Invalid Sanction Under Section 151: ITAT Pune Strikes Down Reassessment for Wrong Approval Authority

In the complex landscape of Indian taxation, the procedural sanctity of reassessment proceedings is paramount. The Income Tax Appellate Tribunal (ITAT), Pune Bench, recently delivered a significant ruling in the case of ITO Vs Santosh Jaynarayan Sharma, reinforcing the strict necessity of adhering to the statutory approval hierarchy mandated under the Income Tax Act, 1961.

The Tribunal held that when a notice under Section 148 is issued beyond the three-year limitation period, the sanction must explicitly come from the Principal Chief Commissioner or Chief Commissioner of Income Tax. In this instance, the Revenue’s failure to obtain approval from the correct authority rendered the entire reassessment proceedings void ab initio.

The Finance Act, 2021, brought about a paradigm shift in the reassessment regime, specifically altering the limitation periods and the sanctioning authorities required to reopen an assessment. Under the amended provisions, the validity of a notice issued under Section 148 is inextricably linked to the approval obtained under Section 151.

The Hierarchy of Sanction

Section 151 specifies distinct authorities for granting approval based on the time elapsed since the end of the relevant Assessment Year (AY):

  1. Within Three Years: If the notice is issued within three years from the end of the relevant AY, the "Specified Authority" is the Principal Commissioner of Income Tax (PCIT) or Principal Director of Income Tax (PDIT).
  2. Beyond Three Years: If the notice is issued after three years have elapsed, the approval must be granted by the Principal Chief Commissioner of Income Tax (Pr. CCIT), Chief Commissioner of Income Tax (CCIT), or Principal Director General of Income Tax (Pr. DGIT).

This tiered structure ensures that older cases, which generally require a higher burden of proof regarding escaped income, are scrutinized by the highest ranking officers before a notice is dispatched to the assessee.

Case Background: ITO Vs Santosh Jaynarayan Sharma

The dispute in question pertains to the Assessment Year 2017-18. The assessee, an individual, had filed their return of income on March 17, 2018, declaring a total income of ₹20,31,900.

The Revenue's Action

Subsequent to the filing, the Assessing Officer (AO) received information suggesting that the assessee had unexplained cash credits or investments totaling ₹45,76,025. Based on this information, the AO formed a "reason to believe" that income had escaped assessment.