Approval from Wrong Authority Invalidates Reassessment: Pune ITAT Quashes Section 148 Notice in Dahiwalkar Case
Overview of the Ruling
The Pune Bench of the Income Tax Appellate Tribunal (ITAT) delivered a significant ruling in Dharmaraj Babanrao Dahiwalkar Vs ITO (ITAT Pune), holding that a reassessment notice issued under Section 148 of the Income Tax Act, 1961 was legally void because the Assessing Officer secured prior approval from the Principal Commissioner of Income Tax (PCIT) instead of the Principal Chief Commissioner of Income Tax (PCCIT) — the authority specifically mandated under Section 151(ii) when reassessment is initiated beyond three years from the end of the relevant Assessment Year. The Tribunal quashed the entire reassessment proceedings for Assessment Year 2016-17, rendering all consequential orders non-est in the eyes of law.
Background and Facts of the Case
The assessee, an individual, had filed his return of income for AY 2016-17 under Section 139 of the Income Tax Act, 1961, declaring total income of Rs. 5,25,970/-. The case came under the scrutiny of the Assessing Officer based on information suggesting that the assessee had allegedly made a cash payment of Rs. 22.00 lakh and an additional cheque payment of Rs. 23.50 lakh towards the purchase of an immovable property in the form of a shop.
On the basis of this information, the Assessing Officer initiated reassessment proceedings. A notice under Section 148A(b) of the Income Tax Act, 1961 was issued on 17.05.2022, to which the assessee responded by filing a reply on 31.05.2022. Subsequently, the Assessing Officer passed an order under Section 148A(d) on 25.07.2022 and issued a final notice under Section 148 on the same date — both after obtaining prior approval from the Principal Commissioner of Income Tax, Pune.
The Assessing Officer eventually framed an assessment order dated 24.05.2023 under Section 147 read with Section 144 read with Section 144B of the Income Tax Act, 1961, making an addition of Rs. 29.00 lakh. The assessee challenged this before the National Faceless Appeal Centre (NFAC), Delhi, which upheld the addition vide order dated 26.07.2024. The assessee then approached the Pune ITAT.
Delay Condonation: A Preliminary Issue
Before proceeding to adjudicate the appeal on merits, the Tribunal addressed a procedural hurdle. The Registry flagged a delay of 317 days in filing the appeal. The assessee filed a condonation petition citing reasonable cause for the delay.
After carefully considering the averments in the application, the Tribunal was satisfied that the assessee had not intentionally delayed the filing and had derived no benefit from the delay. Relying on the principles laid down by the Hon'ble Supreme Court in:
- Collector, Land Acquisition, Anantnag & Anr. Vs. Mst. Katiji & Ors. reported in (1987) 2 SCC 107
- Inder Singh Vs. State of Madhya Pradesh judgment dated 21.03.2025 (2025 INSC 382)
The Tribunal condoned the delay of 317 days and admitted the appeal for adjudication on merits.
Grounds Raised by the Assessee
While the assessee had raised several grounds challenging the additions on merits, the counsel for the assessee primarily pressed the following additional legal grounds — Ground Nos. 8 and 9 — which went to the root of the reassessment proceedings: