ITAT Mumbai Sets Aside Reassessment Notice Under Section 148: Jurisdictional Defects Identified When Escaped Income Below ₹50 Lakh and Improper Sanction Authority Approved Reopening Beyond 3-Year Period
Background of the Dispute
The Income Tax Appellate Tribunal, Mumbai Bench, examined a case involving Dattatray Vithoba Sawant Vs ITO where fundamental jurisdictional questions arose concerning reassessment proceedings initiated under the revised statutory framework. The controversy centered on whether the revenue authorities followed proper procedure while issuing a reopening notice under Section 148 dated 06.07.2022, particularly when the assessment was reopened after expiry of three years from the relevant assessment year and the alleged income that escaped assessment was quantified at merely ₹2.58 lakh.
The assessee, an individual employed with the Fire Department of the Municipal Corporation of Greater Mumbai, derived income principally from salary and other sources. During the assessment year 2017-18, the assessee had submitted his return of income on 03.09.2017, declaring total income of ₹4,19,190 after availing deductions under Chapter VI-A totaling ₹2,10,000 and claiming exemption for allowances under Section 10(14) of the Income Tax Act, 1961.
Timeline of Reassessment Proceedings
The revenue authorities initially issued a notice under Section 148 dated 15.04.2021 seeking to reopen the completed assessment. Following the landmark judgment by the Hon'ble Supreme Court in Union of India vs. Ashish Agrawal, the Assessing Officer issued a show cause notice under Section 148A(b) on 25.05.2022. This action was based upon information gathered during a survey operation conducted under Section 133A at the office premises of a tax consultant, where certain documents allegedly indicated suppression or underreporting of taxable income.
Subsequently, an order under Section 148A(d) was passed on 06.07.2022 after securing approval from the competent authority, following which a notice under Section 148 was issued directing the assessee to furnish a return of income. Throughout the reassessment proceedings, the Assessing Officer issued notices under Section 142(1) demanding detailed information to verify the claims made by the assessee. A show cause notice proposing disallowance of deductions claimed under Chapter VI-A and addition of exemptions claimed under Section 10(14) was also issued.
The assessee, citing compelling personal circumstances and hardships, was unable to participate effectively during the reassessment proceedings. Consequently, the Assessing Officer completed the reassessment by disallowing deductions under Chapter VI-A amounting to ₹2,10,000 and making an addition of ₹48,383 concerning exemptions claimed under Section 10(14), thereby determining the assessed total income at ₹6,77,573.
Proceedings Before the First Appellate Authority
Aggrieved by the reassessment order passed by the Assessing Officer, the assessee filed an appeal before the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi. However, due to the absence of effective representation, the CIT(A) passed an ex parte order dated 28.07.2025, upholding the reassessment proceedings and confirming the additions and disallowances made by the Assessing Officer.
Grounds of Appeal Before ITAT
Dissatisfied with the appellate order, the assessee approached the Income Tax Appellate Tribunal, Mumbai, raising multiple grounds of appeal that challenged both the jurisdictional validity of the reassessment proceedings and the merits of the additions made. The principal grounds advanced were:
Ground 1: The CIT(A) erred in confirming the validity of the notice under Section 148 issued after the lapse of three years, as the approval was not obtained from the specified authority, namely the Principal Chief Commissioner or Chief Commissioner, as prescribed under Section 151(ii), thereby violating the law settled by the Hon'ble Supreme Court in Union of India vs. Rajeev Bansal (167 taxmann.com 70).
Ground 2: The CIT(A) erred in confirming the order under Section 148A(d) and notice under Section 148 issued after the lapse of three years, even though the alleged escaped income was below the prescribed threshold of ₹50 lakhs, thereby violating the provisions of Section 149(1) of the Income Tax Act, 1961.
Ground 3: The order passed under Section 148A(d) and notice issued under Section 148 were bad in law as they were not issued by the Faceless Assessing Officer but by the Jurisdictional Assessing Officer, thereby violating the provisions of Section 151A of the Act.
Ground 4: The CIT(A) erred in passing the ex parte order without considering the bona fide reasons that prevented the appellant from participating in the appeal proceedings.
Ground 5: The CIT(A) erred in confirming the disallowance of deduction under Section 80C amounting to ₹1,50,000.
Ground 6: The CIT(A) erred in confirming the disallowance of rent paid under Section 80GG amounting to ₹60,000.
Ground 7: The CIT(A) erred in confirming the disallowance of conveyance and other allowances amounting to ₹48,383.
Arguments Advanced by the Assessee
The Authorized Representative appearing for the assessee submitted comprehensive arguments focusing primarily on the jurisdictional defects that went to the root of the matter. The learned counsel emphasized that the original notice under Section 148 was issued on 15.04.2021 under the old regime, which was subsequently treated as a deemed notice following the Supreme Court's decision in Union of India vs. Ashish Agrawal reported in [2022] 444 ITR 1.
The learned AR highlighted that after following the procedure prescribed under the new regime under Section 148A, the revenue issued a fresh notice under Section 148 on 06.07.2022. This notice received approval from the Principal Commissioner of Income Tax-17, Mumbai, wherein the reasons recorded stated that income chargeable to tax amounting to ₹2,58,383 had escaped assessment for the year under consideration.
The learned AR meticulously argued that the notice issued under Section 148A(b) and the order passed under Section 148A(d) were beyond the period of three years from the end of the relevant assessment year, while the income allegedly escaping assessment was merely ₹2,58,383.