Section 151 Sanction Without Application of Mind Voids Reassessment: ITAT Agra Rules in Tulsi Infraheights Case

Overview

The Income Tax Appellate Tribunal, Agra Bench, delivered a significant ruling in Tulsi Infraheights Pvt. Ltd. Vs DCIT (ITAT Agra) concerning reassessment proceedings for Assessment Year 2012-13. The entire reassessment, which had resulted in an addition of ₹1,71,68,750/-, was quashed by the Tribunal solely on the ground that the sanction accorded under Section 151 of the Income Tax Act, 1961 was mechanical in nature and lacked genuine application of mind by the competent authority. Notably, the Tribunal did not go into the merits of the additions at all — the jurisdictional defect was sufficient to collapse the entire proceedings.

Background: How the Reassessment Was Triggered

The assessee company had filed its return of income for AY 2012-13 on 28.09.2012, declaring total income at nil. A search and seizure operation was conducted on 18.11.2015 in the case of Shri Pradeep Kumar Jindal. Consequent to that search, the assessee company was identified as an alleged beneficiary of accommodation entries totalling ₹1,67,50,000/- routed through three separate entities.

On the basis of this information, the Assessing Officer recorded reasons to believe that income had escaped assessment and issued a notice under Section 148 of the Income Tax Act, 1961 on 31.03.2019. The assessee responded by filing a return once again declaring nil income.

Various notices under Section 142(1) and Section 133(6) of the Act were issued. The Assessing Officer, finding the responses unsatisfactory and recording non-compliance, proceeded to frame the assessment. He made the following additions:

  • ₹1,67,50,000/- as unexplained income from accommodation entries
  • ₹4,18,750/- as alleged commission at 2.5% on the above amount
  • Total addition: ₹1,71,68,750/-

The assessment order was passed on 29.12.2019 under Section 143(3) read with Section 147 of the Act.

The assessee appealed before the CIT(A), who dismissed the appeal and confirmed both additions. Aggrieved, the assessee carried the matter to the ITAT Agra.

Grounds Raised Before the Tribunal

The assessee raised multiple grounds of appeal before the Tribunal, broadly falling into two categories:

Jurisdictional Challenges

  • The reassessment proceedings under Section 147/Section 148 were void ab initio and without jurisdiction.
  • The reasons recorded reflected borrowed satisfaction from the Investigation Wing and did not demonstrate independent application of mind by the Assessing Officer.
  • The recorded reasons constituted a "reason to suspect" rather than a legally valid "reason to believe."
  • Objections filed against reopening were disposed of in a summary, mechanical, and non-speaking manner.
  • No independent inquiry or verification was conducted prior to issuance of notice under Section 148.
  • The reopening was beyond four years from the end of the relevant assessment year without any failure on the assessee's part to disclose material facts.
  • Statements of alleged entry operators were neither provided to the assessee nor subjected to cross-examination, violating principles of natural justice.

Merits-Based Challenges

  • The assessee had actually received only ₹50,00,000/- as unsecured loans through proper banking channels, supported by bank statements, confirmations, and affidavits.
  • The assessee had duly discharged the onus of establishing identity, creditworthiness, and genuineness of transactions under Section 68.
  • The addition of ₹4,18,750/- on account of alleged commission at 2.5% was arbitrary and unsupported by any evidence of actual payment.
  • Interest levied under Section 234A, Section 234B, and Section 234C was also contested.

The Critical Additional Ground: Section 151 Sanction Challenged

Through an application dated 08.07.2026, the assessee raised an additional legal ground challenging the validity of approval granted under Section 151 of the Act. The ground read:

"Because, the approval under section 151 of the 'Act' was accorded in a routine mechanical and non speaking manner, without any application of mind by the competent authority, vitiating the entire proceedings from inception."

The Tribunal admitted this ground, noting that it involved a pure question of law and all relevant facts were available on record. Since the validity of the Section 151 sanction went to the very root of jurisdictional competence to reopen the assessment, this issue was taken up first for adjudication.

What the Sanction Actually Said

The approval granted by the PCIT-2, Agra — as reproduced from the assessee's paper book — read as follows: