Delhi ITAT Quashes Reassessment Proceedings in Search-Based Reopening: Prior Approval Under Section 148 Explanation 2(iv) Held Mandatory

Case Overview

Case Name: Manik Somani Vs ACIT (ITAT Delhi)
Court: Income Tax Appellate Tribunal, Delhi Bench
Related Assessment Year: 2019-20

The Delhi Bench of the Income Tax Appellate Tribunal delivered a significant ruling by annulling reassessment proceedings initiated against an assessee, holding that the Assessing Officer had fundamentally failed to follow the mandatory statutory procedure applicable to search-based reopening of assessments involving third parties. The Tribunal found that both the requirement of prior approval under Section 148 and the inapplicability of Section 148A in such scenarios were completely overlooked, rendering the entire proceedings jurisdictionally defective.

Background and Facts of the Case

The dispute before the Tribunal arose from an order passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi dated 02.02.2026, pertaining to Assessment Year 2019-20.

The genesis of the reassessment lay in a search operation conducted under Section 132 of the Income Tax Act, 1961 in the case of one Shri Monish Nayyar. During the course of that search, certain documents were found and seized, and a statement was recorded from Shri Monish Nayyar. On the basis of this material, the Revenue formed the view that the assessee — Manik Somani — had received a sum of ₹30,000 in cash as interest on an unsecured loan extended to Shri Monish Nayyar. This formed the foundation for reopening the assessee's assessment.

The Assessing Officer proceeded to issue a notice under Section 148A(b) of the Income Tax Act, 1961 on 30.03.2023 and thereafter passed an order under Section 148A(d) on 17.04.2023, before ultimately issuing notice under Section 148 and completing the reassessment.

The assessee challenged the validity of the entire reassessment on two primary legal grounds:

Ground 1: Violation of Explanation 2(iv) to Section 148 — Absence of Prior Approval

The learned Counsel for the assessee drew the Tribunal's attention to Explanation 2(iv) to Section 148 of the Income Tax Act, 1961, which governs the reopening of assessments in cases of "other persons" when such reopening is triggered by material unearthed during a search.

The specific contention advanced was:

  • Where an assessment is sought to be reopened on the basis of search material pertaining to another individual, the law mandates prior approval of the Principal Commissioner or Commissioner of Income Tax before such reopening can be lawfully effectuated.
  • In the present case, no such prior approval was obtained from the competent authority.
  • The reassessment order itself contained no reference whatsoever to any approval from the Principal Commissioner or Commissioner.
  • The Revenue placed no material on record before the Tribunal to demonstrate that the requisite approval had been obtained at any stage.

Ground 2: Wrongful Invocation of Section 148A — Inapplicability to Search-Based Third-Party Cases

The second ground of challenge was equally significant. The learned Counsel argued that the Assessing Officer had mechanically invoked the procedure prescribed under Section 148A of the Income Tax Act, 1961, without appreciating that this provision is expressly excluded from application in cases involving reopening based on search material relating to another person.

Reference was made to Clause (c) of the Proviso to Section 148A, which carves out an explicit exception where: