had elapsed from the end of the relevant assessment year.

5. The ld. AR accordingly submitted that the provisions of section 151(ii) were attracted and the approval was required to be obtained from the Principal Chief Commissioner/principal Director General or, where applicable, Chief Commissioner/Director General, and not from the Principal Commissioner of Income-tax.It was submitted that in the present case approval had admittedly been granted by the ld. PCIT.

6. In the estimation of the ld. AR, the notice issued by the Revenue was barred by limitation and was also issued by the authority other than the specified authority provided under the Act. Therefore, the reopening of the assessment was bad in eyes of law. The ld. AR relied upon the judgment of the Hon’ble Supreme Court in UOI v. Rajeev Bansal  469 ITR 46 (SC), and particularly upon the subsequent decision of the Coordinate Bench of the Chandigarh Tribunal in Sara Wines v. ITO   (Chandigarh – Trib.)/ ITA No. 620/CHD/2026, AY 2017-18, order dated 14.08.2026.

7. The ld. DR, on the other hand, supported the orders of the authorities below. However, it was fairly conceded by the DR that the notice was issued on 12.07.2022 under the approval of the PCIT. It was submitted that the reassessment proceedings had their genesis in the original notice issued during the period covered by the judgment in Ashish Agarwal. According to the Revenue, the original notice was converted into a deemed notice under section 148A(b) and, therefore, the subsequent notice issued in July 2022 should not be regarded as an independent initiation of reassessment proceedings.

8. The ld. DR contended that the subsequent proceedings were merely in continuation of the original proceedings and that the limitation and approval requirement should be examined with reference to the original notice. It was further submitted that the approval obtained from the Principal Commissioner of Income-tax should be regarded as sufficient and that the reassessment should not be invalidated on a technical objection relating to the sanctioning authority. The ld. DR accordingly submitted that the jurisdictional ground deserved to be dismissed.

9. We have heard the rival contention of the parties and perused the material available on the record. Before adjudicating the controversy, we deem it appropriate to record the relevant chronology:

Date Event

17.10.2016 Assessee filed return for AY 2016-17 declaring total income of Rs. 3,76,060/-.

31.03.2016 End of AY 2016-17.

31.03.2019 Three years from the end of AY 2016-17 expired.

04/06.2021] Initial notice under the erstwhile section 148 was issued. Exact date is not available in the uploaded CIT(A) order and should be taken from the assessment/reassessment record.

04.05.2022 Hon’ble Supreme Court pronounced judgment in Union of India v. Ashish Agarwal, directing treatment of specified old-regime section 148 notices as deemed notices under section 148A(b), followed by the prescribed procedure.

.06.2022] Pursuant to Ashish Agarwal, material/information was furnished and opportunity under section 148A(b) was afforded. Exact date should be inserted from the assessment record.

.07.2022] Order under section 148A(d) passed after considering the assessee’s response.

22.07.2022 Consequential notice under section 148 issued pursuant to section 148A(d), as per the facts stated for adjudication.

19.05.2023 Reassessment completed under section 147 read with section 144B, determining income at Rs. 33,08,025/- after addition of Rs. 29,31,965/- under section 68.

10. The abovesaid narration of dates are essential to determine the legal challenge to the validity of the re-assessment proceedings made by the assessee on two counts. Therefore, it is incumbent on us to decide the jurisdiction issue first as it goes to the root of the matter. As mentioned hereinabove, the return of income for AY 2016-17 was filed by the assessee on 17.10.2016. The relevant assessment year was closed on 31.03.2016. So, the three-year period counted from the end of that assessment year was completed on 31.03.2019. The reassessment proceedings in this case were started based on notices that had been issued under the old reassessment rules, and on the later steps that were taken following the judgment given by the Supreme Court in Ashish Agarwal (supra). Undoubtedly as per the judgment in the case of Ashish Agarwal, the directions were issued by the Hon’ble Supreme Court wherein it was directed to the revenue to follow the procedure set out under section 148A of the Act. There is no quarrel to this. The abovesaid list and dates clearly show that pursuant to the directions of Hon’ble Supreme Court the notice was issued by the Assessing Officer on 12.07.2022. The assessee at page 4 of the written synopsis has given the chronology of events as per which it is clear that the approval was accorded by the PCIT on 04.07.2022 whereas the order u/s 148A (d) was issued on 12.07.2022.

11. Now the question is whether the approval to issue the notice under section 148 could validly have been given by the Principal Commissioner of Income-tax on 04.07.2022, or whether, since more than three years had already passed since the end of AY 2016-17, approval was required to be given instead by the higher authority named in section 151(ii).

12. As held by us in Sara wines the authority that must give approval for a notice under section 148 is clearly named in section 151, as amended by the Finance Act, 2021. A clear line is drawn by the statute between a case where three years or less have passed since the end of the relevant assessment year, and a case where more than three years have passed. Once more than three years have passed, approval must be given by the specific authority named in section 151(ii). So the requirement is not simply that approval must be given by some senior officer of the department; instead, a particular authority has been deliberately named by Parliament, and approval must come from that authority alone.

13. In this case, the relevant assessment year is AY 2016-17, which ended on 31.03.2016. As a result, the three-year period was completed on 31.03.2019. However, the notice under section 148 was not issued until 12.07.2022. So, by the time this notice was issued, more than three years had already passed since the end of the relevant assessment year. This case is therefore covered by the second category set out in section 151(ii) of the Act.

14. It is further seen, from the material that has been placed on record, that approval for issuing the notice under section 148 was given by the Principal Commissioner of Income-tax. It has not been shown by the Revenue that approval was obtained, before the notice dated 12.07.2022 was issued, from the authority named in section 151(ii). So, the statutory requirement about the correct approving authority has not been met.

15. The argument made by the Revenue’s counsel, that the defect in sanction is merely a procedural one, cannot be accepted. The requirement to obtain approval under section 151 is a safeguard that has been built into the law by Parliament, and it must be satisfied before jurisdiction to reopen an assessment can be assumed by the Assessing Officer. Where a particular authority has been named by the statute as the one competent to give such approval, approval given by any other authority cannot be treated as good enough compliance. Jurisdiction of the Assessing Officer must be derived from the statute itself; it cannot be created by consent, by waiver, or by approval being obtained from an authority not named in the law.

16. No merit is found either in the argument that the later notice dated 12.07.2022 should be completely disregarded, for the purpose of deciding the correct approving authority, simply because these reassessment proceedings began from an earlier notice issued under the old law. A mechanism for handling notices issued under the old regime, during the move to the new reassessment rules, was provided by the Supreme Court’s judgment in Ashish Agarwal. But once an order under section 148A(d) was passed by the Revenue and a further notice under section 148 was issued as a result, the validity of that notice must still meet the statutory conditions for assuming jurisdiction — including the requirement that sanction be obtained under section 151.

17. It is found that this issue has already been directly dealt with by a Coordinate Bench of the Tribunal, in the case of Sara Wines, ITA No. 620/CHD/2026. On facts that are materially similar to the present case, the effect of the Ashish Agarwal judgment, as well as the later legal position explained in Rajeev Bansal (supra), was considered by that Bench. It was held by the Coordinate Bench that, where more than three years had passed since the end of the relevant assessment year, sanction had to be obtained from the authority named in section 151(ii), and that approval given by the Principal Commissioner could not satisfy this requirement. The reasoning of the Coordinate Bench is respectfully agreed with.

18. When this principle is applied to the facts of the present case, it is found that the notice under section 148 dated 22.07.2022 was issued more than three years after the end of AY 2016-17, while approval for this notice was obtained only from the Principal Commissioner of Income-tax. Because approval was not obtained from the authority named in section 151(ii), the mandatory requirement for valid jurisdiction was not fulfilled. As a result, the notice issued under section 148 dated 22.07.2022 cannot be upheld in law.

19. Once the notice itself under section 148 is held to be invalid, because sanction was not given by the competent authority, the entire reassessment proceedings that are based on it cannot be allowed to continue. So, the assessment order passed under section 147 read with section 144B on 19.05.2023 must be treated as having been passed without valid jurisdiction, and it is liable to be set aside. As a result, the addition of Rs. 29,31,965/- made by the Assessing Officer under section 68, and upheld by the CIT(A), can no longer be supported.

20. Since the reassessment proceedings have been set aside on this jurisdictional ground, it is not considered necessary to decide the other grounds raised by the assessee against the addition on its merits. The findings recorded by the Assessing Officer and the CIT(A), about whether the share transactions were genuine, the alleged accommodation entries, and whether section 68 applies, are therefore treated as academic and are left open.

21. As a result, the notice issued under section 148 dated 22.07.2022 is held to be invalid, and the reassessment proceedings started because of it are set aside. Consequently, the assessment order dated 19.05.2023, passed under section 147 read with section 144B, is set aside, and the addition of Rs. 29,31,965/- made in it cannot stand.

22. Accordingly, the appeal filed by the assessee is allowed.