Reassessment Proceedings Quashed: Approval from Wrong Authority Renders Section 148 Notice Invalid — ITAT Hyderabad

Case Reference

Prakasam District Police Welfare Association Vs ITO (ITAT Hyderabad)

Core Ruling: Where a notice under Section 148 is issued beyond three years from the end of the relevant assessment year, the Assessing Officer is mandatorily required to obtain prior approval from the authorities prescribed under Section 151(ii) of the Income Tax Act, 1961. Approval obtained from the Principal Commissioner of Income Tax in such cases is legally invalid, and the resulting assessment proceedings are liable to be quashed.

Background and Factual Matrix

The present matter arose from reassessment proceedings initiated by the Assessing Officer (AO) for Assessment Year (AY) 2018-19. The AO acted upon specific intelligence flagged through the Risk Management Strategy of the Central Board of Direct Taxes (CBDT), which pointed to large-scale financial transactions carried out by the assessee during the relevant year.

Based on this intelligence, the AO initiated action under Section 147 of the Income Tax Act, 1961. Following the prescribed sequence under the amended law, an order under Section 148A(d) was passed on 08.04.2022, and a notice under Section 148 was formally issued on 09.04.2022.

The reassessment culminated in an order dated 05.03.2024 passed under Section 147 read with Section 144B of the Act, wherein an addition of ₹3,92,22,536/- was made on account of unexplained cash deposits, resulting in the assessee's income being determined at ₹4,33,93,686/-.

The assessee challenged the assessment order before the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, but the appeal was dismissed vide order dated 06.06.2025. Thereafter, the matter was carried in appeal before the Income Tax Appellate Tribunal, Hyderabad.

Grounds of Appeal Raised Before the Tribunal

The assessee raised multiple grounds challenging the validity of the assessment both on merits and on jurisdictional grounds. The principal grounds included:

Grounds on Merits

  1. Disregard of Binding Precedents: The CIT(A) erred in distinguishing decisions such as those in GDR Finance & Leasing (P) Ltd. (Delhi HC) and G4S Secure Solutions (India) (P) Ltd. (Delhi HC), wherein additions based on incorrect INSIGHT/NMS data had been quashed. The present case was argued to be directly covered by such rulings, as the alleged excess deposits arose purely from erroneous data.

  2. Violation of Natural Justice: The orders of both the AO and the CIT(A) were alleged to suffer from denial of adequate opportunity to verify and correct the erroneous data, despite the assessee having furnished specific explanations.

  3. Perverse Reliance on Irrelevant Grounds: The CIT(A) had relied upon the alleged inability to reconcile sales turnover with cash deposits, which was contended to be wholly irrelevant when the issue in dispute pertained exclusively to the correctness of cash deposit figures sourced from flawed third-party data.

  4. Reliance on Incorrect Third-Party Data: The CIT(A) erred in upholding the addition of ₹3,92,33,536/- under Section 69A on the basis of misreported data from the INSIGHT portal, without independently verifying the same against actual bank statements which reflected cash deposits of only ₹21,12,97,847/–.

  5. Failure to Appreciate Documentary Evidence: The assessee submitted that the reconciliation of turnover with deposits was not germane to the issue at hand, as the turnover declared in the ITR in fact exceeded the verified deposit figures, leaving no room for adverse inference.