The Mumbai Income Tax Appellate Tribunal (ITAT) has quashed revision orders concerning loan transactions of ₹42.45 lakh and ₹3.37 crore after finding that the underlying reassessment proceedings lacked the approval required under Section 151 of the Income-tax Act.
The Bench of Amit Shukla (Judicial Member) and Makarand Vasant Mahadeokar (Accountant Member) held that the Principal Commissioner of Income-tax (PCIT) could not use Section 263 to direct further enquiries on the basis of reassessments whose jurisdictional foundation was deficient.
The Income Tax Department reopened the two assessments following information received through its Insight Portal after a search in the One World Group case. The information alleged that Aneri Fincap Limited was providing accommodation entries. The assessee had received loans from that company in both years.
| Assessment year | Loan examined | Interest included in reopening | Total transaction examined |
| 2016–17 | ₹42,45,000 | Nil | ₹42,45,000 |
| 2017–18 | ₹3,31,45,000 | ₹5,78,177 | ₹3,37,23,177 |
During reassessment, the company submitted loan agreements, confirmations, ledger accounts, bank statements, the lender’s financial and income-tax details, its RBI registration certificate, and evidence of repayment. The Assessing Officer recorded verification of the documents and completed both reassessments on May 22, 2023, accepting the returned income.
The PCIT subsequently took the view that the Assessing Officer had failed to make a meaningful enquiry into the search information, the lender’s creditworthiness and the genuineness of the loans. By separate orders dated March 27, 2026, the PCIT partly set aside the reassessments under Section 263 and directed further verification.
The appellant challenged the revision orders on a jurisdictional ground.
Dhaval Shah, the counsel for the assessee argued that, when the orders under Section 148A(d) were passed and the fresh reassessment notices under Section 148 were issued in July 2022, more than three years had elapsed from the end of each assessment year. Approval was therefore required from the authority specified in Section 151(ii), rather than from a Principal Commissioner under Section 151(i).
For assessment year 2016–17, the Tribunal found that approval had been obtained from the Principal Commissioner of Income-tax-4, Mumbai, on July 28, 2022. That authority did not meet the applicable requirement under Section 151(ii).
The department argued that its signatory, Dr. Suchismita Palai, held the rank of Chief Commissioner of Income-tax and was competent to approve the action, even though she was in charge of the Principal Commissioner’s office. The Tribunal noted that the contemporaneous records described the approval as coming from the Principal Commissioner under Section 151(i). It also found no evidence establishing the statutory condition under which a Chief Commissioner could exercise the approval power under Section 151(ii) as it stood at the time. A departmental explanation supplied years later could not cure that gap, the Bench held.
The Tribunal rejected the Revenue’s argument that the original notices issued in June 2021, the COVID-era extension legislation, or the Supreme Court’s Ashish Agarwal decision preserved the competence of the Section 151(i) authority for approvals granted in July 2022. Relying on the Supreme Court’s ruling in Union of India v. Rajeev Bansal, it held that the required approval under the substituted reassessment regime remained a jurisdictional precondition.
The department argued that the company had participated in reassessment and had never separately appealed the reassessment orders, which had accepted its returned income. The Tribunal nevertheless held that a jurisdictional defect in an underlying order may be examined for the limited purpose of deciding whether that order can sustain a later revision under Section 263.
The Bench reasoned that the PCIT could not retrospectively provide the approval required under Section 151(ii). Further enquiry into the loans, even if it might lead to an addition, would still rest on the same deficient initiation of reassessment. The revision orders therefore could not be sustained.
The ITAT quashed both Section 263 orders and allowed the company’s appeals. It expressly clarified the scope of its decision: it did not formally annul the May 2023 reassessment orders or grant direct appellate relief against them, because those orders were not under appeal. Its ruling addressed whether they could provide a lawful foundation for the PCIT’s revision directions.
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