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DGAP Anti-Profiteering Computation Based on Purchase Value, Actual ITC, GST Addition, and Interest Upheld

Ashwani Kumar — Tue, 06 Oct 2026 12:54:38 +0000

DGAP Anti-Profiteering Computation Based on Purchase Value, Actual ITC, GST Addition, and Interest Upheld

Issue

Whether the Director General of Anti-Profiteering (DGAP) complied with the project-level saving and per sq. ft. distribution methodology mandated in Reckitt Benckiser by utilizing purchase value instead of turnover.
Whether an assessee can claim a notional adjustment for unavailed pre-GST CENVAT credit (allegedly missed due to human error) or exclude post-GST services ITC while computing anti-profiteering benefit under Section 171.
Whether the addition of 12% GST to the base profiteered amount and the levy of 18% interest payable to homebuyers are legally valid under Section 171.

Facts

Project Details: The petitioner developed a residential project, “Jeewan Anand,” in Bhubaneswar (commenced in 2011, completed in November 2019, with a total area of ~2.70 lakh sq. ft.).
Initial Investigation & Remand: Following a homebuyer complaint, initial DGAP proceedings quantified profiteering at ₹1.86 crore. Post the Reckitt Benckiser ruling, the matter was remanded for a project-level saving and per sq. ft. benefit computation.
Remand Computation: On remand, DGAP examined purchase values and post-GST ITC, deriving a project saving/per sq. ft. benefit of ₹2.07 crore (base amount), which was enhanced by 12% GST (₹24.85 lakh) to aggregate ₹2.32 crore, along with 18% interest.
Petitioner’s Objections:
- The petitioner contended that DGAP merely replaced “turnover” with “purchase value” to retain a rejected methodology.
- The petitioner admitted that ST-3 returns reflected NIL pre-GST CENVAT credit due to human error, but sought a notional deduction of ₹2.38 crore or restriction of benefit to goods ITC (₹14.53 lakh).
- The petitioner filed an alternative computation claiming profiteering of ₹1.40 crore, alleging that higher GST rates increased tax incidence.
- The petitioner challenged the inclusion of 12% GST and 18% interest in the final profiteered amount.
GSTAT Findings: The Goods and Services Tax Appellate Tribunal (GSTAT) upheld DGAP’s computation, the inclusion of 12% GST, and the 18% interest direction. The petitioner challenged this order via a writ petition.

Decision

Methodology Compliance: The High Court held that writ jurisdiction lies only for legal or jurisdictional errors, not for factual reassessment. DGAP used purchase value to calculate proportionate ITC against project expenditure, aligning with the remand directions.
Actual Availment vs. Eligibility: For Section 171, actual credit availment across periods is determinative. Notional adjustment for unavailed pre-GST CENVAT credit (showing NIL in ST-3 returns) is impermissible, and splitting goods versus services ITC lacks statutory foundation.
Alternative Working Rejected: There is no single fixed formula for anti-profiteering. Since DGAP’s purchase-value and area-based methodology was fair, reasonable, and tailored to the project, the petitioner’s alternative working could not override the statutory calculation.
Inclusion of GST & Interest: Adding 12% GST to the base profiteered amount is valid because GST collected on excess realizations forms part of the profiteered sum to be restituted. Furthermore, awarding 18% interest is an integral remedial component under Section 171.
Writ Dismissed: The High Court found no jurisdictional or legal error in the GSTAT order and dismissed the writ petition in favor of the Revenue.

Key Takeaways

Actual Credit Availment Governs Section 171: Anti-profiteering calculations depend strictly on actual ITC availed in GST returns versus actual CENVAT credit claimed pre-GST; unavailed pre-GST credits cannot be notionally adjusted by claiming human error.
Valid Basis for Project-Level Benefit: Quantifying additional ITC against purchase value and distributing savings per square foot over sold area satisfies project-level anti-profiteering mandates under Reckitt Benckiser.
Tax on Excess Realization Is Profiteered Amount: Tax collected from homebuyers on excess/unpassed realizations must be added back to the base profiteered amount for complete restitution.
Mandatory Restitution via Interest: Ordering 18% interest on the profiteered sum from the date of collection until refund/deposit is a statutory remedial mechanism under Section 171.

HIGH COURT OF DELHI

Lichfl Care Homes Ltd.

Director General of Anti-Profiteering, Central Board of Indirect Taxes and Customs

Ms. SHAIL JAIN and Anil Kshetarpal, JJ.

W.P.(C) No. 13665 of 2026
CM APPLs. Nos.63830 & 63831 of 2026

SEPTEMBER 28, 2026

Kishore Kunal and Ms. Runjhun Pare, Advs. for the Petitioner. Anurag Ojha, SSC, Dipak Raj, Aryaman Singh Chouhan, Aditya Chaudhary, Ms. Sharmila Upadhyay, Advs. and Niranjan Swain for the Respondent.

JUDGMENT

Anil Kshetarpal, J.- The present Writ Petition under Articles 226 and 227 of the Constitution of India has been filed by the Petitioner assailing the Order dated 23.03.2026 [hereinafter referred to as the ‘Impugned Order’] passed by the Goods and Services Tax Appellate Tribunal, Principal Bench, New Delhi [hereinafter referred to as ‘GSTAT’]. By the Impugned Order, GSTAT has upheld the determination made by the Directorate General of Anti-Profiteering [hereinafter referred to as ‘DGAP’] under Section 171 of the Central Goods and Services Tax Act, 2017 [hereinafter referred to as the ‘CGST Act’], holding that the Petitioner had profiteered to the extent of Rs.2,07,08,131/- and, after adding GST at the rate of 12%, directing payment of an aggregate amount of Rs.2,31,93,107/- to the homebuyers, together with interest at the rate of 18%.

2. The controversy arises in the context of the Petitioner’s residential project known as “Jeewan Anand” at Bhubaneswar, Odisha. The proceedings under Section 171 of the CGST Act had earlier culminated in an order of the erstwhile National Anti Profiteering Authority [hereinafter referred to as ‘NAPA’] dated 20.06.2022, whereby profiteering of Rs.1,85,70,263/- had been determined against the Petitioner. The said order was challenged before this Court in W.P.(C) 12533/2022.

3. During the pendency of the aforesaid proceedings, this Court, in a batch of petitions including the Petitioner’s case, rendered its judgment dated 29.01.2024 in Reckitt Benckiser India (P.) Ltd. v. Union of India 102 GST 495/82 GSTL 344 (Delhi), wherein the methodology generally adopted by the anti-profiteering authorities for the real estate sector, based upon comparison of the ratio of ITC to turnover in the pre-GST and post-GST periods, was found to be flawed. This Court observed that in the real estate sector there is no direct correlation between turnover and ITC availed during a particular period and directed that the total savings on account of introduction of GST for each project be calculated and thereafter divided by the total area so as to arrive at the per square feet benefit to be passed on to the flat buyers.

4. Pursuant to the order dated 25.04.2024 passed in the Petitioner’s case, the matter was remanded to the Competition Commission of India (‘CCI’) for fresh determination. The DGAP thereafter undertook a fresh investigation and submitted its Report dated 04.04.2025 [hereinafter referred to as the ‘Impugned DGAP Report’]. The said Report forms the basis of the Impugned Order passed by GSTAT.

5. The principal issue which arises for consideration is whether the DGAP, while undertaking the exercise pursuant to the aforesaid remand, adopted a methodology which is contrary to the directions contained in Reckitt Benckiser India (P.) Ltd. (supra), and whether GSTAT committed an error of law in upholding the determination of profiteering made on the basis of the said methodology.

FACTUAL MATRIX:

6. In order to appreciate the controversy involved in the present Writ Petition, the relevant facts are required to be noticed.

7. The Petitioner, LICHFL Care Homes Ltd., undertook development of a residential project known as “Jeewan Anand” at Bhubaneswar, Odisha. The project was commenced in the year 2011 and was completed in November, 2019. The project comprises residential flats and covered parking and has a total area of approximately 2,70,048 square feet as taken into consideration in the Impugned DGAP Report.

8. The original proceedings under Section 171 of the CGST Act arose out of a complaint made by a homebuyer alleging that the benefit of ITC available upon introduction of GST had not been passed on to the homebuyers by way of commensurate reduction in prices. The matter was referred to the DGAP, which submitted its first Report dated 28.01.2021, determining profiteering of Rs.1,85,70,263/-for the period from July, 2017 to September, 2020. The said Report was accepted by the erstwhile NAPA vide order dated 20.06.2022.

9. The Petitioner challenged the aforesaid determination before this Court. The said challenge was considered along with the batch of petitions culminating in the judgment dated 29.01.2024 in Reckitt Benckiser India (P.) Ltd. (supra). This Court held that no fixed or uniform mathematical formula could be prescribed for determination of profiteering and that the methodology had to take into account the peculiar facts of each case. In relation to the real estate sector, this Court specifically found that the methodology based upon the difference between the ratio of ITC to turnover during the pre-GST and post-GST periods was flawed and directed that the total savings on account of introduction of GST for each project be calculated and divided by the total area to arrive at the per square feet benefit.

10. By order dated 25.04.2024 passed in the Petitioner’s case, the matter was remanded for determination in accordance with the aforesaid judgment. The Competition Commission of India, vide communication dated 07.05.2024, consequently directed the DGAP to reinvestigate the matter.

11. The DGAP issued a notice dated 28.05.2024 seeking information from the Petitioner in relation to the project. The Petitioner furnished information and documents vide communications dated 13.06.2024, 26.07.2024, 06.09.2024, 30.09.2024 and 12.02.2025. The Petitioner, inter alia, furnished details of the year-wise purchase value of goods and services and the completion status of the project. The Petitioner maintained that there was no profiteering and, alternatively, contended that if any benefit on account of ITC on goods was to be considered, the same could not exceed approximately Rs.13,49,003/-, which already stands passed on.

12. The DGAP thereafter submitted its report dated 04.04.2025, pursuant to the aforesaid remand, recalculating the profiteering for the period from July, 2017 to November, 2019 at Rs.2,31,93,107/-, including GST.

13. For the purpose of such recalculation, the DGAP considered the ITC availed during the pre-GST and post-GST periods vis-a-vis the purchase value of goods and services. The DGAP found that, whereas the ratio of ITC to the purchase value during the pre-GST period was NIL, the corresponding ratio during the post-GST period was 17.99%. On this basis, the increase in ITC attributable to the post-GST period was taken at 17.99%. Applying the said percentage to the post-GST purchase value of goods and services, excluding taxes and duties, of Rs.11,54,27,648/-, the DGAP determined the total savings on account of the additional ITC benefit at Rs.2,07,65,434/-. The aforesaid amount of Rs.2,07,65,434/- was thereafter apportioned over the total project area of 2,70,048 square feet, resulting in a saving of Rs.76.895 per square foot. The said figure was applied to the total sold area of 2,69,304 square feet, resulting in a profiteered amount of Rs.2,07,08,131/-. GST at the effective rate of 12%, amounting to Rs.24,84,976/-, was thereafter added to the aforesaid amount, resulting in a total amount of Rs.2,31,93,107/-.

14. The Petitioner contested the Impugned DGAP Report before GSTAT. It was contended that the entire construction work had been outsourced to contractors and that, under the pre-GST regime, the Petitioner was not entitled to ITC on construction materials. It was further contended that CENVAT credit in respect of service tax paid on input services was legally available to the Petitioner under the pre-GST regime, though the same was not actually availed due to an inadvertent error.

15. The Petitioner placed on record that it had paid service tax of Rs.1,79,44,457/- during the pre-GST period. It further contended that, based upon the services procured for construction, CENVAT credit of approximately Rs.2,38,25,609/- would have been available under the applicable law, but was not actually availed. The Petitioner consequently contended that the post-GST ITC on input services could not be treated as an additional benefit merely because such credit had not been availed during the pre-GST period.

16. The Petitioner also contended that the output tax incidence had increased after introduction of GST and that the higher ITC arising from the increased tax incidence could not, in its entirety, be treated as a benefit under Section 171 of the CGST Act. It was further contended that the ITC availed on inward goods was only Rs.14,52,570/-whereas the balance ITC of Rs.1,93,28,564/- related to input services.

17. The DGAP, in its clarification dated 21.11.2025, disputed the aforesaid submissions. It pointed out that the ST-3 returns filed by the Petitioner for the relevant pre-GST period reflected NIL CENVAT credit actually availed. According to the DGAP, the service tax paid on input services therefore constituted a cost to the Petitioner during the pre-GST period, whereas, after introduction of GST, the corresponding GST paid on input services was actually availed as ITC. The DGAP consequently maintained that the additional ITC benefit was required to be passed on to the homebuyers.

18. During the proceedings before GSTAT, the Petitioner also relied upon the alternative computation furnished in its earlier proceedings, wherein, without prejudice to its principal contention, it had submitted that if the benefit arising from increased ITC were to be considered, the profiteering could only be computed at Rs.1,39,93,358/-. The said submission was predicated, inter alia, upon the contention that the additional 3% tax incidence on services in the GST regime could not itself constitute a benefit under Section 171.

19. GSTAT, after affording the parties several opportunities of hearing and written submissions, proceeded to examine the methodology adopted in the Impugned DGAP Report. GSTAT held that Reckitt Benckiser India (P.) Ltd. (supra) required the total savings on account of introduction of GST to be calculated for the project and thereafter divided by the total area so as to determine the per square feet benefit.

20. GSTAT found that the DGAP had considered the entire pre-GST period up to June, 2017 and the post-GST period from July, 2017 to November, 2019. It noted that the total purchase value of goods and services was Rs.46,03,72,534/- and that the pre-GST ITC was NIL, whereas the post-GST ITC availed was Rs.2,07,76,653/-. On this basis, the post-GST ITC to purchase value ratio was found to be 17.99%.

21. GSTAT further held that the use of the project area and sold area for determining the benefit was consistent with the direction in Reckitt Benckiser India (P.) Ltd. (supra). It consequently upheld the determination of Rs.2,07,08,131/- as the profiteered amount and, following the principle contained in Paragraph No.157 of Reckitt Benckiser, directed addition of GST at 12%, resulting in an aggregate amount of Rs.2,31,93,107/-. Interest at the rate of 18% was also directed to be paid to the homebuyers.

22. Aggrieved by the aforesaid determination, the Petitioner has approached this Court under Articles 226 and 227 of the Constitution of India.

CONTENTIONS OF THE PARTIES:

23. Heard learned counsel representing the parties and, with their able assistance, perused the material placed on record.

24. Learned counsel representing the Petitioner has made the following submissions:

The Impugned DGAP Report and the Impugned Order are contrary to the judgment of this Court in Reckitt Benckiser India (P.) Ltd. (supra). Although this Court had rejected the methodology based upon comparison of ITC to turnover, the DGAP has merely substituted “purchase value” for “turnover” and has once again compared the pre-GST and post-GST ITC ratios.

ii.

The direction in Reckitt Benckiser India (P.) Ltd. (supra) required determination of the actual total savings arising on account of introduction of GST. Mere availability of ITC after introduction of GST cannot, by itself, establish the quantum of benefit required to be passed on under Section 171 of the CGST Act.

iii.

The Petitioner was legally entitled to CENVAT credit of service tax paid on input services during the pre-GST period. The fact that such credit was not actually availed due to an inadvertent error cannot result in the post-GST ITC on input services being treated as an additional benefit.

iv.

The Petitioner had paid service tax of Rs.1,79,44,457/- during the pre-GST period and, on the basis of the input services procured, was eligible for CENVAT credit of approximately Rs.2,38,25,609/-. The Impugned Order erroneously proceeds solely on the basis of the fact that the Petitioner had not actually availed such credit.

The GSTAT failed to appreciate that the ITC of Rs.1,93,28,564/- relating to input services was not an incremental benefit, since corresponding credit was legally available under the pre-GST regime. At the highest, the ITC of Rs.14,52,570/-relating to inward goods could have been considered.

vi.

The output tax liability also increased after introduction of GST. The additional ITC arising from the higher rate of tax on input services could not be treated as an economic benefit without examining the corresponding increase in tax incidence.

vii.

The Petitioner had also incurred substantial expenditure towards installation of a sub-station and allied electrical infrastructure and had absorbed expenditure which could otherwise have been recovered from the homebuyers. The said circumstance demonstrated that the Petitioner had, in substance, passed on the benefit and should have been given credit for the same.

viii.

GSTAT further erred in treating the Petitioner’s earlier without-prejudice alternative computation of Rs.1,39,93,358/- as a conclusive admission of profiteering. The said submission was expressly made without prejudice and was advanced only as an alternative computation assuming that the principal contention of the Petitioner was not accepted.

25. Per contra, learned counsel representing the Respondents has supported the Impugned Order and the Impugned DGAP Report. It has been submitted that:

The DGAP has duly acted in accordance with the directions contained in Reckitt Benckiser India (P.) Ltd. (supra), since it has not adopted the earlier ITC-to-turnover methodology. Instead, it has determined the additional ITC benefit by reference to the purchase value and thereafter divided the total saving by the total project area to arrive at the per square feet benefit.

ii.

