ITAT Mumbai Declares Reassessment Void Ab Initio Due to Approval from Incorrect Authority Under Section 151

In a significant ruling concerning the jurisdictional validity of reassessment proceedings, the Income Tax Appellate Tribunal (ITAT), Mumbai Bench, has reinforced the sanctity of procedural safeguards enshrined in the Income Tax Act, 1961. The Tribunal, in the case of Arvindbhai Khatri Sons Designs Private Limited Vs ACIT, quashed the reassessment order passed for the Assessment Year 2017-18.

The primary ground for this dismissal was the Revenue's failure to obtain sanction from the appropriate "Specified Authority" as mandated by Section 151 of the Act. The ruling underscores that the hierarchy of approval is not merely a procedural formality but a jurisdictional prerequisite.

Factual Matrix of the Case

The dispute originated from the return of income filed by the assessee for the Assessment Year 2017-18. The assessee had declared a total income of Rs. 75,15,530. Subsequent to the filing, the Assessing Officer (AO) received specific information flagging substantial financial activity in the assessee's bank accounts.

The information pertained to cash deposits amounting to Rs. 4,09,89,250. Viewing these deposits as potential income that had escaped assessment, the AO initiated proceedings under the purview of Section 147 read with Section 148.

The Timeline of Events

To understand the legal contention, the chronology of events is critical:

  1. Assessment Year: 2017-18.
  2. Issuance of Order under Section 148A(d): 29.07.2022.
  3. Issuance of Notice under Section 148: 29.07.2022.
  4. Sanctioning Authority: The approval for reopening the assessment was granted by the Principal Commissioner of Income Tax-4, Mumbai (Pr. CIT).

The AO eventually passed a reassessment order dated 29.05.2023, making significant additions. Aggrieved by this, the assessee approached the Commissioner of Income-tax (Appeals), and subsequently, the National Faceless Appeal Centre (NFAC), which upheld the AO's action. Consequently, the matter traveled to the ITAT Mumbai.

The assessee raised multiple objections, challenging both the technical validity of the notice and the additions made on merits (regarding inter-branch transfers and card sales under Section 68 read with Section 115BBE).

However, the pivotal argument that captured the Tribunal's attention was the validity of the sanction obtained for issuing the notice.