ITAT Mumbai Invalidates Reopening for Want of Proper Sanction Under Section 151(ii)

Background of the Case

In DCIT Vs SPR Associates (ITAT Mumbai), the Revenue’s appeal and the assessee’s cross-objection both arose from the order of the CIT(A) dated 13/10/2025 for A.Y. 2018-19. While the Revenue contested the deletion of an addition relating to treatment of a mutual fund distribution as dividend income, the assessee, through a cross-objection, assailed the very jurisdiction of the reassessment under Section 147 read with Section 148.

The Tribunal first turned to the assessee’s challenge to the validity of the reassessment notice issued under the new regime (Section 148A/148), as this went to the root of the assessment and the authority of the Assessing Officer (AO) to proceed.

Revenue’s Grounds in Appeal

The Revenue raised multiple substantive grounds, essentially arguing that:

  • The CIT(A) wrongly deleted an addition made by the AO by treating a receipt from a mutual fund as dividend income, despite the mutual fund having declared and distributed the amount as dividend and discharged Dividend Distribution Tax (DDT) thereon.
  • The CIT(A) erred in accepting the assessee’s position that the receipt represented repayment of capital, contending instead that in the hands of the assessee the character of the receipt was clearly dividend and therefore taxable as such.
  • The assessee, having treated the receipt as capital repayment, allegedly claimed short-term capital loss in a later year by taking the full cost of acquisition of Rs. 23.00 crore without reducing the said amount, thereby securing a double benefit.
  • The CIT(A) wrongly held that Section 68 did not apply, whereas, according to the Revenue, the addition was based both on Section 68 and on the proposition that the receipt was taxable in the year of receipt as dividend income.
  • The CIT(A) placed undue reliance on the assessee’s contention that the “dividend” was paid out of capital funds, ignoring the fact that once the mutual fund distributed the sum as dividend and paid DDT, the nature of the income in the assessee’s hands could not be recast.

However, these merits-based grounds were ultimately not examined by the Tribunal because the reassessment itself was held to be invalid.

Assessee’s Cross-Objection

The assessee, in its cross-objection, raised purely legal grounds:

  1. The reassessment initiated under Section 147 and the notice under Section 148 were invalid and void ab initio.
  2. The sanction obtained for reopening was not in compliance with Section 151 and hence invalid.

Since these objections went to the very jurisdictional foundation of the reassessment, the Tribunal decided to address them first, before touching any issue on the merits.

Facts Relevant to Reopening and Sanction

Timeline of Notices