The record establishes that the Petitioner actually availed post-GST ITC of Rs.2,07,76,653/-, whereas no CENVAT or VAT credit was actually availed during the pre-GST period. The difference represents the additional credit which became available to the Petitioner upon introduction of GST.

iii.

The Petitioner’s assertion that it was legally entitled to CENVAT credit in the pre-GST period cannot substitute actual availment of such credit. The ST-3 returns demonstrate that the Petitioner had actually availed NIL CENVAT credit. Consequently, the service tax paid on input services remained a cost to the Petitioner during the pre-GST period.

iv.

The benefit under Section 171 of the CGST Act extends to ITC on goods as well as services. There is no basis for restricting the benefit to Rs.14,52,570/- merely because that amount represents the ITC on inward goods.

The GSTAT has considered the Petitioner’s submissions, including the contention regarding the service tax paid during the pre-GST period and the alternative computation of Rs.1,39,93,358/-. The finding that the Petitioner had made an admission of profiteering is supported by the Petitioner’s own written submissions before the erstwhile NAPA and this Court.

26. No other submissions have been made by the learned counsel representing the parties.

ANALYSIS AND FINDINGS:

27. The Court has carefully considered the submissions advanced on behalf of the learned counsel representing the parties and perused the material placed on record.

28. At the outset, it is necessary to delineate the scope of the present proceedings. The challenge before this Court is directed against an order passed by GSTAT after the matter had already undergone an earlier round of adjudication and had been remanded for reconsideration in accordance with the judgment of this Court in Reckitt Benckiser India (P.) Ltd. (supra). The present proceedings are, therefore, not an appeal against the quantum determined by GSTAT. The jurisdiction under Articles 226 and 227 of the Constitution may undoubtedly be exercised where the statutory authority or Tribunal has acted contrary to the governing law, exceeded its jurisdiction or failed to give effect to a binding direction of this Court. However, the jurisdiction is not intended to substitute the Court’s own assessment of factual material for that of the specialised adjudicatory authority.

29. At this stage, it would be apposite to extract the relevant observations of this Court in Reckitt Benckiser India (P.) Ltd. (supra), which govern the methodology for determination of profiteering in the real estate sector, for ready reference:

“124. This Court is of the view that no fixed/uniform method or mathematical formula can be laid down for determining profiteering as the facts of each case and each industry may be different. The determination of the profiteered amount has to be computed by taking into account the relevant and peculiar facts of each case. There is „no one size that fits all’ formula or method that can be prescribed in the present batch of matters. Consequently, NAA has to determine the appropriate methodology on a case to case basis keeping in view the peculiar facts and circumstances of each case.

***

129. However, this Court finds that the methodology adopted by NAA and DGAP to arrive at the profiteering amount of the real estate industry was generally based on the difference between the ratio of Input Tax Credit to turnover under the pre-Goods and Services and Tax and post- Goods and Services and Tax period. This Court is in agreement with the contention of the learned counsel for the petitioners representing the real estate companies that the methodology adopted by NAA is flawed as in the real estate sector, there is no direct correlation between the turnover and the Input Tax Credit availed for a particular period. The expenses in a real estate project are not uniform throughout the life cycle of the project and the eligibility of credit depends on the nature of the construction activity undertaken during the particular period. As it is an admitted position that neither the advances received nor the construction activity is uniform throughout the life cycle of the project, the accrual of Input Tax Credit is not related to the amount collected from the buyers. This Court is in agreement with learned counsel of the petitioners that one needs to calculate the total savings on account of introduction of Goods and Services and Tax for each project and then divide the same by total area to arrive at the per square feet benefit to be passed on to each flat buyer. This would ensure that flat-buyers with equal square feet area received equal benefit. The Court, while hearing the present batch of matters on merits, shall take the aforesaid direction/interpretation into account.

***

157. Both the Central as well as the State Government had no intent of collecting additional Goods and Services Tax on the higher price as they had sacrificed their revenue in favour of the buyer. By compelling the buyers to pay the additional Goods and Services Tax on a higher price, the supplier has not only defeated the intent of the Governments but has also acted against the interest of the consumer and therefore, the Goods and Services Tax collected by him on the additional realization has rightly been included in the profiteered amount.”

30. The principal contention of the Petitioner is that the remand pursuant to Reckitt Benckiser (supra) was not properly complied with. According to the Petitioner, the DGAP has merely replaced the expression “turnover” with “purchase value” and has thereby continued to apply the very methodology which this Court had rejected.

31. The contention, however, proceeds on an incomplete reading of Paragraph No.129 of Reckitt Benckiser India (P.) Ltd. (supra). This Court did not hold that every comparison between the pre-GST and post-GST period was impermissible. What was found to be flawed was the methodology which sought to determine the benefit in the real estate sector merely by comparing the ratio of ITC to turnover, on the premise that ITC accrual and turnover move in a corresponding manner. The reason for rejecting that methodology was that expenses and construction activity are not uniform throughout the life cycle of a real estate project and the accrual of ITC is not necessarily related to the amounts collected from buyers. The Court consequently directed that the total savings on account of introduction of GST for the project be determined and divided by the total area.

32. In the present case, the DGAP did not apply the earlier ITC-to-turnover ratio to determine the benefit. The revised exercise was undertaken by examining the purchase value of goods and services, determining the ITC actually availed during the post-GST period, calculating the resultant additional ITC benefit and thereafter dividing the project-level saving by the total project area. The calculation ultimately adopted was Rs.2,07,65,434/- as the total saving, Rs.76.895 per square foot as the corresponding project-level saving and Rs.2,07,08,131/- as the amount relatable to the sold area.

33. The distinction is significant. The purchase value has not been used as a proxy for turnover for the purpose of determining a benefit relatable to the amounts realised from individual buyers. It has been used as the denominator for quantifying the proportion of ITC available against the project expenditure during the relevant period. The resulting saving has thereafter been converted into a project-wide per square foot figure, precisely so that the benefit is distributed with reference to the area of the flats. This is materially different from the methodology considered and rejected by this Court in Reckitt Benckiser India (P.) Ltd. (supra).

34. The final step adopted by the DGAP is, in fact, directly aligned with the direction contained in Paragraph No.129 of Reckitt Benckiser India (P.) Ltd. (supra). The total saving is first determined at the project level and is thereafter divided by the total area. The benefit relatable to each recipient is then determined by applying the per square foot figure to the area sold to that recipient. GSTAT specifically considered this aspect and found that the methodology adopted by the DGAP took into account the total area and the total sold area for determining the benefit.

35. It is, therefore, not possible to accept the submission that the DGAP has simply resurrected the earlier methodology by changing the denominator from “turnover” to “purchase value”. The exercise undertaken after remand has a different operative basis. The question is not whether the methodology is the only possible methodology, but whether it is a fair and reasonable methodology consistent with the specific direction issued by this Court. The material placed on record does not establish that the methodology adopted is contrary to the said direction.

36. The next and more substantial contention concerns the treatment of pre-GST CENVAT credit. The Petitioner asserts that CENVAT credit of approximately Rs.2,38,25,609/- was legally available in respect of service tax paid on input services, although the same was not actually availed. The Petitioner consequently submits that the post-GST ITC on input services cannot be regarded as an additional benefit.

37. The distinction between eligibility and actual availment is material in the facts of the present case. The DGAP did not proceed on the assumption that the Petitioner could never have claimed CENVAT credit under the pre-GST regime. Its finding was based upon the actual statutory returns maintained by the Petitioner. As noticed by GSTAT, the ST-3 returns for the relevant pre-GST period reflected NIL CENVAT credit actually availed. In contrast, the Petitioner admittedly availed GST ITC of Rs.2,07,76,653/- during the post-GST period.

38. Section 171 of the CGST Act is concerned with the benefit of ITC actually accruing to the supplier and its consequential passing on to the recipient. The question before the authorities was, therefore, not whether the Petitioner could theoretically have availed a particular credit had it acted differently during the pre-GST period. The relevant factual question was whether the Petitioner had, in fact, enjoyed the benefit of such credit during the pre-GST period. The record demonstrates that it had not.

39. The Petitioner’s own affidavit before GSTAT records that, although it considered itself eligible for CENVAT credit of Rs.2,38,25,609/-, it had not claimed the same due to an alleged human error and had paid the service tax in cash. The factual position that emerges, therefore, is that the credit was not availed and was not utilised by the Petitioner during the pre-GST period.

40. The consequence is that the Petitioner cannot, for the purposes of determining the benefit actually available to it upon introduction of GST, notionally treat an unavailed credit as though it had already reduced its pre-GST tax incidence. Such an exercise would amount to comparing actual post-GST benefit with a hypothetical pre-GST benefit. The anti-profiteering determination, however, has to proceed on the economic benefit which actually accrued under the respective tax regimes.

41. The submission that the post-GST ITC relating to services must nevertheless be excluded because CENVAT credit was legally available under the earlier regime also overlooks the specific factual finding that the Petitioner had not availed such credit. The DGAP expressly relied upon the ST-3 returns and treated the service tax paid on input services as a cost during the pre-GST period. GSTAT accepted this factual position. There is no material before this Court demonstrating that the finding regarding NIL actual CENVAT availment is factually incorrect.

42. The contention that only ITC of Rs.14,52,570/- on inward goods can constitute the benefit is consequently not sustainable. The distinction between goods and services is not determinative where the question is the total additional ITC actually availed by the supplier after introduction of GST. The material placed before GSTAT demonstrated that the post-GST ITC comprised Rs.14,52,570/- on inward goods and Rs.1,93,28,564/- on inward services. GSTAT considered the contention of the Petitioner but found no basis to exclude the latter merely because the Petitioner asserted that CENVAT credit could have been availed under the earlier regime.

43. The contention relating to the increase in the rate of tax also does not advance the Petitioner’s case. The Petitioner has relied upon the fact that the tax incidence on services increased under the GST regime and submits that the corresponding increase in ITC cannot, by itself, be treated as a benefit. This submission, however, does not demonstrate any error in the particular computation undertaken in the present case. The DGAP has not treated the entire post-GST ITC as an arbitrary windfall. It has quantified the additional ITC against the purchase value during the post-GST period and thereafter determined the project-level saving and the per square foot benefit.

44. More importantly, the Petitioner’s contention regarding the higher tax incidence was itself considered in the earlier proceedings and was incorporated in the alternative computation furnished by the Petitioner. The GSTAT noticed that the Petitioner had, without prejudice, itself worked out an alternative profiteering figure of Rs.1,39,93,358/- on the assumption that the increase in ITC attributable to the higher tax incidence was excluded.

45. The aforesaid alternative computation, however, cannot be treated as determinative of the actual liability under Section 171. At the same time, the fact that the Petitioner had furnished such a computation is relevant to demonstrate that the issue was not ignored by the adjudicatory authorities. GSTAT examined the alternative computation and thereafter proceeded to determine the quantum on the basis of the methodology which it found to be consistent with Reckitt Benckiser India (P.) Ltd. (supra).

46. The Court is also unable to accept the submission that GSTAT’s finding regarding admission, by itself, vitiates the Impugned Order. It is true that a submission expressly made “without prejudice” must be read in the context in which it was made and cannot mechanically be treated as an unconditional admission of liability. However, the Impugned Order does not rest solely upon the alleged admission. GSTAT independently examined the DGAP’s computation, the project purchase value, the ITC actually availed, the project area and the sold area, and thereafter upheld the determination of Rs.2,07,08,131/-.

47. Thus, even assuming that the Petitioner’s alternative submission should not have been described as a conclusive admission, the same would not undermine the substantive basis upon which the Impugned Order rests. The determination of profiteering is independently supported by the computation undertaken by the DGAP and considered by GSTAT.

48. The Petitioner has further relied upon the expenditure incurred towards installation of a sub-station and allied electrical infrastructure and has contended that the said expenditure was ultimately borne by the Petitioner and was not recovered from the homebuyers. The Petitioner seeks to rely upon the aforesaid expenditure as a factor which, according to it, should be taken into consideration while determining the benefit, if any, required to be passed on.

49. This Court does not consider it necessary to express any view on the aforesaid aspect in the present proceedings. The question as to whether such expenditure is liable to be recovered from the homebuyers or not will depend upon the agreements and other documents executed into between the parties. If permissible in law, the Petitioner may avail such remedy in accordance with law. This Court makes it clear that it has not examined or adjudicated upon the aforesaid issue. The controversy before this Court is principally confined to the methodology adopted for determination of the benefit arising on account of additional ITC.

50. It is also relevant that the methodology mandated in Reckitt Benckiser India (P.) Ltd. (supra) does not contemplate a broad balancing of every commercial expense incurred by a developer against the ITC benefit. The direction was to determine the total savings arising from introduction of GST and thereafter distribute that benefit on a per square foot basis. The exercise cannot be converted into an unrestricted enquiry into every commercial cost or expenditure of the project.

51. The central factual position in the present case remains undisputed: the Petitioner availed NIL CENVAT/VAT credit during the pre-GST period, whereas it availed GST ITC of Rs.2,07,76,653/-during the post-GST period. The DGAP then quantified the additional benefit against the post-GST purchase value and distributed the resulting project-level saving over the total area. GSTAT has examined and accepted the said exercise.

52. The Court is conscious that Paragraph No.124 of Reckitt Benckiser India (P.) Ltd. (supra) holds that no fixed or uniform mathematical formula can be prescribed for determination of profiteering and that the methodology must take into account the peculiar facts of each case. This principle, however, does not mean that every methodology adopted by the authorities is impermissible merely because it involves a mathematical computation. What is required is that the methodology be fair, reasonable and responsive to the peculiarities of the particular project.

53. The submission that the authorities were required to determine some further or different measure of “actual economic benefit” essentially invites this Court to undertake a fresh factual exercise and substitute its own computation for that undertaken by the DGAP and affirmed by GSTAT. Such an exercise would, in the facts of the present case, amount to exercising appellate jurisdiction over the findings of GSTAT, which is not the scope of the present proceedings under Articles 226 and 227 of the Constitution.

54. It is also significant that the Impugned Order was passed after the Petitioner had been afforded repeated opportunities of hearing. The GSTAT proceedings commenced on 26.09.2025 and hearings were thereafter held on several dates, including 13.10.2025, 17.12.2025, 06.01.2026, 29.01.2026, 11.02.2026 and 02.03.2026. The Petitioner filed written submissions and was specifically directed to place on record material regarding the rate of service tax applicable during the pre-GST period. The Petitioner thereafter filed its affidavit dated 09.02.2026.

55. The grievance of the Petitioner is thus not that it was denied an opportunity to present its case. On the contrary, the record demonstrates that its principal submissions regarding the applicability of Reckitt Benckiser India (P.) Ltd. (supra), pre-GST CENVAT credit, the distinction between goods and services, the increased tax incidence, the alternative computation and the project expenditure were placed before GSTAT. The disagreement is with the conclusions reached by GSTAT upon consideration of those submissions.

56. A distinction must be maintained between a case where the Tribunal fails to consider a material contention altogether and a case where the contention is considered but rejected. The former may, in an appropriate case, warrant judicial review. The latter ordinarily does not, unless the conclusion suffers from a manifest error of law or is such that no reasonable adjudicatory authority could have arrived at it.

57. The addition of GST at the rate of 12% to the profiteered amount also does not warrant interference. GSTAT has relied upon Paragraph No.157 of Reckitt Benckiser India (P.) Ltd. (supra), wherein this Court considered the consequence of GST being collected on the additional realisation and held that such GST was liable to be included in the profiteered amount. The Impugned Order has accordingly added Rs.24,84,976/- to the principal profiteered amount of Rs.2,07,08,131/-.

58. Likewise, the direction for payment of interest at the rate of 18% follows from the statutory scheme and has been specifically recorded by GSTAT while directing payment of the amount to the individual homebuyers. The Petitioner has not demonstrated any independent jurisdictional infirmity in the said direction.

59. On an overall consideration of the matter, therefore, this Court finds that the Impugned DGAP Report cannot be said to have ignored the judgment in Reckitt Benckiser India (P.) Ltd. (supra). The methodology adopted after remand is materially different from the earlier ITC-to-turnover methodology which had been rejected by this Court. The use of purchase value for quantifying the additional ITC and the subsequent division of the project-level saving by the total area is not, by itself, contrary to Paragraph No.129 of the judgment.

60. The further challenge to the treatment of pre-GST CENVAT credit also cannot be accepted. The Petitioner may have been legally entitled to claim such credit. However, the authorities were justified in examining the actual ITC availed during the respective periods rather than introducing a hypothetical credit into the pre-GST computation.

61. The Court also finds no basis to hold that GSTAT acted beyond the scope of the remand or failed to consider the material placed before it. The Impugned Order may not accord with the interpretation of the Petitioner, but a mere disagreement with the appreciation of the material or with the methodology adopted, when the methodology is within the parameters laid down by this Court, does not constitute a ground for interference under writ jurisdiction.

62. The present case, therefore, does not disclose any patent jurisdictional error, manifest illegality or failure to comply with the binding directions issued by this Court in Reckitt Benckiser India (P.) Ltd. (supra).

CONCLUSION:

63. In view of the foregoing discussion, this Court is of the considered view that the Petitioner has failed to establish any ground warranting interference with the Impugned Order dated 23.03.2026 passed by GSTAT.

64. Accordingly, the present Writ Petition, along with the pending applications, is dismissed.

Reassessment Orders Issued with Sanction from Incompetent Authority After Three Years Are Void and Unsalvageable Under Section 263

Ashwani Kumar — Tue, 06 Oct 2026 09:51:38 +0000

Reassessment Orders Issued with Sanction from Incompetent Authority After Three Years Are Void and Unsalvageable Under Section 263

Issue

Whether reassessment notices and orders issued after more than three years from the end of the relevant assessment year are legally valid when approval under Section 151 was obtained from the Principal Commissioner under clause (i) instead of the higher specified authority mandated under Section 151(ii), and whether such invalid reassessments can form a sustainable foundation for revisionary action under Section 263.

Facts

Assessee & Assessment Years: The case pertains to AY 2016-17 and AY 2017-18, involving loans of ₹42.45 lakhs and ₹3.31 crores respectively received by the assessee from Aneri Fincap Ltd.
Initiation of Proceedings: Reassessment proceedings were initiated based on information received through the Insight Portal following a search action under Section 132 in the One World Group.
Timing of Action: Both the orders under Section 148A(d) and notices under Section 148 were issued after the expiry of more than three years from the end of the relevant assessment years.
Approval Authority: The Assessing Officer obtained sanction/approval for issuing the notices under Section 151(i) from the Principal Commissioner of Income Tax (PCIT).
Revisionary Action: The PCIT subsequently invoked Section 263, alleging inadequate inquiry by the Assessing Officer into the genuineness of the loans and creditworthiness of the lender, thereby setting aside the reassessment orders.

Decision

Incompetent Sanctioning Authority: Where more than three years have elapsed from the end of the relevant assessment year, approval under Section 151(ii) must strictly be obtained from the higher specified authorities (Principal Chief Commissioner / Principal Director General, or Chief Commissioner / Director General if former unavailable), and approval under Section 151(i) from a PCIT is legally invalid.
Jurisdictional Defect: Granting approval under Section 151(i) instead of Section 151(ii) goes to the root of the Assessing Officer’s jurisdiction, making the underlying Section 148 notices and subsequent reassessment orders void ab initio.
Section 263 Inapplicable: Invalid and jurisdictionally flawed reassessment orders cannot furnish a legally sustainable foundation for the PCIT to exercise revisionary power under Section 263; further, prejudice to the interests of the Revenue was not established. The reassessment orders/revisionary actions were accordingly decided in favor of the assessee.

Key Takeaways

Strict Time-Threshold for Section 151 Sanctions: For reopenings up to 3 years, Section 151(i) specified authorities apply; beyond 3 years, higher authorities under Section 151(ii) must grant approval.
Jurisdictional Condition Precedent: Obtaining sanction from the wrong tier of authority under Section 151 is not a curable procedural defect; it invalidates the entire reassessment.
Nullity Cannot Be Revised: An assessment or reassessment order passed without valid statutory jurisdiction is a legal nullity and cannot be subjected to revision under Section 263 by the PCIT.

IN THE ITAT MUMBAI BENCH ‘F’

Varada Mercantile (P.) Ltd.

Principal Commissioner of Income-tax

Amit Shukla, Judicial Member
and MAKARAND VASANT MAHADEOKAR, Accountant Member

IT Appeal Nos. 6608 & 6609 (Mum.) of 2026
[Assessment years 2016-17 and 2017-18]

SEPTEMBER 23, 2026

Dhaval Shah, Ld. A.R. for the Appellant. Nishant Samaiya, Ld. CIT D.R. for the Respondent.

ORDER

Makarand Vasant Mahadeokar, Accountant Member. – These two appeals by the assessee are directed against two separate orders, both dated 27.03.2026, passed by the learned Principal Commissioner of Income-tax-4, Mumbai [hereinafter referred to as “the PCIT”], under section 263 of the Income-tax Act, 1961 [hereinafter referred to as “the Act”], for A.Ys. 2016-17 and 2017-18. Since the appeals involve the same assessee, arise from substantially similar facts and raise common legal issues, they were heard together and are being disposed of by this consolidated order.

2. The material facts giving rise to both appeals are substantially common. The assessee filed its returns of income for the respective assessment years declaring Nil income after reporting current-year losses. Subsequently, actionable information was received through the Insight Portal pursuant to a search and seizure action conducted under section 132 in the case of the One World Group on 06.11.2019. The information referred to the statement of Shri Rajesh G. Mehta recorded on 08.11.2019 and alleged that M/s. Aneri Fincap Limited, formerly known as M/s. Farry Industries Limited, was engaged in providing accommodation entries. On this basis, the assessments for both years were reopened in respect of the loans received by the assessee from the said concern.

3. The year-specific particulars are summarised below:

Particulars	A.Y. 2016-17	A.Y. 2017-18
IT A No.	6608/Mum/2026	6609/Mum / 2026
Date of original return	23.09.2016	12.10.2017
Returned income	Nil	Nil
Current-year loss reported	Rs.12,98,271/-	Rs.26,95,532/-
Loan from M/s. Aneri Fincap Limited	Rs.42,45,000/-	Rs.3,31,45,000/-
Interest forming part of reopening	Nil	Rs.5,78,177/-
Aggregate transaction under examination	Rs.42,45,000/-	Rs.3,37,23,177/-
Order under section 148A(d) and notice under section 148	30.07.2022	27.07.2022
Reassessment order	22.05.2023 under section 147 read with section 144B	22.05.2023 under section 147 read with section 144B
Result of reassessment	Returned income accepted	Returned income accepted

4. During the reassessment proceedings, the Assessing Officer issued notices under sections 143(2) and 142(1). The assessee furnished detailed explanations and documentary evidence concerning the lender and the impugned transactions. The material furnished included the loan agreements, ledger accounts, confirmations, bank statements, cash-flow statements, lender’s income-tax particulars, RBI registration certificate, financial statements, disbursement letters and evidence of subsequent repayment. In A.Y. 2017-18, the assessee also furnished particulars concerning the interest paid on the loans. The reassessment orders themselves reproduce the replies filed by the assessee and record the nature of the documents submitted.

5. After examining the material so furnished, the Assessing Officer recorded that the relevant bank statements, registration certificate, cash-flow statements, confirmations and ledger accounts had been verified. The Assessing Officer further noted the receipt of the respective loans through banking channels and their subsequent repayment. On such verification, the reassessments for both years were completed on 22.05.2023 under section 147 read with section 144B by accepting the returned income.

6. The learned PCIT thereafter initiated revisionary proceedings under section 263 by issuing show-cause notices dated 10.03.2026. According to the learned PCIT, although the assessee had furnished documentary evidence concerning the loans, the Assessing Officer had failed to undertake meaningful enquiry into the information received from the Investigation Wing and the statement recorded during the search proceedings. The learned PCIT held that the Assessing Officer had accepted the transactions without adequately examining the genuineness of the loans, the creditworthiness of the lender and the implications of the material gathered during the search.

7. The learned PCIT invoked clause (a) of Explanation 2 to section 263 and held that the reassessment orders were erroneous insofar as they were prejudicial to the interests of the Revenue. Consequently, by two separate orders dated 27.03.2026, the reassessment orders were partly set aside to the file of the Assessing Officer for making further verification and enquiry concerning the aforesaid loan transactions.

8. Aggrieved by the said orders, the assessee is in appeal before us raising following grounds of appeal:

ITA No. 6608/Mum/2026, A.Y. 2016-17

1. The Ld. Pr. Commissioner of Income-tax has erred in law and in facts in issuing notice u/s 263 of the Act and passing the revision order u/s. 263 of the Act which is invalid and bad in the eyes of law.

2. The Ld. Pr. Commissioner of Income-tax has erred in law and in facts in passing the revision order without satisfying the mandatory conditions laid down u/s. 263 of the Act.

3. The Ld. principal Commissioner of Income-Tax has erred in law and in facts in passing the revision order in violation of principles of natural justice.

4. The Ld. Pr. Commissioner of Income-tax has erred in law and in facts in directing the assessing officer to make verification and enquiries relating to loan transaction of Rs. 42,45,000/- which is invalid and bad in the eyes of law.

The appellant craves leave to add to, alter, amend and / or delete in all the foregoing grounds of appeal.

ITA No. 6609/Mum/2026, A.Y. 2017-18

2. The Ld. Pr. Commissioner of Income-tax has erred in law and in facts in passing the revision order without satisfying the mandatory conditions laid down u/s. 263 of the Act.

3. The Ld. principal Commissioner of Income-Tax has erred in law and in facts in passing the revision order in violation of principles of natural justice.

4. The Ld. Pr. Commissioner of Income-tax has erred in law and in facts in directing the assessing officer to make verification and enquiries relating to loan and interest transaction aggregating to Rs. 3,37,23,177/- which is invalid and bad in the eyes of law.

The appellant craves leave to add to, alter, amend and / or delete in all the foregoing grounds of appeal.

9. During the course of hearing before us, the learned Authorised Representative (AR) submitted that the orders passed by the learned PCIT under section 263 are liable to be quashed both on jurisdictional grounds and on the merits of the revisionary proceedings. He submitted that the facts and legal issues involved in both assessment years are substantially similar, the material difference being the quantum of the loan transactions. He first addressed the arguments with reference to A.Y. 2016-17 and adopted the same submissions for A.Y. 2017-18, subject to the year-specific amounts and documents.

10. The learned AR submitted that the reassessment orders dated 22.05.2023, which formed the very foundation of the proceedings under section 263, were invalid and non-est in law because the mandatory approval contemplated under section 151 had not been granted by the competent specified authority.

11. With reference to A.Y. 2016-17, the learned AR submitted that the order under section 148A(d) and the notice under section 148 were issued on 30.07.2022. Inviting our attention to paragraph 14 of the order under section 148A(d), placed at pages 3 to 6 of Paper Book-1, he submitted that the approval was stated to have been granted on 28.07.2022 by the Principal Commissioner of Incometax-4, Mumbai, under section 151(i).

12. The learned AR submitted that the relevant assessment year was A.Y. 2016-17 and, as on the date of the order under section 148A(d) and the notice under section 148, more than three years had elapsed from the end of the relevant assessment year. Consequently, the approval was required to be granted by the specified authority prescribed under section 151(ii) and not by the authority referred to in section 151(i). According to him, the approval granted by the Principal Commissioner of Income-tax under section 151(i) did not satisfy the mandatory statutory requirement applicable to a case falling beyond the period of three years.

13. In respect of A.Y. 2017-18, the learned AR submitted that the order under section 148A(d) and the notice under section 148 were issued on 27.07.2022. He contended that more than three years had similarly elapsed from the end of A.Y. 2017-18. Referring to the order under section 148A(d), he submitted that the approval was recorded as having been obtained from the Principal Commissioner of Income-tax-4, Mumbai, under section 151(i), whereas the approval was required to be granted by the specified authority prescribed under section 151(ii).

14. The learned AR submitted that an approval granted by an authority not contemplated under the applicable clause of section 151 could not confer jurisdiction upon the Assessing Officer to pass an order under section 148A(d) or issue a notice under section 148.

15. In support of this contention, the learned AR relied upon the decision of the Hon’ble Supreme Court in Union of India v. Rajeev Bansal 469 ITR 46 (SC). He submitted that the Hon’ble Supreme Court had recognised the mandatory character of the limitation and sanction requirements governing the reassessment proceedings. According to him, where more than three years had elapsed from the end of the relevant assessment year, the approval had necessarily to emanate from the specified authority contemplated under section 151(ii).

16. The learned AR contended that the defect in obtaining approval from an incompetent authority went to the root of the jurisdiction assumed by the Assessing Officer. It was not a procedural irregularity capable of being cured by subsequent participation of the assessee in the reassessment proceedings. Consequently, the orders under section 148A(d), the notices under section 148 and the reassessment orders dated 22.05.2023 were void ab initio and non-est in law.

17. The learned AR then submitted that the learned PCIT could not validly assume jurisdiction under section 263 in respect of an assessment order which was itself void and non-est. According to him, the exercise of revisionary jurisdiction necessarily presupposed the existence of a valid assessment order capable of being revised. Where the foundational assessment order was without jurisdiction, the subsequent proceedings under section 263 could not impart validity to it.

18. The learned AR submitted that the invalidity of the foundational reassessment orders necessarily vitiated the superstructure erected thereon in the form of proceedings under section 263. He relied upon the following decisions of the Coordinate Benches, wherein, according to him, orders under section 263 were quashed after the underlying reassessment proceedings were held to be invalid in light of the principles laid down in Union of India v. Rajeev Bansal:

Anumita Infrastructure Pvt. Ltd. v. PCIT, ITA No. 2555/Mum/2025, order dated 29.01.2026;

ii.

Shailesh Asalraj Jain v. Pr. CIT (Mumbai – Trib.), ITA No. 2559/Mum/2025, order dated 24.02.2026; and

iii.

Jignesh Mahesh Gohel v. DCIT, ITA No. 2708/Mum/2025, order dated 18.09.2025.

19. The learned AR further relied upon Pr. CIT v. Badal Prakash Jindal 457 ITR 345 (Orissa), rendered in ITA Nos.8, 7, 9 and 10 of 2023. He submitted that the Hon’ble High Court held that where the original reassessment order itself was not validly passed, the subsequent revisional order under section 263 was also required to be held invalid.

20. Reliance was also placed upon Keshab Narayan Banerjee v. CIT (Calcutta) of the Hon’ble Calcutta High Court, Westlife Development Ltd. v. PCIT (Mumbai – Trib.), stated to have been confirmed by the Hon’ble Bombay High Court in ITXA No.1168/2017 by order dated 28.07.2021, and Pr. CIT v. Shree Nilkanth Quarry Works Llp (Gujarat) of the Hon’ble Gujarat High Court. The learned AR submitted that these authorities supported the proposition that revisionary jurisdiction could not be exercised in relation to an assessment order which was without jurisdiction or void ab initio.

21. The learned AR accordingly submitted that the reassessment orders dated 22.05.2023 for both assessment years were founded upon approvals granted by an authority not competent under section 151(ii). The reassessment orders were, therefore, non-est in law and could not constitute valid subject matter of revision under section 263. He prayed that the impugned orders dated 27.03.2026 passed under section 263 for both assessment years be quashed and the appeals of the assessee be allowed.

22. The learned Departmental Representative relied upon the written submissions placed on record as well as the departmental communications and approval documents furnished during the course of hearing. He submitted that the assessee’s challenge was confined to the competence of the authority granting approval under section 151 of the Act and the consequential validity of the proceedings under section 263.

23. At the outset, the learned DR raised a preliminary objection to the assessee’s challenge to the validity of the reassessment proceedings in the present appeals arising from orders passed under section 263. He submitted that the assessee had accepted the reassessment proceedings, filed returns in response to the notices under section 148, participated in the proceedings without raising any jurisdictional objection and did not independently challenge the reassessment orders by filing appeals. According to him, having accepted and acted upon the reassessment orders, the assessee could not subsequently contend, in the appeals against the orders under section 263, that the very same assessment orders were non est.

24. The learned DR further submitted that the assessee had taken mutually inconsistent positions. While assailing the jurisdiction under section 263, the assessee relied upon the inquiries made and the view taken by the Assessing Officer in the reassessment orders; at the same time, it contended that those orders were void for want of approval by the competent authority. Relying upon the decision of the Hon’ble Supreme Court in R.N. Gosain v. Yashpal Dhir (1992) 4 SCC 683, he contended that a litigant could not be permitted to approbate and reprobate in relation to the same order.

25. The learned DR fairly acknowledged that the Coordinate Bench in Anumita Infrastructure Pvt. Ltd. v. PCIT, ITA No.2555/Mum/2025, order dated 29.01.2026, had permitted a jurisdictional objection to the underlying assessment order to be raised in an appeal arising from proceedings under section 263. He, however, submitted that the said decision did not consider the distinct objection that an assessee, while relying upon the underlying assessment order as a valid and plausible order, could not simultaneously describe that order as non est. Relying upon CIT v. Sun Engineering Works (P.) Ltd. 198 ITR 297 (SC), he submitted that a decision was an authority only for the proposition actually considered and decided therein. The preliminary objection of the Revenue was, therefore, specifically pressed and preserved.

26. On the merits of the objection under section 151, the learned DR relied upon the following year-wise particulars:

Assessment year	Date of order under section 148A(d) / notice under section 148	Date of approval relied upon by Revenue	Department’s contention
2016-17	30.07.2022	28.07.2022	Approval was duly obtained from the competent specified authority before passing the order under section 148A(d) and issuing the notice under section 148.
2017-18	27.07.2022	18.07.2022	Approval was granted by Dr. Suchismita Palai, described as “CCIT (OSD) in the charge of Pr. Commissioner of Income-tax-4, Mumbai“, who held the rank of Chief Commissioner of Income-tax.

27. The learned DR submitted that the departmental communication dated 18.09.2026 specifically confirmed that formal approvals for passing the orders under section 148A(d), in respect of both assessment years, had been obtained in July 2022 from the competent specified authority and that the consequential notices under section 148 were thereafter issued in the same month.

28. Elaborating upon the approval for A.Y. 2017-18, the learned DR drew attention to the approval dated 18.07.2022 issued on the letterhead of the “Office of the Chief Commissioner of Income-tax (OSD) I/C Principal Commissioner of Income-tax-4”. The approval was signed by Dr. Suchismita Palai in the capacity of “CCIT (OSD) in the charge of Pr. Commissioner of Income-tax-4, Mumbai“. He submitted that the officer who granted the approval held the substantive rank of Chief Commissioner of Income-tax, which rank is specifically included in the expression “specified authority” under section 151(ii) of the Act. Merely because such officer was also holding charge of the office of Principal Commissioner of Incometax-4, the officer did not cease to hold the rank of Chief Commissioner.

29. According to the learned DR, the purpose underlying section 151(ii), as explained by the Hon’ble Supreme Court in Rajeev Bansal(supra), was to ensure independent scrutiny of the proposal by a sufficiently senior income-tax authority where more than three years had elapsed from the end of the relevant assessment year. That requirement stood fulfilled because the approval had, in substance, been granted by an officer holding the rank of Chief Commissioner of Income-tax.

30. The learned DR submitted that the decisions relied upon by the assessee, including Anumita Infrastructure Pvt. Ltd. and the other decisions following Rajeev Bansal, proceeded on the factual premise that approval had been granted only by a Principal Commissioner of Income-tax. Those decisions did not examine whether an approval granted by an officer holding the rank of Chief Commissioner, while additionally holding charge of the office of a Principal Commissioner, would satisfy section 151(ii). The said decisions were, therefore, distinguishable on facts.

31. The learned DR also addressed the reference in paragraph 14 of the order under section 148A(d) for A.Y. 2017-18 to the approval having been obtained from the “Pr. CIT-4, Mumbai” under section 151(i). He submitted that this description merely referred to the office through which the proposal was processed and did not alter the rank or statutory competence of the officer who actually granted the approval. Likewise, an incorrect reference to section 151(i), instead of section 151(ii), would not invalidate an approval where the authority granting it otherwise possessed the requisite statutory power. For this proposition, reliance was placed upon N. Mani v. Sangeetha Theatres (2004) 12 SCC 278.

32. Without prejudice, the learned DR submitted that the original notices under section 148 had been issued on 30.06.2021 within the period extended under the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020. At the stage of issuance of those notices, the authority contemplated under section 151(i) was competent to grant approval. The subsequent proceedings under sections 148A(b), 148A(d) and 148 were only a continuation of the original proceedings in terms of the judgment of the Hon’ble Supreme Court in Ashish Agarwal(supra) and CBDT Instruction No.01 of 2022 dated 11.05.2022. On that basis also, the learned DR contended that the approvals and the consequential reassessment proceedings could not be treated as invalid.

33. The learned DR thus submitted that the approvals were granted by the competent specified authority and that the reassessment orders were valid and subsisting orders. Consequently, the Principal Commissioner possessed jurisdiction to examine and revise those orders under section 263 of the Act. He accordingly prayed that the jurisdictional challenge raised by the assessee be rejected and the impugned orders under section 263 for both assessment years be upheld. In the alternative, he requested that all the aforesaid contentions of the Revenue be expressly recorded and preserved.

34. We have carefully considered the rival submissions and perused the orders passed under sections 148A(d), 147 read with section 144B and 263 of the Act, the approval documents placed on record, and the judicial precedents relied upon by both sides. At the time of hearing, the learned AR confined his arguments to the validity of the approvals obtained under section 151 and the consequential validity of the orders passed under section 263. The other grounds were not pressed.

35. The controversy before us has two interconnected facets. The first is whether the assessee is entitled, in appeals directed against the orders under section 263, to question the jurisdictional competence of the foundational reassessment proceedings. The second is whether, upon such limited collateral examination, the reassessment orders could constitute legally sustainable orders capable of revision under section 263. In examining these questions, we are conscious that the reassessment orders dated 22.05.2023 are not independently under appeal before us. Our examination of their jurisdictional foundation is, therefore, confined to determining whether the learned PCIT validly assumed jurisdiction under section 263 and whether the cumulative conditions of error and prejudice contemplated by that provision stood satisfied.

Particulars	A.Y. 2016-17	A.Y. 2017-18
Expiry of three years from the end of the assessment year	31.03.2020	31.03.2021
Original notice under erstwhile section 148	30.06.2021	30.06.2021
Approval for order under section 148A(d) and notice under section 148	28.07.2022	18.07.2022
Authority from whom approval is recorded as having been obtained	Principal Commissioner of Income-tax-4, Mumbai	Principal Commissioner of Income-tax-4, Mumbai, under section 151(i)
Order under section 148A(d) and notice under section 148	30.07.2022	27.07.2022
Reassessment order under section 147 read with section 144B	22.05.2023	22.05.2023
Order under section 263	27.03.2026	27.03.2026

36. It is undisputed that, on the dates on which the respective orders under section 148A(d) were passed and notices under section 148 were issued, more than three years had elapsed from the end of both assessment years. Consequently, the governing provision was section 151(ii), as it stood during July 2022.

37. Section 151, as applicable at the relevant time prescribed the following authorities:

(i)

Principal Commissioner or Principal Director or Commissioner or Director, if three years or less than three years have elapsed from the end of the relevant assessment year;

(ii)

Principal Chief Commissioner or Principal Director General or where there is no Principal Chief Commissioner or Principal Director General, Chief Commissioner or Director General, if more than three years have elapsed from the end of the relevant assessment year.

38. Thus, the statute created a time-linked hierarchy. Approval under section 151(i) could be granted by the Principal Commissioner or Commissioner only where three years or less had elapsed from the end of the relevant assessment year. Where more than three years had elapsed, approval was required under section 151(ii) from the Principal Chief Commissioner or Principal Director General or, where such authority was not available, from the Chief Commissioner or Director General.

39. The issue is now authoritatively governed by the decision of the Hon’ble Supreme Court in Rajeev Bansal(supra). In paragraphs 73, 75 and 76, the Hon’ble Supreme Court explained the nature and consequence of the requirement under section 151 as follows:

“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.” (para 73)

“Therefore, in terms of Ashish Agarwal (supra), after 1 April 2021, the prior approval must be obtained from the appropriate authorities specified under Section 151 of the new regime.” (para 75)

“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.”

40. The Hon’ble Supreme Court in para 81 of the judgement of Rajeev Bansal further clarified that the directions issued in Ashish Agarwal (supra) did not dispense with the approvals required at the stages of passing an order under section 148A(d) and issuing a notice under section 148. The relevant conclusion reads:

“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 TOLA, where applicable.”

41. The position emerging from the above decision is unambiguous. The approval must be obtained from the authority specified under the substituted section 151, having regard to the period elapsed on the date of the action under sections 148A(d) and 148. The requirement is jurisdictional and cannot be treated as a mere procedural formality.

42. The learned DR contended that the original notices had been issued on 30.06.2021 during the period extended under TOLA and that the proceedings subsequently undertaken pursuant to Ashish Agarwal were only a continuation of those notices. It was therefore submitted that the authority contemplated under section 151(i) continued to be competent.

43. We are unable to accept this contention. In Rajeev Bansal, the Hon’ble Supreme Court specifically dealt with the impact of TOLA upon section 151. It held:

“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.” (para 114 – d.)

44. The Court illustrated the position with specific reference to A.Y. 2017-18:

78. For example, the three year time limit for assessment year 2017-2018 falls for completion on 31 March2021. It falls during the time period of 20 March 2020 and 31 March 2021, contemplated under section 3(1) of TOLA. Resultantly, the authority specified under section 151(i) of the new regime can grant sanction till 30 June 2021.

45. The approvals in the present cases were granted in July 2022, long after 30.06.2021. Therefore, even on application of TOLA, the extended competence of the authority under section 151(i) had expired. The reference in the orders under section 148A(d) to paragraph 6.2(ii) of CBDT Instruction No.01 of 2022 cannot override the statutory prescription or the interpretation subsequently placed upon it by the Hon’ble Supreme Court. An administrative instruction cannot enlarge the jurisdiction conferred by section 151.

46. The reliance of the Revenue upon Ashish Agarwal is also misplaced. The said decision converted the notices issued under the erstwhile section 148 into show-cause notices under section 148A(b), but expressly preserved the defences available to the assessees under the substituted provisions. It required the Revenue to proceed under the substituted reassessment regime. As subsequently clarified in Rajeev Bansal, the requirements of approval under sections 148A(d) and 148 were never dispensed with.

47. In A.Y. 2016-17, the material on record shows that approval was obtained from the Principal Commissioner of Income-tax-4, Mumbai on 28.07.2022 and the order under section 148A(d) and notice under section 148 were issued on 30.07.2022. The period of three years from the end of A.Y. 2016-17 had expired on 31.03.2020. The approval was, therefore, required under section 151(ii). The Principal Commissioner was an authority contemplated under section 151(i), and not the specified authority contemplated under section 151(ii).

48. The approval obtained for A.Y. 2016-17 was consequently not in conformity with section 151(ii). In view of the binding ratio in Rajeev Bansal, this defect affects the very jurisdiction of the Assessing Officer to pass the order under section 148A(d) and issue the notice under section 148.

49. In A.Y. 2017-18, the order under section 148A(d) expressly records:

“The necessary approval for passing order u/s. 148A(d) and issuance of notice u/s 148 has been taken from Pr. CIT-4, Mumbai vide approval No/Pr.CIT-4/148A(d)/Approval/2022-23/ dtd 18.07.2022 as per the provisions of section 151(i)…………….. “

50. The approval letter dated 18.07.2022 is issued from the office described as “Chief Commissioner of Income-tax (OSD) I/C Principal Commissioner of Income-tax-4” and is signed by Dr. Suchismita Palai as “CCIT (OSD) in the charge of Pr. Commissioner of Income-tax-4, Mumbai“.

51. According to the learned DR, since the officer personally held the rank of Chief Commissioner, the approval must be treated as one granted by a Chief Commissioner under section 151(ii), notwithstanding that she was holding charge of the office of Principal Commissioner.

52. We have considered this submission. The Revenue is correct to the limited extent that the precise question concerning an officer described as “CCIT (OSD) in the charge of Pr. Commissioner” was not examined in Anumita Infrastructure Pvt. Ltd. or Shailesh Asalraj Jain. The matter, therefore, requires examination from the approval document itself and the language of section 151(ii). The statutory record does not support the Revenue’s attempt to retrospectively characterise the approval as one granted under section 151(ii). The following circumstances are material:

–

The proposal was addressed to and processed through the office of Principal Commissioner of Income-tax-4.

–

The approval bears the number “Pr.CIT-4/148A(d)/Approval/2022-23″.

–

The officer signed the approval specifically as “CCIT (OSD) in the charge of Pr. Commissioner of Income-tax-4”.

–

The order under section 148A(d) records that approval was obtained from “Pr. CIT-4, Mumbai“.

–

The Assessing Officer expressly records that the approval was obtained under section 151(i).

53. Thus, on the face of the contemporaneous statutory record, the approval was sought from and granted through the office of the Principal Commissioner under section 151(i). The subsequent departmental communication dated 18.09.2026, stating generally that approval was obtained from the competent specified authority, cannot alter the capacity in which the approval was granted or cure a jurisdictional deficiency in the original record.

54. There is yet another difficulty in accepting the Revenue’s contention. At the relevant time, a Chief Commissioner was included in section 151(ii) only “where there is no Principal Chief Commissioner or Principal Director General”. Neither the approval nor any contemporaneous document records that there was no Principal Chief Commissioner or Principal Director General available. No notification, order of appointment, allocation of statutory functions or other evidence has been placed before us to establish satisfaction of this statutory condition. The mere personal designation of the officer as “CCIT (OSD)” cannot dispense with the express condition incorporated in section 151(ii).

55. Since the approval is a jurisdictional precondition, its validity must be demonstrable from the statutory record itself. It cannot be reconstructed on the basis of an explanation furnished by the field officer more than four years later. We accordingly hold that the approval for A.Y. 2017-18 was also not shown to have been granted by the specified authority acting under section 151(ii).

56. The learned DR relied upon N. Mani(supra) to contend that reference to section 151(i) instead of section 151(ii) would not invalidate the approval. The principle laid down therein is:

“It is well settled that if an authority has a power under the law merely because while exercising that power the source of power is not specifically referred to or a reference is made to a wrong provision of law, that by itself does not vitiate the exercise of power so long as the power does exist and can be traced to a source available in law.”

57. There can be no dispute with the above principle. It applies where the authority otherwise possesses the power and the defect is confined to an incorrect reference to its source. In the present case, however, the deficiency is not merely an incorrect recital of the provision. The approval was sought from the office of the Principal Commissioner, granted by the officer while holding charge of that office, and expressly treated by the Assessing Officer as an approval from the Principal Commissioner under section 151(i). Further, the condition upon which a Chief Commissioner could act under section 151(ii) has not been demonstrated. The existence of the requisite jurisdictional power itself has, therefore, not been established. The decision in N. Mani does not assist the Revenue.

58. The learned DR next contended that the assessee had filed returns pursuant to the notices under section 148, participated in the reassessment proceedings and did not challenge the reassessment orders independently. According to him, the assessee could not challenge the validity of those orders for the first time in the appeals against the orders under section 263.

59. The objection is no longer res integra. In Anumita Infrastructure Pvt. Ltd.(supra), the Coordinate Bench held:

“The assessee’s failure to file an appeal against the reassessment order does not validate a jurisdictionally void order…… While section 263 empowers the Principal Commissioner to revise an order which is erroneous and prejudicial to the interest of the Revenue, the exercise of such power necessarily presupposes the existence of a valid assessment order in the eyes of law.” (para 25)

60. The Coordinate Bench concluded:

“We hold that jurisdictional objections relating to the validity of reassessment proceedings are maintainable in an appeal arising from an order passed under section 263 of the Act; that such objections can be examined to determine whether the Principal Commissioner could validly assume revisionary jurisdiction; and that if the reassessment proceedings are found to be void ab initio for jurisdictional defects, the revisionary order under section 263 cannot be sustained.” (para 26)

61. The same principle was earlier considered in considerable detail by the Coordinate Bench in Westlife Development Ltd.(supra). In paragraphs 8 to 8.9 of the order, the Coordinate Bench examined whether an assessee, while challenging an order passed under section 263, could question the jurisdictional validity of the underlying assessment order, even though such assessment order had not been independently challenged and had attained finality.

62. The Coordinate Bench first distinguished between the original assessment proceedings and the subsequent revisionary proceedings. It described the assessment proceedings as the “primary proceedings”, being the basic or foundational proceedings upon which subsequent proceedings rest. The proceedings under section 263 were described as “collateral proceedings”, since their validity and existence were dependent upon the subsistence of a legally valid assessment order. The Bench thus identified the precise question as to whether a jurisdictional illegality in the primary proceedings could be examined in the collateral proceedings.

63. In paragraph 8.1, the Coordinate Bench recognised that, ordinarily, once the assessment proceedings have concluded and the assessment order has not been challenged, the determination made therein attains finality. The assessee cannot use collateral proceedings as a means to reopen, erase or modify the tax liability determined under the assessment order. The Bench, however, drew a clear distinction between an order which is merely erroneous on merits and an order which is void for want of jurisdiction. In the latter case, the validity of the foundational order can be examined at a subsequent stage, but only for the limited purpose of determining whether the collateral proceedings have been initiated upon a legally sustainable foundation. The Bench observed that denial of such examination could result in an enforceable tax liability being created without authority of law.

64. The Coordinate Bench thereafter referred, in paragraph 8.2, to the decision of the Hon’ble Supreme Court in Kiran Singh v. Chaman Paswan AIR 1954 SC 340 . The relevant principle reproduced by the Coordinate Bench reads:

“It is a fundamental principle well-established that a decree passed by a Court without jurisdiction is a nullity, and that its invalidity could be set up whenever and wherever it is sought to be enforced or relied upon, even at the stage of execution and even in collateral proceedings. A defect of jurisdiction, whether it is pecuniary or territorial, or whether it is in respect of the subject-matter of the action, strikes at the very authority of the Court to pass any decree and such a defect cannot be cured even by consent of parties.”

