ITAT Mumbai Ruling: Jurisdiction and Sanction Authorities Under Section 151

In a significant ruling concerning the validity of reassessment proceedings under the Income Tax Act, 1961, the Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has reinforced the strict adherence to jurisdictional prerequisites. The Tribunal, in the case of Devanshi Sharma Vs ITO, held that reassessment orders passed with the approval of the Principal Commissioner of Income Tax (PCIT) instead of the Principal Chief Commissioner of Income Tax (PCCIT) or Chief Commissioner of Income Tax (CCIT) are invalid when initiated after the expiry of three years from the relevant assessment year.

This judgment serves as a critical precedent regarding the hierarchy of sanctioning authorities mandated under Section 151 of the Income Tax Act, particularly for cases transitioning between the old and new reassessment regimes.

Factual Matrix of the Case

The dispute arose from the return of income filed by the assessee, a resident individual, for the Assessment Year (AY) 2017-18. The return was originally filed on August 1, 2017, declaring a total income of Rs. 8,24,000.

During the scrutiny of the filings, the Assessing Officer (AO) flagged a claim for exemption under Section 10(38) of the Income Tax Act. The assessee had reported Long Term Capital Gains (LTCG) amounting to Rs. 1,44,59,603 derived from the sale of equity shares in M/s. Kushal Limited, a company listed on the Bombay Stock Exchange (BSE).

Allegations of Bogus LTCG

The Revenue's investigation wing suggested that M/s. Kushal Limited was utilized as a conduit to channel unaccounted money into the system disguised as exempt capital gains. Based on this intelligence, the AO treated the transaction as fictitious and initiated reassessment proceedings.