ITAT Mumbai: Reassessment annulled due to improper sanction under Section 151(ii) and addition under Section 56(2)(vii)(b) also deleted

Background of the dispute

In Vasantha Narayan Poojari Vs ITO (ITAT Mumbai), ITA No. 9174/Mum/2025, order dated 18/03/2026, the Income Tax Appellate Tribunal, Mumbai Bench, examined two core issues for Assessment Year 2017-18:

  1. Whether the reassessment initiated under Section 147 read with Section 148 and Section 148A was legally valid when approval was taken from the wrong “specified authority” under Section 151(ii) of the Income Tax Act 1961; and
  2. Whether an addition of Rs. 1,93,46,420/- made under Section 56(2)(vii)(b) in relation to a redeveloped commercial property was sustainable on merits.

The appeal arose from the order dated 12.12.2025 passed by the National Faceless Appeal Centre (NFAC), Delhi for AY 2017-18, where the NFAC had upheld the reassessment as well as the addition.

The assessee, a resident individual, had originally filed his return of income on 12.02.2018 declaring income of Rs. 6,16,450/-. The return was processed under Section 143(1) without any variation. Later, based on information regarding a difference between the agreement value and stamp duty value of a commercial unit received on redevelopment, the Assessing Officer (AO) initiated reassessment proceedings.

A show cause notice under Section 148A(b) was issued on 21.05.2022, followed by an order under Section 148A(d) and notice under Section 148 dated 25.07.2022, ultimately culminating in an assessment order dated 26.05.2023.

The assessee contested:

  • The jurisdiction of the AO to reopen the assessment, contending non-compliance with Section 151(ii); and
  • The merits of the addition of Rs. 1,93,46,420/- under Section 56(2)(vii)(b).

The Tribunal allowed the appeal in full, quashing the reassessment on jurisdictional grounds and, independently, holding the addition unsustainable on merits.

Challenge to reassessment: Approval under wrong specified authority

Statutory framework under Section 151

Post the substitution of the reassessment regime by the Finance Act 2021, Section 151 classifies the “specified authority” with reference to the elapsed time from the end of the relevant assessment year. Under the new regime:

  • Section 151(i) applies where three years or less have elapsed from the end of the relevant assessment year;
  • Section 151(ii) applies where more than three years have elapsed.

Under Section 151(ii), in such cases, prior approval must come from:

  • Principal Chief Commissioner or
  • Principal Director General or
  • Chief Commissioner or
  • Director General.

The requirement of sanction from the appropriate specified authority is a jurisdictional pre-condition for issuing an order under Section 148A(d) as well as a notice under Section 148.

Factual matrix on limitation and sanction

  • Relevant assessment year: AY 2017-18.
  • Three years from the end of AY 2017-18 expired on 31.03.2021.
  • The order under Section 148A(d) and notice under Section 148 were both issued on 25.07.2022, i.e., after expiry of three years.

From the copies of the Section 148A(d) order and Section 148 notice placed in the paperbook, the Tribunal found that:

  • The AO had obtained approval from the Principal Commissioner of Income Tax-19, Mumbai (Pr. CIT-19).
  • No approval had been obtained from the Principal Chief Commissioner of Income Tax, Principal Director General, Chief Commissioner, or Director General, as mandated under Section 151(ii) for cases where more than three years have elapsed.

The assessee’s counsel argued that this defect went to the root of jurisdiction and rendered the reassessment proceedings void. In support, reliance was placed on:

  • Ramesh Bachulal Mehta vs. Income Tax Officer, W.P. No. 271/2023, judgment dated 11.08.2025 (Bombay High Court);
  • Union of India vs. Rajeev Bansal, [2024] 167 taxmann.com 70 (SC)/[2024] 301 Taxman 238 (SC)/[2024] 469 ITR 46 (SC); and
  • Satish Harnamdas Sethi vs. NFAC, ITA No. 3091/Mum/2024, order dated 24.12.2024 (ITAT Mumbai).

The Departmental Representative supported the order of the AO and NFAC.

Reliance on Bombay High Court ruling in Ramesh Bachulal Mehta

The Tribunal reproduced and relied upon the detailed analysis of the Bombay High Court in Ramesh Bachulal Mehta vs. Income Tax Officer, W.P. No. 271/2023, which itself had applied the ratio of the Supreme Court in Union of India vs. Rajeev Bansal.

Key principles from Rajeev Bansal as noted by the High Court

From the extracts quoted by the Tribunal, the following salient points emerge from Union of India vs. Rajeev Bansal:

  1. Nature and purpose of Section 151

    • Section 151 acts as a check on arbitrary reopening, obligating the Revenue to obtain sanction before issuing a notice under Section 148.
    • This safeguard is intended to prevent mechanical reassessments and harassment of assessee.

  2. Change in specified authority under old vs new regime
    The Supreme Court compared the earlier and substituted provisions and clarified:

    • Under the old regime, authority varied based on:
      • Four-year or six-year limitation, and
      • Whether escaped income exceeded a threshold (e.g., Rupees one lakh).