65. In paragraph 8.3, the Coordinate Bench referred to Sushil Kumar Mehta v. Gobind Ram Bohra [1990] 1 SCC 193 , wherein the Hon’ble Supreme Court applied the same principle even at the stage of execution. It was held that where the court passing the decree inherently lacked jurisdiction, the decree was a nullity and did not become binding merely because it had remained uncontested. Such a decree could not operate as res judicata. The Coordinate Bench drew support from this decision for the proposition that an inherently void order does not acquire legality merely because it has not been challenged in the primary proceedings.

66. In paragraph 8.4, reference was made to Indian Bank v. Manual Govindji Khona [2015] 3 SCC 712 and the decision of the Hon’ble Bombay High Court, Goa Bench, in Mavany Brothers v. CIT, Tax Appeal No.8 of 2007, order dated 17.04.2015. These authorities were noticed for the proposition that an objection relating to inherent lack of jurisdiction can be raised whenever the order is sought to be enforced or relied upon, including at the appellate or execution stage.

67. In paragraph 8.5, the Coordinate Bench considered Superintendent of Taxes v. Onkarmal Nathmal Trust AIR 1975 SC 2065 and Dasa Muni Reddy v. Appa Rao AIR 1974 SC 2089 . It noted that statutory restrictions upon the jurisdiction of a revenue authority are imposed as a matter of public policy and cannot be waived by the assessee. Neither consent nor acquiescence can create jurisdiction where the statute has not conferred it. Similarly, the principles of estoppel and res judicata cannot cure an inherent want of jurisdiction.

68. In paragraph 8.6, the Coordinate Bench examined the decision of the Hon’ble Gujarat High Court in P.V. Doshi v. CIT [1978] 113 ITR 22 (Gujarat). In that case, the assessee had not pursued the jurisdictional challenge in the first round of reassessment proceedings and had contested the additions on merits. When the matter was restored and the jurisdictional objection was subsequently raised, the Revenue contended that the issue had attained finality. Rejecting that contention, the Hon’ble Gujarat High Court held that neither res judicata nor estoppel could be invoked where the competence of the authority to assume jurisdiction was in question. The Coordinate Bench reproduced the principle that:

“Finality or conclusiveness could only arise in respect of orders which are competent orders with jurisdiction and if the proceedings of reassessment are not validly initiated at all, the order would be a void order as per the settled legal position which could never have any finality or conclusiveness. If the original order is without jurisdiction, it would be only a nullity confirmed in further appeals.”

69. Paragraphs 8.7 and 8.8 of Westlife Development Ltd. considered the application of the above doctrine in proceedings arising under the Income-tax Act. In Indian Farmers Fertilizers Co-operative Ltd. v. Joint CIT [2007] 105 ITD 33 (Delhi), the jurisdictional validity of a reassessment order was permitted to be questioned in proceedings under section 154, even though the assessee had not appealed against the reassessment order. The Tribunal reasoned that where rectification proceedings were founded upon the assumed validity of the reassessment order, the assessee had to be permitted to protect its interest by demonstrating that the foundational reassessment itself was without jurisdiction.

70. Similarly, in Dhiraj Suri v. Addl. CIT [2006] 98 ITD 87 (Delhi), the validity of a block assessment was permitted to be questioned in an appeal against the consequential penalty. The Tribunal held that if the block assessment itself was without jurisdiction, no penalty could validly be levied on the basis of such assessment. Thus, the jurisdictional validity of the primary proceedings could be examined to determine the legality of the consequential proceedings.

71. In paragraph 8.9, the Coordinate Bench also referred to the decision of the Hon’ble Bombay High Court in Inventors Industrial Corporation Ltd. v. CIT [1992] 194 ITR 548 (Bombay). It was noted that the assessee was permitted to challenge the jurisdiction of the Assessing Officer to initiate reassessment in the second round of proceedings, even though such objection had not been raised before the Assessing Officer or in the earlier appeal.

72. The principle emerging from the aforesaid analysis is that the finality attaching to an assessment order does not prevent examination of an inherent jurisdictional defect when that order is subsequently relied upon as the legal foundation for collateral proceedings. Such examination does not amount to reopening, modifying or annulling the assessment order on merits. It is undertaken only to determine whether the subsequent authority could validly exercise the jurisdiction which it purports to derive from that foundational order. Accordingly, in the present appeals, the reassessment orders may be examined only to the extent necessary for deciding whether they were legally capable of being revised under section 263.

73. After considering the aforesaid authorities, the Coordinate Bench concluded in paragraph 8.10 as follows:

“Thus, on the basis of aforesaid discussion we can safely hold that as per law, the assessee should be permitted to challenge the validity of order passed u/s 263 on the ground that the impugned assessment order was non est and we hold accordingly.”

74. The ratio of Westlife Development Ltd. answers the preliminary objection raised by the Revenue. The assessee is not seeking, in the present appeals, annulment or modification of the reassessment orders dated 22.05.2023. The challenge is confined to the competence of the specified authority whose approval was a statutory precondition for assumption of jurisdiction under sections 148A(d) and 148. If that jurisdictional condition was not satisfied, the reassessment orders, irrespective of their continued formal existence on the departmental record, could not furnish a legally sustainable foundation for the exercise of revisionary jurisdiction under section 263. Our examination is confined to this collateral consequence.

75. We have also considered the contrary view expressed by the Delhi Bench of the Tribunal in Soaltee Finance & Leasing Ltd. v. Pr. CIT-8, ITA Nos.2494 and 2495/Del/2017, order dated 07.09.2022 , concerning A.Ys. 2009-10 and 2010-11. In that case also, the assessee contended that where the reassessment order was itself without jurisdiction and, therefore, non est, revisionary jurisdiction under section 263 could not be exercised upon such an order. The assessee therein relied upon the decision of the Coordinate Bench in SBS Realtors (P.) Ltd. v. ITO (ITA No. 2996/Del/2017, dated 06.04.2021).

76. In paragraphs 20.2 to 20.7 of the order, the Delhi Bench examined the issue from the standpoint of the object and scope of section 263. It observed that section 263 is a supervisory provision enacted to correct an order which is erroneous and prejudicial to the interests of the Revenue. According to the Bench, the revisional power under section 263 cannot be equated with ordinary appellate jurisdiction and must be exercised only for safeguarding the interests of the Revenue.

77. The Delhi Bench further observed that the Principal Commissioner, while acting under section 263, may enhance or modify an assessment or cancel the assessment and direct a fresh assessment. In each of these situations, the assessment either survives with modification or is replaced by a fresh assessment. On this reasoning, the Bench held that complete annulment of the assessment order on the ground of inherent lack of jurisdiction would fall outside the purpose and scope of section 263.

78. The relevant reasoning in paragraphs 20.5 and 20.6 of the decision is that the revisionary authority cannot place the Revenue in a worse position or pass an order for the benefit of the assessee in the guise of revision. It was consequently held that the remedy against the alleged nullity of the reassessment order lay elsewhere. The Delhi Bench further held that since the revisionary authority itself could not annul the reassessment on the ground of lack of jurisdiction, the Tribunal, in an appeal against the revisionary order, could not find fault with the order under section 263 on the basis of a jurisdictional defect which did not emanate from that revisionary order.

79. In paragraph 20.7, the Delhi Bench declined to follow SBS Realtors (P.) Ltd. on the ground that the aforesaid interpretation of the statutory scheme of section 263 had not been placed before the Coordinate Bench in that case. The Delhi Bench accordingly held that the assessee could not challenge the inherent lack of jurisdiction in the foundational reassessment order in an appeal arising from proceedings under section 263.

80. We have carefully considered the view expressed by the Delhi Bench in Soaltee Finance & Leasing Ltd. The concern underlying that decision is that proceedings under section 263 cannot be converted into a substitute appeal against the assessment order and that the Tribunal, while hearing an appeal against an order under section 263, should not formally annul an assessment order which is not itself under appeal. We respectfully agree with this limitation upon the nature of the relief which can be granted in the present appeals.

81. That limitation, however, does not preclude the Tribunal from examining whether the order sought to be revised possessed the legal attributes necessary to sustain the assumption of jurisdiction under section 263. An appeal against an order under section 263 necessarily requires the Tribunal to determine whether the statutory conditions governing the exercise of revisionary jurisdiction existed. For this limited purpose, the jurisdictional foundation of the order sought to be revised cannot be treated as immune from examination.

82. There is a material distinction between formally annulling the reassessment order and declining to recognise it as a legally sustainable foundation for the subsequent proceedings under section 263. The former would amount to granting direct appellate relief against the reassessment order. The latter is only an examination of the legality of the order actually under appeal, namely, the order passed under section 263. The relief sought by the assessee in the present appeals is of the latter nature.

83. Section 263 can be invoked only where the order passed by the Assessing Officer is both erroneous and prejudicial to the interests of the Revenue. These two conditions are cumulative. As held by the Hon’ble Supreme Court in Malabar Industrial Co. Ltd. v. CIT 243 ITR 83 (SC), if either condition is absent, recourse cannot be had to section 263(1).

84. In the present cases, the primary difficulty lies in the jurisdictional foundation of the orders sought to be revised. Approval by the specified authority under section 151(ii) was a condition precedent for the Assessing Officer to assume jurisdiction under sections 148A(d) and 148. Where compliance with that condition is not established, the resultant reassessment order cannot furnish a legally sustainable foundation for consequential revisionary proceedings.

85. This conclusion is supported by the decisions in Keshab Narayan Banerjee (supra), Badal Prakash Jindal(supra) and Shree Nilkanth Quarry Works LLP.(supra) These decisions proceed on the principle that where the foundational assessment or reassessment was not validly made, the consequential order under section 263 could not be sustained.

86. Alternatively, even if the reassessment orders are assumed, only for examining the requirements of section 263, to be “erroneous” on account of the jurisdictional defect, the second statutory condition of prejudice must still be independently established. Such prejudice must be capable of being lawfully remedied through the jurisdiction conferred by section 263.

87. Section 263 cannot substitute the approving authority prescribed under section 151(ii), validate an approval granted by an authority not shown to possess the requisite statutory competence, or confer reassessment jurisdiction retrospectively upon the Assessing Officer. Any further assessment pursuant to the directions of the learned PCIT would continue to derive its authority from the same jurisdictionally deficient initiation.

88. Consequently, the possibility that further enquiry may result in an addition cannot, in the circumstances of the present cases, constitute prejudice to the interests of the Revenue within the meaning of section 263. The alleged prejudice would depend upon continuation of the very reassessment jurisdiction which was not validly assumed at its inception.

89. We accordingly hold, primarily, that the reassessment orders did not furnish a legally sustainable foundation for the assumption of jurisdiction under section 263. In the alternative, even if those orders are regarded as erroneous, the second and cumulative requirement of prejudice to the interests of the Revenue, capable of lawful correction under section 263, has not been established.

90. The factual circumstances also explain why the assessee did not independently challenge the reassessment orders. Those orders accepted the returned income and did not create any immediate grievance requiring appellate redress. The adverse consequence arose only when the learned PCIT sought to use those orders as the foundation for further proceedings under section 263. The present appeals constituted the first effective occasion for the assessee to resist that collateral consequence.

91. The present case is, therefore, not one where the assessee seeks to reopen a concluded assessment on merits or obtain direct relief against the income determined therein. The reassessment orders are examined only to determine whether the learned PCIT could validly treat them as orders satisfying both the statutory conditions of error and prejudice and direct further assessment on their foundation.

92. To this limited extent, the decision in Soaltee Finance & Leasing Ltd. does not preclude consideration of the jurisdictional objection. At the same time, we accept that the operative relief in the present appeals must remain confined to the orders passed under section 263. No direct appellate relief can be granted against the reassessment orders dated 22.05.2023, which are not the subject matter of these appeals.

93. At this stage we also feel appropriate to take note of the other decisions relied upon by the assessee. In Keshab Narayan Banerjee(supra), the Hon’ble High Court held:

“Since, admittedly the service of such notices was a necessary prerequisite, a condition precedent for passing of the orders under section 147, we also have no hesitation in holding that such orders were bad in law, and, therefore, proceedings under section 263 admittedly originating from such orders could not be initiated against the appellants.” (para 19)

94. In Badal Prakash Jindal(supra), the Hon’ble High Court rejected an identical objection of the Revenue and held:

“Indeed, if the original re-assessment order itself was not validly passed, the subsequent revisional order by the PCIT was required to be held invalid.” (para 12)

95. More recently, the Hon’ble Gujarat High Court in Shree Nilkanth Quarry Works LLP(supra) upheld the decision of the Tribunal and observed:

“In view of settled legal position that in absence of notice under section 143(2) of the Act, there is no assessment order and therefore, question of revision under section 263 of the Act of the non-est order would not arise as held by the Tribunal.” (para 10)

96. The aforesaid decisions establish that the jurisdictional validity of the foundational assessment or reassessment proceedings may be examined in an appeal against a consequential order under section 263. Such examination is confined to determining whether the learned PCIT possessed a legally sustainable foundation for invoking section 263. It does not amount to entertaining a belated appeal against the reassessment order, nor does it authorise the Tribunal to grant direct appellate relief against an order which is not independently under appeal.

97. The learned DR relied upon R.N. Gosain(supra) . The relevant principle is:

“Law does not permit a person to both approbate and reprobate. This principle is based on the doctrine of election which postulates that no party can accept and reject the same instrument. “

98. The doctrine is inapplicable to the present controversy for more than one reason. First, the assessee has confined its arguments to the jurisdictional defect under section 151 and has not pressed the alternative grounds relating to adequacy of inquiry or adoption of a possible view by the Assessing Officer. There is, therefore, no surviving inconsistent plea requiring an election.

99. Secondly, the doctrine of approbation and reprobation is a species of estoppel. It cannot confer statutory jurisdiction upon an authority where the jurisdictional conditions prescribed by the Act have not been fulfilled. Participation in reassessment proceedings or failure to file a separate appeal cannot validate a notice issued without the approval mandated by section 151(ii). The decision in R.N. Gosain cannot override the settled principle that jurisdiction cannot be conferred by consent, waiver or acquiescence.

100. The learned DR relied upon Sun Engineering Works (P.) Ltd.(supra) to contend that Anumita Infrastructure Pvt. Ltd. and the other authorities should not be applied beyond the issues actually decided therein. The Hon’ble Supreme Court observed:

“A decision of this Court takes its colour from the questions involved in the case in which it is rendered and while applying the decision to a latter case, the Courts must carefully try to ascertain the true principle laid down by the decision of this Court and not to pick out words or sentences from the judgment, divorced from the context of the questions under consideration by this Court, to support their reasonings.” (para 37)

101. We respectfully apply the above principle. The decision in Anumita Infrastructure Pvt. Ltd. is relied upon for the proposition actually decided therein, namely, that a jurisdictional defect in the reassessment proceedings may be examined for determining whether the consequential order under section 263 can be sustained. We do not treat that decision as authorising the formal annulment of a reassessment order which is not independently under appeal. The distinct factual contention concerning the designation “CCIT (OSD)” has been independently examined from the approval document and the language of section 151(ii). The reliance placed upon Sun Engineering Works does not, therefore, advance the case of the Revenue.

102. In Shailesh Asalraj Jain(supra), the Coordinate Bench, after considering the sanction requirement under section 151, held:

“Respectfully following the binding judicial precedents and the reasoning adopted therein, we hold that sanction obtained from the PCIT, instead of the PCCIT/CCIT, is not in conformity with section 151(ii). Consequently, the notice issued under section 148 is invalid in law.” (para 6.3)

103. It further held:

“Once the very initiation of reassessment proceedings is held to be void for want of proper jurisdictional sanction, the consequential revisionary proceedings under section 263 cannot survive.” (para 6.4)

104. The ratio of the above decision directly supports the assessee insofar as the approval obtained from the Principal Commissioner under section 151(i) is concerned.

105. In Jignesh Mahesh Gohel(supra), the reassessment notice was held time-barred in the light of Rajeev Bansal, and the consequential order under section 263 was set aside. The precise jurisdictional defect in that case related to limitation rather than the rank of the sanctioning authority. The decision nevertheless supports the broader principle that a revisionary order cannot survive where the foundational reassessment is jurisdictionally invalid.

106. Section 263 empowers the Principal Commissioner to revise an order passed by the Assessing Officer only where such order is erroneous insofar as it is prejudicial to the interests of the Revenue. The statutory expression requires the concurrent existence of both conditions. An order may suffer from an error, including an error affecting the jurisdiction of the Assessing Officer, but the existence of such error does not, by itself, establish prejudice to the interests of the Revenue within the meaning of section 263.

107. In both assessment years, more than three years had elapsed from the end of the relevant assessment year when the respective orders under section 148A(d) were passed and the notices under section 148 were issued. Approval was, therefore, required from the specified authority contemplated under section 151(ii).

108. For A.Y. 2016-17, the approval was obtained from the Principal Commissioner under section 151(i). Such approval did not satisfy the requirement of section 151(ii).

109. For A.Y. 2017-18, the contemporaneous statutory record describes the approval as one obtained from the Principal Commissioner under section 151(i). Although the officer signing the approval was described as “CCIT (OSD) in the charge of Pr. Commissioner of Income-tax-4”, the Revenue has not established the statutory condition upon which a Chief Commissioner could exercise the power under section 151(ii). The subsequent departmental explanation cannot alter the capacity in which the approval was contemporaneously sought, granted and recorded.

110. The requirement of obtaining approval from the specified authority under section 151(ii) was not dispensed with either by the decision in Ashish Agarwal(supra), the provisions of TOLA or CBDT Instruction No.01 of 2022. The defect in the approval went to the jurisdiction of the Assessing Officer to proceed under sections 148A(d) and 148. The assessee’s participation in the reassessment proceedings and its failure to file independent appeals against the reassessment orders could not confer jurisdiction which was otherwise absent.

111. However, the reassessment orders dated 22.05.2023 are not the subject matter of the present appeals. We are, therefore, neither annulling those orders nor granting any direct appellate relief against them. Our consideration of the approval under section 151 is confined to determining whether those orders could furnish a legally sustainable foundation for the exercise of jurisdiction under section 263.

112. Applying the aforesaid principles, the approval required in both assessment years was an approval from the specified authority contemplated under section 151(ii), as that provision stood in July 2022.

113. For A.Y. 2016-17, the approval was obtained on 28.07.2022 from the Principal Commissioner under section 151(i). It did not satisfy the requirement of section 151(ii).

114. For A.Y. 2017-18, the contemporaneous record describes the approval as one obtained from the Principal Commissioner under section 151(i). Even if the officer signing the approval is regarded as holding the substantive rank of Chief Commissioner, the Revenue has not established the statutory condition upon which a Chief Commissioner could exercise the power under section 151(ii), as that provision then stood.

115. The defect went to the jurisdiction of the Assessing Officer to proceed under sections 148A(d) and 148. The learned PCIT could neither cure that defect through section 263 nor establish prejudice to the interests of the Revenue by directing further proceedings founded upon the same jurisdictionally deficient initiation.

116. We therefore hold that the reassessment orders could not furnish a legally sustainable foundation for the exercise of jurisdiction under section 263. Alternatively, even if they are regarded as erroneous, the cumulative requirement of prejudice to the interests of the Revenue has not been established.

117. Consequently, the orders dated 27.03.2026 passed by the learned PCIT under section 263 for A.Ys. 2016-17 and 2017-18 are quashed. Grounds 1 and 2 in both appeals are allowed.

118. We clarify that the reassessment orders dated 22.05.2023 are not the subject matter of the present appeals. Our examination of the approval under section 151 is confined to determining whether those orders could furnish a legally sustainable foundation for the exercise of jurisdiction under section 263. No direct appellate relief against, or formal annulment of, the reassessment orders is granted by this order.

119. Grounds 3 and 4 in both appeals were not pressed by the learned AR and are accordingly dismissed as not pressed. The general ground seeking leave to amend the grounds requires no separate adjudication.

120. In the result, both appeals filed by the assessee are allowed.

Reassessment Notice Issued Beyond Four Years Without Proof of Valid Sanction Under Section 151 Is Invalid

Ashwani Kumar — Tue, 06 Oct 2026 08:24:29 +0000

Reassessment Notice Issued Beyond Four Years Without Proof of Valid Sanction Under Section 151 Is Invalid

Issue

Whether a reassessment notice issued under Section 148 beyond four years from the end of the relevant assessment year is legally valid when the Revenue fails to establish that prior valid approval/sanction was obtained from the competent authority under Section 151.

Facts

Assessment Year: The case pertains to Assessment Year 2007-08.
Issuance of Notice: The Assessing Officer issued a reassessment notice under Section 148 after the expiry of four years from the end of the relevant assessment year.
Failure to Prove Sanction: The Revenue failed to produce or prove that valid approval/sanction under Section 151 was obtained from the specified authority prior to the issuance of the Section 148 notice for the year under consideration.

Decision

Mandatory Requirement Unfulfilled: Sanction under Section 151 is a mandatory statutory prerequisite before issuing a notice under Section 148 beyond the prescribed four-year period.
Notice Held Invalid: In the absence of proof showing valid approval from the designated authority under Section 151, the Section 148 notice lacked legal sanction.
Quashing of Reassessment: The impugned notice issued under Section 148 was declared invalid and quashed in favor of the assessee.

Key Takeaways

Strict Compliance of Section 151: Obtaining valid prior approval under Section 151 is a jurisdictional precondition; failure to comply renders the entire reassessment proceeding void ab initio.
Burden of Proof on Revenue: The onus lies strictly on the Income Tax Department to demonstrate and prove on record that valid sanction was obtained before issuing notice beyond four years.
Procedural Safeguard: Section 151 acts as a statutory check against arbitrary reopening of settled assessments after the lapse of four years.

IN THE ITAT HYDERABAD BENCH ‘B’

Nukarapu Surya Prakasa Rao

DCIT

VIJAY PAL RAO, Vice President
and MANJUNATHA G, Accountant Member

IT Appeal No. 1796 (HYD) of 2025
[Assessment year 2007-08]

SEPTEMBER 2, 2026

P Murali Mohan Rao, CA for the Appellant. Waseem UR Rehman, CIT-DR for the Respondent.

ORDER

Vijay Pal Rao, Vice President.-This appeal by the Assessee against the Order dated 28.08.2025 of Ld. CIT(A)-11, Hyderabad for the assessment year 2007-2008.

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

1) “The order of the CIT(A) passed u/ s 250 of the Act dated 28 08-2025 is erroneous both on facts and in law to the extent the order is prejudice to the interests of the appellant.

2) The Ld. CIT(A) erred in upholding the action of the AO without properly appreciating the facts and circumstances of the case and the legal precedents on the disputed issues, which is against the principles of natural justice.

3) (a) The Ld. CIT(A) erred in law and on facts in upholding the jurisdiction of the AO without considering the fact that the entire reassessment proceedings are void-ab-initio as the AO lacked territorial OR legal jurisdiction over the appellant, who is an individual assessee.

(b). The Ld. CIT(A) ought to have fairly appreciated that the assessee being individual, his case was never specifically notified to the DCIT Circle-3(2) and that therefore, the AO has no jurisdiction to initiate re-assessment proceedings.

4) The Ld. CIT(A) ought to have appreciated that Range-3 had erred in applying CBDT Notification No. 65/2010 dated 2807-2010 to confer jurisdiction, ignoring the fact that as on the date of issuance of notice u/s 148 of the Act, the Appellant, an individual, was neither a Managing Director nor Whole-Time Director of M/s. SPR Infrastructure (India) Limited.

5) The Ld. CIT(A) failed to appreciate the fact that the information from the survey (conducted on 20-07-2011) and the subsequent statements/inspectors report (dated 22-092011 & 25-07-2012 were already in the possession of the department well before issuance of notice u/s 148 of the Act dated 21-08-2012 and thus the re-opening without any fresh tangible material is invalid and liable to be quashed.

6) The Ld. CIT(A) grossly erred in law and on facts in holding that lands in Survey Nos. 664 & 721 of Nadergul Village was a capital asset u/ s 2(14) of the Act, ignoring the fact that the land was conclusively proven to be agricultural land, situated beyond 8 kms from the municipal limits.

7) (a) The Ld. CIT(A) erred in relying on the inconclusive report

of the Inspector, who himself expressed his inability to identify the lands and unjustly disregarded the certificate issued by Village Revenue Officer (VRO), the competent authority under land revenue laws, which explicitly certified that the distance is 12.5 kms and is well beyond from specified municipal limits.

(b) The Ld. CIT(A) ought to have relied upon VROs report being the custodian of records and revenue collecting authority on the lands within their revenue area and not on the inconclusive report of inspector and held that the land is not a capital asset and there is no capital gain tax on agriculture land transfer,

8) (a) The Ld. CIT(A) erred in upholding the application of

section 50C of the Act, without considering the legal position that the provisions of section 50C are applicable only to capital assets and the land in question is not a capital asset, the provisions of section 50C cannot be triggered.

(b) The Ld. CIT(A) ought to have fairly and judiciously consider that the agricultural land which is beyond 8 kms from the municipal limits is out of the ambit of capital assets that its transfer is not subject to tax under the head Capital Gains and that therefore there is no element of application of section 50C of the Act.

9) Without prejudice to the above objections, the Ld. CIT(A) ought to have appreciated the fact the AO failed to follow the mandatory procedure laid down u/s 50C(2) & (3) of the Act by not referring the valuation to the Departmental Valuation Officer (DVO) despite the Appellant contestation for application of the stamp duty value and thus this procedural flaw vitiates the entire addition.

10) The Ld. CIT(A) has erroneously upheld the addition despite AO not providing the appellant with a copy of Inspectors report OR a meaningful opportunity to cross-examine the inspector regarding the distance, thereby violating the principles of natural justice.

11) The Ld. CIT(A) ignored the appellant contention that the proceeds from the sale of the very same land were offered to tax and assessed in the hands of M/s. SPR Infrastructure (India) Ltd and taxing the same income in the hands of the Appellant amounts to impermissible double taxation.

12) The Ld. CIT(A) erred in confirming the addition of Rs.26,68,750/- u/s 69 as unexplained investment, ignoring the fact that the source of the investment was fully explained.

13) The Ld. CIT(A) failed to appreciate that the investment was made out of accumulated savings and an advance of Rs. 74,45,000 received from M/s SPR Infrastructure (India) Ltd. in the preceding financial year, which was available as capital with the appellant.

14) Appellant may, add OR alter OR amend OR modify OR substitute OR delete and/ OR rescind all OR any of the grounds of appeal at any time before OR at the time of hearing of the appeal.”

3. The assessee has also raised additional grounds which reads as under:

15) “As per the ratio laid down by the Hon’ble Supreme Court of India in the case of National Thermal Power Co. Ltd. v. CIT (1998) 229 ITR 383 (SC), the Hon’ble ITAT has jurisdiction to examine the question of law which has been taken before the Hon’ble ITAT for the first time though not taken before the first appellate authority.

16) The Ld. CIT(A) failed to consider that the AO has erred in issuing notice u/s 148 without according prior approval of specified authority as per section 151 of the Act, which is invalid.

17) The Ld. CIT(A) ought to have appreciated the fact that such an issuance of notice u/s 148 without proper approval is invalid and vitiates the subsequent assessment proceedings.

18) The Appellant may add or alter or amend or modify or substitute or delete and/ or rescind all or any of the grounds of appeal at any time before or at the time of appeal.”

4. The learned Authorised Representative of the Assessee has submitted that the issue raised by the assessee in the additional grounds is purely legal in nature and for adjudication of the same no fresh investigation of fact or evidence is required but the same can be adjudicated on the basis of the facts and material available on the assessment record on merits as held by the Hon’ble Supreme Court in the case of National Thermal Power Co. Ltd. v. CIT 229 ITR 383 (SC).

5. The learned DR objected to the admission of the additional grounds raised by the assessee at this stage and submitted that the assessee has not raised this issue either before the Assessing Officer in response to the show cause notice issued u/sec. 148A(b) of the Act nor before the learned CIT(A).

6. We have considered the rival submissions as well as relevant material on record. There is no dispute that the issues raised by the assessee in the additional grounds of appeal is purely legal in nature and the same can be adjudicated on the basis of the facts and material already available on record before the Assessing Officer. Though the assessee did not raise this issue before the Assessing Officer in response to show cause notice issued u/sec.148A(b) of the Act as well as before the learned CIT(A), however, there is no bar for raising the legal issue before the Tribunal if for adjudication of the issue does not require any verification and investigation of any fact or record as held by the Hon’ble Supreme Court in the case of NTPC (supra). Accordingly, we admit the additional ground raised by the assessee for hearing and adjudication on merits.

7. The learned Authorised Representative of the Assessee has submitted that the Assessing Officer has reopened the assessment by issuing notice u/sec.148 of the Act dated 21.08.2012 which is beyond 04 years from the end of the assessment year under consideration therefore, the Competent Authority to grant approval u/sec.151 of the Act is CCIT and therefore, in the absence of valid approval u/sec.151 the notice issued by the Assessing Officer u/sec.148 after the expiry of 04 years from the end of assessment year is not valid and liable to be quashed. The learned Authorised Representative of the Assessee submitted that for the year under consideration, the Assessing Officer has not taken prior approval u/sec.151 of the Act before issuing the notice u/sec.148 and therefore, the notice issued by the Assessing Officer is invalid and liable to be quashed. He has further submitted that for the assessment year 20062007 the learned CIT(A) vide order dated 04.09.2025 has quashed the notice issued by the Assessing Officer u/sec. 148 of the Act for want of valid approval u / sec. 151 of the Act. The learned Authorised Representative of the Assessee has thus submitted that in the absence of valid approval u/sec.151 of the Act, the notice issued by the Assessing Officer u/sec.148 of the Act after 04 years from the end of the assessment year under consideration is not sustainable and liable to be quashed.

8. On the other hand, the learned DR has submitted that the issue under consideration relates to the approval under section 151 for issuance of notice under section 148 of the Act for the assessment year 2007-08. The reassessment proceedings for the assessment year 2006-07 and assessment year 2007-08 arose from the same factual background, following the survey proceedings under section 133A, and were conducted substantially simultaneously. The assessment as well as the subsequent appellate proceedings for both years involved the same Assessing Officer, the same CIT(A) and the same authorised representative of the assessee. In both the aforesaid Assessment Years, approval under section 151 of the Income-tax Act was obtained prior to initiation of proceedings under section 148. While the assessment records for assessment year 2006-07 are available, the assessment records for assessment year 200708 are not readily available. Nevertheless, from the assessment records available for assessment year 2006-07 and the orders of the CIT(A) for assessment years 2006-07 and 2007-08, it is clearly evident that the approval under section 151 had been duly obtained for both the assessment years. The learned DR submitted that each assessment year has to be examined on the basis of its own statutory record. However, the contemporaneous conduct of the assessee and the connected proceedings for assessment year 2006-07 constitute relevant surrounding circumstances for appreciating the factual position regarding approval under section 151 for assessment year 2007-08. He submitted that in assessment year 2006-07, the assessee specifically raised an objection regarding approval under section 151 and challenged the competence of the authority stated to have granted such approval before the authorities below and therefore, the non-availability of the record cannot be views as no valid approval u/sec.151 of the Act.

8.1. The learned DR further submitted that the Assessing Officer has stated in the assessment order that the notice u/sec.148 of the Act was issued to the assessee with the approval of the Competent Authority which means the Competent Authority is applicable for the year under consideration. On the directions of the Bench, the learned DR has filed additional report contending, inter alia, that in response to the grounds raised by the assessee challenging the jurisdiction of the learned Assessing Officer in initiating reassessment proceedings u/sec.147/148 of the Act, the assessees have attempted to raise various technical objections on jurisdiction, validity of sanction and approval, and sufficiency of reasons recorded. He submitted that such objections are without merit and the legal position laid down by the Hon’ble Supreme Court as well as various High Courts clearly establishes that so long as the Assessing Officer has reason to believe, based on tangible material, that income has escaped assessment, the proceedings cannot be rendered invalid on basis of hyper-technical defects. In support of his contention, he has relied upon the following decisions:

Judgment of Hon’ble Supreme Court in the case of Raymond Woollen Mills Ltd. v. ITO [1999] 236 ITR 34 (SC);

ii.

Judgment of Hon’ble Supreme Court in the case of Yogendrakumar Gupta v. ITO (SC);

iii.

Judgment of Hon’ble Gujarat High Court in the case of Amit Polyprints (P.) Ltd. v. Dy. CIT (Gujarat);

iv.

Order of Hon’ble Supreme Court in the case of Home Finders Housing Ltd. v. ITO (SC);

Judgment of Hon’ble Delhi High Court in the case of Abhishek Jain v. ITO 405 ITR 1 (Delhi).;

vi.

Order of Hon’ble Supreme Court in the case of Venky Steels (P.) Ltd. v. CIT 475 ITR 148 (SC);

vii.

Judgment of Hon’ble High Court of Rajasthan in the case of Ankit Agrochem (P.) Ltd. v. Jt. CIT (Rajasthan);

viii.

Judgment of Hon’ble High Court of Delhi in the case of Sonia Goel v. ITO [IT Appeal No. 703 of 2017, dated 28-8-2018];

8.2. The learned DR accordingly submitted that once the Assessing Officer records reasons based on tangible material, and obtains sanction as per statute, the sufficiency or correctness of such material is not justiciable at the notice stage and as such reassessment proceedings under Section 148 cannot be struck down on hyper-technical jurisdictional pleas. He submitted that defects relating to nomenclature, description of assessee, or brevity of reasoning are curable and do not go to the root of jurisdiction. In support of his contention, he has relied upon the above Judgments of Hon’ble Supreme Court and various High Courts (supra). The learned DR, therefore, pleaded that the assessees’ objections on jurisdiction are devoid of merit and that the reassessment proceedings are valid in law and need to be upheld.

9. We have considered the rival submissions as well as relevant material on record. The Assessing Officer has reopened the assessment for the year under consideration by issuing notice u/sec.148 of the Act on 21.08.2012 which emanates from the assessment order as under:

“In view of assessee’s failure to admit the gain on sale of above properties in the return of income for the AY 2007-08, a notice u/s 148 was issued to the assessee on 21.08.2012 with the approval of competent authority. This notice was served on the assessee on 28.08.2012 in Central Prison, Hyderabad in the presence of Jailor. Reasons for reopening the assessment were communicated to the assessee vide this office letter dated 31.10.2012.”

9.1. Thus, the notice was issued after expiry of 04 years from the end of the assessment year under consideration. Though the Assessing Officer has stated in the order that the notice was issued with the approval of the Competent Authority however, the Assessing Officer has not stated who is the Competent Authority for taking the approval u/sec.151 of the Act. The provisions of sec.151 prescribes the Competent Authority for granting approval quoted as under:

“Sanction for issue of notice

151. (1) No notice shall be issued under section 148 by an Assessing Officer, after the expiry of a period of four years from the end of the relevant assessment year, unless the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner is satisfied, on the reasons recorded by the Assessing Officer, that it is a fit case for the issue of such notice.

(2) In a case other than, a case falling under sub-section (1), no notice shall be issued under section 148 by an Assessing Officer, who is below the rank of Joint Commissioner, unless the Joint Commissioner is satisfied, on the reasons recorded by such Assessing Officer, that it is a fit case for the issue of such notice.

(3) For the purposes of sub-section (1) and sub-section (2), the Principal Chief Commissioner or Chief Commissioner or the Principal Commissioner or Commissioner or the Joint Commissioner, as the case may be, being satisfied on the reasons recorded by the Assessing Officer about fitness of a case for the issue of notice under section 148, need not issue such notice himself. “

9.2. Thus, the Assessing Officer was required to take prior approval of the Competent Authority being ACIT before issuing notice u/sec.148 of the Act. Thought he learned DR has forcefully contended that once the Assessing Officer has taken approval u/sec.151 of the Act for the assessment year 2006-2007 from ACIT who is Competent Authority for the year under consideration however, despite several opportunities given by the Tribunal to the Department no record has been produced before the Tribunal to show that the Assessing Officer has actually taken approval u/sec.151 of the Act from the Competent Authority prior to issuing notice u/sec.148 of the Act for the year under consideration. In absence of any material to show that the approval was taken by the Assessing Officer u/sec.151 of the Act, the mere mention in the assessment order is not sufficient to reach to the conclusion that there was a valid approval u/sec.151 of the Act for the year under consideration. The approval taken by the Assessing Officer for the assessment year 2006-2007 would not be sufficient to hold that the approval was also taken by the Assessing Officer u/sec.151 for the year under consideration and particularly when the notice issued by the Assessing Officer u/sec.148 for the assessment year 2006-2007 was quashed by the learned CIT(A) vide order dated 04.09.2025 then, it becomes necessary for the Revenue to produce the relevant record and particularly, the approval taken by the Assessing Officer u/sec.151 of the Act prior to issuing the notice u/sec.148 of the Act. The submissions of the learned DR are all stressing the presumption and inference and not establishing the fact of taking the approval u/sec.151 of the Act by the Assessing Officer for the year under consideration. Once the assessee has questioned the validity of the notice issued u/sec.148 for want of valid approval u/sec.151 of the Act then, the burden on the Assessing Officer to produce the record and prove that valid approval was taken u/sec.151 of the Act prior to issuing the notice u/sec.148 for the year under consideration. The matter was taken up for hearing on 09.07.2026 and after hearing the arguments of both the parties the hearing was concluded and it was kept for orders. The learned DR was allowed the time to file the relevant record in respect of the approval taken u/sec.151 of the Act however, no such record was filed by the learned DR and consequently, the matter was fixed for clarification on 31.07.2026 vide order sheet dated 27.07.2026 on the point – “Whether valid approval u/sec.151 of the Act was taken by the Assessing Officer or not which read as under:

“It transpires from record that the Department has not filed the approval u/s 151 prior to issue notice u/s 148 of the Act despite the time to file the same was allowed. Accordingly the matter is put up for clarification on the existence of a valid approval u/s 151 and fix for clarification on 31/07/2026. Parties be informed.”

9.3. On 31.07.2026 the matter was heard and the learned DR has expressed his inability to produce the relevant record and submitted that the record is not traceable/available. Thus, despite the repeated opportunities given to the department no record is produced before the Tribunal to show that the Assessing Officer has actually obtained approval u/sec.151 of the Act before issuing the notice u/sec.148 of the Act for the year under consideration. In the absence of any material to show the approval u/sec.151 it cannot be presumed that the Assessing Officer has taken valid approval for using notice u/sec. 148 of the act for the year under consideration as Assessing Officer took the approval u/sec.151 for the assessment year 2006-2007. Accordingly, in the facts and circumstances of the case, when the department has failed to brought on record any material to show that the Assessing Officer actually taken a valid approval u/sec.151 of the Act prior to issuing the notice u/sec.148 of the Act for the year under consideration, the notice issued by the Assessing Officer is not valid and liable to be quashed. We Order accordingly.

10. Since, we have quashed the notice issued u/sec. 148 of the Act of the Assessing Officer it vitiates the reassessment order. Therefore, we do not propose to adjudicate the other grounds raised by the assessee as it becomes infructuous.

11. In the result, appeal of the Assessee is allowed.

Reassessment Notice Based on Mere Reason to Suspect Without Definite Escapement Belief Is Invalid and Quashed

Ashwani Kumar — Tue, 06 Oct 2026 08:03:41 +0000

Reassessment Notice Based on Mere Reason to Suspect Without Definite Escapement Belief Is Invalid and Quashed

Issue

Whether a notice issued under Section 148 for reassessment under Section 147 is legally sustainable when the reasons recorded by the Assessing Officer merely indicate a need for verification or lack of supporting details, amounting to a “reason to suspect” rather than a valid “reason to believe” that income has escaped assessment.

Facts

Assessee & Assessment Year: The assessee, an individual, filed his return of income for Assessment Year 1998-99.
Initial Processing: The return of income was initially processed under Section 143(1) of the Income-tax Act, 1961.
Disclosure of Details: The assessee had duly furnished his Profit and Loss Account and Balance Sheet along with the return of income.
Issuance of Reassessment Notice: The Assessing Officer (AO) subsequently issued a notice under Section 148 to reopen the assessment.
Basis Recorded by AO: The reasons recorded for reopening stated that certain claims—namely long-term capital loss, short-term capital loss, repair & maintenance, and travelling expenses—required verification or lacked supporting particulars on record.
Reassessment Completed: The AO proceeded to complete the reassessment under Section 143(3) read with Section 147, making additions to the total income.

Decision

Lack of Jurisdiction: The reasons recorded by the Assessing Officer did not disclose any tangible material or concrete “reason to believe” that income chargeable to tax had escaped assessment.
Suspicions vs. Belief: The observations recorded by the AO merely indicated a desire to verify claims, which at highest amounted to a “reason to suspect,” falling short of the statutory mandate required under Section 147.
Quashing of Notice: Since the mandatory jurisdictional conditions prescribed under Sections 147 and 148 were not satisfied, the notice issued under Section 148 and the consequential reassessment proceedings were held to be invalid and were quashed in favor of the assessee.

Key Takeaways

“Reason to Believe” Is Paramount: A reassessment under Section 147 cannot be initiated on vague grounds, routine checks, or a desire to conduct a fishing query/verification.
Reason to Suspect $\neq$ Reason to Believe: A mere suspicion or need for further inquiry or verification of claims does not meet the threshold of “reason to believe” that income escaped assessment.
Furnishing Primary Details Prevents Arbitrary Reopening: When full disclosures such as the Profit & Loss Account and Balance Sheet are on record, reopening without specific material indicating tax escapement is jurisdictional error.
Invalid Notice Vitiates Reassessment: If the Section 148 notice fails to satisfy the prerequisite conditions of Section 147 at the initial stage, all subsequent reassessment orders under Section 143(3)/147 become void ab initio.

IN THE ITAT DELHI BENCH ‘SMC’

Praveen Khurana

ACIT

S. Rifaur Rahman, Accountant Member

IT Appeal No. 5414 (Delhi) of 2026
[Assessment year 1998-99]

SEPTEMBER 23, 2026

Kamlesh Chaurasiya, CA for the Appellant. Manoj Kumar, Sr. DR for the Respondent.

ORDER

1. This appeal is filed by the assessee against the order of ld. ADDL/ JCIT (A)-1, Mumbai [“Ld. CIT(A)”, for short] dated 27.03.2026 for the Assessment Year 1998-99 raising following grounds of appeal :-

“1. That, on the facts and in the circumstances of the case, the Ld. CIT(A) has erred both in law and on facts in upholding the validity of the notice issued under Section 148 of the Income-tax Act, 1961. The said notice is bad in law as it has been issued without proper recording and furnishing of reasons, thereby failing to satisfy the mandatory conditions precedent for assumption of jurisdiction under Section 147. Accordingly, the impugned notice is liable to be quashed as void ab initio.

2. That, on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in confirming the additions made by the Ld. AO without appreciating that no proper opportunity of being heard or rebuttal was afforded to the appellant. The failure to provide such opportunity is in gross violation of the principles of natural justice and are therefore unlawful, and liable to be deleted.

3. That, on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in confirming the addition made by the Learned Assessing Officer on account of disallowance of long-term capital loss amounting to Rs.5,45,105/-. The said disallowance is contrary to the facts on record and settled principles of law. and is therefore liable to be deleted.

4. That, on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in confirming the addition made by the Learned Assessing Officer on account of disallowance of short-term capital loss amounting to Rs.5,20,825/-. The said disallowance is arbitrary, unjustified, and contrary to law, and is therefore liable to be deleted.

5. That, on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in confirming the addition made by the Learned Assessing Officer on account of disallowance of travelling expenses incurred for travel to the USA amounting to Rs.1,50,000/-. The said disallowance is without proper appreciation of facts and evidence on record, and is therefore liable to be deleted.”

2. Brief facts of the case are, the assessee duly filed his return of income for the Assessment Year 1998-99 on 31.03.1998, declaring a Gross Total Income of Rs.22,06,990/- and a total tax liability of Rs.6,37,070. Thereafter, the Income Tax Department initiated reassessment proceedings by issuing a notice under Section 148 of the Income-tax Act, 1961 (for short ‘the Act’) dated 11.01.2001. In response thereto, the assessee duly complied with all the notices issued during the reassessment proceedings and furnished the requisite explanations along with the supporting documents as called for by the Assessing Officer. Upon completion of the reassessment proceedings, the AO passed an assessment order under Sections 143(3) read with 147 of the Act for the Assessment Year 1998-99, making following six (6) additions aggregating to Rs.14,89,612/- to the returned income of the assessee :-

S. No.	Additions	Amounts
1.	Long Term Capital loss Disallowed	5,45,105/-
2.	Short Term Capital loss Disallowed	5,20,825/-
3.	Repair & Maintenance expenses disallowed	1,31,330/-
4.	Travelling expenses disallowed	1,12,550/-
5.	Telephone expenses disallowed	29,802/-
6.	On account of Travelling expense to USA	1,50,000/-

3. Aggrieved with the above order, assessee preferred an appeal before the ld. CIT (A) challenging the additions made by the Assessing Officer. Although the appeal was instituted on 24.08.2002, the learned CIT (A) passed the impugned appellate order only on 27.03.2026, resulting in an inordinate delay of nearly 24 years in the disposal of the first appeal. By the said order, the ld. CIT (A) granted partial relief to the assessee while sustaining Addition Nos. 1, 2 and 6, as set out in the table above, made by the Assessing Officer.

4. Aggrieved with the aforesaid order, assessee filed an appeal before us.

5. At the time of hearing, ld. AR of the assessee submitted as under :-

At the outset, it is respectfully submitted that the jurisdiction to reopen an assessment under Section 147 of the Income-tax Act, 1961, can be assumed only upon fulfilment of the statutory precondition that the Ld. AO has “reason to believe” that any income chargeable to tax has escaped assessment.

During the course of the hearing, Appellant has raised the fundamental question of law as set out in Ground No. 1 of the present appeal. It is respectfully submitted that the reasons recorded by the Ld. AO do not disclose any “reason to believe” that income chargeable to tax had escaped assessment. The reasons merely record certain observations requiring verification, which, at the highest, amount to a “reason to suspect” and not a “reason to believe” as mandated under Section 147 of the Act.

The reasons recorded by the Ld. AO for initiating proceedings under Section 148 as mentioned in para 2 of the assessment order. Subsequently, a bare reading of the para 2 of the assessment order, demonstrates that the Ld. AO has nowhere recorded a belief that any income chargeable to tax had escaped assessment. The reasons merely indicate that certain claims required verification or that certain supporting particulars were not available on record. Such observations do not satisfy the statutory requirement of formation of a bona fide belief regarding escapement of income. Additionally, the Appellant had duly furnished its Profit and Loss Account and Balance Sheet along with the return of income. If the Ld. Assessing Officer had found any material in the said documents indicating escapement of income, the proper course available under the Act was to issue a notice under Section 143(2) of the Income-tax Act and undertake a scrutiny assessment. However, no such notice was issued, which clearly demonstrates that the Ld. Assessing Officer had not formed any opinion, much less a bona fide “reason to believe”, that any income chargeable to tax had escaped assessment. Thereafter, the Ld. Assessing Officer initiated reassessment proceedings by issuing a notice under Section 148 of the Act without first forming the statutory “reason to believe” as mandated under Section 147(1) of the Act. Such assumption of jurisdiction is contrary to the express requirements of Section 147 of the act.

The Ld. CIT(A), while deciding the issue in paragraphs 8.2 to 8.5 of the impugned order, observed that:

the reasons were based upon the return and accompanying documents filed by the Appellant;

since the original return had only been processed under Section 143(1), no opinion had earlier been formed by the AO;

the Explanation to Section 147 provides that in cases processed u/s 143(1), the AO’s noticing of excessive loss or understatement of income is deemed to be a case of escaped income. In the present case, the reasons recorded specifically point to the potential excessiveness of the claim for capital loss and expenses; Accordingly, Ground No. 1 was dismissed.

It is respectfully submitted that the expression “reason to believe” is fundamentally different from “reason to suspect.” However strong a suspicion, it cannot confer jurisdiction under Section 147. The Ld. AO must possess tangible material leading to the formation of a bona fide belief that income chargeable to tax has escaped assessment. Consequently, the findings recorded by the Ld. CIT(A) are contrary to the settled position of law.

In support of the aforesaid proposition, reliance is placed upon the following judicial precedents:

Sheo Nath Singh v. Appellate Asstt. CIT [1971] 82 ITR 147 (SC); and

Signature Hotels (P.) Ltd. v. ITO [2011] 338 ITR 51 (Delhi).

Submission to Ground No. 3: Disallowance of Long-Term Capital Loss- The Ld. CIT(A) erred in disallowing the Long-Term Capital Loss amounting to Rs. 5,45,105/-. The complete documentary evidence in support of the claim has been placed on record and forms part of the Paper Book at Pages 167 to 184.

Submission to Ground No. 4: Disallowance of Short-Term Capital Loss- The learned Assessing Officer further erred in disallowing the Short-Term Capital Loss amounting to Rs. 5,20,825/-. The relevant documentary evidence supporting the claim has also been filed in the Paper Book at Pages 93 to 166.

Submission to Ground No. 6: Disallowance of Travelling Expenses-The Appellant, vide letter dated 26.03.2002, specifically informed the Ld. AO that the entire expenditure relating to the Appellant’s travel to the United States of America had been borne by his brother, who was residing in the U.S.A.”

