ITAT Quashes Reopening of Assessment Due to Invalid Sanction Under Section 151

The assessee, a resident individual, filed her return for AY 2017-18 declaring income of Rs. 8.24 lakh and claimed exemption under Section 10(38) on long-term capital gains of Rs. 1.44 crore from sale of shares of M/s. Kushal Limited. Based on the Investigation Wing inputs alleging accommodation entries through the scrip, reassessment proceedings were initiated. A notice under Section 148 dated 28.04.2021 was later treated as a notice under Section 148A(b) pursuant to Union of India v. Ashish Agarwal.

Thereafter, the AO passed an order and issued a fresh notice under Section 148 on 29.07.2022 after obtaining approval from the PCIT. The reassessment resulted in addition of ₹1.44 crore, which was upheld by the NFAC, leading to appeal before the Tribunal.

Issue Raised: Whether reassessment initiated beyond three years from the end of the relevant assessment year is valid when approval under Section 151(ii) is obtained from the PCIT instead of the statutorily required higher authority.

ITAT’s Ruling: The Tribunal held that since the order under Section 148A(d) and the subsequent notice under Section 148 were issued after expiry of three years from the end of AY 2017-18, prior approval under Section 151(ii) was required from the Principal Chief Commissioner or an equivalent higher authority. In the present case, approval was obtained only from the PCIT.

Relying on Alag Property Construction (P.) Ltd. and the Supreme Court’s decision in Union of India v. Rajeev Bansal, the Tribunal held that sanction by the competent authority is a jurisdictional condition precedent. Failure to obtain approval from the authority mandated under Section 151(ii) renders the reassessment void.

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