Mumbai ITAT Quashes Reassessment: PCIT's Sanction Held Invalid for Section 148 Notices Issued Beyond Three Years

Case Background

Case Name: Prem Antony Sequeira Vs National Faceless Assessment Centre (ITAT Mumbai)
Assessment Year: 2017-18
Court: Income Tax Appellate Tribunal, Mumbai

The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has quashed reassessment proceedings for Assessment Year 2017-18 in a significant ruling that reaffirms the strict jurisdictional requirements governing the sanctioning authority under Section 151 of the Income Tax Act, 1961. The core issue before the Tribunal was whether approval granted by the Principal Commissioner of Income Tax (PCIT) could be treated as valid authorisation for issuing a notice under Section 148 where such notice was issued after the expiry of three years from the end of the relevant assessment year.

The ruling carries considerable precedential weight, particularly because it directly addresses the Revenue's argument seeking retrospective application of the Finance Act, 2023 amendment to Section 151 — an argument the Tribunal firmly rejected.

Factual Matrix of the Dispute

The reassessment proceedings in question were initiated against the assessee through a notice dated 27.07.2022 issued under Section 148 of the Income Tax Act, 1961. The undisputed fact on record was that this notice was issued beyond the three-year period calculated from the end of Assessment Year 2017-18. Crucially, the sanction for issuing such notice was obtained from the Principal Commissioner of Income Tax-20, Mumbai (PCIT), rather than from the Principal Chief Commissioner of Income Tax (PCCIT) or any other authority specifically designated under Section 151(ii) of the Act for cases falling beyond the three-year limitation window.

The assessee challenged these proceedings before the National Faceless Appeal Centre (NFAC) / Commissioner of Income Tax (Appeals) under Section 250 of the Income Tax Act, 1961. Upon receiving an adverse order dated 12.03.2026 from the first appellate authority, the assessee preferred a further appeal before the ITAT Mumbai.

The central grievance of the assessee was straightforward — the notice under Section 148 was issued without obtaining sanction from the authority competent under Section 151(ii), thereby rendering the entire reassessment proceedings void ab initio.

Revenue's Argument: Retrospective Application of Finance Act, 2023 Amendment

The Departmental Representative (DR) placed reliance on the amendment introduced through the Finance Bill, 2023 to Section 151 of the Act, which came into effect from 01.04.2023. The Revenue's argument was that this amendment — which introduced a proviso for computing the three-year period by excluding periods of limitation covered under the third, fourth, fifth, or sixth provisos to sub-section (1) of Section 149 — should be interpreted as having retrospective effect.

In essence, the Revenue sought to argue that once the excluded periods under Section 149 are factored into computing the limitation period, the notice dated 27.07.2022 may fall within the three-year window, thereby requiring approval only from the PCIT (as mandated under Section 151(i)) rather than the PCCIT (as mandated under Section 151(ii)).

This argument, if accepted, would have effectively validated reassessment proceedings that had been initiated with approval from an authority lower in rank than what the statute prescribed.