6. On the other hand, ld. DR of the Revenue relied on the findings of the lower authorities.

7. Considered the rival submissions and material placed on record. At the time of hearing, ld. AR specifically argued legal issue raised vide Ground No.1 regarding notice issued u/s 148 issued without ‘reason to believe’. I observed that the jurisdiction to reopen an assessment under Section 147 of the Act can be assumed only upon fulfillment of the statutory pre-condition that the AO has “reason to believe” that any income chargeable to tax has escaped assessment. I further observed that the reasons recorded by the AO do not disclose any “reason to believe” that income chargeable to tax had escaped assessment. The reasons merely recorded certain observations requiring verification, which, at the highest, amount to a “reason to suspect” and not a “reason to believe” as mandated under Section 147 of the Act. I further observed from the assessment order that AO has nowhere recorded a belief that any income chargeable to tax had escaped assessment. The reasons merely indicate that certain claims required verification or that certain supporting particulars were not available on record. I observed that such observations do not satisfy the statutory requirement of formation of a bona fide belief regarding escapement of income. Further, I observed that the assessee had duly furnished its Profit and Loss Account and Balance Sheet along with the return of income and if the Assessing Officer had found any material in the said documents indicating escapement of income, the proper course available under the Act was to issue a notice under Section 143(2) of the Income-tax Act and undertake a scrutiny assessment or other method available at his disposal. However, no such notice was issued, which clearly demonstrates that the Assessing Officer had not formed any opinion, much less a bona fide “reason to believe”, that any income chargeable to tax had escaped assessment. Thereafter, the Assessing Officer initiated reassessment proceedings by issuing a notice under Section 148 of the Act without first forming the statutory “reason to believe” as mandated under Section 147(1) of the Act. Such assumption of jurisdiction is contrary to the express requirements of Section 147 of the Act.

8. I observed that the expression “reason to believe” is fundamentally different from “reason to suspect.” However strong a suspicion, it cannot confer jurisdiction under Section 147. The AO must possess tangible material leading to the formation of a bona fide belief that income chargeable to tax has escaped assessment. I observed that the findings of ld. CIT(A) are contrary to the settled position of law.

9. In support of the above proposition, I find force from the judgment of the Hon’ble Supreme Court in Sheo Nath Singh(supra), wherein it was held that “reason to believe” postulates belief founded on relevant material and not mere suspicion, gossip or rumour.

10. Further, in the case of Signature Hotels (P) Ltd. (supra) of the Hon’ble Delhi High Court, it was held as under:-

“For the A.Y. 2003-04, the return of income of the assessee company was accepted u/s.143(1) of the Income-tax Act, 1961 and was not selected for scrutiny. Subsequently, the Assessing Officer issued notice u/s.148 which was objected by the assessee. The Assessing Officer rejected the objections. The assessee company filed writ petition and challenged the notice and the order on objections.

The Delhi High Court allowed the writ petition and held as under:

“(i) Section 147 of the Income-tax Act, 1961, is wide but not plenary. The Assessing Officer must have ‘reason to believe’ that income chargeable to tax has escaped assessment. This is mandatory and the ‘reason to believe’ are required to be recorded in writing by the Assessing Officer.

(ii) A notice u/s.148 can be quashed if the ‘belief’ is not bona fide, or one based on vague, irrelevant and non-specific information. The basis of the belief should be discernible from the material on record, which was available with the Assessing Officer, when he recorded the reasons. There should be a link between the reasons and the evidence/material available with the Assessing Officer.

(iii) The reassessment proceedings were initiated on the basis of information received from the Director of Income-tax (Investigation) that the petitioner had introduced money amounting to Rs.5 lakhs during F.Y. 2002-03 as stated in the annexure. According to the information, the amount received from a company, S, was nothing but an accommodation entry and the assessee was the beneficiary. The reasons did not satisfy the requirements of section 147 of the Act. There was no reference to any document or statement, except the annexure. The annexure could not be regarded as a material or evidence that prima facie showed or established nexus or link which disclosed escapement of income. The annexure was not a pointer and did not indicate escapement of income.

(iv) Further, the Assessing Officer did not apply his own mind to the information and examine the basis and material of the information. There was no dispute that the company, S, had a paid-up capital of Rs.90 lakhs and was incorporated on January 4, 1989, and was also allotted a permanent account number in September 2001. Thus, it could not be held to be a fictitious person. The reassessment proceedings were not valid and were liable to the quashed.”

11. Respectfully following the aforesaid decisions, I am of the considered view that the mandatory jurisdictional conditions prescribed under Sections 147 and 148 of the Act were not satisfied in the present case. Accordingly, I quash the impugned notice issued under Section 148 which is without jurisdiction, contrary to the statutory mandate. Hence, I quash the assessment and allow the legal Ground No.1

12. Since I have quashed the assessment on the legal issue, the other grounds raised are not adjudicated at this stage and the same are kept open.

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

Transfer Pricing Adjustment on Same Terms CCD Interest Unustified; Section 94B Recomputation Remanded

Ashwani Kumar — Tue, 06 Oct 2026 07:56:18 +0000

Transfer Pricing Adjustment on Same Terms CCD Interest Unustified; Section 94B Recomputation Remanded

Issue

Whether TP adjustment treating ALP of interest on CCDs as Nil is sustainable when issued to AE and non-AE on identical terms.
Whether the AO should re-verify and compute disallowance under Section 94B based on the assessee’s revised working.
Whether brought-forward business losses should be allowed set-off after factual verification by the AO.

Facts

Transfer Pricing Issue: The assessee, a real estate developer, issued Compulsorily Convertible Debentures (CCDs) at 15% p.a. to its foreign Associated Enterprise (AE) and an unrelated entity (HDFC-managed trust) under the same Debenture Subscription Agreement (DSA).
The assessee benchmarked the 15% interest using the internal comparable (HDFC trust).
The TPO recharacterized the CCDs as equity and determined the Arm’s Length Price (ALP) of the interest as Nil.
In the immediately preceding assessment year, the Tribunal had accepted this internal comparable based on substantially identical contractual terms.
Section 94B Issue: The assessee paid interest of ₹20.82 crores on AE CCDs and originally made a suo motu disallowance of ₹13.14 crores under Section 94B.
Claiming an inadvertent error in calculation, the assessee submitted a revised working before the authorities for correct recomputation of Section 94B disallowance.
Set-off of Losses: The assessee claimed set-off of brought-forward business loss for AY 2018-19, which required factual verification of availability and compliance with appellate orders.

Decision

Issue I (In favor of Assessee): Yes. Since the terms of the underlying DSA remained unchanged from the preceding year and no material shift was established by the Revenue, the tribunal’s precedent was followed. The TP adjustment making the ALP of interest Nil was deleted.
Issue II (Matter Remanded): Yes. The matter was remanded to the AO with directions to verify the revised computation and correctly determine the Section 94B disallowance in accordance with the law.
Issue III (Matter Remanded): Yes. The set-off of brought-forward business loss was remanded to the AO to verify the eligible quantum and give effect to relevant appellate orders.

Key Takeaways

Internal CUP Rules Superior: An internal comparable transaction under the same agreement with an independent party on identical terms is preferred over external benchmarks or arbitrary recharacterization.
No Arbitrary Recharacterization: TPOs cannot recharacterize debt instruments (CCDs) as equity solely to reduce ALP to Nil when genuine third-party transactions support the debt terms.
Right to Correct Tax Computations: Inadvertent errors in statutory disallowances (Section 94B) can be rectified upon remand if verified through true underlying figures.

IN THE ITAT MUMBAI BENCH ‘K’

Bellissimo Healthy Construction and Developers (P.) Ltd.

ACIT

ANIKESH BANERJEE, Judicial Member
and Ms. Ratna Dasgupta, Accountant Member

IT Appeal No. 8027 (Mum) of 2025
[Assessment year 2018-19]

SEPTEMBER 17, 2026

Niraj Sheth for the Appellant. Ajay Uke, Sr. AR for the Respondent.

ORDER

Anikesh Banerjee, Judicial Member. – The instant appeal is preferred by the assessee against the order of the Ld. Assistant Commissioner of Income Tax, CC-7(3), Mumbai [for brevity, the “Ld. AO”], order passed u/s 144C(13) r.w.s. 147 of the Income Tax Act, 1961 [for brevity, the “Act”], for Assessment Year 2018-19, date of order 30/09/2025. The impugned order emanated by pursuing the order of the Ld. CIT (DRP-1), Mumbai-1 [for brevity, the “Ld. DRP”] order passed u/s 144C(5) of the Act date of order 11/09/2025

2. The brief facts of the case are that the assessee is engaged in the business of construction and development of real estate projects. For A.Y. 2018-19, the assessee had issued 13,87,85,714 Compulsorily Convertible Debentures (“CCDs”) of Rs.10/- each to its Associated Enterprise (“AE”), Russard Holdings Ltd. (“RHL”), under the Debenture Subscription Agreement (“DSA”) dated 16.04.2008, carrying interest @ 15% per annum. Under the same DSA, 62,14,286 CCDs of Rs.10/- each were also subscribed by HDFC Venture Trustee Company Limited on behalf of HDFC Investment Trust (“HDFC”), an unrelated third party, on substantially identical terms. The funds so raised were utilised for acquisition, construction and development of the real estate projects.

3. The assessee had reported interest on CCDs in Form No. 3CEB at Rs.23,99,98,959/-. During the transfer-pricing proceedings, the assessee explained that the said amount had been inadvertently reported and that the actual interest pertaining to RHL for the year was Rs.20,81,78,571/-. The assessee benchmarked the transaction by applying the internal comparable, namely, the CCDs subscribed by HDFC at the same rate of 15%. The Ld. TPO, however, recharacterised the CCDs as equity and determined the ALP of the interest at Nil, resulting in a transfer-pricing adjustment of Rs.23,99,98,959/-. Since the assessee had already made a suo motu disallowance of Rs.13,14,31,658/- u/s 94B of the Act, the balance amount of Rs.10,85,67,301/-was ultimately added to the income. The Ld. DRP upheld the action of the Ld. TPO/AO. Being aggrieved, the assessee is in appeal before us.

4. The Ld. AR argued and has filed a paper book comprising pages 1 to 189, which has been placed on record. The Ld. AR submitted that the controversy relating to benchmarking of interest on the very same CCDs is squarely covered by the order of the Coordinate Bench in the assessee’s own case, Bellissimo Healthy Constructions and Developers (P). Ltd. v. Dy. CIT [IT Appeal No. 2255 (Mum) of 2022, dated 28-3-2023] A.Y. 2017-18.

The Ld. AR contended that there is no material change in the underlying transaction during the year under consideration. The CCDs held by the AE as well as the unrelated HDFC investor arose from the same DSA dated 16.04.2008. The relevant contractual conditions, interest rate of 15%, tenure and other material features were identical. Thus, the transaction with HDFC constituted a direct internal comparable and could not have been disregarded merely because the volume of CCDs subscribed by the AE was higher.

5. The Ld. AR further submitted that in A.Y. 2017-18, the Coordinate Bench examined this very internal comparable and held that internal comparables ordinarily deserve preference over external comparables because their quality and reliability are higher. The Coordinate Bench further observed that the difference in volume did not adversely affect the assessee’s benchmarking because both the AE and non-AE were paid interest at the same rate notwithstanding the AE having made a substantially larger investment.

6. It was further argued that the Ld. TPO could not disregard the actual character of the transaction and determine the ALP at Nil merely by treating the CCDs as equity. The assessee relied upon the decision in its own case wherein the Coordinate Bench, after examining the DSA and the nature of the CCDs, ultimately directed the Ld. AO/TPO to delete the TP adjustment and accept the interest rate actually paid @ 15% as being at arm’s length.

7. The Ld. AR further submitted that the actual interest pertaining to RHL during the relevant year was Rs.20,81,78,571/- and not Rs.23,99,98,959/- as inadvertently reported in Form No. 3CEB. Regarding section 94B, the Ld. AR submitted that the assessee had inadvertently computed the disallowance at Rs.13,14,31,658/- in the return. A revised working was furnished before the Ld. AO, according to which the correct disallowance u/s 94B(1) works out to Rs.4,89,57,804/-. The revised computation was stated to have been filed before the Ld. AO at APB pages 180 to 189.

8. As regards the brought-forward business loss of Rs.1,65,82,611/-, the Ld. AR submitted that the corresponding issue arising from the original assessment had subsequently been decided by the Ld. CIT(A) with a direction to the Ld. AO to allow the set-off after due verification.

9. The Ld. DR relied upon the orders of the revenue authorities and supported the approach adopted by the Ld. TPO and the Ld. DRP. It was contended that the CCDs carry an inherent and compulsory conversion feature and ultimately result in equity ownership; therefore, the Ld. TPO was justified in examining their true character and determining the ALP accordingly.

10. The Ld. DR further submitted that the transfer-pricing analysis has to be undertaken independently for each assessment year and the order for A.Y. 2017-18 cannot automatically govern the assessment for the year under consideration. It was accordingly contended that the adjustment made by the Ld. AO/TPO and sustained by the Ld. DRP does not call for interference.

11. We have heard the rival submissions and perused the material available on record, including the paper book filed by the assessee and the order of the Coordinate Bench in the assessee’s own case for the immediately preceding assessment year.

Ground No. 1 — Validity of Reassessment

12. At the time of hearing, the assessee has sought adjudication of the appeal on merits and has requested that the question concerning validity of the reassessment proceedings be kept open. The written submissions also specifically record this request.

Accordingly, Ground No. 1 is treated as academic at this stage and is kept open without expressing any view on merits.

Ground No. 2 — Transfer Pricing Adjustment on Interest on CCDs

13. The principal controversy is whether the Ld. TPO was justified in disregarding the assessee’s benchmarking and recharacterising the CCDs as equity so as to determine the ALP of interest at Nil. We find that the issue arising from the same DSA dated 16.04.2008 and the same CCDs was considered by the Coordinate Bench in the assessee’s own case for A.Y. 201718 in Bellissimo Healthy Constructions and Developers (P). Ltd. (supra). The Coordinate Bench specifically observed that an internal comparable is ordinarily preferable to an external comparable and found that the internal comparable selected by the assessee possessed similarity of contractual terms. It further held that the external comparables selected by the Ld. TPO were functionally dissimilar. Most importantly, the Coordinate Bench concluded as under:

“024. Thus, we allow ground number 1 of the appeal of the assessee and direct the learned AO/TPO to delete the arm’s-length price adjustment on account of interest paid to AE on compulsorily convertible debentures considering the interest rate actually paid at the rate of 15% at arm’s-length.”

14. The underlying DSA and the material terms of the CCDs remain the same for the year under consideration. Nothing has been brought before us to establish any material change in the relevant contractual terms so as to distinguish the decision of the Coordinate Bench for the immediately preceding assessment year.

Accordingly, respectfully following the decision of the Coordinate Bench in the assessee’s own case in ITA No.2255/Mum/2022 (supra), the transfer-pricing adjustment made by treating the ALP of interest on CCDs as Nil cannot be sustained. The interest rate of 15% on the CCDs is to be considered at arm’s length in terms of the aforesaid Coordinate Bench decision.

Accordingly, Ground No. 2 is allowed.

Ground No. 3 — Alternate Ground u/s. 36(1)(iii) and 37(1)

15. Ground No. 3 is an alternate ground concerning the allowability of interest expenditure u/s. 36(1)(iii) and 37(1) of the Act. The assessee itself has raised this contention as an alternative to its principal challenge to the TP adjustment.

In view of our finding allowing Ground No. 2, Ground No. 3 being alternate in nature does not require separate adjudication.

Ground No. 4 — Disallowance u/s 94B

16. The assessee contends that while filing the return, the disallowance u/s 94B was inadvertently computed at Rs.13,14,31,658/-. The revised computation furnished before the Ld. AO works out the disallowance at Rs.4,89,57,804/-, based upon EBITDA of Rs.53,07,35,889/- and interest pertaining to the foreign AE of Rs.20,81,78,571/-. Since this issue involves verification of the revised computation and the underlying figures, we direct the Ld. AO to verify the revised computation furnished by the assessee and determine the disallowance u/s 94B strictly in accordance with law after considering the correct amount of interest pertaining to the AE. The assessee is directed to furnish all necessary details and supporting documents before the Ld. AO.

Subject to the aforesaid verification and direction, Ground No. 4 is allowed.

Ground No. 5 — Set-off of Brought-forward Business Loss

17. The assessee seeks set-off of brought-forward business loss amounting to Rs.1,65,82,611/-. The material placed before us indicates that the corresponding claim in the proceedings arising from the original assessment has been allowed by the Ld. CIT(A), subject to verification by the Ld. AO. Considering the factual verification required, Ground No. 5 is set aside to the file of the Ld. AO with a direction to verify the quantum and availability of the brought-forward business loss and allow the eligible set-off in accordance with law, while also giving effect to the relevant appellate order, if applicable. Needless to say, the assessee shall furnish the necessary particulars before the Ld. AO.

Accordingly, Ground No. 5 is allowed for statistical purposes.

Ground No. 6 — Penalty u/s 270A

18. Ground No. 6 challenges the initiation of penalty proceedings u/s 270A of the Act. At the present stage, the ground is premature and does not call for adjudication.

Accordingly, Ground No. 6 is dismissed as premature.

Ground No. 7 — General

19. Ground No. 7 is general in nature and requires no separate adjudication.

20. In the result, the assessee’s appeal bearing ITA No. 8027/Mum/2025 is partly allowed for statistical purposes.