ITAT Pune: Reassessment annulled due to invalid Section 151 approval for notice under Section 148

Overview of the Tribunal’s decision

The Income Tax Appellate Tribunal, Pune Bench, in the case of Mahesh Gokuldas Fulwani Vs ITO, has struck down reassessment proceedings for Assessment Year 2017-18 on the ground that the statutory approval mandated by Section 151(ii) of the Income Tax Act 1961 was not obtained from the correct “specified authority”.

The Tribunal held that:

  • The notice under Section 148 dated 26.07.2022 for AY 2017-18 was issued after expiry of three years from the end of the relevant assessment year.
  • For such cases, Section 151(ii) clearly requires prior sanction from the Principal Chief Commissioner, Principal Director General, Chief Commissioner or Director General.
  • In this case, approval was instead taken from the PCIT, Nashik, which falls under Section 151(i) and is competent only where three years or less have elapsed from the end of the relevant assessment year.
  • Consequently, the reassessment proceedings were held to be void in law and were quashed.

The Tribunal followed and applied the ratio of M/s. Karia Builders vs. ITO, along with decisions of the Bombay High Court and Delhi High Court on similar issues, and allowed the assessee’s appeal partly by accepting only the legal ground relating to approval under Section 151.

Factual matrix and reassessment history

Original return and assessment reopening

  • The assessee, Mahesh Gokuldas Fulwani, an individual, filed his return of income for AY 2017-18 on 02.11.2017, declaring a total income of Rs. 6,79,450/-.
  • The jurisdictional Assessing Officer (JAO) subsequently received certain information and decided to reopen the assessment.
  • In view of the directions of the Hon’ble Supreme Court in Union of India vs. Ashish Agarwal, Civil Appeal No.3005 of 2022, order dated 04.05.2022, the earlier regime notices were to be treated as show cause notices under the new reassessment framework.

Proceedings under Section 148A(d) and issue of Section 148 notice

  1. A notice under Section 148A(d) dated 30.05.2022 was issued to the assessee, calling upon him to explain why a notice under Section 148 should not be issued.
  2. The assessee submitted his explanation; however, the JAO was not satisfied and passed an order under Section 148A(d) on 26.07.2022, concluding that this was a fit case for reassessment.
  3. On the same date, 26.07.2022, a notice under Section 148 was issued through the ITBA portal after obtaining approval from the PCIT, Nashik, who accorded his sanction on 22.07.2022.

Addition made in reassessment

  • In the reassessment completed pursuant to the Section 148 notice, the Assessing Officer made an addition of Rs. 1,81,34,250/-.
  • The addition was made on the footing that the assessee had failed to satisfactorily explain the source of deposits of Rs. 1,81,34,250/- in M/s. Renuka Mata Multi State Urban Co-operative Credit Society Ltd.
  • The reassessed income was substantially enhanced on account of this unexplained deposit.

First appellate order

  • The assessee filed an appeal before the CIT(A)/NFAC.
  • The first appellate authority confirmed the action of the Assessing Officer, including the addition relating to deposits with M/s. Renuka Mata Multi State Urban Co-operative Credit Society Ltd.
  • Dissatisfied, the assessee approached the ITAT Pune.

Assessee’s arguments before ITAT on Section 151 approval

Although several grounds were originally taken in the Form 36, before the Tribunal the assessee’s counsel chose to argue only Ground No. 1, which challenged the very validity of the reassessment proceedings on jurisdictional grounds.

The core contention was:

The order under Section 148A(d) and the notice under Section 148, both dated 26.07.2022, are void ab initio because the mandatory approval under Section 151(ii) from the higher specified authority was not obtained. Instead, approval was wrongly secured under Section 151(i) from the Commissioner/Principal Commissioner of Income Tax.

The assessee’s counsel highlighted the following: