Invalid Sanction Vitiates Reassessment: ITAT Pune Strikes Down Rs. 95.31 Lakh Addition Due to Improper Section 151 Approval

The procedural safeguards embedded within the Income Tax Act 1961 are not mere administrative formalities; they are strict jurisdictional preconditions that must be adhered to before any adverse action can be taken against an assessee. A recent ruling by the Income Tax Appellate Tribunal (ITAT), Pune Bench, in the case of Heena Irfan Bepari Vs ITO, serves as a critical reminder of this legal principle. The Tribunal unequivocally quashed a reassessment proceeding and a consequent tax addition of Rs. 95,30,871, primarily because the revenue authorities failed to obtain the requisite sanction from the correct specified authority under the statute.

This comprehensive analysis delves into the factual matrix, the statutory requirements for reopening assessments, the admissibility of fresh legal grounds at the appellate stage, and the broader implications of this judicial pronouncement for similarly situated assessees.

Factual Matrix of the Dispute

The primary appeal before the ITAT (ITA No. 1186/PUN/2025) pertained to an individual assessee, Heena Irfan Bepari, for the Assessment Year (AY) 2017-18. The assessee was engaged in the commercial activity of procuring non-breeding and non-milking buffaloes directly from various weekly animal markets situated across different villages.

For the relevant assessment year, the assessee filed her return of income on 31 October 2017. In this return, she declared a total income of Rs. 7,73,490.

Subsequently, the case was selected for reassessment. During these proceedings, the Assessing Officer (AO) scrutinized the financial statements and observed a stark contrast between the declared income and the gross receipts. Specifically, the profit and loss account of the assessee demonstrated a substantial turnover amounting to Rs. 11,02,17,911. The AO issued multiple notices to the assessee, directing her to provide a robust explanation and reconcile the massive turnover with the relatively modest income of Rs. 7.73 lakh disclosed in the tax return.

The Assessing Officer's Estimation

According to the assessment order, the AO concluded that the assessee did not provide a satisfactory explanation backed by credible documentary evidence to justify the low profit margin on such a high turnover. Consequently, the AO resorted to an estimation of the business income.

The AO applied an estimated profit rate of 8% on the total turnover of Rs. 11,02,17,911. By calculating the difference between this newly estimated profit and the income that the assessee had originally declared, the AO proposed a significant upward revision. As reported in the assessment order dated 23 May 2023, passed under Section 147 read with Section 144B of the Income Tax Act 1961, this estimation led to an addition of Rs. 95,30,871. The total income of the assessee was thereby determined at Rs. 1,03,04,361.

Aggrieved by this substantial addition, the assessee escalated the matter to the Commissioner of Income Tax (Appeals) / National Faceless Appeal Centre (NFAC). However, the appellate authority sustained the AO's addition, prompting the assessee to approach the ITAT.

A parallel appeal involving another assessee, Haidar Mubarak Bepari (ITA No. 2988/PUN/2025), which featured identical facts, similar business circumstances, and the exact same legal challenge for AY 2017-18, was clubbed and heard alongside the primary appeal.

The Assessee's Core Arguments on Merits

Before delving into the jurisdictional defect, it is pertinent to note the assessee's defense on the merits of the case. The assessee vehemently argued that the arbitrary application of an 8% profit rate was unjustified. The primary contentions raised were: