Bangalore ITAT Quashes Reassessment in Sonu Mandhana Case: Wrong Sanctioning Authority Under Section 151 Renders Notice Void Ab Initio
Background and Context
The Income Tax Appellate Tribunal, Bangalore, recently delivered a significant ruling in the matter of Sonu Mandhana Vs ITO (ITAT Bangalore) concerning Assessment Year 2016-17. The case revolved around a fundamental jurisdictional defect in reassessment proceedings — specifically, whether approval obtained from a Principal Commissioner of Income Tax (PCIT) could be treated as valid when the applicable statutory framework under Section 151 of the Income Tax Act, 1961 mandated a higher-ranking authority.
The outcome has far-reaching implications for numerous pending and concluded reassessment cases where notices under Section 148 were issued after the expiry of three years from the end of the relevant assessment year, with approval obtained from an authority lower than what the law prescribes.
Facts of the Case
The assessee, an individual, had filed a return of income for AY 2016-17 on 30.03.2017, declaring a total income of Rs. 3,82,860/-. Based on intelligence inputs received from the Investigation Wing, which alleged that the assessee had benefited from an accommodation entry involving bogus long-term capital gains through a penny-stock transaction, the Assessing Officer set reassessment proceedings in motion.
An initial notice under Section 148 of the Act was issued on 31.05.2021. Subsequently, in light of the Hon'ble Supreme Court's direction in Union of India vs. Ashish Agrawal, reported in (2022) 444 ITR 1 (SC), this original notice was treated as a notice issued under Section 148A(b) of the Act. A show cause notice was then issued on 27.05.2022, placing the information and material relied upon by the Revenue before the assessee and granting time until 13.06.2022 for submission of a response.
The assessee filed objections on 04.06.2022. These objections were rejected, and an order under Section 148A(d) was passed on 28.07.2022, concluding that it was a fit case for issuance of notice under Section 148. On the very same date, a fresh notice under Section 148 was issued by the Jurisdictional Assessing Officer.
After examining the assessee's submissions during the course of reassessment, the Assessing Officer passed an order dated 20.05.2023 under Section 147 read with Section 144B, treating the relevant scrip as a penny stock and adding the entire sale consideration of Rs. 32,25,180/- as unexplained cash credit under Section 68 of the Income Tax Act, 1961.
The learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, dismissed the assessee's appeal vide order dated 13.04.2026 passed under Section 250 of the Act. Aggrieved by this outcome, the assessee approached the Tribunal.
Grounds Raised Before the Tribunal
The assessee raised an extensive array of grounds before the ITAT, which can be broadly classified under two heads: